Marketing Plan of Liwayway Marketing Corporation by mep96543

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									                                                 COVER SHEET


                                                                                       9 1 7 0
                                                                                                SEC Registration Number

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

 S U B S I D I A R I E S




                                                    (Company’s Full Name)

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

 a n ,              Q u e z o n            C i t y




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

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


 0 9         3 0                                       1 7 - A
Month         Day                                         (Form Type)                                          Month           Day
    (Fiscal Year)                                                                                               (Annual Meeting)



                                             (Secondary License Type, If Applicable)



Dept. Requiring this Doc.                                                                     Amended Articles Number/Section

                                                                                                Total Amount of Borrowings


Total No. of Stockholders                                                                     Domestic               Foreign


                                        To be accomplished by SEC Personnel concerned



              File Number                                   LCU



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                                                                             Remarks: Please use BLACK ink for scanning purposes.
                         SECURITIES AND EXCHANGE COMMISSION

                                          SEC FORM 17-A

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



1. For the fiscal year ended    September 30, 2006

2. SEC Identification Number 9170

3. BIR Tax Identification No. 000-400-016-000

4. Exact name of issuer as specified in its charter Universal Robina Corporation

5. Quezon City, Philippines
   Province, Country or other jurisdiction of incorporation or organization

6. Industry Classification Code:                  (SEC Use Only)

7. 110 E. Rodriguez Ave., Bagumbayan, Quezon City                         1110
   Address of principal office                                            Postal Code

8. 671-2935;635-0751;671-3954
   Issuer's telephone number, including area code

9. Not Applicable
   Former name, former address, and former fiscal year, if changed since last report.

10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA

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

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

11. Are any or all of these securities listed on the Philippine Stock Exchange.

        Yes [ / ]                No [ ]
12. Check whether the issuer:

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

        Yes [ / ]                No [ ]


    b) has been subject to such filing requirements for the past ninety (90) days.

        Yes [ / ]                No [ ]

13. State the aggregate market value of the voting stock held by non-affiliates of the registrant.

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



                     APPLICABLE ONLY TO ISSUERS INVOLVED IN
                INSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS
                        DURING THE PRECEDING FIVE YEARS:


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

    Not Applicable



                       DOCUMENTS INCORPORATED BY REFERENCE


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

    a) Any annual report to security holders;                      None

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

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



                                                                    Page No.

PART I - BUSINESS AND GENERAL INFORMATION
Item 1       Business                                                  1
Item 2       Properties                                                11
Item 3       Legal Proceedings                                         12
Item 4       Submission of Matters to a Vote of Security Holders       12

PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5       Market for Registrant’s Common Equity and
             Related Stockholder Matters                               13
Item 6       Management’s Discussion and Analysis or
             Plan of Operation                                         14
Item 7       Financial Statements                                      28
Item 8       Changes in and Disagreements with Accountants and
             Financial Disclosure                                      28

Item 9       Independent Public Accountant and Audit Related Fees      28

PART III - CONTROL AND COMPENSATION INFORMATION
Item 10      Directors and Executive Officers of the Registrant        29
Item 11      Executive Compensation                                    34
Item 12      Security Ownership of Certain Beneficial Owners
             and Management                                            35
Item 13      Certain Relationships and Related Transactions            36

PART IV - CORPORATE GOVERNANCE
Item 14      Corporate Governance                                      36

PART V - EXHIBITS AND SCHEDULES
Item 15      (a) Exhibits                                              36
             (b) Reports on SEC Form 17-C (Current Report)             36

SIGNATURES                                                             38

INDEX TO FINANCIAL STATEMENTS AND
   SUPPLEMENTARY SCHEDULES                                             40

INDEX TO EXHIBITS                                                      138
                 PART I – BUSINESS AND GENERAL INFORMATION



Item 1.     Business

Universal Robina Corporation (URC) is one of the largest branded food product companies in the
Philippines and has a growing presence in other Asian markets. It was founded in 1954 when Mr.
John Gokongwei, Jr. established Universal Corn Products, Inc., a cornstarch manufacturing plant in
Pasig. The Company is involved in a wide range of food-related businesses, including the
manufacture and distribution of branded consumer foods, production of hogs and day-old chicks,
manufacture of animal and fish feeds, glucose and veterinary compounds, flour milling, and sugar
milling and refining. The Company is the market leader in snack foods, candies, chocolates, biscuits,
day-old chicks, and fish feeds.

No material reclassifications, merger, consolidation, or purchase or sale of significant amount of assets
(not ordinary) were made in the past three years. The Company’s financial condition has remained
solid in the said period.

The Company operates its food business through operating divisions and wholly owned or majority-
owned subsidiaries that are organized into three core business segments: branded consumer foods,
agro-industrial products and commodity food products.

Branded consumer foods (BCF), including our packaging division, is the Company’s largest segment
contributing about 75.6% of revenues for the fiscal year ended September 30, 2006. Established in the
1960s, the Company’s branded consumer foods division manufactures and distributes a diverse mix of
snack, chocolate, candy, biscuit, bakery, beverage, noodles and tomato-based products. The
manufacture, distribution, sales and marketing activities for the Company’s consumer food products
are carried out mainly through the Company’s branded consumer foods group consisting of snack
foods, beverage and grocery divisions, although the Company conducts some of its branded consumer
foods operations through its wholly-owned or majority-owned subsidiaries and joint venture
companies (i.e. Hunt-URC and Nissin-URC). The Company established URC-Packaging Division to
engage in the manufacture of polypropylene films for packaging companies. The bi-axially oriented
polypropylene plant (BOPP), located in Batangas, began commercial operation in June 1998. URC
also formed Food Service and Industrial Division that supply BCF products in bulk to certain
institutions like hotels, restaurants, and schools. In 2006, the company introduced carbonated and
functional drinks( energy drink and fitness water) and operates PET bottle manufacturing plant to
supply the packaging requirements of products in PET bottle format.

The majority of the Company’s branded consumer foods business is conducted in the Philippines. In
2000, the Company began to expand its BCF business more aggressively into other Asian markets,
primarily through its subsidiary, URC International and its subsidiaries in China: Tianjin Pacific Foods
Co. Ltd., Shanghai Peggy Foods Co. Ltd., Xiamen-Tongan Pacific Foods Co. Ltd., Panyu Peggy
Foods Co. Ltd. and URC Hongkong Co. Ltd. (formerly Hongkong Peggy Snack Foods Co. Ltd.); in
Malaysia: URC Snack Foods (Malaysia) Sdn. Bhd. (formerly Pacific World Sdn. Bhd.) and Ricellent
Sdn. Bhd.; in Thailand: URC (Thailand) Co. Ltd. (formerly Thai Peggy Foods Co. Ltd.); in
Singapore: URC Foods (Singapore) Pte. Ltd. (formerly Pan Pacific Snacks Pte. Ltd.) and in 2002, in
Indonesia: PT URC Indonesia. In 2006, the Company started operations in Vietnam through its
subsidiary URC Vietnam Company Ltd. The Asian operations contributed about 22.1% of the
Company’s revenues for the fiscal year ended September 30, 2006.
                                                -2-

The Company has a strong brand portfolio created and supported through continuous product
innovation, extensive marketing and experienced management. Its brands are household names in the
Philippines and a growing number of consumers across Asia are purchasing the Company’s branded
consumer food products.

The Company’s agro-industrial products segment operates three divisions, which engage in hog and
poultry farming (Robina Farms or “RF”), the manufacture and distribution of animal feeds, glucose
and soya products (Universal Corn Products or “UCP”), and the production and distribution of animal
health products (Robichem). This segment contributed approximately 14.4% of the net sales and
services in fiscal year 2006.

The Company’s commodity food products segment engages in sugar milling and refining through its
Sugar divisions URSUMCO, CARSUMCO and SONEDCO, and flour milling and pasta
manufacturing through URC Flour division. In fiscal 2006, the segment contributed approximately
10.0% of aggregate net sales and services.

The Company is a core subsidiary of JG Summit Holdings, Inc. (JGSHI), one of the largest
conglomerates listed in the Philippine Stock Exchange based on total net sales. JGSHI has substantial
interests in property development, hotel management, textiles, banking and financial services,
telecommunications, petrochemicals, air transportation and business interests in other sectors,
including power generation, printing, and insurance.

The percentage contribution to the Company’s revenues for each of the three years in the period ended
September 30, 2004, 2005 and 2006 by each of the Company’s principal business segments is as
follows:

                                                    For the fiscal years ended September 30
                                                     2004             2005           2006
Branded Consumer Foods                               75.5%            76.2%          75.6%
Agro-Industrial Products                             13.4             13.5           14.4
Commodity Food Products                              11.1             10.3           10.0
                                                    100.0%           100.0%         100.0%

The geographic percentage distribution of the Company’s revenues for each of the three years in the
period ended September 30, 2004, 2005 and 2006 is as follows:

                                                    For the fiscal years ended September 30
                                                     2004             2005           2006
Philippines                                          77.7%            77.6%          77.9%
ASEAN                                                21.0             20.9           19.1
China                                                 1.3              1.5            3.0
                                                    100.0%           100.0%         100.0%
                                                   -3-

Customers

None of the Company’s businesses is dependent upon a single customer or a few customers that a loss
of anyone of them would have a material adverse effect on the Company. The Company has no single
customer that is based upon existing orders will account for 20.0% or more of the Company’s total
sales.

Distribution, Sales and Marketing

The Company has developed an effective nationwide distribution chain and sales network that it
believes provide its competitive advantage. The Company sells its branded food products primarily to
supermarkets, as well as directly to top wholesalers, large convenience stores and two types of sub-
distributors, large scale trading companies and independent business managers which in turn sell its
products to other small retailers and down line markets through the Company’s Grandslam Program,
an innovative distribution scheme for downscale accounts, which enabled URC Philippines to solidify
its presence in sari-sari stores and groceries, effectively locking out competitors in the consumer foods
segment in the Philippines. The Company’s branded consumer food products are distributed to
approximately 114,000 outlets in the Philippines and sold through its direct sales force, regional
distributors and independent business managers. URC intends to enlarge its distribution network
coverage in the Philippines by increasing the number of retail outlets that its regional sales force and
distributors directly service. By deploying larger and financially stronger regional distributors over the
next two years, URC plans to increase the number of outlets serviced directly from 114,000 accounts
being serviced as of fiscal year 2006 to 120,000 accounts . URC also plans to increase the product
focus of its distribution network by ensuring that relevant products are targeted towards appropriate
retail outlets.

The branded consumer food products are generally sold by the Company either direct from delivery
vans to small retail outlets or by traveling salesman to wholesalers or supermarkets, and regional
distributors with delivery subsequently being undertaken by third party road carriers. Direct delivery
sales are normally made on cash basis, while 15- to 30- day credit terms are extended to wholesalers,
supermarkets and regional distributors.

The Company believes that its emphasis on marketing, product innovation and quality, and strong
brand equity has played a key role in its success in achieving leading market shares in the different
categories where it competes . In particular, URC launched Jack and Jill as a master umbrella brand
in order to enhance customer recognition of its products. URC devotes significant expenditures to
support advertising and branding to differentiate its products and further expand market share both in
the Philippines and in its overseas markets, including funding for advertising campaigns such as
television commercials and radio and print advertisements, as well as promotions for new product
launches by spending on average 8% of its branded consumer food division’s net sales per year.

Competition

The BCF business is highly competitive and competition varies by country, product category and
segment. The Company believes that the principal competitive factors include price, taste, quality,
convenience, brand recognition and awareness, advertising and marketing, availability of products and
ability to get its product widely distributed. Generally, the Company faces competition from both
local and multinational companies in all of its markets. Major competitors in the market segments in
which it competes include, in the Philippines, Liwayway Manufacturing Corp., Columbia Foods
                                                   -4-

International, General Milling Corporation, Republic Biscuit Corporation, Suncrest Foods Inc., Del
Monte Phil. Inc., and Monde Nissin Corporation, Nestle Philippines Inc., San Miguel Pure Foods
Company Inc. and Kraft Foods Inc., and internationally, Procter & Gamble, Effem Foods/Mars Inc.,
Lotte Group, Perfetti Van Melle Group, Mayora Inda PT, Calbee Group, Apollo Food, Frito-Lay,
Nestlé S.A., Cadbury Schweppes plc, Groupe Danone S.A. and Kraft Foods International.

Competition in the Philippine food and beverage industry is expected to increase in the future with
increased liberalization of trade by the Philippine government and the predicted accompanying growth
in imports due to the World Trade Organization (WTO) and ASEAN Free Trade Area (AFTA). Under
the WTO, tariff rates on food and agricultural items are being decreased and import quotas are being
eliminated among member countries, including the Philippines. AFTA is a free trade area formed by
10 southeast asian countries, including the Philippines. Under the AFTA, tariffs on manufactured
goods, including processed agricultural products, are being minimized or eliminated over a 15-year
period starting from January 1, 1993, and non-tariff barriers will be subsequently phased out.

The day-old chicks market is cyclical, very competitive and principally domestic. The Company
believes that the principal competitive factors are chick quality, supply dependability, price, low
mortality rates, feed conversion efficiency and growth rates for broiler chicks. For layer chicks,
competitive factors are productivity and disease resistance. The Company’s principal competitors are
STS Corp. and Math Agro for broiler chicks and Bounty Farms, Inc. for layer chicks.

The live hog market is highly fragmented, competitive and principally domestic. The Company
believes that the principal competitive factors are quality, reliability of supply, price and proximity to
market. The Company’s principal competitors are San Miguel Corp. (Monterey ) and Foremost
Farms, Inc. The main competition is from backyard raisers who supply 70%-80% of the total pork
requirement in the country. If tariffs are reduced, the Company believes that there will be minimal
competition from imported pork because prices of imported pigs are significantly higher as a result of
higher feed costs in their countries of origin.

The commercial animal feed market is highly fragmented and its products compete primarily with
domestic feed producers. As of September 30, 2006, there were 350 registered feed mills in the
Philippines, 50% of which sell commercial feeds. URC believes the principal competitive factors are
quality and price. The Company’s principal competitors are B-Meg and Purina Philippines, Inc. A
number of multinationals including Pigrolac, CJ and Sun Jun of Korea, are also key players in the
market.

The animal health products market is highly competitive. The market is dominated by multinationals
and the Company is one of only a few Philippine companies in this market. The Company’s principal
competitors are Pfizer, Inc., Univet Pharmaceuticals Ltd., and Merial Limited, a company jointly
owned by Merk and Co., Inc. and Aventis. S.A. The Company believes that the principal competitive
factors are price, product effectiveness, quality and veterinary services.

Enhancement and development of New Products

The Company intends to continuously introduce innovative new products, product variants and line
extensions in the snackfoods (snacks, biscuits, candies, chocolates and bakery), beverage and grocery
(instant noodles, tomato-based) segments. This fiscal year alone, the Company’s Branded Consumer
Foods has introduced 81 new products.
                                                  -5-

The Company also plans to selectively enter and expand its presence in segments of the Philippine
beverage market through the addition of branded beverage products designed to capture market share
in niches that complement its existing branded snack food product lines. In fiscal year 2006, the
Company has launched carbonated and functional drinks ( energy and fitness water). Moving forward,
 the Company aims to grow further with the expansion of its tea-based line and introduction of RTD
juice in PET bottle format.

Raw Materials

A wide variety of raw materials are required in the manufacture of the Company’s food products,
including corn, wheat, flour, sugar, glucose and potatoes, some of which are purchased domestically
and some of which the Company imports. The Company imports all of its wheat supplies and
substantially all of its palm oil and flavors and a large portion of its milk. For its international
operations, the Company primarily imports potatoes and flavors. The Company also obtains a major
portion of its raw materials from its agro-industrial and commodity food products divisions, such as
glucose, flour and sugar. Flexible packaging materials are purchased both locally and from abroad
(Korea and Japan), while Tetra-pak packaging is purchased from Singapore. The Company’s policy is
to maintain a number of suppliers for its raw and packaging materials to ensure a steady supply of
quality materials at competitive prices. However, the prices paid for raw materials generally reflect
external factors such as weather conditions, commodity market fluctuations, currency fluctuations and
the effects of government agricultural programmes. In the past year, the Company has experienced
higher prices for certain core raw materials including wheat and cooking oils. While the Company has
increased the prices of certain products to reflect the increased price of raw materials, it has not been
able to pass through the full extent of such increases. In response to these developments, the
Company realigned its resources to improve its operational efficiencies. This strategy includes
manufacturing its products in countries where the raw materials are available at the lowest cost.

For its day-old chicks business, the Company requires a number of raw materials, including parent
stock for its layer chicks, grandparent stock for its broiler chicks and medicines and other nutritional
products. The Company purchases the parent stock for its layer chicks from Hubbard ISA SAS in
Canada and from Hy-Line International in the United States under exclusive distribution agreements
for the Philippines. The Company purchases the grandparent stock for its broiler chicks from Hubbard
ISA SAS in France under an exclusive distribution agreement for the Philippines. The Company
purchases a significant amount of the vitamins, minerals, antibiotics and other medications and
nutritional products used for its day-old chicks business from its Robichem division. The Company
purchases vaccines from various suppliers, including Merial, Intervet Philippines, Inc. and Boehringer
Ingelheim GmbH.

For its live hog business, the Company requires a variety of raw materials, primarily imported
breeding stocks. The Company purchases all of the feeds it requires from its Universal Corn Products
division and substantially all of the minerals and antibiotics for its hogs from its Robichem division.
The Company purchases vaccines, medications and nutritional products from a variety of suppliers
based on the strengths of their products. Ample water supply is also available in its farms locations.
The Company maintains approximately one month of inventory of its key raw materials.

For its animal health products, the Company requires a variety of antibiotics and vitamins, which it
acquires from suppliers in Europe and China. URC maintains approximately 90 days of inventory. For
its commercial animal feed products, the Company requires a variety of raw materials, including corn,
soya bean products, wheat, bran and pollard and fish meal. Starch and soya bean seeds, on the other
                                                   -6-

hand, are required for its liquid glucose and soya bean products, respectively. The Company
purchases corn locally from corn traders and internationally from suppliers in China and the United
States. The Company imports soya bean seeds from suppliers in the United States. For its liquid
glucose, the Company also requires solvents. The Company imports starch from a number of
suppliers, primarily in Vietnam and Thailand. The Company purchases solvents for use in the
manufacture of its soya products locally from Shell Chemicals Philippines, Inc. and Exxon-Mobil
Petroleum & Chemical Holdings Inc. The Company maintains approximately two months’ physical
inventory and one month’s in-transit inventory for its imported raw materials and approximately one
month’s inventory for its local raw materials.

The Company obtains sugar cane from local farmers. Competition for sugar cane supply is very
intense and is a critical success factor for its sugar business. Additional requirements for the sugar
cane milling process are either purchased locally or imported.

The Company generally purchases wheat, the principal raw material for its flour milling and pasta
business, through forward contracts from suppliers in the United States and Canada.

The Company maintains a number of suppliers for its raw materials to ensure a steady supply of
quality materials at competitive prices. The Company believes that alternative sources of supplies of
the raw materials that it uses are readily available. The Company’s policy is to maintain
approximately 30 to 45 days of inventory.

Patents, Trademarks, Licenses, Franchises, Concessions or Labor Contract

Intellectual property licences are subject to the provisions of the Philippine Intellectual Property Code.
The Company owns a substantial number of trademarks registered with the Bureau of Trademarks of
the Philippine Intellectual Property Office. In addition, certain of its trademarks have been registered
in other Asian countries in which it operates. These trademarks are important in the aggregate because
brand name recognition is a key factor in the success of many of the Company’s product lines. In the
Philippines, the Company’s licensing agreements are registered with the Philippine Intellectual
Property Office. The former Technology Transfer Registry of the Bureau of Patents, Trademarks and
Technology Transfer Office issued the relevant certificates of registration for licensing agreements
entered into by URC prior to January 1998. These certificates are valid for a 10-year period from the
time of issuance which period may be terminated earlier or renewed for 10-year periods thereafter.
After the Intellectual Property Code of the Philippines (R.A. No. 8293) became effective in January
1998, technology transfer agreements, as a general rule, are no longer required to be registered with
the Documentation, Information and Technology Transfer Bureau of the Intellectual Property Office,
but the licensee may apply to the Intellectual Property Office for a certificate of compliance with the
Intellectual Property Code to confirm that the licensing agreement is consistent with the provisions of
the Intellectual Property Code. In the event that the licensing agreement is found by the Intellectual
Property Office to be not in compliance with the Intellectual Property Code, the licensor may obtain
from the Intellectual Property Office a certificate of exemption from compliance with the cited
provision.


The Company also uses brand names under licences from third parties. These licensing arrangements
are generally renewable based on mutual agreement. The Company’s licensed brands include:

Swiss Miss milk shakes and cocoa mix for sale in the Philippines;
                                                 -7-

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

URC has obtained from the Intellectual Property Office certificates of registration for its licensing
agreements with Nissin-URC and Hunt-URC. The Company was also able to renew both its licenses
for another term.

Regulatory Overview

As manufacturer of consumer food and commodity food (flour) products, the Company is required to
guarantee that the products are pure and safe for human consumption, and that the Company conforms
to standards and quality measures prescribed by the Bureau of Food and Drug.

The Company’s sugar mills are licensed to operate by the Sugar Regulatory Administration. The
Company renews its sugar milling licenses at the start of every crop year.

All of the Company’s feed products have been registered with and approved by the Bureau of Animal
Industry, an agency of the Department of Agriculture which prescribes standards, conducts quality
control test of feed samples, and provides technical assistance to farmers and feed millers.

Some of the Company’s projects, such as the sugar mill and refinery and poultry and hog farm
operations, certain snacks products , BOPP packaging , Flexible packaging and PET bottle
manufacturing , are registered with the Board of Investments (BOI) which allows the Company certain
fiscal incentives.

Effects of Existing or Probable Governmental Regulations on the Business

The Company operates its businesses in a highly regulated environment. These businesses depend
upon licenses issued by government authorities or agencies for their operations. The suspension or
revocation of such licenses could materially and adversely affect the operation of these businesses.

Research and Development

The Company develops new products and variants of existing product lines, researches new processes
and tests new equipment on a regular basis in order to maintain and improve the quality of the
                                                                     =
Company’s food products. In the Philippine operations alone, about P29.3 million was spent for
                                                                           =                   =
research and development activities for fiscal year 2006 and approximately P 16.2 million and P14.1
million for fiscal years 2005 and 2004, respectively.

The Company has research and development staff for its branded consumer foods and packaging
divisions of approximately 98 people located in its research and development facility in Metro
Manila. The Company also has research and development staff in each of its manufacturing facilities.
In addition, the Company hires experts from all over the world to assist its research and development
staff. The Company conducts extensive research and development for new products, line extensions
for existing products and for improved production, quality control and packaging as well as
customising products to meet the local needs and tastes in the international markets. The Company’s
commodity foods division also utilises this research and development facility to improve their
                                                                      -8-

production and quality control. The Company also strives to capitalise on its existing joint ventures to
effect technology transfers.

The Company has dedicated research and development staff for its agro-industrial business of
approximately fifteen persons. Its researchers are continually exploring advancements in breeding and
farming technology. The Company regularly conducts market research and farm-test all of its
products.

The Company also has a diagnostic laboratory that enables it to perform its own serology tests. The
Company offers its laboratory services directly to other commercial farms and Robichem provides
certain of its laboratory services at a minimal cost as a service to some of its customers.

Transactions with Related Parties

The largest shareholders, JG Summit Holdings, Inc., is one of the largest conglomerates listed on the
Philippine Stock Exchange based on total net sales. JG Summit provides the Company with certain
corporate center services including corporate finance, corporate planning, procurement, human
resources, legal and corporate communications. JG Summit also provides the Company with valuable
market expertise in the Philippines as well as intra-group synergies. See Note 19 to Consolidated
Financial Statements for transactions with other affiliates.

Costs and Effects of Compliance with Environmental Laws

The operations of the Company are subject to various laws enacted for the protection of the
environment, including the Pollution Control Law (R.A. No. 3931, as amended by P.D. 984), the Solid
Waste Management Act (R.A. No. 9003), the Clean Air Act (R.A. No. 8749), the Environmental
Impact Statement System (P.D. 1586) and the Laguna Lake Development Authority (LLDA) Act of
1966 (R.A. No. 4850). The Company believes that it has complied with all applicable environmental
laws and regulations, an example of which is the installation of wastewater treatments in its various
facilities. Compliance with such laws has not had, and in the Company’s opinion, is not expected to
have, a material effect upon the Company’s capital expenditures, earnings or competitive position. As
                                                          =
of September 30, 2006, the Company has invested about P333.3 million in wastewater treatment in its
facilities in the Philippines.

Employees and Labor

As of September 30, 2006, the number of permanent full time employees engaged in the Company’s
respective businesses is 8,435 and are deployed as follows:
Business                                               Company or Division                        Number
Branded consumer foods . . . . . . . . . . .           BCF, Nissin-URC, Hunt-URC                   5,938
                                                       Packaging Division, URC Hotloops, URCICL
Agro-industrial products
  Agribusiness . . . . . . . . . . . . . . . . . . .   Robina Farms                                  894
    Livestock feeds, corn
         products, & vegetable oil . . .               UCP                                           315
    Veterinary compounds . . . . .                     Robichem                                      100
Commodity food products
    Sugar . . . . . . . . . . . . . . . . .            URSUMCO, SONEDCO, CARSUMCO                    891
    Flour . . . . . . . . . . . . . . . . . . .        CMC                                           297
                                                                                                   8,435
                                                  -9-


Of the above, 2,048 are managerial and administrative staff. As at the same date, approximately 7,356
contractual and agency employees are engaged in the Company’s businesses. The Company does not
anticipate any substantial increase in the number of its employees in 2006.

For most of the companies and operating divisions, collective bargaining agreements between the
relevant representatives of the employees’ union and the subsidiary or divisions are in effect. The
collective bargaining agreements generally cover a five-year term with a right to renegotiate the
economic provisions of the agreement after three years, and contain provisions for annual salary
increases, health and insurance benefits, and closed-shop arrangements. The collective bargaining
agreements are with 19 different unions. For fiscal 2006, six collective bargaining agreements were
signed and concluded with the labor unions which are as follows: URC Administration union, URC
Pampanga union , URC Canlubang union, Consolidated Workers union , Robina Farms – Antipolo
union and CMC Dailies union.

The Company believes that good labor relations generally exist throughout the Company’s
subsidiaries and operating divisions.

The Company has established non-contributory retirement plan covering all of the regular employees
of URC. The plan provides retirement, separation, disability and death benefits to its members. The
Company, however, reserves the right to change the rate and amounts of its contribution at anytime on
account of business necessity or adverse economic conditions. The funds of the plan are administered
and managed by the trustees. Retirement cost (gain) charged (credited) to operations, including
                                                 =                                      =
amortization of past service cost, amounted to ( P55.7) million in fiscal year 2006 and P54.7 million in
fiscal year 2005.

Risks

The major business risks facing the Company and its subsidiaries are as follows:

1) Competition

The Company and its subsidiaries face competition in all segments of its businesses both in the
Philippine market and in international markets where it operates. The Philippine food industry in
general is highly competitive. Although the degree of competition and principal competitive factors
vary among the different food industry segments in which the Company participates, the Company
believes that the principal competitive factors include price, product quality, brand awareness and
loyalty, distribution network, proximity of distribution outlets to customers, product variations and
new product introductions. (See page 3, Competition, for more details)

The Company’s ability to compete effectively includes continuous efforts in sales and marketing of its
existing products, development of new products and cost rationalization.

2) Financial Market

The Company has foreign exchange exposure primarily associated with fluctuations in the value of the
Peso against the U.S. dollar and other foreign currencies. The substantial majority of the Company’s
revenues are denominated in Pesos, while certain of its expenses, including debt service and raw
material costs, are denominated in U.S. dollars or based on prices determined in U.S. dollars. In
                                                   - 10 -

addition, the majority of the Company’s debt is denominated in foreign currencies. Prudent fund
management is employed to minimize effects of fluctuations in interest and currency rates.

3) Raw Materials

The Company’s production operations depend upon obtaining adequate supplies of raw materials on a
timely basis. In addition, its profitability depends in part on the prices of raw materials since a portion
of the Company’s raw material requirements are imported including packaging materials. To mitigate
these risks, alternative sources of raw materials are used in the Company’s operations. (See page 5,
Raw Materials, for more details)

4) Food Safety Concerns

The Company’s business could be adversely affected by the actual or alleged contamination or
deterioration of certain of its flagship products, or of similar products produced by third parties. A
risk of contamination or deterioration of its food products exists at each stage of the production cycle,
including the purchase and delivery of food raw materials, the processing and packaging of food
products, the stocking and delivery of the finished products to its customers, and the storage and
display of finished products at the points of final sale. The Company conducts extensive research and
development for new products, line extensions, for existing products and for improved production,
quality control and packaging as well as customizing products to meet the local needs and tastes in the
international markets for its food business. For its agro-industrial business, its researchers are
continually exploring advancements in breeding and farming technology. The Company regularly
conducts market research and farm-test all of its products. Moreover, the Company ensures that the
products are safe for human consumption, and that the Company conforms to standards and quality
measures prescribed by regulatory bodies such as Bureau of Food and Drug, Sugar Regulatory
Administration, Bureau of Animal Industry, and Department of Agriculture.

5) Mortalities

The Company’s agro-industrial business is subject to risks of outbreaks of various diseases. The
Company faces the risk of outbreaks of hoof-and mouth disease, which is highly contagious and
destructive to susceptible livestock such as hogs and avian influenza or bird flu for its chicken farming
business. These diseases and many other types could result to mortality losses. Disease control
measures were adopted by the Company to minimize and manage this risk.

6) Intellectual Property Rights

Approximately 76% of the Company’s net sales and services in fiscal year 2006 were from its branded
consumer food group. The Company has put considerable efforts to protect the portfolio of
intellectual property rights, including through trademark registrations. Security measures are
continuously taken to protect its patents, licenses and proprietary formulae against infringement and
misappropriation.
                                                 - 11 -

7) Weather and Catastrophe

Severe weather condition may have an impact on some aspects of the Company’s business, such as its
sugar cane milling operations due to reduced availability of sugar cane. Weather condition may also
affect the Company’s ability to obtain raw materials and the cost of those raw materials. Moreover,
Philippines has experienced a number of major natural catastrophes over the years including typhoons,
droughts, volcanic eruptions, and earthquakes. The Company and its subsidiaries continually maintain
sufficient inventory level to neutralize any shortfall of raw materials from major suppliers whether
local or imported.

8) Environmental Laws and Other Regulations

The Company is subject to numerous environmental laws and regulations relating to the protection of
the environment and human health and safety, among others. The nature of the Company’s operations
will continue to subject it to increasingly stringent environmental laws and regulations that may
increase the costs of operating its facilities above currently projected levels and may require future
capital expenditures. The Company is continually complying with environmental laws and
regulations, such as the wastewater treatment plants as required by the Department of Environment
and Natural Resources, to lessen the effect of these risks.

The Company shall continue to adopt what it considers conservative financial and operational policies
and controls to manage the various business risks it faces.


Item 2.      Properties

The Company operates the following manufacturing/farm facilities located in the following:


  Location (Number of facilities)            Type of Facility            Owned/Rented   Condition
Pasig City (4)                         Branded consumer food                Owned          Good
                                       plants, feedmills and flourmill
Libis, Quezon City (1)                 Branded consumer food plant          Owned          Good
Canlubang, Laguna (1)                  Branded consumer food plant          Owned          Good
Mandaue City, Cebu (2)                 Branded consumer food plant,         Owned          Good
                                       poultry farm and feedmill
Luisita, Tarlac (1)                    Branded consumer food plant          Owned          Good
Davao City, Davao (3)                  Branded consumer food plant          Owned          Good
                                       (idle) and flourmill
San Fernando, Pampanga (2)             Branded consumer food plants         Owned          Good
Dasmariñas, Cavite (2)                 Branded consumer food plants         Owned          Good
Cagayan de Oro (1)                     Branded consumer food plant          Owned          Good
Antipolo, Rizal (3)                    Poultry, veterinary medicine         Rented         Good
                                       plant and piggery farms
Taytay, Rizal                          Poultry farm                         Rented         Good
Teresa, Rizal (3)                      Poultry and piggery farms            Owned          Good
Angono, Rizal (1)                      Poultry farm                         Owned          Good
San Miguel, Bulacan (3)                Poultry and piggery farms            Owned          Good
Novaliches, Quezon City (1)            Piggery farm                         Owned          Good
                                                 - 12 -


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

San Juan, Batangas                      Piggery farm                  Owned                  Good
Manjuyod, Negros Oriental (1)           Sugar mill                          Owned           Good
Piat, Cagayan (1)                       Sugar mill                          Owned           Good
Kabankalan, Negros Occidental (2)       Sugar mill                          Owned           Good
Simlong, Batangas (1)                   BOPP plant                          Owned           Good
Calamba, Laguna (1)                     Branded consumer food plant         Rented          Good
Bukidnon (1)                            White Potato Project                Owned         Good (Idle)
Samutsakhorn Industrial Estate,         Branded consumer food plant         Owned           Good
     Samutsakhorn, Thailand (1)
Pasir Gudang, Johor, Malaysia (1)       Branded consumer food plant         Owned           Good
Shiqiao Town, Guandong, China (1)       Branded consumer food plant         Owned           Good
Xiamen, Fujian, China (1)               Branded consumer food plant         Owned         Good (Idle)
Tianjin Economic Development Area,      Branded consumer food plant         Owned         Good (Idle)
Tianjin, China (1)
Shanghai, China (1)                     Branded consumer food plant         Owned            Good
Industrial Town, Indonesia (1)          Branded consumer food plant         Owned            Good
VSIP, Bin Duong Province,               Branded consumer food plant         Owned            Good
     Vietnam (1)

The Company intends to expand the production and distribution of the branded consumer food
products internationally through the addition of manufacturing facilities located in geographically
desirable areas, especially in the ASEAN countries, the realignment of the production to take
advantage of markets that are more efficient for production and sourcing of raw materials, and
increased focus and support for exports to other markets from the manufacturing facilities. It also
intends to enter into alliances with local raw material suppliers and distributors.

                                                                              =
Sugar mill facilities in Kabankalan, Negros Occidental with net book value of P 97.3 million in fiscal
2006 and 2005, were used to secure the loan from Philippine Sugar Corporation. (See Note 18, Long-
term Debt, to the Consolidated Financial Statements for more details)

                                                                        =
Annual lease payment for Calamba plant for fiscal year 2006 amounted to P 18.5 million pesos. Lease
contract is renewable annually. Land in Taytay, Rizal and Antipolo, Rizal where farm’s facilities
are located , are owned by an affiliate and are rent-free.


Item 3.     Legal Proceedings

The Company is subject to lawsuits and legal actions in the ordinary course of its business. The
Company or any of its subsidiaries is not a party to, and its properties are not the subject of, any
material pending legal proceedings that could be expected to have a material adverse effect on the
Company’s financial position or results of operations.


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

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal
year covered by this report
                                                  - 13 -


                 PART II - OPERATIONAL AND FINANCIAL INFORMATION

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

Market Information

The principal market for URC’s common equity is the Philippine Stock Exchange. Sales prices of the
common stock follow:
                                                                    High           Low
        Fiscal Year 2006
            Oct. to Dec. 2005                                     P19.50
                                                                  =             =
                                                                                P15.75
            Jan. to Mar. 2006                                       20.75         17.25
            Apr. to Jun. 2006                                       23.75         17.25
            Jul. to Sep. 2006                                       20.25         17.05
          Fiscal Year 2005
              Oct. to Dec. 2004                                        =
                                                                       P10.00            P9.10
                                                                                         =
              Jan. to Mar. 2005                                          12.75             9.30
              Apr. to Jun. 2005                                          17.25           12.00
              Jul. to Sep. 2005                                          17.75           15.75

As of January 10, 2007, the latest trading date prior to the completion of this annual report, sales
                                 =            =
prices of the common stock is at P 19.00 and P 18.50, respectively, for high and low.

The number of shareholders of record as of September 30, 2006 was approximately 1,294. Common
shares outstanding as of September 30, 2006 were 2,221,851,481.

List of Top 20 Stockholders of Record
September 30, 2006


                                                                         Number of      Percent to Total
                     Name of Stockholders                               Shares Held        Outstanding
JG Summit Holdings, Inc.                                              1,314,435,609            59.16%
PCD Nominee Corporation (Non-Filipino)                                  831,000,506            37.40
PCD Nominee Corporation ( Filipino)                                      61,075,027              2.75
Elizabeth Y. Gokongwei &/or John Gokongwei, Jr                            2,479,400              0.11
Litton Mills, Inc. .                                                      2,237,434              0.10
Marcia Gokongwei Sy &/or Elizabeth Gokongwei                                575,000              0.03
Hope Gokongwei Tang &/or Elizabeth Gokongwei                                575,000              0.03
Faith Gokongwei Ong &/or Elizabeth Gokongwei                                575,000              0.03
Lisa Yu. Gokongwei &/or Elizabeth Gokongwei                                 575,000              0.03
Robina Gokongwei Pe &/or Elizabeth Gokongwei                                575,000              0.03
Flora Ng Siu Kheng                                                          379,500              0.02
Eng Si Co Lim                                                               345,000              0.02
Consolidated Robina Capital Corporation                                     253,000              0.01
                                                 - 14 -


                                                                        Number of     Percent to Total
                     Name of Stockholders                              Shares Held       Outstanding

Gilbert U. Du &/or Fe Socorro R. Du                                        188,485              0.01
Cely C. Reaport &/or Senen C. Reaport                                      151,800              0.01
Lily Christina G. Ngochua                                                  151,800              0.01
Pan Malayan Management & Investment Corporation                            142,692              0.01
Pua Yok Bing                                                               142,485              0.01
JG Summit Capital Services Corporation                                     127,765              0.01
Shipside, Inc.                                                             126,500              0.01
Calvin Chua                                                                126,500              0.01
Eloisa Tantuco                                                             121,440              0.01
Catalino S. Ngochua                                                         86,020              0.00
Pablo Son Keng Po                                                           85,514              0.00
Pedro Sen                                                                   75,900              0.00
Phimco Industries Provident Fund                                            72,864              0.00

                                                                     2,216,680,241            99.77%


Recent Sales of Unregistered Securities

Not applicable. All shares of the Company are listed on the Philippine Stock Exchange.

Dividends

The Company paid dividends as follows:

For fiscal year 2006, stock dividends equivalent to 15% of total issued and outstanding shares was
declared to all stockholders of record as of January 14, 2006 and issued on February 7, 2006 and cash
             =
dividend of P0.54 per share was declared to all stockholders of record as of May 19, 2006 and paid
on June 15, 2006.

                                       =
For fiscal year 2005, cash dividend of P0.30 per share was declared to all stockholders of record as of
June 3, 2005 and paid on June 29, 2005.

                                       =
For fiscal year 2004, cash dividend of P0.30 per share was declared to all stockholders of record as of
June 20, 2004 and paid on July 14, 2004.


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

The following discussion should be read in conjunction with the accompanying consolidated financial
statements and notes thereto, which form part of this Report. The consolidated financial statements
and notes thereto have been prepared in accordance with the Philippine Financial Reporting Standards
(PFRS). The comparative figures for fiscal 2005 had been restated to reflect the changes in
accounting policies as a result of the transition to PFRS.
                                                 - 15 -


Results of Operations

Fiscal Year 2006 Compare to Fiscal Year 2005

                                                    =
URC posted a consolidated net sales and services of P35.2 billion for the fiscal year ended September
30, 2006, a 12.8% increase over the same period last year. The principal reasons for this increase
were as follows:

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

    ·   Net sales in URC’s agro-industrial segment amounted to P5.1 billion in fiscal 2006, an
        increase of P867.9 million or 20.6% from P 4.2 billion recorded in fiscal 2005. The increase
        was substantially driven by URC’s animal feeds business, which reported an increase in net
        sales of 40.9% to P 2.2 billion in fiscal 2006 from P1.6 billion recorded in fiscal 2005 as a
        result of higher sales volume of feeds. The major driver for the favorable result is the
        continuous success of its Uno and Stargain hog feeds in terms of market coverage and
        positive feedback on marketing undertakings to establish brand equity. Likewise, livestock
        business improved its revenue by 8.6% due to higher sales volume for both piggery and
        poultry products.

    ·   Net sales in URC’s commodity foods segment increased by P303.5 million, or 9.5%, to
        P3.5 billion in fiscal 2006 from P3.2 billion recorded in fiscal 2005. The principal reason was
        the increased net sales from URC’s sugar business by 24.9% due mainly to higher selling
        prices this year. Flour business increased by P130.1 million or 5.2% to P 2.6 billion in fiscal
        2006 from P 2.5 billion in fiscal 2005.

URC’s cost of sales and services consist primarily of raw and packaging materials costs, direct labor
costs and overhead. Costs of sales and services increased by P3.1 billion, or 13.1%, to P26.4 billion in
fiscal 2006 from P23.3 billion recorded in fiscal 2005. This increase was due mainly to higher costs
for major raw and packaging materials used in snacks, candies, chocolates, biscuits and flour
products, such as wheat , potatoes, coffee beans, and major raw materials for animal feeds such as
soya and for our BOPP films such as resin. The increased cost of raw materials reflected the general
increase in many commodity prices during this period while the increased cost of packaging materials
reflected the increased price of many oil-based products during this period.

URC’s gross profit increased by P932.3 million, or 11.8%, to P8.8 billion in fiscal 2006 from P7.9
billion recorded in fiscal 2005. URC’s gross profit as a percentage of net sales remains flat at 25% .

URC’s operating and other administrative expenses consist primarily of salaries, wages and other staff
costs, advertising and promotion costs, freight and other selling expenses, depreciation, repairs and
                                                - 16 -

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

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

    ·   increased advertising and promotion costs by 27.7% both from URC’s domestic and
        international operations due to new products launched this year and support for Jack and Jill
        Mega branding.

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

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

    ·   Income after operating and other administrative expenses in URC’s agro-industrial segment
        increased by P137.7 million or 26.5% to P656.6 million in fiscal 2006 from P518.9 million in
        fiscal 2005 due to improved sales volume of animal feeds business and favorable gross
        margin.

    ·   Income after operating and other administrative expenses in URC’s commodity foods
        segment increased by P64.4 million, or 6.7%, to P1.0 billion in fiscal 2006 from P954.7
        million in fiscal 2005 due to increased net sales of sugar which was principally driven by the
        increase in average selling price.

URC’s mark-to-market gain on financial instrument at fair value through profit and loss represents
increase in market value of investments in bonds and securities.

URC’s foreign exchange losses in fiscal 2006 represent losses on account of appreciation of
Philippine Pesos vis-a vis US dollar

URC’s investment income consists of investment in financial instrument and dividend income on
investment in equity securities. Investment income increased by 21.5% to P2.3 billion in fiscal 2006
from P1.9 billion in fiscal 2005. The increase was due in part to additional interest earned from
investing a significant portion of the proceeds of the primary offering of the Company’s common
shares on February 14, 2006. In addition, URC received higher dividends in fiscal 2006 from its
equity security investments.
                                                  - 17 -


URC’s principal investments accounted for under the equity method were: Hunt Universal Robina
Corporation (“Hunt-URC”) (its joint venture) and Robinsons Land Corporation. Equity in net earnings
of investees increased to P320.0 million in fiscal 2006 from P244.6 million recorded in fiscal 2005
due mainly to higher equity in net earnings from investment in Robinsons Land Corporation as a result
of higher income of Robinsons Land Corporation.

Finance costs consist mainly of interest expense which increased by 7.4%, to P2.3 billion in fiscal
2006 from P2.1 billion recorded in fiscal 2005 due primarily to the additional interest payable on the
U.S.$200 million guaranteed notes issued in January 2005 and bank loans obtained in fiscal 2006.

Impairment loss represents impairment of the goodwill allocated to China subsidiaries
amounting to P240.7 million.

Other income (charges )- net consists of , among others, loss on bond investments, severance pay
and other expenses. In fiscal 2006, URC had other charges -net of P156.0 million , lower by 36.8%
from P246.9 million other charges- net recorded fiscal 2005.

URC recognized a provision from income tax in fiscal 2006 of P382.4 million , a decrease of 22.5%
from P493.4 million in fiscal 2005. The decrease in provision for current income tax was mainly
due to lower taxable income resulting from availment of income tax holiday incentive by a certain
subsidiary. The decrease in provisioning for deferred income tax was due to lower unrealized foreign
exchange gain recognized.

Minority interest represents primarily the share in net loss (income) attributable to minority
shareholders of the following subsidiaries of URC: URC International, URC’s direct subsidiary in
which it holds approximately a 77.0% economic interest and Nissin-Universal Robina Corporation
(“Nissin-URC”), URC’s 65.0%-owned subsidiary. Minority interests in net loss of subsidiaries went
down from P124.6 million recorded in fiscal 2005 to P107.8 million in fiscal 2006 due to higher net
income of NUR which partially offset the increase in net loss of URC International.

Net income attributable to equity holders of the parent increased by P492.7 million, or 19.5%, to
P3.0 billion in fiscal 2006 from P2.5 billion in fiscal 2005 as a result of the factors discussed above.

URC generated an EBITDA (earnings before interest, taxes, depreciation and amortization) of P8.1
                                                          =
billion for the current fiscal year 2006, 18.1% more than P6.9 billion it had in fiscal year 2005.

The Company will continue to expand its regional operations and domestically firm up its leadership
in its core categories and has again set an aggressive target on the ensuing year to maintain its
dominance in the Philippine market as well as in the ASEAN regional market.

The Company is not aware of any material off-balance sheet transactions, arrangements, and
obligations (including contingent obligations), and other relationship of the Company with
unconsolidated entities or other persons created during the reporting period that would have a
significant impact on the Company’s operations and/or financial condition.
                                                 - 18 -


Fiscal Year 2005 Compare to Fiscal Year 2004

                                                                                    =
Universal Robina Corporation (URC) posted a consolidated net sales and services of P30.9 billion for
the fiscal year ended September 30, 2005, a 13.3% increase over the same period last year. The
principal reasons for this increase were as follows:

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

    ·   Net sales in URC’s agro-industrial segment amounted to P3.9 billion in fiscal 2005, an
        increase of P222.7 million or 6.1% from P3.7 billion recorded in fiscal 2004. This increase in
        net sales was due primarily to URC’s animal feeds business, which reported an increase in net
        sales of 16.7% to P1.6 billion in fiscal 2005 from P1.3 billion recorded in fiscal 2004 as a
        result of higher sales volume and selling prices.

    ·   Net sales in URC’s commodity foods segment increased by P167.8 million, or 5.5%, to
        P3.2 billion in fiscal 2005 from P3.0 billion recorded in fiscal 2004. The principal reason for
        the increase was increased net sales from URC’s flour business. Net sales of flour increased
        by 12.7% due to increased sales volume, which was offset by a decrease of 14.0% in net sales
        of sugar. The decrease in net sales of sugar in fiscal 2005 was due to an increase in the
        proportion of sugar sold within URC for internal consumption, as URC does not recognize
        such intercompany sales as net sales on a consolidated basis.

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

URC’s gross profit increased by P1.1 billion, or 15.4%, to P7.9 billion in fiscal 2005 from P6.9 billion
recorded in fiscal 2004, as the increase in net sales was greater than the increase in cost of sales.
URC’s gross profit as a percentage of net sales increased marginally to 25.7% in fiscal 2005 from
25.2%in fiscal 2004.
                                                  - 19 -

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

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

    ·   an increase in salaries, wages and other staff costs (which increased by P225.4 million, or
        29.4%, to P991.8 million in fiscal 2005 from P766.4 million in fiscal 2004) due to hiring of
        new employees in connection with expansion of URC’s international operations, particularly
        in China and Vietnam, and the hiring of a dedicated beverage products sales force in the
        Philippines; and

    ·   increased advertising and promotion costs both from URC’s domestic and international
        operations,

which offset a P180.7 million, or 42.6%, decrease in depreciation, repairs and maintenance expenses
to P243.5 million in fiscal 2005 from P424.2 million recorded in fiscal 2004 resulting from certain
plant, property and equipment becoming fully depreciated in fiscal 2005.

As a result of the above factors, income from operations increased by P405.2 million, or 19.7%, to
P2.5 billion in fiscal 2005 from P2.1 billion recorded in fiscal 2004, and income from operations as a
percentage of net sales increased slightly to 8.0% in fiscal 2005 from 7.5% recorded in fiscal 2004.
URC’s income from operations by segment was as follows:

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

    ·   Income from operations in URC’s agro-industrial segment increased by P56.1 million to
        P524.4 million in fiscal 2005 from P468.3 million in fiscal 2004 due to greater net sales from
        URC’s animal feeds business and improved gross margin as a result of higher selling prices.

    ·   Income from operations in URC’s commodity foods segment increased by P298.5 million, or
        43.3%, to P987.2 million in fiscal 2005 from P688.7 million in fiscal 2004 due to increased
        net sales from flour products which was principally driven by volume increase.
                                                 - 20 -

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

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

    ·   URC’s principal investments accounted for under the equity method were its joint ventures:
        Hunt Universal Robina Corporation, or (“Hunt-URC”) and Robinsons Land Corporation.
        Equity in net earnings of investees increased to P244.6 million in fiscal 2005 from
        P184.8 million recorded in fiscal 2004 due mainly to higher equity in net earnings from
        investment in Robinsons Land Corporation as a result of higher income of Robinsons Land
        Corporation.

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

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

URC recognized a net provision from income tax in fiscal 2005 of P470.8 million compared to a net
benefit from income tax of P10.2 million in fiscal 2004. The increase in provisioning for current
income tax was mainly due to a combination of higher taxable income resulting from increased gross
income, particularly from URC’s sugar business, and the expiration of an exemption from income tax
on URC’s sales in Thailand in fiscal 2005. The increase in provisioning for deferred income tax was
due to an increase in unrealized gain on excess of market value over cost of URC’s hog stocks.

Minority interests represents primarily the share in net loss (income) attributable to minority
shareholders of the following subsidiaries of URC: URC International, URC’s direct subsidiary in
which it holds approximately a 77.0% economic interest, Nissin-Universal Robina Corporation
(“Nissin-URC”), URC’s 65.0%-owned subsidiary and Southern Negros Development Corporation,
URC’s 94.0%-indirectly owned subsidiary. Minority interests in net loss of subsidiaries was
                                                   - 21 -

P124.6 million in fiscal 2005 compared to P66.2 million recorded in fiscal 2004. The increase in
minority interests in fiscal 2005 reflects the increase in loss from URC International.

Net income increased by P528.8 million, or 28.2%, to P2.4 billion in fiscal 2005 from P1.9 billion in
fiscal 2004 as a result of the factors discussed above.

URC generated an EBITDA (earnings before interest, taxes, depreciation and amortization) of P7.0
                                                          =
billion for the current fiscal year 2005, 24.5% more than P5.6 billion it had in fiscal year 2004.

The Company will continue to expand its regional operations and domestically firm up its leadership
in its core categories and has again set an aggressive target on the ensuing year to maintain its
dominance in the Philippine market as well as in the ASEAN regional market.

The Company is not aware of any material off-balance sheet transactions, arrangements, and
obligations (including contingent obligations), and other relationship of the Company with
unconsolidated entities or other persons created during the reporting period that would have a
significant impact on the Company’s operations and/or financial condition


Fiscal Year 2004 Compared to Fiscal Year 2003

Universal Robina Corporation (URC) registered a consolidated net sales and services of P27.2 billion
for the fiscal year ended September 30, 2004, a 16.3% increase over the same period last year despite
highly competitive environment and depressed economic condition marked by political and security
concerns. Revenue growth was led again by the solid performance of its core business, Branded
Consumer Foods (BCF) business, particularly its expanding international operations in Southeast Asia,
and improved revenues of its Agro-industrial and Commodity foods businesses, notably farms and
sugar businesses, respectively.

The Company’s gross margin improved by 13.5% to P6.9 billion compared to the same period last
year of P6.0 billion. Income from operations likewise went up by 38.2% to P2.1 billion from P1.5
billion last year due to significant increase in sales, which covered for the slight increase in operating
expenses. Operating expenses increased by 5.5% to P4.8 billion as a result of expanding regional
operations and sustained marketing activities.

As a result of better performance of all business segments, net income for fiscal year 2004 climbed to
P1.9 billion, a remarkable 32.6% increase over P1.4 billion recorded last year. Consequently, earnings
per share was P1.11, better than last year’s P0.84.

The Branded Consumer Foods (BCF) business unit, including the packaging division, posted a net
sales and services value growth of 13.9 % to P20.5 billion compared to the same period last year of
P18.0 billion. This was attributed to URC International revenue growth of 34.4% and the continued
strength of the Company’s products in core categories such as snacks, candy, chocolate, noodle and
biscuit segments complemented by strong exports.

The Company expects a continued strong performance of the Branded Consumer Foods in the
domestic front and ASEAN region as well, with new and exciting product launches, intensive
marketing and advertising efforts and extensive distribution network.
                                                  - 22 -

The Agro-industrial business unit reported a net sales of P3.7 billion, 20.0% higher than last year. The
increase in net sales resulted from improvement in prices of feeds and farm products, and higher
volume sold by the farm business.

URC’s Commodity Foods business unit generated a net sales of P3.0 billion, 29.7% higher compared
to last year of P2.3 billion. The increase was due to higher selling prices of flour products and higher
volume sold by the flour and sugar businesses.

Cost of sales and services increased by P3 billion or 17.3% to P20.4 billion from P17.4 billion last
year. The increase was due to higher sales volume and costs of major raw and packaging materials
used in our snacks, candies, chocolates, biscuits and flour and feed products.

Other income (charges) - net was P(256.2) million for the current fiscal year compared to P(93.5)
million the previous fiscal year. Variance was caused mainly by recording of foreign exchange losses.

Provision for income tax this year was substantially lower due to higher non-taxable income and
recognition of benefit from deferred income tax on provision for impairment losses on idle fixed
assets, unrealized foreign exchange losses, provision for doubtful accounts, among others.

Minority interest in net loss of subsidiaries was P66.2 million or P20.0 million lower from last year’s
P86.2 million due to improvement in results of operations of subsidiaries.

URC generated an EBITDA (earnings before interest, taxes, depreciation and amortization and other
                                                                                  =
non-cash items) of P5.6 billion for the current fiscal year 2004, 16.5% more than P4.8 billion it had in
fiscal year 2003.

The Company will continue to expand its regional operations and domestically firm up its leadership
in its core categories and has again set an aggressive target on the ensuing year to maintain its
dominance in the Philippine market as well as in the ASEAN regional market.

The Company is not aware of any material off-balance sheet transactions, arrangements, and
obligations (including contingent obligations), and other relationship of the Company with
unconsolidated entities or other persons created during the reporting period that would have a
significant impact on the Company’s operations and/or financial condition.


Financial Condition

The Company’s financial position remained strong. URC is highly liquid having a current ratio of
3.0:1 as of September 30, 2006 from 4.5:1 as of September 30, 2005. Financial debt to equity ratio
has improved further to 0.8:1 versus 1.0:1 as of September 30, 2005.

Total assets amounted to P59.7 billion, up by 8.8% from P54.9 billion as of September 30, 2005 .
Book value per share increased to P14.05 from P13.02 as at September 30, 2005.

The Company’s cash requirements generally have been funded through cash flow from operations.
The net cash flow provided by operating activities for the fiscal year ended September 30, 2006
amounted to P3.8 billion. On the other hand, net cash used in investing activities for the period
amounted to P310.3 billion substantially due to funds used for acquisitions of property, plant and
                                                 - 23 -

equipment , increase in due from affiliated companies and other non current assets, net of proceeds
on sale of temporary investments and marketable securities, and receipt of dividends. Net cash
provided by financing activities was P 1.6 billion , which was substantially due from proceeds of
follow on offering of primary common shares and availment of short term borrowings, net of
payment of loans and cash dividends.

The additional investment in property, plant and equipment amounting to P5.8 billion represents
investments in a new production line for the C2 brand tea-based beverage, snack production facility
in Vietnam, expansion of production facility in Thailand, expansion project for sugar mill and hog
farm, among others.

The Company budgeted about P7.1 billion for capital expenditures (including maintenance capex) and
investment for fiscal year 2007 which consist of the following:

·   P5.6 billion for continued expansion of the Branded Consumer Foods operations primarily in a
    multi-product beverage line in PET bottles in the Philippines and expansion projects for the
    biscuit lines in Thailand, Vietnam and China;
·   P934.8 million for the expansion of the raw milling capacity and new refinery in SONEDCO; and
·   P580.2 million for additional manufacturing facilities for URC’s agro-industrial division
    particularly in the piggery and feeds operations.

No assurance can be given that the Company’s capital expenditures plan will not change or that the
amount of capital expenditures for any project or as a whole will not increase in future years from
current expectations.

As of September 30, 2006, the Company is not aware of any events that will trigger direct or
contingent financial obligation that is material to the Company, including any default or acceleration
of an obligation.
                                                - 24 -

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


Income statements – Year ended September 30, 2006 versus Year ended September 30, 2005

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

 URC’s agro-industrial segment reported net sales and services amounting to P5.1 billion in fiscal
2006, an increase of P867.9 million or 20.6% from P 4.2 billion recorded in fiscal 2005. The increase
was substantially driven by URC’s animal feeds business, which reported an increase of 40.9% to
P 2.2 billion in fiscal 2006 from P1.6 billion recorded in fiscal 2005 due higher sales volume of
feeds. Livestock business also improved its revenue by 8.6% due to higher sales volume for both
piggery and poultry products.

URC’s commodity foods segment increased by P303.5 million, or 9.5%, to P3.5 billion in fiscal 2006
from P3.2 billion recorded in fiscal 2005. The principal reason was the increased net sales from
URC’s sugar business by 24.9% due mainly to higher selling prices this year. Flour business
increased by P130.1 million or 5.2% to P 2.6 billion in fiscal 2006 from P 2.5 billion in fiscal 2005.

13.1% increase in cost of sales and services
This increase resulted principally from increased sales volume, higher costs for imported raw materials
and packaging materials used in snacks, candies, chocolates, biscuits, and flour products and an
increase in costs of certain major raw materials for animal feeds such as soya and for our BOPP films
such as resin. The increased cost of raw materials reflected the general increase in many commodity
prices during this period including wheat and cooking oils while the increased cost of packaging
materials reflected the increased price of many oil-based products during this period.

13.1% increase in operating and other administrative expenses
This was primarily due to extensive advertising and promotion activities by the Branded Consumer
Foods business unit and increase in freight and other selling expenses due to higher volume of sales
and upward adjustment in freight rate.

87.2% increase in mark-to-market gain on financial instruments at fair value through profit and loss
Due to increase in market value of investments in bonds and securities.

250.6% Decrease in foreign exchange gain
Due to appreciation of Philippine peso vis a vis US dollar
                                                   - 25 -

21.5% Increase in investment income
Due to additional interest income from investing a significant portion of the proceeds of the follow
on offering of the Company’s common shares and higher dividends received from equity security
investments.

30.8% increase in equity in net earnings
Due to higher equity in net earnings from investment in Robinsons Land Corporation.

7.4% increase in finance costs
Due to additional interest paid on guaranteed notes issued in January 2005 and bank loans obtained
during the year.

Impairment loss
Represents impairment of the goodwill allocated to China subsidiaries amounting to P240.7 million.

36.8% Decrease in other charges -net
Due to decrease in loss on sale of bond investments.

22.5% decrease in provision for income tax
 The decrease in provision on current income tax was mainly due to lower taxable income resulting
from availment of income tax holiday incentive by a certain subsidiary. The decrease in
provisioning for deferred income tax was due to lower unrealized foreign exchange gain.

13.4% decrease in minority interest
Due to increase in net income of certain subsidiary which partially offset the increase in net loss of
URC International.

Balance sheets – September 30, 2006 versus September 30, 2005

542 8% increase in cash and cash equivalents
Due to higher money market placements and cash in bank from the proceeds of the follow on offering
of primary common shares.

21.0% decrease in financial assets at fair value through profit and loss
Due to sale of bond investments and impact of peso appreciation vis-a-vis US dollar net of increase
in market values of securities held.

20.6% increase in trade and other receivables – net
Due to higher trade receivables as a result of increase in sales .

33.8% increase in due from affiliated companies
Due to increase in advances to affiliated companies arising from the normal course of business.

5.5% decrease in inventories-net
Due decrease in materials in transit and raw materials inventory, partially offset by the increases in
work in process, containers and packaging materials , spare part and supplies inventories .

13.4% decrease in other current assets
Due to amortization of prepaid items.
                                                  - 26 -

6.9% increase in investments and advances
Due to increase in equity in net earnings of unconsolidated associate companies.

20.1% increase in property, plant and equipment
Primarily due to additional investments in a new production line for the C2 brand tea-based beverage,
snack production facility in Vietnam, expansion of production facility in Thailand, expansion
projects for sugar mills and RF hog farm, among others.

7.4% increase in biological assets
Due to increase in population of live stocks.

38.9% increase in net pension assets
Due to increase in returns on retirement plan assets.

20.1% increase in other noncurrent assets-net
Due to acquisition of trademark for ACES brand in China.

81.4% increase in loans payable
Due to additional short-term bank loans obtained.

32.2% increase in accounts payable and accrued expenses
Due to increase in trade payables in relation to increase in purchases and accrued freight.

46.2% decrease in trust receipts and acceptances payable
Due to settlement of trust receipts payable.

66.7% decrease due to affiliated companies
Due to payment of advances from affiliates in the normal course of business.

14.7% increase in income tax payable
Due to lower excess tax credit from prior year.

74.5% increase in deferred income tax- net
Due to recognition of deferred tax liability on unrealized foreign exchange gain and undistributed
income of foreign subsidiaries

14.5% decrease in long term debt ( including current portion)
Due to long term debt amortization and impact of stronger peso vis a vis US dollar.

31.7% increase in capital stock
Mainly due to issuance of additional common shares for stock dividend and follow on offering in
February 2006.

63.8% increase in additional paid in capital
Mainly due to recording of excess of offering price over par value of common shares sold.

22.9% decrease in cumulative translation adjustment
Due to increase in value of Philippine peso against foreign currencies.
                                                 - 27 -

10.1% increase in retained earnings
Mainly due to income earned during the fiscal year reduced by cash dividends paid.

20.8% decrease in minority interests
Mainly due to higher net loss incurred by a foreign subsidiary.

The Company’s key performance indicators are employed across all businesses. Comparisons are then
made against internal target and previous period’s performance. The Company and its significant
subsidiaries’ top five (5) key performance indicators are as follows: (in Million PhPs)


Universal Robina Corporation (Consolidated)
                                                          FY 2006      FY 2005        Index
       Revenues                                            35,184       31,199          113
       EBIT                                                 2,657        2,437          109
       EBITDA                                               8,095        6,853          118
       Net Income                                           3,019        2,526          119
       Total Assets                                        59,690       54,884          109




Universal Robina (Cayman), Ltd.
                                                          FY 2006      FY 2005        Index
       Revenues                                               718          588          122
       EBIT                                                   716          586          122
       EBITDA                                               1,272        1,269          100
       Net Income                                             971          908          107
       Total Assets                                           287        3,427            8



URC Philippines, Limited
                                                          FY 2006      FY 2005        Index
        Revenues                                              379          644           59
        EBIT                                                  355          619           57
        EBITDA                                              2,106        2,032          104
        Net Income                                            355          619           57
        Total Assets                                       22,767       27,850           82



Nissin – URC
                                                          FY 2006      FY 2005        Index
        Revenues                                              926          853          109
        EBIT                                                   59           43          139
        EBITDA                                                104           84          124
        Net Income                                             48           37          132
                                                   - 28 -

        Total Assets                                              681               625               109


Majority of the above key performance indicators were within targeted levels.


Item 7.     Financial Statements

The consolidated financial statements and schedules listed in the accompanying Index to Financial
Statements and Supplementary Schedules (page 40) are filed as part of this Form 17-A (pages 41
to 137 ).

Item 8.    Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure

None.

Item 9.     Independent Public Accountants and Audit Related Fees

Independent Pubic Accountants

The Corporation’s independent public accountant is the accounting firm of the Sycip, Gorres , Velayo
& Co. The same accounting firm id tabled for reappointment for the current year at the annual
meeting of stockholders. The representatives of the principal accountant have always been present at
prior year’s meetings and are expected to be present at the current year’s annual meeting of
stockholders. They may also make a statement and respond to appropriate questions with respect to
matters for which their services were engaged.

The current handling partner of SGV & Co. has been engaged by the Corporation as of the fiscal year
2003 and is expected to be rotated every five (5) years.

Audit-Related Fees

The following tables sets out the aggregate fees billed for each of the last three fiscal years for
professional services rendered by Sycip, Gorres Velayo & Co.

                                                 Fiscal Year 2004 Fiscal Year 2005 Fiscal Year 2006
                                                                    ( In pesos)
__________________________________________________________________________________
Audit and Audit-Related Fees                          P6,404,370       P9,604,000     P9,929,820
  Fees for services that are normally provided
  by the external auditor in connection with
  statutory and regulatory filings or engagements      4,304,370        4,604,000      4,429,820
  Professional fees for due diligence review for
  Bond/shares offering                                 2,100,000        5,000,000      5,500,000
Tax Fees                                                   none             none           none
Other Fees                                               900,000            none           none
Total                                                P7,304,370          P9,604,000     P9,929,820
                                                  - 29 -


                 PART III - CONTROL AND COMPENSATION INFORMATION


Item 10.    Directors and Executive Officers of the Registrant

                      Position                                   Name               Age    Citizenship

Director, Chairman Emeritus                        John L. Gokongwei, Jr.            80      Filipino

Director, Chairman and Chief Executive Officer James L. Go                           67      Filipino

Director, President and Chief Operating Officer Lance Y. Gokongwei                   39      Filipino

Director, Vice President                           Patrick Henry C. Go               36      Filipino

Director                                           Frederick D. Go                   37      Filipino

Director                                           Johnson Robert G. Go, Jr.         41      Filipino

Director                                           Robert G. Coyiuto, Jr.            55      Filipino

Independent Director                               Wilfrido E. Sanchez               69      Filipino

Independent Director                               Oscar S. Reyes                    60      Filipino

Executive Vice President                           Bienvenido S. Bautista            59      Filipino

Executive Vice President                           Patrick O. Ng                     62    Singaporean

Senior Vice President – Chief Financial Officer Eugenie M.L. Villena                 58      Filipino

Senior Vice President – Corporate Controller       Constante T. Santos               58      Filipino

First Vice President – Controller                  Geraldo N. Florencio              54      Filipino

Vice President                                     Jeanette U. Yu                    53      Filipino

Vice President – Treasurer                         Ester T. Ang                      48      Filipino

Corporate Secretary                                Rosalinda F. Rivera               36      Filipino


All of the above directors have served their respective offices since April 20, 2006. There are no
directors who resigned or declined to stand for re-election to the board of directors since the date of
the last annual meeting of stockholders for any reason whatsoever.
                                                 - 30 -

Messrs. Wilfrido E. Sanchez and Oscar S. Reyes are the independent directors of the Company.

The Directors of the Company are elected at the annual stockholders’ meeting to hold office until the
next succeeding annual meeting and until their respective successors have been elected, appointed or
shall have been qualified.

Officers are appointed or elected annually by the Board of Directors at its first meeting following the
Annual Meeting of Stockholders, each to hold office until the corresponding meeting of the Board of
Directors in the next year or until a successor shall have been elected, appointed or shall have
qualified.

All of the above directors and officers have no involvement in any pending legal proceedings during
the past five (5) years.

A brief description of the directors and executive officers’ business experience and other directorships
held in other reporting companies are provided as follows:

John L. Gokongwei, Jr. founded URC in 1954 and has been the Chairman Emeritus of URC effective
January 1, 2002. He had been Chairman of the Board until his retirement and resignation from this
position effective December 31, 2001. He continues to be a member of URC’s Board and is the
Chairman Emeritus of JG Summit and certain of its subsidiaries. He also continues to be a member of
the Executive Committee of JG Summit. He is currently the Chairman of the Gokongwei Brothers
Foundation, Inc., Deputy Chairman and Director of United Industrial Corporation, Ltd. and Singapore
Land, Ltd., and a director of JG Summit Capital Markets Corporation, Digital Telecommunications
Phils., Inc., Oriental Petroleum and Minerals Corporation, First Private Power Corporation and
Bauang Private Power Corporation. He is also a non-executive director of A. Soriano Corporation and
Philex Mining Corporation. Mr. Gokongwei received a Master’s degree in Business Administration
from De La Salle University and attended the Advanced Management Program at Harvard Business
School.

James L. Go is the Chairman and Chief Executive Officer of URC. He had been President and Chief
Executive Officer and was elected to his current position effective January 1, 2002 upon the
resignation of Mr. John Gokongwei, Jr. as Chairman. He is also the Chairman and Chief Executive
Officer of JG Summit and as such, he heads the Executive Committee of JG Summit. He is currently
the Chairman and Chief Executive Officer of Robinsons Land Corporation (“RLC”), JG Summit
Petrochemical Corporation, Manila Midtown Hotels and Land Corporation, Litton Mills, Inc., CFC
Corporation, Universal Robina Sugar Milling Corporation, Southern Negros Development
Corporation, Robinsons, Inc., and Oriental Petroleum and Minerals Corporation (“OPMC”). He is also
the President and a Trustee of the Gokongwei Brothers Foundation, Inc. and a director and Vice
Chairman of Digital Telecommunications Phils., Inc. He is also a director of First Private Power
Corporation, Bauang Private Power Corporation, OPMC, Cebu Air, Inc., Panay Electric Co., United
Industrial Corp., Ltd., Singapore Land, Ltd., Marina Center Holdings, Inc. and JG Summit Capital
Markets Corporation. He received a Bachelor of Science degree and a Master of Science degree in
Chemical Engineering from the Massachusetts Institute of Technology. Mr. James L. Go is a brother
of Mr. John Gokongwei, Jr. and joined URC in 1964.

Lance Y. Gokongwei is the President and Chief Operating Officer of URC. He had been Executive
Vice President and was elected President and Chief Operating Officer effective January 1, 2002. He is
the President and Chief Operating Officer of JG Summit Holdings, Inc. and JG Summit Petrochemical
                                                - 31 -

Corporation and the Vice Chairman and Deputy Chief Executive Officer of Robinsons Land
Corporation and Litton Mills, Inc. He is also the President and Chief Executive Officer of Cebu Air,
Inc. and Digital Telecommunications Phils., Inc., Chairman of Robinsons Savings Bank, President of
Digital Information Technology Services, Inc., Vice Chairman of JG Summit Capital Markets
Corporation, and a director of OPMC, United Industrial Corporation, Ltd., and Singapore Land, Ltd.
He is also trustee, secretary and treasurer of Gokongwei Brothers Foundation, Inc. He received a
Bachelor of Science degree in Economics and a Bachelor of Science degree in Applied Science from
the University of Pennsylvania. Mr. Lance Y. Gokongwei is the son of Mr. John Gokongwei, Jr. and
joined URC in 1988.

Patrick Henry C. Go is a director and Vice President of URC. He is also a director of JG Summit
Holdings, Inc., RLC, CFC Corporation, JG Cement Corporation, Robinsons Savings Bank and JG
Summit Petrochemical Corporation where he is also First Vice President for Sales and Marketing. He
is a trustee of the Gokongwei Brothers Foundation, Inc. He received a Bachelor of Science degree in
Management from the Ateneo de Manila University and attended the General Manager Program at
Harvard Business School. Mr. Patrick Henry C. Go is a nephew of Mr. John Gokongwei, Jr.

Frederick D. Go has been a director of URC since June 2001. He is the President and Chief Operating
Officer of RLC. He is an alternate director of United Industrial Corporation and Singapore Land
Limited. He also serves as a director of RLC, Big R Stores, Inc., Robinsons Convenience Stores, Inc.,
Robinsons Recreation Corporation, JG Summit Petrochemical Corporation, Robinsons Savings Bank,
CFC Corporation, Robinsons Handyman, Inc., Robinsons Venture Corporation, Robinsons-Abenson
Appliances Corporation, Cebu Light Industrial Park, Philippine Hotels Federation and Philippine
Retailers Association. He received a Bachelor of Science degree in Management Engineering from the
Ateneo de Manila University. Mr. Frederick D. Go is Mr. John Gokongwei, Jr.’s nephew.

Johnson Robert G. Go, Jr. was elected director of the Company on May 5, 2005. He is the President
and Chief Operating Officer of Litton Mills, Inc. effective August 28, 2006, the textile manufacturing
business of JG Summit. He is also a director of Robinsons Land Corporation, Robinsons Savings Bank
and CFC Corporation. He is also the President of Robinsons Convenience Stores, Inc. He was elected
director of JG Summit on August 18, 2005 and was elected trustee of the Gokongwei Brothers
Foundation, Inc. on September 1, 2005. He received a Bachelor of Arts degree in Interdisciplinary
Studies (Liberal Arts) from the Ateneo de Manila University. He is a nephew of Mr. John Gokongwei,
Jr.

Robert G. Coyiuto, Jr. - director of URC. He is also an independent director of RLC. He is Chairman
of Prudential Guarantee & Assurance, Inc., PGA Cars, Inc., and Nissan North Edsa, and Vice-
Chairman of First Guarantee Life Assurance Company, Inc. He is also President and Chief Operating
Officer of Oriental Petroleum and Minerals Corporation and President of PGA Sompo Japan
Insurance, Inc. He is Chairman of Pioneer Tours Corporation and a director of Canon Marketing
(Philippines) Inc. and Destiny Financial Plans.

Wilfrido E. Sanchez has been an independent director of URC since 1995. He is also an independent
director of EEI Corporation, Kawasaki Motor Corp., NYK-TDG Maritime Academy and Rizal
Commercial Banking Corporation. Mr. Sanchez is a director of Transnational Plans, Inc., Dolphin
Ship Management, Inc., Adventure International Tours, Inc., Transnational Diversified Group, Inc.,
Transnational Diversified Corporation, Magellan Capital Holdings Corporation, Center for Leadership
& Change, Inc., House of Investment, Inc., Omico Corporation, Amon Trading Corporation, Grepalife
Asset Management Corporation, Grepalife Fixed Income Corporation, and JVR Foundation.
                                                 - 32 -


Oscar S. Reyes has been an independent director of URC since October 28, 2002. He was also a
member of the advisory board of JG Summit Holdings, Inc. from August 2001 up to March 28, 2005
and is a director/adviser of Pilipinas Shell Petroleum Corporation as well as other major corporations.
He was Country Chairman and Chief Executive Officer of various Shell companies in the Philippines
after holding various positions in the institution worldwide. He was Chairman of the Philippine
Institute of Petroleum, Inc. and Director and Treasurer of the Management Association of the
Philippines, trustee of Philippine Business for Social Progress, Philippine Business for the
Environment and Asia-Europe Foundation of the Phils., Inc. He was the United Nations National
Ambassador for HIV-AIDS in the Philippines

Bienvenido S. Bautista was appointed Executive Vice President of URC on April 1, 2004. He is also
Managing Director of the URC Branded Consumer Foods Group in the Philippines and Indonesia.
Prior to joining URC, he was Chairman of Kraft Foods Philippines and Vice President and Area
Director of Kraft Foods International in South/Southeast Asia. He was formerly President of San
Miguel Brewing Philippines and of San Miguel Foods Group, President and General Manager of Kraft
General Foods Phil., Corporate Marketing Director of Wyeth Philippines, Inc., President and General
Manager of PT Warner Lambert Indonesia, and National Sales Director - Pharmaceuticals of Pfizer,
Inc. He was the first Asian and first Filipino to be appointed as Chair of the Jakarta International
School (1986-87) and in 1994 he was awarded the Agora Award for “Excellence in Marketing
Management” by the Philippine Marketing Association. Mr. Bautista received his degree of Bachelor
of Science in Economics from the Ateneo de Manila University. He received his Master’s degree in
Business Management from, and majored in Marketing and Finance at, the Ateneo Graduate School of
Business.

Patrick O. Ng is an Executive Vice President of URC. He is also managing director of URC
International Co. Ltd., URC Asean Brands Company Limited, Hongkong China Foods Company
Limited, and a director of URC Hong Kong Ltd., Panyu Peggy Foods Co. Ltd., Shanghai Peggy Foods
Co. Ltd. and Tianjin Pacific Foods Co. Ltd. Mr. Ng joined URC in 1967 and has held various
positions in the JG Group including as Vice President of the manufacturing division of CFC
Corporation and Vice President and General Manager of Litton Mills, Inc. He received a Bachelor of
Science degree in Engineering from the Ateneo de Manila University.

Eugenie M.L. Villena is the Senior Vice President — Chief Financial Officer of URC. She is also
Senior Vice President and Chief Financial Officer — Treasurer of JG Summit. Prior to joining URC,
she worked for Bancom Development Corporation, Philippine Pacific Capital Corporation and Pacific
Basin Securities, Co., Inc. She is a member of the Financial Executives Institute of the Philippines.
She received her Bachelor of Science degree in Business Administration and Master’s degree in
Business Administration from the University of the Philippines.

Constante T. Santos is the Senior Vice President — Corporate Controller of URC. He is also Senior
Vice President — Corporate Controller of JG Summit. Prior to joining URC in 1986, he practiced
public accounting with SyCip, Gorres, Velayo & Co. in the Philippines and Ernst & Whinney in the
United States. He is a member of the Philippine Institute of Certified Public Accountants. Mr. Santos
received his Bachelor of Science degree in Business Administration from the University of the East
and attended the Management Development Program at the Asian Institute of Management.

Geraldo N. Florencio is the First Vice President — Controller of URC. Prior to joining URC in 1992,
he practiced public accounting with SyCip, Gorres, Velayo & Co. in the Philippines. He is a member
                                               - 33 -

of the Philippine Institute of Certified Public Accountants. Mr. Florencio received a Bachelor of
Science degree in Business Administration from the Philippine School of Business Administration. He
also attended the Management Development Program at the Asian Institute of Management.

Jeanette U. Yu is Vice President of URC. She is also the Vice President-Treasurer of Cebu Air, Inc.,
Chief Financial Officer of Oriental Petroleum and Minerals Corporation, and the Senior Vice
President and Treasurer of JG Summit Capital Markets Corporation. Prior to joining URC in 1980, she
worked for AEA Development Corporation and Equitable Banking Corporation. Ms. Jeanette U. Yu
received her Bachelor of Science degree in Business Administration from St. Theresa’s College in
Quezon City.

Ester T. Ang is the Vice President – Treasurer of URC. Prior to joining URC in 1987, she worked
with Bancom Development Corporation and Union Bank of the Philippines. Ms. Ester Ang, received
her Bachelor of Science degree in Accounting from Ateneo De Davao University in Davao City.

Rosalinda F. Rivera was appointed Corporate Secretary of URC on May 22, 2004 and has been
Assistant Corporate Secretary since May 2002. She is also Corporate Secretary of JG Summit, RLC,
JG Summit Petrochemical Corporation, CFC Corporation and JG Cement Corporation. Prior to joining
URC, she was a Senior Associate at Puno and Puno Law Offices. She received a Juris Doctor degree
from the Ateneo de Manila University School of Law and a Master of Law degree in International
Banking from the Boston University School of Law. She was admitted to the Philippine Bar in 1995.

The members of the Company’s board of directors and executive officers can be reached at the address
of its registered office at 110 E. Rodriguez Avenue, Bagumbayan, Quezon City, Philippines.

Involvement in Certain Legal Proceedings of Directors and Executive Officers

None of the members of the Board of Directors and Executive Officers of the Company are involved
in the any criminal, bankruptcy or insolvency investigations or proceedings.

Family Relationships

Mr. James L. Go is a brother of Mr. John Gokongwei, Jr. while Mr. Lance Y. Gokongwei is his son.
Mr. Patrick Henry C. Go, Mr. Frederick D. Go and Mr. Johnson Robert G. Go, Jr. are the nephews of
Mr. John Gokongwei, Jr.
                                                           - 34 -

Item 11.         Executive Compensation

The following summarizes certain information regarding compensation paid or accrued during the last
two (2) fiscal years and to be paid in the ensuing fiscal year to the Company’s Directors and Executive
Officers:


                                                Estimated - FY2007                                 Actual
                                    Salary      Bonus          Other         Total          2006               2005

Chairman of the Board and
     four most highly
     compensated Executive
     Directors/Officers
                                  =
                                  P28,612,283   P300,000
                                                =                =
                                                                 P90,000   P29,002,283
                                                                           =             =
                                                                                         P26,569,801        P24,433,288
                                                                                                            =


All officers and directors as a
      group unnamed                75,661,638    600,000         210,000    76,471,638    70,064,347         60,802,341



The following are the five (5) highest compensated directors and/or executive officers of the
Company: 1. Director, Chairman Emeritus – John Gokongwei, Jr.; 2. Director, Chairman and Chief
Executive Officer – James L. Go; 3. Director, President and Chief Operating Officer – Lance Y.
Gokongwei; 4. Executive Vice President - Bienvenido S. Bautista; and 5. Executive Vice President –
Patrick Ng.

Standard Arrangements

There are no standard arrangements pursuant to which directors of the Company are compensated, or
are to be compensated, directly or indirectly, for any services provided as a director for the last
completed fiscal year and the ensuing year.

Other Arrangements

There are no other arrangements pursuant to which directors of the Company are compensated, or are
to be compensated, directly or indirectly, for any services provided as a director for the last completed
fiscal year and the ensuing year.

Employment Contracts and Termination of Employment and Change-in-Control Arrangement

There are no special employment contracts between the Corporation and the named executive officers

There are no compensatory plan or arrangement with respect to a named executive officer.

Warrants and Options Outstanding

 There are no outstanding warrants or options held by the Corporation’s CEO, the named executive
officers and all officers and directors as a group.
                                                                               - 35 -

 Item 12.               Security Ownership of Certain Beneficial Owners and Management

 (1)        Security Ownership of Certain Record and Beneficial Owners

 As of September 30, 2006, URC knows no one who beneficially owns in excess of 5% of URC’s
 common stock except as set forth in the table below.

                                                                  Name of beneficial                 Amount and nature
     Title of              Name and Address                      owner and relationship             of record/beneficial                                      Percent
      Class             of record/beneficial owner                 with record owner                ownership (“r”or“b”)               Citizenship            of class

 Common           JG Summit Holdings,Inc. 1                            (See Note 1)                     1,314,435,609 (r)                 Filipino               59.16%
                  43/F, Robinsons Equitable-PCI
                  Tower ADB Avenue corner
                  Poveda Street, Pasig City

 Common           PDC Nominee Corporation                              (See Note 2)                        831,000,506 (r)                Filipino               37.40%
                  (Non – Filipino)
                  G/F Makati Stock Exchange
                  Bldg.6767 Ayala Ave.
                  Makati City2




(2)       Security Ownership of Management

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



 1
      As of September 30, 2006, Mr. John L. Gokongwei, Jr., Chairman Emeritus of JG Summit Holdings, Inc. (JGSHI), holds 1,875,481,099 shares representing
      27.6% of the total outstanding shares of the said Corporation. The Chairman and the President are both empowered under the By-Laws of JGSHI to vote any
      and all shares owned by JGSHI, except as otherwise directed by the Board of Directors. The incumbent Chairman and Chief Executive Officer and President
      and Chief Operating Officer of JGSHI are Mr. James L. Go and Mr. Lance Y. Gokongwei, respectively.
 2
     PCD Nominee Corporation, a wholly owned subsidiary of Philippine Central Depository , Inc. (“PCD”), is the registered owner of the shares in the books of
     the Corporation’s transfer agent in the Philippines. The beneficial owners of such shares are PCD’s participants , who hold the shares in their behalf, and their
     clients. PCD is a private company organized by the major institutions actively participating in the Philippine capital markets to implement an automated
     book-entry system of handling securities transactions in the Philippines. Out of this account, “Hongkong and Shanghai Banking Corp. Ltd.-Clients’ Acct”
     and “Standard Chartered Bank” holds for various trust accounts the following shares of the Corporation as of September 30, 2006
                                                                               No. of Shares          % to outstanding
            The Hongkong and Shanghai Banking Corp.Ltd-Clients’ Acct            491,654,203                 22.13%
            Standard Chartered Bank                                             208,460,477                   9.38




 *
      less than 0.01%
                                                    - 36 -


(3)    Voting Trust Holders of 5% or more

 There are no persons holding more than 5% of a class under a voting trust or similar agreement.


 Item 13.    Certain Relationships and Related Transactions

 The Company, in its regular conduct of business, had engaged in transactions with its major
 stockholder, JG Summit Holdings, Inc. and its affiliated companies. See Note 19 (Related Party
 Disclosures) of the Notes to Consolidated Financial Statements (page 110) in the accompanying
 Audited Financial Statements filed as part of this Form 17-A.


                             PART IV – CORPORATE GOVERNANCE

 Item 14.    Corporate Governance

 Adherence to the principles and practices of good corporate governance, as embodied in its Corporate
 Governance Manual, has been reinforced by continuous improvement by the Company. This to ensure
 that good governance and management practices are observed by the Company

 The Board of Directors has approved its Corporate Governance Compliance Evaluation System in late
 2003 in order to check and assess the level of compliance of the Company with leading practices on
 good corporate governance as specified in its Corporate Governance Manual and pertinent SEC
 Circulars. The System likewise highlights areas for compliance improvement and actions to be taken.
 One of the system’s output is the Annual Corporate Governance Self Rating Form submitted to the
 SEC and PSE on or before January 30 of every year starting with calendar year 2003.

 Likewise, URC has consistently striven to raise its level of reporting by adopting and implementing
 prescribed Philippine Financial Reporting Standards.


                               PART V - EXHIBITS AND SCHEDULES

 Item 15.    Exhibits and Reports on SEC Form 17-C

 (a)   Exhibits - See accompanying Index to Exhibits (page __)

       The following exhibit is filed as a separate section of this report:

       (18) Subsidiaries of the Registrant

       The other exhibits, as indicated in the Index to Exhibits are either not applicable to the Company
       or require no answer.

 (b) Reports on SEC Form 17-C
                                   - 37 -



               UNIVERSAL ROBINA CORPORATION
    LIST OF CORPORATE DISCLOSURES/REPLIES TO SEC LETTERS
                     UNDER SEC FORM 17-C
               APRIL 1, 2006 TO SEPTEMBER 30, 2006



DATE OF DISCLOSURE                          DESCRIPTION

   April 21, 2006     Notice of Cash Dividend Declaration
   April 21, 2006     Election of directors
   April 21, 2006     Results of the Organizational Meeting of the Board of
                      Directors
   April 24, 2006     Clarification of the news article entitled “900 could lose
                      jobs as Pasig gov’t closes Robina factory”.
    July 7, 2006      Approval to transfer in the name of the Corporation common
                      shares of RLC previously acquired from Express Holdings,
                      Inc.
   August 7, 2006     Number of RLC shares agreed to be offered by the
                      Corporation I connection with the primary and secondary
                      offering of RLC shares.
 September 13, 2006   Clarification on the news article “ URC ethanol plants gets
                      incentives”.
 September 27, 2006   Execution by the Corporation of a Deed of Assignment
                      regarding Service Contract No. 41
                                                            - 40 -

                 UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES

      INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

                                                 FORM 17- A, Item 7

                                                                                                               Page No.
Consolidated Financial Statements

     Statement of Management’s Responsibility for Financial Statements                                              41
     Report of Independent Auditors                                                                                 42
     Consolidated Balance Sheets as of September 30, 2006 and 2005                                                  44
     Consolidated Statements of Income for each of the three years in the
         period ended September 30, 2006                                                                            46
     Consolidated Statements of Changes in Stockholders’ Equity for each of
         the three years in the period ended September 30, 2006                                                     47
     Consolidated Statements of Cash Flows for each of the three years
         in the period ended September 30, 2006                                                                     49
     Notes to Consolidated Financial Statements                                                                     51

Supplementary Schedules

     Report of Independent Auditors on Supplementary
     Schedules                                                                                                      127

A. Marketable Securities - (Current Marketable Equity Securities
       and Other Short-Term Cash Investments)                                                                       128
B. Amounts Receivable from Directors, Officers, Employees,
   Related Parties and Principal Stockholders (Other than Affiliates)                                               129
C. Non-Current Marketable Equity Securities, Other Long-Term
       Investments in Stock, and Other Investments                                                                  130
D. Indebtedness to Unconsolidated Subsidiaries and Affiliates                                                       131
E. Property, Plant and Equipment                                                                                    132
F. Accumulated Depreciation                                                                                         133
G. Intangible Assets - Other Assets                                                                                 134
H. Long-Term Debt                                                                                                   135
I. Indebtedness to Affiliates and Related Parties (Long-Term Loans
       from Related Companies)                                                                                      136
J. Guarantees of Securities of Other Issuers                                                                        **
K. Capital Stock                                                                                                    137
______

* Not applicable per section 1(b) (xii), 2(e) and 2 (I) of SRC Rule 68

** These schedules, which are required by Section 4(e) of SRC Rule 68, have been omitted because they are either not
required, not applicable or the information required to be presented is included/shown in the related URC & Subsidiaries’
consolidated financial statements or in the notes thereto.
SGV & CO                                                       SyCip Gorres Velayo & Co.
                                                               6760 Ayala Avenue
                                                                                              Phone: (632) 891-0307
                                                                                              Fax:   (632) 819-0872
                                                               1226 Makati City               www.sgv.com.ph
                                                               Philippines
                                                          - 42 -                              BOA/PRC Reg. No. 0001
                                                                                              SEC Accreditation No. 0012-F




 INDEPENDENT AUDITORS’ REPORT



 The Stockholders and the Board of Directors
 Universal Robina Corporation
 110 E. Rodriguez Avenue
 Bagumbayan, Quezon City


 We have audited the accompanying financial statements of Universal Robina Corporation and
 Subsidiaries, which comprise the consolidated balance sheets as at September 30, 2006 and 2005, and
 the consolidated statements of income, consolidated statements of changes in equity and consolidated
 cash flow statements for the three year ended September 30, 2006, 2005 and 2004, and a summary of
 significant accounting policies and other explanatory notes.

 Management’s Responsibility for the Financial Statements

 Management is responsible for the preparation and fair presentation of these financial statements in
 accordance with Philippine Financial Reporting Standards. This responsibility includes: designing,
 implementing and maintaining internal control relevant to the preparation and fair presentation of
 financial statements that are free from material misstatement, whether due to fraud or error; selecting
 and applying appropriate accounting policies; and making accounting estimates that are reasonable in
 the circumstances.

 Auditors’ Responsibility

 Our responsibility is to express an opinion on these financial statements based on our audits. We
 conducted our audits in accordance with Philippine Standards on Auditing. Those standards require
 that we comply with ethical requirements and plan and perform the audit to obtain reasonable
 assurance whether the financial statements are free from material misstatement. An audit involves
 performing procedures to obtain audit evidence about the amounts and disclosures in the financial
 statements. The procedures selected depend on the auditor’s judgment, including the assessment of
 the risks of material misstatement of the financial statements, whether due to fraud or error. In making
 those risk assessments, the auditor considers internal control relevant to the entity’s preparation and
 fair presentation of the financial statements in order to design audit procedures that are appropriate in
 the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
 internal control. An audit also includes evaluating the appropriateness of accounting policies used
 and the reasonableness of accounting estimates made by management, as well as evaluating the
 overall presentation of the financial statements.

 We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
 for our audit opinion.




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


                                                                                           *SGVMC100000*
                                                   - 43 -



Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of
Universal Robina Corporation and Subsidiaries as of September 30, 2006 and 2005, and of its
financial performance and its cash flows for the years ended September 30, 2006, 2005 and 2004 in
accordance with Philippine Financial Reporting Standards.



SYCIP GORRES VELAYO & CO.



Arnel F. de Jesus
Partner
CPA Certificate No. 43285
SEC Accreditation No. 0075-A
Tax Identification No. 152-884-385
PTR No. 0266544, January 2, 2007, Makati City

January 16, 2007




                                                                               *SGVMC100000*
                                                - 44 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

                                                                              September 30
                                                                                           2005
                                                                          2006     (As restated)
ASSETS
Current Assets
Cash and cash equivalents (Notes 4, 6, 19 and 33)               P5,979,875,395
                                                                =                  P930,303,344
                                                                                   =
Financial assets at fair value through profit and loss
    (Notes 5, 7 and 33)                                         17,889,646,288                 –
Temporary investments - net (Notes 5 and 7)                                  –    21,753,976,562
Marketable securities - at market (Notes 5 and 7)                            –       896,641,788
Trade and other receivables - net (Notes 4, 5, 8 and 33)         4,641,130,961     3,849,423,174
Due from affiliated companies (Note 19)                            476,981,668       356,382,031
Inventories - net (Notes 4 and 9)                                5,391,590,367     5,707,795,188
Other current assets (Note 10)                                     122,596,044       141,540,931
        Total Current Assets                                    34,501,820,723    33,636,063,018
Noncurrent Assets
Investments and advances (Notes 4 and 11)                         1,958,480,986   1,831,925,876
Property, plant and equipment - net (Notes 4, 5, 13 and 18)      20,563,902,523 17,124,655,357
Investment properties (Note 12)                                      86,200,074      89,798,319
Biological assets - bearer (Notes 5 and 14)                         817,003,453     760,642,410
Net pension assets (Note 26)                                        236,346,400     170,110,800
Other noncurrent assets - net (Note 15)                           1,526,190,756   1,271,065,155
       Total Noncurrent Assets                                   25,188,124,192 21,248,197,917
                                                               =                =
                                                               P59,689,944,915 P54,884,260,935

LIABILITIES AND EQUITY
Current Liabilities
Loans payable (Notes 4, 16 and 33)                              =
                                                                P4,026,417,791    =
                                                                                  P2,219,274,415
Accounts payable and accrued expenses (Note 17, 19 and 33)        4,142,156,464     3,132,995,550
Trust receipts and acceptances payable (Notes 9 and 33)             661,147,316     1,229,056,178
Due to affiliated companies (Note 19)                               159,322,664       477,744,763
Income tax payable                                                  144,210,996       125,741,036
Current portion of long-term debt (Notes 4, 18 and 33)            2,534,798,394       372,891,534
        Total Current Liabilities                               11,668,053,625      7,557,703,476
Noncurrent Liabilities
Deferred income tax - net (Notes 4, 5 and 30)                      294,958,956       169,044,879
Long-term debt - net of current portion (Notes 4, 18 and 33)    16,499,917,160    21,897,308,402
         Total Noncurrent Liabilities                           16,794,876,116    22,066,353,281
                                                                28,462,929,741    29,624,056,757

(Forward)




                                                                        *SGVMC100000*
                                                       - 45 -



                                                                              September 30
                                                                                           2005
                                                                          2006     (As restated)
Equity attributable to equity holders of the parent:
Capital stock (Notes 20 and 31)                                    2,221,851,481   1,686,479,549
Additional paid-in capital (Note 20)                              11,207,662,356   6,843,501,476
Deposits for future stock subscriptions (Notes 20 and 31)             26,043,533      26,043,533
Cumulative translation adjustments (Notes 4 and 20)                  765,869,023     993,318,822
Retained earnings (Notes 4 and 21)                                16,254,343,977 14,762,281,005
                                                                  30,475,770,370 24,311,624,385
Minority Interests                                                   751,244,804     948,579,793
   Total Equity                                                   31,227,015,174 25,260,204,178
                                                                =                =
                                                                P59,689,944,915 P54,884,260,935

See accompanying Notes to Consolidated Financial Statements.




                                                                        *SGVMC100000*
                                                       - 46 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME


                                                                               Years Ended September 30
                                                                                         2005             2004
                                                                       2006      (As restated)    (As restated)
NET SALES AND SERVICES
   (Notes 4, 19 and 27)                                    35,183,814,854      =
                                                                               P31,199,275,746    P27,357,877,956
                                                                                                  =
COST OF SALES AND SERVICES
   (Notes 3, 4, 19, 22, 24 and 25)                         26,359,974,231       23,307,712,686     20,479,438,029
GROSS PROFIT                                                   8,823,840,623     7,891,563,060      6,878,439,927
OPERATING AND OTHER
   ADMINISTRATIVE EXPENSES (Notes 19,
   23, 24, 25 and 26)                                     (6,166,039,097)      (5,454,038,003)    (4,776,661,968)
MARK-TO-MARKET GAIN ON FINANCIAL
  INSTRUMENTS AT FAIR VALUE
  THROUGH PROFIT OR LOSS (Note 7)                               923,670,697        493,318,452       395,893,483
FOREIGN EXCHANGE GAINS (LOSSES)                                (259,222,224)       172,389,517      (107,213,560)
INVESTMENT INCOME (Notes 4, 7 and 28)                          2,319,815,409     1,908,880,098      1,439,276,063
EQUITY IN NET EARNINGS (Note 11)                                319,996,500        244,623,123       184,764,758
FINANCE COSTS (Notes 4, 13, 18 and 29)                     (2,271,950,902)     (2,114,784,811)     (1,548,580,869)
IMPAIRMENT LOSS (Notes 13 and 15)                              (240,688,815)                 –      (297,275,729)
OTHER INCOME (CHARGES) - Net                                   (155,966,428)     (246,871,545)      (117,638,986)
INCOME BEFORE INCOME TAX AND
   MINORITY INTEREST                                           3,293,455,763     2,895,079,891      2,051,003,119
PROVISION FOR (BENEFIT FROM) INCOME
    TAX (Note 30)
Current                                                         256,450,512        259,557,329        109,907,979
Deferred                                                        125,914,077        233,851,091       (105,044,993)
                                                                382,364,589        493,408,420          4,862,986
NET INCOME                                                =
                                                          P2,911,091,174        =
                                                                                P2,401,671,471     P2,046,140,133
                                                                                                   =
ATTRIBUTABLE TO:
Equity holders of the parent                              =
                                                          P3,018,916,609        P2,526,249,661
                                                                                =                  =
                                                                                                   P2,112,320,173
Minority interest                                           (107,825,435)         (124,578,190)      (66,180,040)
                                                          =
                                                          P2,911,091,174        P2,401,671,471
                                                                                =                  P2,046,140,133
                                                                                                   =

Basic and Diluted Earnings Per Share
    attributable to common equity holders of the
    parent (Notes 20 and 31)                                          =
                                                                      P1.42              P1.30
                                                                                         =                  P1.09
                                                                                                            =

See accompanying Notes to Consolidated Financial Statements.




                                                                                      *SGVMC100000*
                                                                                                          - 47 -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


                                                                                         Attributable to Equity Holders of the Parent

                                                                                                                              Cumulative     Unappropriated
                                            Preferred Stock                     Additional Paid-in Deposits for Future        Translation          Retained          Appropriated      Attributable to
                                              (Notes 20 and    Common Stock                Capital Stock Subscriptions       Adjustments          Earnings       Retained Earnings    Minority Interest
                                                        31)   (Notes 20 and 31)           (Note 20)   (Notes 20 and 31)         (Note 20)          (Note 21)              (Note 21)             Equity       Total Equity
As of September 30, 2005,
       as previously stated                             P–
                                                        =      P1,686,479,549
                                                               =                  =
                                                                                  P6,843,501,476           =
                                                                                                           P26,043,533     P1,064,556,292
                                                                                                                           =                 =
                                                                                                                                             P11,506,933,778        P3,000,000,000
                                                                                                                                                                    =                     =
                                                                                                                                                                                          P948,579,793    P25,076,094,421
                                                                                                                                                                                                          =
Effect of changes in accounting policies
       (Note 3)                                          –                  –                   –                     –       (71,237,470)       255,347,227                     –                   –        184,109,757
As of October 1, 2005, as restated                       –      1,686,479,549       6,843,501,476            26,043,533       993,318,822     11,762,281,005         3,000,000,000         948,579,793     25,260,204,178
Cumulative effect of change in
       accounting policy for financial
       instruments as of October 1, 2005
       (Note 3)                                          –                  –                   –                     –                  –       (75,100,307)                    –                   –        (75,100,307)
At October 1, 2005, as adjusted                          –      1,686,479,549       6,843,501,476            26,043,533        993,318,822    11,687,180,698         3,000,000,000         948,579,793     25,185,103,871
Net income for the year                                  –                  –                   –                     –                  –     3,018,916,609                     –        (107,825,435)     2,911,091,174
Changes during the year                                  –                  –                   –                     –      (227,449,799)                 –                     –         (89,509,554)      (316,959,353)
Total income (expense) recognized for the                                                                             –
       year                                               –                 –                  –                             (227,449,799)      3,018,916,609                    –        (197,334,989)      2,594,131,821
Issuance of shares                                        –       282,400,000      4,364,160,880                     –                   –                  –                    –                   –       4,646,560,880
Cash dividends (Note 21)                                  –                 –                  –                     –                   –     (1,198,781,398)                   –                   –      (1,198,781,398)
Stock dividends (Note 21)                                 –       252,971,932                  –                     –                   –       (252,971,932)                   –                   –                   –
Balances at September 30, 2006                          =
                                                        P–     =
                                                               P2,221,851,481    P11,207,662,356
                                                                                 =                         =
                                                                                                           P26,043,533       P765,869,023
                                                                                                                             =               =
                                                                                                                                             P13,254,343,977        P3,000,000,000
                                                                                                                                                                    =                     P751,244,804
                                                                                                                                                                                          =               =
                                                                                                                                                                                                          P31,227,015,174




                                                                                         Attributable to Equity Holders of the Parent

                                                                                                                             Cumulative      Unappropriated
                                            Preferred Stock                     Additional Paid-in Deposits for Future       Translation           Retained          Appropriated      Attributable to
                                              (Notes 20 and    Common Stock                Capital Stock Subscriptions      Adjustments           Earnings       Retained Earnings    Minority Interest
                                                        31)   (Notes 20 and 31)           (Note 20)   (Notes 20 and 31)         (Note 20)          (Note 21)              (Note 21)             Equity       Total Equity
As of September 30, 2004,
       as previously stated                             =
                                                        P–     =
                                                               P1,686,479,549     =
                                                                                  P6,843,501,476         =
                                                                                                         P26,043,533      P1,062,297,225
                                                                                                                          =                   P9,608,438,564
                                                                                                                                              =                     =
                                                                                                                                                                    P3,000,000,000      =
                                                                                                                                                                                        P1,093,649,532    P23,320,409,879
                                                                                                                                                                                                          =
Effect of changes in accounting policies
       (Note 3)                                          –                  –                   –                  –        (77,339,410)         133,536,645                     –                  –          56,197,235
As of October 1, 2004, as restated                       –      1,686,479,549       6,843,501,476         26,043,533        984,957,815        9,741,975,209         3,000,000,000       1,093,649,532     23,376,607,114
Net income for the year, as restated                     –                  –                   –                  –                  –        2,526,249,661                     –        (124,578,190)     2,401,671,471
Changes during the year                                  –                  –                   –                  –          8,361,007                    –                     –         (20,491,549)       (12,130,542)
Total income (expense) recognized for the                                                                          –
       year                                               –                 –                  –                              8,361,007        2,526,249,661                     –        (145,069,739)     2,389,540,929
Cash dividends (Note 21)                                  –                 –                  –                   –                  –         (505,943,865)                    –                   –       (505,943,865)
Balances at September 30, 2005                          =
                                                        P–     =
                                                               P1,686,479,549     P6,843,501,476
                                                                                  =                      =
                                                                                                         P26,043,533       P993,318,822
                                                                                                                           =                 =
                                                                                                                                             P11,762,281,005        P3,000,000,000
                                                                                                                                                                    =                     P948,579,793
                                                                                                                                                                                          =               =
                                                                                                                                                                                                          P25,260,204,178




                                                                                                                                                                                      *SGVMC100000*
                                                                                                                 - 48 -


                                                                                               Attributable to Equity Holders of the Parent

                                                                                                                                    Cumulative     Unappropriated
                                                Preferred Stock                        Additional Paid-in Deposits for Future       Translation          Retained          Appropriated      Attributable to
                                                  (Notes 20 and       Common Stock                Capital Stock Subscriptions      Adjustments          Earnings       Retained Earnings    Minority Interest
                                                            31)      (Notes 20 and 31)           (Note 20)   (Notes 20 and 31)         (Note 20)         (Note 21)              (Note 21)             Equity       Total Equity
As of September 30, 2003,
       as previously stated                                    P–
                                                               =      =
                                                                      P1,686,479,549     =
                                                                                         P6,843,501,476         P26,043,533
                                                                                                                =                P1,028,044,149
                                                                                                                                 =                  =
                                                                                                                                                    P8,238,707,332        =
                                                                                                                                                                          P3,000,000,000     P1,160,454,466
                                                                                                                                                                                             =                  P21,983,230,505
                                                                                                                                                                                                                =
Effect of changes in accounting policies
       (Note 3)                                                 –                  –                   –                  –        (71,237,470)       (103,108,431)                    –                  –        (174,345,901)
As of October 1, 2004, as restated                              –      1,686,479,549       6,843,501,476         26,043,533        956,806,679       8,135,598,901         3,000,000,000      1,160,454,466      21,808,884,604
Net income for the year, as restated                            –                  –                   –                  –                  –       2,112,320,173                     –        (66,180,040)      2,046,140,133
Changes during the year                                         –                  –                   –                  –         28,151,136                   –                     –           (624,894)         27,526,242
Total income (expense) recognized for the                                                                                 –
       year                                                      –                 –                  –                             28,151,136        2,112,320,173                    –        (66,804,934)      2,073,666,375
Cash dividends (Note 21)                                         –                 –                  –                   –                  –         (505,943,865)                   –                  –        (505,943,865)
Balances at September 30, 2004                                 =
                                                               P–      1,686,479,549     P6,843,501,476
                                                                                         =                      =
                                                                                                                P26,043,533       P984,957,815
                                                                                                                                  =                 =
                                                                                                                                                    P9,741,975,209        P3,000,000,000
                                                                                                                                                                          =                  P1,093,649,532
                                                                                                                                                                                             =                  =
                                                                                                                                                                                                                P23,376,607,114
See accompanying Notes to Consolidated Financial Statements.




                                                                                                                                                                                            *SGVMC100000*
                                                      - 49 -
UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                         Years Ended September 30
                                                                                    2005             2004
                                                                2006        (As restated)    (As restated)
CASH FLOWS FROM OPERATING
   ACTIVITIES
Income before income tax and minority interest        =
                                                      P3,293,455,763      =
                                                                          P2,895,079,891    P2,051,003,119
                                                                                            =
Adjustments for:
   Depreciation, amortization and impairment loss
      (Note 24)                                         2,529,808,269      1,843,595,350     2,028,658,267
   Gain arising from changes in fair value less
      estimated point-of-sale costs of swine stocks
      (Note 14)                                          (244,709,188)      (340,923,379)     (124,677,393)
   Net unrealized foreign exchange loss (gain)            259,222,224       (172,389,517)      107,213,560
   Investment income                                   (2,319,815,409)    (1,908,880,098)   (1,439,276,063)
   Finance costs                                        2,271,950,902      2,114,784,811     1,548,580,869
   Amortization of debt issuance costs                     19,739,316         26,725,131        26,725,155
   Equity in net earnings of investees (Note 11)         (319,996,500)      (244,623,123)     (184,764,758)
   Gains arising from changes in fair value of
      financial assets at fair value through profit
      and loss                                           (923,670,697)      (493,318,452)     (395,893,483)
   Loss on reacquisition of long-term debt                 14,523,978                  –                 –
   Loss (gain) on sale of:
      Marketable securities                              (185,830,148)                 –                 –
      Property and equipment                              (15,321,831)       (66,441,653)       (4,300,029)
      Temporary investments                               (64,705,415)       (64,033,979)      199,903,608
Operating income before working capital
   changes                                              4,314,651,264      3,589,574,982     3,813,172,852
   Decrease (increase) in:
      Trade and other receivables                        (945,277,727)      (296,972,571)     (491,318,464)
      Inventories                                         316,204,821       (347,523,096)   (1,126,779,998)
      Other current assets                                 18,944,885        (14,861,094)          346,382
   Increase (decrease) in:
      Accounts payable and accrued expenses             1,112,947,872       (143,522,830)          758,166
      Trust receipts and acceptances payable             (567,908,862)         7,379,377       932,602,669
      Due to affiliated companies                        (318,422,099)       144,967,586      (159,695,676)
Cash generated from operations                          3,931,140,154      2,939,042,354     2,969,085,931
Interest received                                       2,473,385,348      1,702,810,195     1,461,014,597
Income taxes paid                                        (237,980,553)      (179,372,435)     (120,677,660)
Interest paid                                          (2,375,737,859)    (1,906,301,983)   (1,545,336,643)
Net cash provided by operating activities               3,790,807,090      2,556,178,131     2,764,086,225

(Forward)




                                                                                 *SGVMC100000*
                                                        - 50 -



                                                                             Years Ended September 30
                                                                                        2005             2004
                                                                     2006       (As restated)    (As restated)
CASH FLOWS FROM INVESTING
  ACTIVITIES
Acquisitions of property, plant and equipment
  (Note 13)                                              (5,830,795,216)      =
                                                                             (P3,646,648,409)    =
                                                                                                (P2,279,020,790)
Proceeds from sale of property and equipment                328,575,448          208,282,311         43,112,925
Net (acquisition) disposal of:
  Financial assets at fair value through
     profit and loss                                      5,305,631,278                    –                  –
  Temporary investments                                               –       (9,195,370,783)     3,081,574,852
  Marketable securities                                               –                    –          6,393,019
Decrease (increase) in:
  Due from affiliated companies                            (120,599,637)          (2,709,479)        (4,722,698)
  Investments and advances                                   22,049,905           78,021,541       (542,064,902)
  Biological assets                                         180,609,264         (210,165,177)        85,418,293
  Other noncurrent assets (Note 15)                        (495,814,416)        (107,165,549)        66,219,631
  Net pension asset                                         (66,235,600)          40,908,700                  –
Acquisition of subsidiary - net of cash acquired
  (Note 11)                                                           –                    –       (19,761,966)
Dividends received (Note 11)                                171,391,485          114,619,657        19,999,943
Proceeds from sale of marketable securities                 194,870,469                    –                 –
Net cash provided by (used in) investing activities        (310,317,020)     (12,720,227,188)      457,148,307
CASH FLOWS FROM FINANCING
  ACTIVITIES
Availments of:
  Short-term borrowings                                   2,230,655,543                    –                  –
  Long-term debt                                                        –     11,132,000,000                  –
Payments of:
  Short-term borrowings                                    (423,512,167)      (1,249,733,248)      (641,424,579)
  Long-term debt                                         (3,596,331,326)        (498,757,403)      (787,059,399)
  Cash dividends                                         (1,198,781,397)        (505,943,862)      (505,943,865)
Decrease in equity attributable to minority interest
  in consolidated subsidiaries                              (89,509,553)         (20,491,549)          (624,894)
Proceeds from issuance of common shares                   4,646,560,881                   –                   –
Net cash provided by (used in) financing activities       1,569,081,981        8,857,073,938     (1,935,052,737)

NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                    5,049,572,051       (1,306,975,119)     1,286,181,795

CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR                                            930,303,344     2,237,278,463       951,096,668

CASH AND CASH EQUIVALENTS AT
  END OF YEAR                                           =
                                                        P5,979,875,395         P930,303,344
                                                                               =                =
                                                                                                P2,237,278,463

See accompanying Notes to Consolidated Financial Statements.




                                                                                     *SGVMC100000*
                                                   51
                                                -- - -

UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. Corporate Information

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

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

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

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


2. Basis of Financial Statement Preparation

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

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




                                                                              *SGVMC100000*
                                                    52
                                                 -- - -


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

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


3. Changes in Accounting Policies

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

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

   ·   PFRS 1, requires an entity to comply with each PFRS effective at the reporting date for its first
       PFRS financial statements. The Group has adopted PFRS for these financial statements as of
       September 30, 2006, and restated the comparative amounts for the years ended September 30,
       2005 and 2004, except for the following courses of action that have been allowed under PFRS 1:

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




                                                                              *SGVMC100000*
                                                   53
                                                -- - -

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

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

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

·   PFRS 3, Business Combinations, requires all business combinations within its scope to be
    accounted for by applying the purchase method. The pooling of interests method is no longer
    permitted. In addition, this standard requires the acquirer to initially measure separately the
    identifiable assets, liabilities and contingent liabilities at their fair values at acquisition date,
    irrespective of the extent of any minority interest.

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

    The adoption of PFRS 3 resulted in the Group ceasing annual goodwill amortization and
    commencing testing for impairment annually, or more frequently if events or changes in
    circumstances indicate that the asset might be impaired. Under previous Philippine GAAP,
    goodwill was amortized over twenty years. The adoption of PFRS 3 also resulted in the reversal
                                        =
    of negative goodwill amounting to P36.7. The adoption increased consolidated net income by
    P167.9 million and P205.4 million for the years ended September 30, 2005 and 2004,
    =                  =
                                                              =
    respectively. Consolidated retained earnings increased by P 373.3 million as of October 1, 2005,
        =
    and P205.4 million as of October 1, 2004.

                                                                           =
    In 2006, the Group recognized impairment loss on goodwill amounting to P240.7 million
    (Note 15).

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

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




                                                                                *SGVMC100000*
                                                 54
                                              -- - -


·   PAS 19 prescribes the accounting and disclosures by employers for employee benefits (including
    short-term employee benefits, post-employment benefits, other long-term employee benefits and
    termination benefits). For post-employment benefits classified as defined benefit plans, the
    standard requires: (a) the use of the projected unit credit method to measure an entity’s
    obligations and costs; (b) an entity to determine the present value of defined benefit obligations
    and the fair value of any plan assets with sufficient regularity; and (c) the recognition of a
    specific portion of net cumulative actuarial gains and losses when the net cumulative amount
    exceeds 10% of the greater of the present value of the defined benefit obligation or 10% of the
    fair value of the plan assets, but also permits the immediate recognition of these actuarial gains
    and losses.

                                                                 =
    The adoption of PAS 19 decreased consolidated net income by P50.2 million for the year ended
                                                                    =
    September 30, 2005. Consolidated retained earnings increased by P166.6 million and
    =
    P216.8 million as of October 1, 2005 and 2004, respectively.

·   PAS 21, The Effects of Changes in Foreign Exchange Rates, results in the elimination of the
    capitalization of foreign exchange losses related to the acquisition of property, plant and
    equipment.

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

    As allowed under PAS 21, Goodwill and any fair value adjustments arising on the acquisition of
    a foreign subsidiary prior to October 1, 2004 will now be treated as assets and liabilities of the
    Company rather than as assets and liabilities of the foreign subsidiary. Therefore, those goodwill
    and fair value adjustments either are already expressed in the Company’s functional currency or
    are non-monetary foreign currency items, which are reported using the exchange rate at
    October 1, 2004.

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

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




                                                                             *SGVMC100000*
                                                  55
                                               -- - -

                                                                             =              =
    The adoption of PAS 21 decreased cumulative translation adjustment by P71.2 million, P77.3
                 =
    million, and P51.6 million as of October 1, 2005, 2004 and 2003. It also decreased retained
                =               =                   =
    earnings by P158.6 million, P191.1 million, and P204.2 million as of October 1, 2005, 2004 and
    2003, respectively.

·   PAS 32 covers the disclosure and presentation of all financial instruments. The standard requires
    more comprehensive disclosures about an entity’s financial instruments, whether recognized or
    unrecognized in the consolidated financial statements. New disclosure requirements include
    terms and conditions of financial instruments used by the entity, types of risks associated with
    financial instruments (market risk, foreign exchange risk, price risk, credit risk, liquidity risk and
    cash flow risk), fair value information of both recognized and unrecognized financial assets and
    financial liabilities, and the entity’s financial risk management policies and objectives. The
    standard also requires financial instruments to be classified as liabilities or equity in accordance
    with its substance and not its legal form. The standard also requires presentation of financial
    assets and financial liabilities on a net basis when, and only when, an entity: (a) currently has a
    legally enforceable right to set off the recognized amounts; and (b) intends either to settle on a
    net basis, or to realize the asset and settle the liability simultaneously.

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

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

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

    Previously, the Group capitalized debt issuance costs related to its loan borrowings. Upon
    adoption of PAS 39, these debt issuance costs were included as part of the related loan and
    amortized over the term of the loan using effective interest method at prevailing market rates.
                                                 =
    Consolidated retained earnings increased by P29.9 million as of October 1, 2005.




                                                                              *SGVMC100000*
                                                 56
                                              -- - -


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

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

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

·   PAS 40, Investment Property, establishes the accounting and reporting standards for investment
    property. Investment property is property (land or a building or both) held (by the owner or by
    the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than
    for: (a) use in the production or supply of goods or supply of goods or services or for
    administrative purposes; or (b) sale in the ordinary course of business. Under this standard, an
    entity is permitted to choose either the fair value model or cost model in the subsequent
    measurement of a qualifying investment property. Fair value model requires an investment
    property to be measured at fair value with fair value changes recognized directly in the
    consolidated statements of income. Cost model requires an investment property to be measured
    at cost less any accumulated depreciation and impairment loss.

    The adoption of PAS 40 resulted in the reclassification of the carrying value of the portion of a
                                                          =                  =
    building being leased to related parties amounting to P89.8 million and P93.4 million as of
    October 1, 2005 and 2004, respectively, from property, plant and equipment to investment
    property. The Group chose the cost model approach in the measurement of their investment
    property.

·   PAS 41, Agriculture, prescribes the accounting treatment for biological assets during the period
    of growth, degeneration, production and procreation, and for the initial measurement of
    agricultural produce at point of harvest. It requires measurement at fair value less estimated
    point-of-sale costs from initial recognition of biological assets up to the point of harvest, other
    than when the fair value cannot be measured reliably on initial recognition.




                                                                            *SGVMC100000*
                                                  57
                                               -- - -


    The adoption of PAS 41 did not affect the consolidated statements of income for the years ended
    September 30, 2005 and 2004, and the beginning consolidated retained earnings as of October 1,
    2005, 2004 and 2003, as biological assets requiring fair valuation have been reported previously
    at their market values. However, the adoption of PAS 41 resulted in the reclassification of the
                                                         =
    carrying value of the biological assets amounting to P760.6 million as of October 1, 2005 and
    2004. Previously, these were presented as part of inventory.

Revised Accounting Standards

·   PAS 16, Property, Plant and Equipment, (a) provides additional guidance and clarification on
    recognition and measurement of items of property, plant and equipment; (b) requires the
    capitalization of the costs of asset dismantling, removal or restoration as a result of either
    acquiring or having used the asset for purposes other than to produce inventories during the
    period; and (c) requires measurement of an item of property, plant and equipment acquired in
    exchange for a nonmonetary asset, or a combination of monetary and nonmonetary assets, at fair
    value unless the exchange transaction lacks commercial substance. Under the previous version
    of this standard, an entity measured such acquired asset at fair value unless the exchanged assets
    were similar. The standard also provides that each part of an item of property, plant and
    equipment with a cost that is significant in relation to the total cost of the item shall be
    depreciated separately.

    Major spare parts and servicing equipment items qualifying as property, plant and equipment that
    were previously classified as part of inventories have been reclassified to property, plant and
                                                   =
    equipment. The reclassification amounted to P204.3 million as of September 30, 2005 and 2004.

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

·   PAS 1, Presentation of Financial Statements, (a) provides a framework within which an entity
    assesses how to present fairly the effects of transactions and other events; (b) provides the base
    criteria for classifying liabilities as current or noncurrent; (c) prohibits the presentation of income
    from operating activities and extraordinary items as separate line items in the consolidated
    statements of income; and (d) specifies the disclosures about key sources of estimation,
    uncertainty and judgments that management has made in the process of applying the entity’s
    accounting policies (Note 5).

·   PAS 2, Inventories, reduces the alternatives for measurement of inventories by disallowing the
    use of the last in, first out formula. Moreover, the revised accounting standard does not permit
    foreign exchange differences arising directly on the recent acquisition of inventories invoiced in
    a foreign currency to be included in the cost of inventories.




                                                                              *SGVMC100000*
                                                  58
                                               -- - -


·   PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, (a) removes the
    concept of fundamental error and the allowed alternative to retrospective application of voluntary
    changes in accounting policies and retrospective restatement to correct prior period errors;
    (b) updates the previous hierarchy of guidance to which management refers and whose
    applicability it considers when selecting accounting policies in the absence of standards and
    interpretations that specifically apply; (c) defines material omissions or misstatements; and
    (d) describes how to apply the concept of materiality when applying accounting policies and
    correcting errors.

·   PAS 10, Events After the Balance Sheet Date, provides a limited clarification of the accounting
    for dividends declared after the balance sheet date.

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

·   PAS 24, Related Party Disclosures, provides additional guidance and clarity in the scope of the
    standard, the definitions and disclosures for related parties. It also requires disclosure of the total
    compensation of key management personnel and by benefit types (Note 19).

·   PAS 27, Consolidated and Separate Financial Statements, reduces alternatives in accounting for
    subsidiaries in consolidated financial statements and in accounting for investments in the
    separate financial statements of a parent, venturer or investor. Investments in subsidiaries will be
    accounted for either at cost or in compliance with PAS 39 in the separate financial statements.
    Equity method of accounting will no longer be allowed in the separate financial statements. This
    standard also requires strict compliance with adoption of uniform accounting policies and
    requires the parent to make appropriate adjustments to the subsidiary’s financial statements to
    conform them to the parent’s accounting policies for reporting like transactions and other events
    in similar circumstances.

·   PAS 28, Investments in Associates, reduces alternatives in accounting for associates in
    consolidated financial statements and in accounting for investments in the separate financial
    statements of an investor. Investments in associates will be accounted for either at cost or in
    compliance with PAS 39 in the separate financial statements. Equity method of accounting will
    no longer be allowed in the separate financial statements. This standard also requires strict
    compliance with adoption of uniform accounting policies and requires the investor to make
    appropriate adjustments to the associate’s financial statements to conform them to the investor’s
    accounting policies for reporting like transactions and other events in similar circumstances.

·   PAS 31, Interests in Joint Ventures, reduces the alternatives in accounting for interests in joint
    ventures in consolidated financial statements. Interests in joint ventures will be accounted for
    either at cost or in compliance with PAS 39. The standard allows the equity method of
    accounting as an alternative to proportionate consolidation.




                                                                              *SGVMC100000*
                                                 59
                                              -- - -


·   PAS 33, Earnings Per Share, prescribes principles for the determination and presentation of
    earnings per share for entities with publicly traded shares, entities in the process of issuing
    ordinary shares to the public, and any entities that calculate and disclose earnings per share. The
    standard also provides additional guidance in computing earnings per share including the effects
    of mandatorily convertible instruments and contingently issuable shares, among others.

·   PAS 36, Impairment of Assets, requires annual impairment test of intangible asset with an
    indefinite useful life which includes goodwill acquired in a business combination, whether or not
    there is an indication of impairment.

·   PAS 38, Intangible Assets, provides additional clarification on the definition and recognition of
    certain intangibles. Moreover, this revised accounting standard requires that an intangible asset
    with an indefinite useful life should not be amortized but will be tested for impairment by
    comparing its recoverable amount with its carrying amount annually and whenever there is an
    indication that the intangible asset may be impaired.

    Change in Accounting for Pre-milling Costs
    Starting on October 1, 2005, the Group changed its accounting for pre-milling costs in the
    production of sugar that were incurred during post-milling season. These pre-milling costs are
    now included in the consolidated statements of income when incurred. These costs are
    previously deferred and charged to production costs only in the next applicable sugar crop year
    which coincides with the milling season. The effect of the change in accounting policy was
    determined restrospectively and prior years consolidated financial statements have been restated
    in accordance with PAS 8. The change in accounting policy (decreased) increased consolidated
                   =                   =
    net income by (P28.3 million) and P18.1 million for the years ended September 30, 2005 and
                                                                     =               =
    2004, respectively. The retained earnings account decreased by P 125.9 million, P97.6 and
    =
    P115.7 million as of October 1, 2005, 2004 and 2003, respectively.

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




                                                                            *SGVMC100000*
                                                                                                              - 60 -

Consolidated Balance Sheets

                                                                   At October 1, 2003
                                                                (Date of Transition)                                        At October 1, 2004                                     At September 30, 2005
                                                                       Effect of                                                Effect of                                                 Effect of
                                                        Previous     Transition                                 Previous      Transition                                  Previous      Transition
                                          Item            GAAP          to PFRS                 PFRS              GAAP          to PFRS                  PFRS               GAAP           to PFRS                PFRS
ASSETS
Current Assets
Cash and cash equivalents                          =
                                                   P951,096,668               P–
                                                                              =          =
                                                                                         P951,096,668     =
                                                                                                          P2,237,278,463              P–
                                                                                                                                      =      =
                                                                                                                                             P2,237,278,463          =
                                                                                                                                                                     P930,303,344                 P–
                                                                                                                                                                                                  =       =
                                                                                                                                                                                                          P930,303,344
Temporary investments - net                       15,062,272,436                –       15,062,272,436    12,143,020,441                –    12,143,020,441         21,753,976,562                  –    21,753,976,562
Marketable securities                                730,111,457                –          730,111,457        757,385,456               –        757,385,456           896,641,788                  –       896,641,788
Trade and other receivables - net                  2,868,385,942                –        2,868,385,942      3,346,380,700               –      3,346,380,700         3,849,423,174                  –     3,849,423,174
Due from affiliated companies                        218,431,365                –          218,431,365        353,672,552               –        353,672,552           356,382,031                  –       356,382,031
Inventories - net                         (a)      4,597,374,044    (754,740,755)        3,842,633,289      5,774,089,468   (754,740,755)      5,019,348,713         6,672,701,120      (964,905,932)     5,707,795,188
Other current assets                      (b)        225,606,875    (115,685,864)          109,921,011        224,272,707    (97,592,870)        126,679,837           267,399,248      (125,858,317)       141,540,931
           Total Current Assets                   24,653,278,787    (870,426,619)       23,782,852,168    24,836,099,787    (852,333,625)    23,983,766,162         34,726,827,267    (1,090,764,249)    33,636,063,018
Noncurrent Assets
Investments and advances                            1,260,370,930             –        1,260,370,930       1,779,943,951                –      1,779,943,951          1,831,925,876               –        1,831,925,876
Investment properties - net               (c)                   –    96,994,809           96,994,809                   –       93,396,564         93,396,564                      –      89,798,319           89,798,319
Biological assets                         (a)                   –   550,477,233          550,477,233                         550,477,233         550,477,233                      –     760,642,410          760,642,410
Property, plant and equipment - net       (c)      15,225,691,159 (140,751,750)       15,084,939,409       15,520,784,949   (108,938,086)     15,411,846,863         17,184,214,864     (59,559,507)      17,124,655,357
Deferred income tax - net                                       –             –                    –           36,095,850               –         36,095,850                      –               –                    –
Pension asset - net                       (d)                   –   216,790,000          216,790,000                    –    216,790,000         216,790,000                      –     170,110,800          170,110,800
Other noncurrent assets                   (e)       1,421,717,753   (51,646,228)       1,370,071,525        1,075,400,580    128,094,787       1,203,495,367            969,030,423     302,034,732        1,271,065,155
           Total Noncurrent Assets                 17,907,779,842   671,864,064       18,579,643,906       18,412,225,330    879,820,498      19,292,045,828         19,985,171,163   1,263,026,754       21,248,197,917
                                                 P42,561,058,629 (P198,562,555)
                                                 =                =                 =
                                                                                    P42,362,496,074      P43,248,325,117
                                                                                                         =                   =
                                                                                                                             P27,486,873    P43,275,811,990
                                                                                                                                            =                      P54,711,998,430
                                                                                                                                                                   =                  =
                                                                                                                                                                                      P172,262,505      P54,884,260,935
                                                                                                                                                                                                        =

LIABILITIES AND
      STOCKHOLDERS’ EQUITY
Current Liabilities
Loans payable                                     =
                                                  P4,110,432,242             P–
                                                                             =       P4,110,432,242
                                                                                     =                    P3,469,007,663
                                                                                                          =                          =
                                                                                                                                     P–      P3,469,007,663
                                                                                                                                             =                      P2,219,274,415
                                                                                                                                                                    =                             =
                                                                                                                                                                                                  P–     =
                                                                                                                                                                                                         P2,219,274,415
Accounts payable and accrued expenses     (d)       3,025,675,642              –       3,025,675,642        3,073,806,052              –       3,073,806,052          3,138,766,050       (5,770,500)      3,132,995,550
Trust receipts and acceptances payable                289,074,132              –         289,074,132        1,221,676,801              –       1,221,676,801          1,229,056,178                 –      1,229,056,178
Due to affiliated companies                           485,221,061              –         485,221,061          332,777,177              –         332,777,177            477,744,763                 –        477,744,763
Income tax payable                                     56,325,823              –          56,325,823           45,556,142              –          45,556,142            125,741,036                 –        125,741,036
Current portion of long-term debt                     344,612,150              –         344,612,150          320,161,156              –         320,161,156            372,891,534                 –        372,891,534
           Total Current Liabilities                8,311,341,050              –       8,311,341,050        8,462,984,991              –       8,462,984,991          7,563,473,976       (5,770,500)      7,557,703,476
Noncurrent Liabilities
Deferred income tax - net                 (f)         84,046,676     (43,807,896)           40,238,780                 –     (28,710,362)           (28,710,362)       175,121,631       (6,076,752)        169,044,879
Long-term debt – net of current portion           12,182,440,398               –        12,182,440,398    11,464,930,247               –         11,464,930,247     21,897,308,402                –      21,897,308,402
           Total Noncurrent Liabilities           12,266,487,074     (43,807,896)       12,222,679,178    11,464,930,247     (28,710,362)        11,436,219,885     22,072,430,033       (6,076,752)     22,066,353,281
           Total Liabilities                      20,577,828,124     (43,807,896)       20,534,020,228    19,927,915,238     (28,710,362)        19,899,204,876     29,635,904,009      (11,847,252)     29,624,056,757
(Forward)




                                                                                                                                                                           *SGVMC100000*
                                                                                                           - 61 -


                                                                   At October 1, 2003
                                                                (Date of Transition)                                     At October 1, 2004                                 At September 30, 2005
                                                                       Effect of                                             Effect of                                             Effect of
                                                        Previous     Transition                              Previous      Transition                              Previous      Transition
                                          Item            GAAP          to PFRS              PFRS              GAAP          to PFRS               PFRS              GAAP           to PFRS               PFRS
Stockholders’ Equity
Equity attributable to equity holders
     of the parent:
     Capital stock                                =
                                                  P1,686,479,549            =
                                                                            P–      =
                                                                                    P1,686,479,549     =
                                                                                                       P1,686,479,549             P–
                                                                                                                                  =       =
                                                                                                                                          P1,686,479,549     P1,686,479,549
                                                                                                                                                             =                           P–
                                                                                                                                                                                         =       =
                                                                                                                                                                                                 P1,686,479,549
     Additional paid-in capital                     6,843,501,476             –       6,843,501,476      6,843,501,476              –       6,843,501,476      6,843,501,476               –       6,843,501,476
     Deposits for future stock                         26,043,533             –          26,043,533
     subscriptions                                                                                          26,043,533              –          26,043,533         26,043,533               –          26,043,533
     Cumulative translation adjustments   (e)       1,028,044,149   (51,646,228)        976,397,921      1,062,297,225   (77,339,410)         984,957,815      1,064,556,292     (71,237,470)        993,318,822
     Retained earnings                    (g)      11,238,707,332 (103,108,431)      11,135,598,901     12,608,438,564   133,536,645       12,741,975,209     14,506,933,778     255,347,227      14,762,281,005
                                                   20,822,776,039 (154,754,659)      20,668,021,380     22,226,760,347     56,197,235      22,282,957,582     24,127,514,628     184,109,757      24,311,624,385
Minority interest                                   1,160,454,466             –       1,160,454,466      1,093,649,532              –       1,093,649,532        948,579,793               –         948,579,793
           Total Stockholders’ Equity              21,983,230,505 (154,754,659)      21,828,475,846     23,320,409,879     56,197,235      23,376,607,114     25,076,094,421     184,109,757      25,260,204,178
                                                 =                =
                                                 P42,561,058,629 (P198,562,555)    P42,362,496,074
                                                                                   =                  P43,248,325,117
                                                                                                      =                  =
                                                                                                                         P27,486,873     =
                                                                                                                                         P43,275,811,990    =
                                                                                                                                                            P54,711,998,430    P172,262,505
                                                                                                                                                                               =                =
                                                                                                                                                                                                P54,884,260,935




                                                                                                                                                                    *SGVMC100000*
                                                                                          - 62 -


Consolidated Net Income

                                                     2005                                               2004                                              2003
                                                     Effect of                                           Effect of                                         Effect of
                           Item Previous GAAP       Transition            PFRS      Previous GAAP       Transition           PFRS Previous GAAP          Transition         PFRS

NET SALES AND SERVICES       = =
                             P– P31,199,275,746            P– P31,199,275,746
                                                           = =                      =
                                                                                    P27,357,877,956            = =
                                                                                                               P– P27,357,877,956 P23,414,734,363
                                                                                                                                  =                              = =
                                                                                                                                                                 P– P23,414,734,363
COST OF SALES AND
     SERVICES               (b) 23,279,447,239      28,265,447    23,307,712,686     20,497,531,023    (18,092,994) 20,479,438,029    17,371,895,968      16,211,862   17,388,107,830
GROSS PROFIT                     7,919,828,507     (28,265,447)    7,891,563,060      6,860,346,933      18,092,994  6,878,439,927     6,042,838,395    (16,211,862)    6,026,626,533
OPERATING AND OTHER
     ADMINISTRATIVE
     EXPENSES                    (5,458,909,637)     4,871,634    (5,454,038,003)    (4,804,877,386)    28,215,418   (4,776,661,968) (4,555,050,657)              –    (4,555,050,657)
MARK-TO-MARKET GAIN
     ON FINANCIAL ASSETS
     AT FVPL                        493,318,452              –      493,318,452        395,893,483               –     395,893,483      323,840,562               –      323,840,562
FOREIGN EXCHANGE GAINS
     AND (LOSSES)                   172,389,517              –       172,389,517       (107,213,560)             –    (107,213,560)     291,493,310               –      291,493,310
INVESTMENT INCOME                 1,908,880,098              –     1,908,880,098      1,439,276,063              –   1,439,276,063      980,456,992               –      980,456,992
EQUITY IN NET EARNINGS
     OF INVESTEES                   244,623,123              –       244,623,123        184,764,758              –      184,764,758      41,262,628               –        41,262,628
FINANCE COSTS                    (2,114,784,811)             –    (2,114,784,811)    (1,548,580,869)             –   (1,548,580,869) (1,150,241,552)              –    (1,150,241,552)
IMPAIRMENT LOSS                               –              –                 –       (297,275,729)             –     (297,275,729)              –               –                 –
OTHER INCOME (CHARGES)             (414,709,550)   167,838,005      (246,871,545)      (323,073,183)   205,434,197     (117,638,986)   (580,319,128)              –      (580,319,128)
INCOME BEFORE INCOME
     TAX AND MINORITY
     INTEREST                     2,750,635,699    144,444,192     2,895,079,891      1,799,260,510    251,742,609   2,051,003,119     1,394,280,550    (16,211,862)   1,378,068,688
PROVISION FOR (BENEFIT
     FROM) INCOME TAX
Current                            259,557,329            –          259,557,329        109,907,979             –    109,907,979    160,197,714            –    160,197,714
Deferred                           211,217,481   22,633,610          233,851,091       (120,142,526)   15,097,533   (105,044,993)   (93,852,357)   3,567,209    (90,285,148)
                                   470,774,810   22,633,610          493,408,420        (10,234,547)   15,097,533      4,862,986     66,345,357    3,567,209     69,912,566
Net income, as restated     (g) P2,279,860,889 P121,810,582
                                =              =                  =
                                                                  P2,401,671,471     =
                                                                                     P1,809,495,057 P236,645,076 P2,046,140,133 P1,327,935,193 (P19,779,071) P1,308,156,122
                                                                                                     =            =               =              =           =


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




                                                                                                                                                       *SGVMC100000*
                                                    - 63 -


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

                                                                           2005               2004
       As previously reported                                             P1.08
                                                                          =                  =
                                                                                             P0.84
       Adjustments on issuance of stock dividends                           0.15               0.11
       PFRS Adjustments:
            PAS 19                                                        (0.02)               –
            PAS 21                                                          0.02               0.02
            PAS 36                                                          0.08               0.11
            Effect of change in accounting policy for pre-
               milling costs                                              (0.01)               0.01
       As restated                                                        =
                                                                          P1.30              =
                                                                                             P1.09

   (a) The adjustments to Inventories consist of:

                                                October 1, 2003          October 1, 2004       September 30, 2005
     Reclassification of Inventories to
         Property, plant and equipment            =
                                                 (P204,263,522)            =
                                                                          (P204,263,522)           =
                                                                                                  (P204,263,522)
     Reclassification of Inventories to
         Biological assets                        (550,477,233)            (550,477,233)           (760,642,410)
                                                  =
                                                 (P754,740,755)            =
                                                                          (P754,740,755)           =
                                                                                                  (P964,905,932)

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

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

                          As of and for the year ending As of and for the year ending As of and for the year ending
                                October 1, 2003               October 1, 2004             September 30, 2005
Other current assets                       =
                                          (P115,685,864)                 =
                                                                        (P97,592,870)                =
                                                                                                    (P125,858,317)
Cost of sales                                 16,211,862                  (18,092,994)                   28,265,447
                                             =
                                           (P99,474,002)                =
                                                                       (P115,685,864)                  =
                                                                                                      (P97,592,870)




                                                                                   *SGVMC100000*
                                               - 64 -


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

                                            October 1, 2003      October 1, 2004   September 30, 2005
Reversal of undepreciated capitalized
    foreign exchange losses                  =
                                            (P248,020,462)         =
                                                                  (P219,805,044)        =
                                                                                       (P174,024,710)
Reclassification of Inventories to
    Property, plant and equipment              204,263,522          204,263,522          204,263,522
Reclassification of Property, plant and
    equipment to Investment property           (96,994,809)         (93,396,564)          (89,798,319)
                                            =
                                           (P140,751,749)        =
                                                                (P108,938,086)           =
                                                                                        (P59,559,507)

(d) The adoption of PAS 19 resulted in the recognition of net pension assets amounting to
    =                                                         =
    P216.8 million as of September 30, 2004 and 2003, and P170.1 million as of September 30,
                                                                                      =
    2005. It also resulted in the reversal of accrued retirement expense amounting to P 5.8 million as
    of September 30, 2005.

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

                                             October 1, 2003     October 1, 2004   September 30, 2005
Reversal of negative goodwill                            =
                                                         P–         P36,738,207
                                                                    =                   P36,738,207
                                                                                        =
Reversal of goodwill amortization                          –        168,695,990         336,533,995
Reversal of the related cumulative
   translation adjustments on the
   goodwill                                    (51,646,228)         (77,339,410)         (71,237,470)
                                               =
                                              (P51,646,228)        =
                                                                   P128,094,787        P302,034,732
                                                                                       =

(f) The adjustments to Deferred income tax assets (liabilities) consist of:

                                             October 1, 2003     October 1, 2004   September 30, 2005
Effect of change in accounting for
    capitalized foreign exchange                                                        =
                                                                                       (P15,394,083)
    losses - net                               =
                                              (P43,807,896)          P28,710,362
                                                                     =
Effect of change in accounting for
    employee benefits                                    –                     –            9,317,331
                                               =
                                              (P43,807,896)          P28,710,362
                                                                     =                    =
                                                                                         (P6,076,752)




                                                                              *SGVMC100000*
                                                - 65 -


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

                                                   October 1, 2003     October 1, 2004 September 30, 2005
    Adjustments to Retained earnings
        beginning:
        Effect of change in accounting for
            pre-milling costs                        =
                                                    (P99,474,002)        =
                                                                        (P115,685,864)        =
                                                                                             (P97,592,870)
        Effect of change in accounting for
            capitalized foreign exchange
            losses - net                             (200,645,358)       (204,212,567)       (191,094,682)
        Effect of change in accounting for
            employee benefits                            216,790,000       216,790,000         216,790,000
        Effect of change in accounting for
            impairment of assets                                 –                   –         205,434,197
                                                      (83,329,360)       (103,108,431)         133,536,645
    Adjustments to Net income:
        Effect of change in accounting for
            pre-milling costs                         (16,211,862)          18,092,994         (28,265,447)
        Effect of change in accounting for
            capitalized foreign exchange
            losses - net                                 (3,567,209)        13,117,885          32,464,055
        Effect of change in accounting for
            employee benefits                                     –                  –         (50,226,031)
        Effect of change in accounting for
            impairment of assets                                 –         205,434,197          167,838,005
                                                      (19,779,071)         236,645,076          121,810,582
    Total                                           =
                                                   (P103,108,431)        =
                                                                         P133,536,645         P255,347,227
                                                                                              =

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

2006

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




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·   Amendments to PAS 21, The Effects of Changes in Foreign Exchange Rates. The amendment
    clarifies that monetary items (receivables or payables) between any subsidiary of a group and a
    foreign operation (rather than being restricted to arrangements between a parent and its
    subsidiary) may form part of the group’s investment in that foreign operation (and therefore
    foreign exchange gains and losses are taken to equity on consolidation if settlement of the loan is
    neither planned nor likely to occur in the foreseeable future). It also allows monetary items that
    form part of a reporting entity’s net investment in a foreign operation to be denominated in a
    currency other than the functional currency of either the parent of the operation itself. The
    Group will assess its receivables or payables which may be considered part of the Group’s net
    investment.

·   Amendments to PAS 39, Financial Instruments: Recognition and measurement. This
    amendment restricts the use of the option to designate any financial asset or liability to be held at
    fair value through the profit or loss to the situations in which (a) it eliminates or significantly
    reduces a measurement or recognition inconsistency that would otherwise arise from measuring
    assets or liabilities, or recognizing the gains and losses on them on different bases (‘accounting
    mismatch’); (b) a group of financial assets and/or or liabilities is managed and its performance is
    evaluated on a fair value basis, or (c) it is a hybrid instrument (i.e., a financial instrument with an
    embedded derivative), unless: (i) the embedded derivative does not significantly modify the cash
    flows otherwise required by the contract, or, (ii) with little or no analysis it would be concluded
    that the conditions necessary to separate an embedded derivative are not met. The Group will
    reassess all financial instruments that were previously designated at FVPL. The Group will also
    revisit their documented risk management policies and investment strategies as they relate to the
    management of their financial instruments, to insure these are robust enough to allow assessment
    of items to which the option should be applied.

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

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




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

·   IFRIC 4, Determining whether an arrangement contains a Lease. This Interpretation establishes
    criteria to be used to assess whether a lease is contained in an arrangement that is not in the legal
    form of a lease. Essentially, any arrangement that conveys the right to use a specific asset in
    return for payments will be considered as a lease. The Interpretation includes criteria to help
    assess whether the contract, at the date of inception, relies on a specific asset or not, and whether
    the arrangement provide for the right to use the asset.

    Determining whether there is the right to use the asset involves a consideration of the
    relationship between the contracted quantity of product/service and the asset’s capacity, the
    pricing terms and the decision-making related to the operation of the asset concerned.

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

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




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

·   IFRIC 6, Liabilities arising from Participating in a Specific Market – Waste Electrical and
    Electronic Equipment. This interpretation requires that liabilities relating to waste management
    in respect of sales of historical household equipment to be recognized when the Group
    participates in the market during the relevant measurement period. This interpretation will have
    no material impact to the consolidated financial statements, as the Group is not involved in the
    sale of household electrical equipment.

·   IFRIC 8, Scope of PFRS 2. This interpretation clarifies that PFRS 2, Share-based Payment, will
    apply to any arrangement when equity instruments are granted or liabilities (based on a value of
    the Group’s equity instruments) are incurred by the Group, when the identifiable consideration
    appears to be less than the fair value of the instruments given. The adoption of this
    interpretation will not impact the consolidated financial statements, as the Group has no share-
    based payments.

2007

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




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

·   PFRS 8, Operating Segments. This amendment, which is effective for annual periods beginning
    on or after January 1, 2009, was issued as part of the convergence project with the US Financial
    Accounting Standards Board. This new standard replaces PAS 14 Segment Reporting and adopts
    a management approach to segment reporting as required in the US Standard SFAS 131
    Disclosures about Segments of an Enterprise and Related Information. The information reported
    would be that which management uses internally for evaluating the performance of operating
    segments and allocating resources to those segments. This information may be different from
    that reported in the balance sheet and income statement and entities will need to provide
    explanations and reconciliations of the differences. As the information required to be disclosed
    will likely be readily available as it is already used internally, the Group will reassess to
    determine whether additional processes should be put into place to reconcile information to the
    consolidated balance sheets and consolidated statements of income.

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




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   ·    IFRIC 9, Reassessment of Embedded Derivatives. IFRIC 9 requires an entity to assess whether a
        contract contains an embedded derivative at the date an entity first become a party to the contract
        and prohibits reassessment unless there is change to the contract that significantly modifies the
        cash flows. The Group will reassess to determine whether or not embedded derivatives were
        assessed at the date of transition to PFRS rather than at the date of entering into the contract.
        This IFRIC requires the Group to revisit and revise accounting for embedded derivatives.

   ·    IFRIC 10, Interim financial Reporting and Impairment. IFRIC 10 addresses an inconsistency
        between PAS 34, Interim Financial Reporting and the impairment requirements relating to
        goodwill in PAS 36, Impairment of Assets and equity instruments classified as available for sale
        in PAS 39 Financial Instruments: Recognition and Measurement. The Interpretation states that
        the specific requirements of PAS 36 and PAS 39 take precedence over the general requirements
        of PAS 34 and, therefore, any impairment loss recognized for these assets in an interim period
        may not be reversed in subsequent interim periods. The Group will assess impact of this IFRIC.

   ·    IFRIC 11, Group and Treasury Share Transactions. This interpretation requires arrangements
        whereby an employee is granted rights to a Group’s equity instruments to be accounted for as an
        equity-settled scheme by the Group even if: (a) the Group chooses or is required to buy those
        equity instruments (e.g. treasury shares) from another party, or (b) the shareholders of the Group
        provide the equity instruments needed. The adoption of this interpretation will not impact the
        consolidated financial statements.

   2008

    ·   IFRIC 12, Service Concession Arrangements. This interpretation outlines an approach to
        account for contractual arrangements arising from entities providing public services. It provides
        that the operator should not account for the infrastructure as property, plant and equipment, but
        recognize a financial asset and/or an intangible asset. This interpretation will not have an impact
        on the consolidated financial statements of the Group since the Group is not involved in
        providing public services.

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


4. Summary of Significant Accounting Policies

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




                                                                               *SGVMC100000*
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Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains
control, and continue to be consolidated until the date that such control ceases.

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

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

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

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

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

                                                                              Effective Percentage
                                                  Country of                      of Ownership
                Subsidiaries                     Incorporation               Direct     Indirect

CFC Corporation                          Philippines                        100.00              –
Universal Robina (Cayman, Ltd.)          Cayman Islands                     100.00              –
URC Philippines, Limited                 British Virgin Islands             100.00              –
Universal Robina Sugar Milling
   Corporation (URSUMCO)                 Philippines                        100.00              –
Southern Negros Development
   Corporation (SONEDCO)                 Philippines                           –              94.00
CFC Clubhouse, Incorporated              Philippines                        100.00              –
CFC Clubhouse Property, Inc.             Philippines                        100.00              –
URC International Co. Ltd.               British Virgin Islands              77.00              –
Hong Kong China Foods Co., Ltd.          British Virgin Islands                –              77.00
URC Asean Brands Co., Ltd.               British Virgin Islands                –              77.00
URC Hong Kong                            Hong Kong                             –             100.00

(Forward)




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                                                 - 72 -


                                                                              Effective Percentage
                                                  Country of                      of Ownership
               Subsidiaries                      Incorporation               Direct     Indirect
Tianjin Pacific Foods Manufacturing
           Co., Ltd.                                  China                     –             100.00
Shanghai Peggy Foods Co., Ltd.                        China                     –             100.00
Xiamen Tongan Pacific Food Co.,
          Ltd.                                        China                     –             100.00
URC Foods (Singapore) Pte. Ltd.
    (formerly Pan Pacific Snacks Pte.
          Ltd.)                                    Singapore                    –             100.00
URC (Thailand) Co., Ltd. (formerly
    Thai Peggy Foods Co. Ltd.)                      Thailand                    –             100.00
Panyu Peggy Foods Co., Ltd.                          China                      –              90.00
URC Snack Foods (Malaysia) Sdn.
    Bhd. (formerly Pacific World Sdn.
          Bhd.)                                     Malaysia                    –              91.52
Ricellent Sdn. Bhd.                                 Malaysia                    –              54.03
PT URC Indonesia                                    Indonesia                   –             100.00
URC Vietnam Co., Ltd.                                Vietnam                    –             100.00
Nissin – URC                                       Philippines                65.00              –
URCCC                                              Philippines               100.00              –

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

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

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

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

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




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

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

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

Financial Instruments
Accounting Policies Effective October 1, 2005

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

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

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




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

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

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

HTM investments
Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified
as HTM when the Group has the positive intention and ability to hold to maturity. Investments
intended to be held for an undefined period are not included in this classification.

Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. Such assets are carried at amortized cost using the effective
interest method. Gains and losses are recognized in consolidated statements of income when the
loans and receivables are derecognized or impaired, as well as through the amortization process.

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

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




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

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

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

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

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

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

·   the Group retains the right to receive cash flows from the asset, but has assumed an obligation to
    pay them in full without material delay to a third-party under a “pass-through” arrangement; or

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




                                                                             *SGVMC100000*
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Where the Group has transferred its rights to receive cash flows from an asset and has neither
transferred nor retained substantially all the risks and rewards of the asset nor transferred control of
the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at
the lower of the original carrying amount of the asset and the maximum amount of consideration
that the Group could be required to repay.

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

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

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

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

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

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

The mark-to-market gains or losses on these contracts as well as the other types of derivative
contracts are considered in the determination of consolidated net income.




                                                                              *SGVMC100000*
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The Group has no financial instruments that are qualified or designated as hedging instruments.

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

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

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

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

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

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

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

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




                                                                              *SGVMC100000*
                                               - 78 -


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

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

    The Group first assesses whether objective evidence of impairment exists individually for
    financial assets that are individually significant, and individually or collectively for financial
    assets that are not individually significant. If it is determined that no objective evidence of
    impairment exist for an individually assessed financial asset, whether significant or not, the asset
    is included in a group of financial assets with similar credit risk characteristics and that group of
    financial assets is collectively assessed for impairment. Assets that are individually assessed for
    impairment and for which an impairment loss is or continues to be recognized are not included in
    a collective assessment of impairment.

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

    Assets carried at cost
    If there is objective evidence that an impairment loss on an unquoted equity instrument that is not
    carried at fair value because its fair value cannot be reliably measured, or on a derivative asset
    that is linked to and must be settled by delivery of such unquoted equity instrument has been
    incurred, the amount of the loss is measured as the difference between the asset’s carrying
    amount and the present value of estimated future cash flows discounted at the current market rate
    of return for a similar financial asset.




                                                                             *SGVMC100000*
                                               - 79 -


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

    Finished goods, work-in-                - cost is determined using the average method; finished
    process, raw materials,                   goods and work-in-process include direct materials and
    containers and packaging                  labor, and a proportion of manufacturing overhead costs
    materials                                 based on actual goods processed and produced
    Spare parts and supplies                 - cost is determined using the average method
    Materials-in-transit                     - cost is determined using the specific identification
                                               method

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

Investments in Associates and Joint Ventures

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

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

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




                                                                               *SGVMC100000*
                                                - 80 -


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

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

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

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

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

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

Land is stated at cost less any impairment in value.

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

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




                                                                              *SGVMC100000*
                                              - 81 -


Effective October 1, 2005, foreign exchange differentials arising from the acquisition of property,
plant and equipment are charged against current operations and no longer capitalized.

Projects under construction are transferred to the related property and equipment account when the
construction or installation and related activities necessary to prepare the property, plant and
equipment for their intended use are completed, and the property and equipment are ready for
service.

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

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

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

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

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

An item of property, plant and equipment is derecognized upon disposal or when no future economic
benefits are expected to arise from the continued use of the asset. Any gain or loss arising on
derecognition of the asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the item) is included in the consolidated statements of income in the year the item
is derecognized.

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




                                                                           *SGVMC100000*
                                               - 82 -


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

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

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

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

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

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

    Poultry livestock    -   Breeders (livestock bearer)
                         -   Chicks (breeders’ offsprings intended to be sold as breeders)




                                                                             *SGVMC100000*
                                               - 83 -


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

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

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

The carrying values of biological assets are reviewed for impairment when events or changes in the
circumstances indicate that the carrying values may not be recoverable.

Biological Assets Carried at Fair Values
Swine weanlings and fatteners / finishers are measured at their fair values less point-of-sale costs.
The fair values are determined based on current market prices of livestock of similar age, breed and
genetic merit. Point-of-sale costs include commissions to brokers and dealers, nonrefundable
transfer taxes and duties. Point-of-sale costs exclude transport and other costs necessary to get the
biological assets to the market.

A gain or loss on initial recognition of a biological asset at fair value less point-of-sale costs and
from a change in fair value less estimated point-of-sale costs of a biological asset shall be included in
the consolidated statements of income in the period in which it arises.

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




                                                                             *SGVMC100000*
                                               - 84 -


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

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

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

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

·   represents the lowest level within the Group at which the goodwill is monitored for internal
    management purposes; and

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

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

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




                                                                             *SGVMC100000*
                                                - 85 -


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

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

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

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

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

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




                                                                              *SGVMC100000*
                                               - 86 -


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

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

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

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

Debt Issuance Costs

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

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

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

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




                                                                            *SGVMC100000*
                                                - 87 -


Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result
of a past event, it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Where the Group expects a provision to be reimbursed, the reimbursement is recognized as a
separate asset but only when the reimbursement is virtually certain. If the effect of the time value of
money is material, provisions are determined by discounting the expected future cash flows at a pre-
tax rate that reflects current market assessments of the time value of money and, where appropriate,
the risks specific to the liability. Where discounting is used, the increase in the provision due to the
passage of time is recognized as interest expense. Provisions are reviewed at each balance sheet date
and adjusted to reflect the current best estimate.

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

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

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

Income Taxes
Current tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantially enacted at the balance sheet date.
Deferred income tax is provided using the balance sheet liability method on temporary differences,
with certain exceptions, at the balance sheet date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes.




                                                                              *SGVMC100000*
                                                - 88 -


Deferred income tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred income tax assets are recognized for all deductible temporary differences, carry
forward benefit of unused tax credits from excess of minimum corporate income tax (MCIT) over the
regular corporate income tax and unused net operating loss carryover (NOLCO), to the extent that it
is probable that taxable income will be available against which the deductible temporary differences
and carry forward of unused tax credits and NOLCO can be utilized.

Deferred income tax liabilities are not provided on nontaxable temporary differences associated with
investments in domestic subsidiaries, associates and interests in joint ventures. With respect to
investments in foreign subsidiaries, associates and interests in joint ventures, deferred income tax
liabilities are recognized except where the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

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

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

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

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

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




                                                                              *SGVMC100000*
                                               - 89 -


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

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

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

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

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

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




                                                                             *SGVMC100000*
                                                - 90 -


The functional currency of the foreign subsidiaries follows:

                                                                        Country of           Functional
                            Subsidiaries                             Incorporation             Currency
    Universal Robina (Cayman), Ltd.                                Cayman Islands             US Dollars
    URC Philippines, Limited                                 British Virgin Islands           US Dollars
    URC International Co. Ltd.                               British Virgin Islands           US Dollars
    Hong Kong China Foods Co. Ltd.                           British Virgin Islands           US Dollars
    URC Asean Brands Co. Ltd.                                British Virgin Islands           US Dollars
    URC Hong Kong Company Limited (formerly Hong
                      Kong Peggy Snacks Foods Co.,
           Limited)                                                  Hong Kong              HK Dollars
    Tianjin Pacific Foods Manufacturing Co., Ltd.                        China                  Yuan
    Shanghai Peggy Foods Co., Ltd.                                       China                  Yuan
    Xiamen Tongan Pacific Food Co., Ltd.                                 China                  Yuan
    URC Foods (Singapore) Pte. Ltd. (formerly Pan Pacific
        Snacks Pte. Ltd.)                                              Singapore      Singapore Dollars
    USURC (Thailand) Co., Ltd. (formerly Thai Peggy
          Foods Co. Ltd.)                                               Thailand             Thai Baht
    Panyu Peggy Foods Co., Ltd.                                           China                  Yuan
    URC Snack Foods (Malaysia) Sdn. Bhd. (formerly
        Pacific World Sdn. Bhd.)                                        Malaysia      Malaysian Ringgit
      Ricellent Sdn. Bhd.                                               Malaysia      Malaysian Ringgit
    PT URC Indonesia                                                   Indonesia      Indonesia Rupiah
    URC Vietnam Co., Ltd.                                               Vietnam          Vietnam Dong

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

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




                                                                               *SGVMC100000*
                                                  - 91 -

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

The Group derives its revenues from the following reportable segments:

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

·    Agro-industrial products - engages in hog and poultry farming, manufactures and distributes
     animal feeds and soya products and manufactures and distributes animal health products.

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

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

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

Business Segments
The financial information about the operations of these business segments is summarized as follows
(in thousands):

2006
                                               Branded           Agro-    Commodity
                                              Consumer       Industrial        Food
                                           Food Products      Products      Products         Total
Net sales and services (Note 27)            P26,596,744
                                            =              P5,082,759
                                                           =              P3,504,312
                                                                          =            P35,183,815
                                                                                       =
Segment results (income from operations)       =
                                               P982,096      =
                                                             P656,639     P1,019,067
                                                                          =            =
                                                                                       P2,657,802

(Forward)




                                                                              *SGVMC100000*
                                                   - 92 -


                                                Branded           Agro-    Commodity
                                               Consumer       Industrial        Food
                                           Food Products       Products      Products           Total
Segment assets                               =
                                             P25,027,816    P3,351,385
                                                            =              P5,273,461
                                                                           =             =
                                                                                         P33,652,662
Investments and advances                                –             –             –       1,958,481
Offshore institutions and others                        –             –             –      24,078,802
                                             P25,027,816
                                             =              =
                                                            P3,351,385     P5,273,461
                                                                           =             P59,689,945
                                                                                         =
Segment liabilities                           P5,718,080
                                              =               P501,244
                                                              =            P1,129,802
                                                                           =              P7,349,126
                                                                                          =
Offshore institutions and others                        –             –             –      21,113,804
                                              =
                                              P5,718,080      =
                                                              P501,244     =
                                                                           P1,129,802    =
                                                                                         P28,462,930
Other segment information:
Impairment losses on goodwill and
    property, plant and equipment items         P240,688
                                                =                     –             –       P240,688
                                                                                            =
Capital expenditure                                                                       =
                                                                                          P5,830,795


2005
                                               Branded            Agro-    Commodity
                                              Consumer        Industrial         Food
                                           Food Products       Products       Products          Total
Net sales and services (Note 27)            P23,783,623
                                            =               P4,214,865
                                                            =              =
                                                                           P3,200,788    =
                                                                                         P31,199,276
Segment results (income from operations)       P963,923
                                               =              P518,901
                                                              =              =
                                                                             P954,701     P2,437,525
                                                                                          =
Segment assets                              =
                                            P21,559,405     P3,325,589
                                                            =              =
                                                                           P4,611,224    P29,496,218
                                                                                         =
Investments and advances                               –              –              –      1,831,926
Offshore institutions and others                       –              –              –     23,556,117
                                            P21,559,405
                                            =               =
                                                            P3,325,589     =
                                                                           P4,611,224    P54,884,261
                                                                                         =
Segment liabilities                          P5,304,898
                                             =                P797,110
                                                              =            P1,525,615
                                                                           =              =
                                                                                          P7,627,623
Offshore institutions and others                       –              –              –     21,996,434
                                             =
                                             P5,304,898       =
                                                              P797,110     P1,525,615
                                                                           =             P29,624,057
                                                                                         =
Other segment information:
Capital expenditure                                                                       =
                                                                                          P3,646,648


2004
                                               Branded            Agro-    Commodity
                                              Consumer        Industrial         Food
                                           Food Products       Products       Products          Total
Net sales and services (Note 27)            =
                                            P20,548,955     P3,775,951
                                                            =              P3,032,972
                                                                           =             =
                                                                                         P27,357,878
Segment results (income from operations)       =
                                               P944,240       =
                                                              P462,314       =
                                                                             P695,223     P2,101,778
                                                                                          =
Segment assets                              =
                                            P19,368,173     =
                                                            P2,545,690     =
                                                                           P4,426,743    P26,340,606
                                                                                         =
Investments and advances                               –              –              –      1,910,462
Offshore institutions and others                       –              –              –     14,997,257
                                            =
                                            P19,368,173     P2,545,690
                                                            =              =
                                                                           P4,426,743    P43,248,325
                                                                                         =
Segment liabilities                          P4,184,969
                                             =                =
                                                              P666,514     P1,671,505
                                                                           =              P6,522,988
                                                                                          =
Offshore institutions and others                       –              –              –     13,404,927
                                             =
                                             P4,184,969       P666,514
                                                              =            P1,671,505
                                                                           =             P19,927,915
                                                                                         =
Other segment information:
Capital expenditure                                                                       =
                                                                                          P2,279,021




                                                                               *SGVMC100000*
                                                        - 93 -

Geographical segments
The financial information about the operations of these geographical segments is summarized as
follows (in thousands):

2006
                                                              Domestic        Foreign          Total
Net sales and services                                     P27,378,125
                                                           =              =
                                                                          P7,805,690    P35,183,815
                                                                                        =
Segment results (income from operations)                    P3,209,201
                                                            =               =
                                                                           (P551,399)    =
                                                                                         P2,657,802
Segment assets                                             P23,705,718
                                                           =              P9,946,944
                                                                          =             P33,652,662
                                                                                        =
Investments and advances                                             –              –      1,958,481
Offshore institutions and others                                     –              –     24,078,802
                                                           =
                                                           P23,705,718    P9,946,944
                                                                          =             =
                                                                                        P59,689,945
Segment liabilities                                           P985,048
                                                              =           P6,364,078
                                                                          =              =
                                                                                         P7,349,126
Offshore institutions and others                                     –              –     21,113,804
                                                              =
                                                              P985,048    P6,364,078
                                                                          =             P28,462,930
                                                                                        =
Other segment information:
Impairment losses on goodwill and property, plant and
    equipment items                                                        P240,688
                                                                           =               =
                                                                                           P240,688
Capital expenditure                                                                      =
                                                                                         P5,830,795


2005
                                                              Domestic        Foreign          Total
Net sales and services                                     P24,208,482
                                                           =              =
                                                                          P6,990,794    =
                                                                                        P31,199,276
Segment results (income from operations)                    P2,786,820
                                                            =               =
                                                                           (P349,295)    P2,437,525
                                                                                         =
Segment assets                                             =
                                                           P18,783,296   =
                                                                         P10,712,922    =
                                                                                        P29,496,218
Investments and advances                                             –              –      1,831,926
Offshore institutions and others                                     –              –     23,556,117
                                                           =
                                                           P18,783,296   =
                                                                         P10,712,922    P54,884,261
                                                                                        =
Segment liabilities                                         P1,176,623
                                                            =             =
                                                                          P6,451,000     =
                                                                                         P7,627,623
Offshore institutions and others                                     –              –     21,996,434
                                                            P1,176,623
                                                            =             P6,451,000
                                                                          =             P29,624,057
                                                                                        =
Other segment information:
Capital expenditure                                                                      =
                                                                                         P3,646,648


2004
                                                              Domestic       Foreign           Total
Net sales and services                                     =
                                                           P21,270,022    P6,087,856
                                                                          =             =
                                                                                        P27,357,878
Segment results (income from operations)                    =
                                                            P2,187,861       =
                                                                            (P86,083)    P2,101,778
                                                                                         =
Segment assets                                             P18,214,805
                                                           =              P8,125,801
                                                                          =             =
                                                                                        P26,340,606
Investments and advances                                             –             –       1,910,462
Offshore institutions and others                                     –             –      14,997,257
                                                           P18,214,805
                                                           =              P8,125,801
                                                                          =             P43,248,325
                                                                                        =
Segment liabilities                                         =
                                                            P4,519,347    P2,003,641
                                                                          =              =
                                                                                         P6,522,988
Offshore institutions and others                                     –             –      13,404,927
                                                            =
                                                            P4,519,347    =
                                                                          P2,003,641    P19,927,915
                                                                                        =
Other segment information:
Capital expenditure                                                                      =
                                                                                         P2,279,021




                                                                                      *SGVMC100000*
                                                  - 94 -

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

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

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


5. Significant Accounting Estimates and Judgments

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

   Judgments
   In the process of applying the Group’s accounting policies, management has made the following
   judgments, apart from those involving estimations which have the most significant effect on the
   amounts recognized in the consolidated financial statements:

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

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

   Estimates
   The key assumptions concerning the future and other sources of estimation uncertainty at the balance
   sheet date that have a significant risk of causing a material adjustment to the carrying amounts of
   assets and liabilities within the next financial year are discussed below.




                                                                                *SGVMC100000*
                                              - 95 -


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

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

As of September 30, 2006 and 2005, total receivables, net of allowance for impairment losses,
            =                    =
amounted to P4,641.1 million and P3,849.4 million, respectively (Note 8).

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

                                                                            =
As of September 30, 2006 and 2005, property plant and equipment amounted to P20,563.9 million
    =
and P17,124.7 million, respectively (Note 13).

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

                                                                 =
As of September 30, 2006 and 2005, biological assets amounted to P817.0 million and
=
P760.6 million, respectively (Note 14).




                                                                           *SGVMC100000*
                                               - 96 -


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

·   significant underperformance relative to expected historical or projected future operating results;
·   significant changes in the manner of use of the acquired assets or the strategy for overall
    business; and
·   significant negative industry or economic trends.

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

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

                                                                                      2005
                                                                      2006    (As Restated)
    Property, plant and equipment - net                                    =
                                                           P20,563,902,523 P17,124,655,357
                                                           =
    Investment property - net                                   86,200,074      89,798,319
    Investments and advances                                 1,958,480,986   1,831,925,876

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

                                                =                  =
Net deferred income tax liabilities amounted to P295.0 million and P169.0 million as of
September 30, 2006 and 2005, respectively (Note 30).

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




                                                                             *SGVMC100000*
                                                 - 97 -


   The fair value of financial assets and liabilities as of September 30, 2006 and 2005 amounted to
   =                     =                      =                    =
   P28,511 million and P27,883 million, and P27,430 million and P28,852 million, respectively
   (Note 33).

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

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

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

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

                                                                                           2005
                                                                        2006       (As Restated)
       Net pension asset                                        =
                                                                P236,346,400       =
                                                                                   P170,110,800
       Unrecognized actuarial gain                                18,565,205         68,316,196


6. Cash and Cash Equivalents

   This account consists of:

                                                                         2006               2005
       Cash on hand                                             P116,309,197
                                                                =                   P62,223,777
                                                                                    =
       Cash in banks                                            1,047,715,315        443,195,958
       Short-term investments                                   4,815,850,883        424,883,609
                                                              P5,979,875,395
                                                              =                    P930,303,344
                                                                                   =

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




                                                                                *SGVMC100000*
                                                - 98 -


7. Financial Assets at FVPL

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

       Private bonds                                       =
                                                           P10,429,537,504
       Government securities                                 6,307,880,191
       Equity securities                                     1,152,228,593
                                                           P17,889,646,288
                                                           =

                                                                       =
   The net mark-to-market gain of financial assets at FVPL amounted to P923,670,697 in 2006.

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

       At October 1, 2005 (As restated)                                        P28,975,226,438
                                                                               =
       Additions                                                                 8,079,186,678
       Disposals                                                               (20,088,437,525)
       Fair value gains                                                            923,670,697
       At September 30, 2006                                                   =
                                                                               P17,889,646,288

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

       Private bonds                                        =
                                                            P10,071,944,984
       Government securities                                  11,682,031,578
       Equity securities                                         896,641,788
                                                            P22,650,618,350
                                                            =


8. Trade and Other Receivables

   This account consists of:

                                                                                              2005
                                                                       2006           (As restated)
       Trade                                                P3,607,949,891
                                                            =                      P2,801,338,039
                                                                                   =
       Interest                                                 466,237,843            619,807,782
       Advances to supplier                                     198,747,463            341,200,173
       Others                                                   728,301,310            544,124,961
                                                              5,001,236,507          4,306,470,955
       Less allowance for doubtful accounts                     360,105,546            457,047,781
                                                            P4,641,130,961
                                                            =                      =
                                                                                   P3,849,423,174




                                                                              *SGVMC100000*
                                                  - 99 -


   Trade receivables are non interest-bearing and are generally on 30-90 days’ term. The interest
   receivable pertains mainly to interest income earned on financial assets.

   Total receivables from related parties as of September 30, 2006 and 2005 amounted to
   P26.4 million and P34.5 million, respectively. These are included in the trade receivables account.
   =                  =

   The other receivables account consists of the following:

                                                                        2006               2005
       Advances to officers, employees and suppliers           P201,649,638
                                                               =                  P122,255,508
                                                                                  =
       Claims receivable                                          25,683,038         17,594,351
       Other receivables                                         500,968,634        404,275,102
                                                                 728,301,310        544,124,961
       Less allowance for doubtful accounts                      100,274,109        131,428,322
                                                               P628,027,201
                                                               =                  =
                                                                                  P412,696,639

   The rollforward analysis of the allowance for doubtful accounts follow:

                                                                                            2005
                                                                       2006         (As restated)
       Balance at beginning of year                            P457,047,781
                                                               =                   =
                                                                                   P298,980,889
       Additional provision for doubtful accounts during
             the year                                            43,290,658          223,518,513
       Amounts written off                                     (140,232,893)        (65,451,621)
       Balance at end of year                                  P360,105,546
                                                               =                   P457,047,781
                                                                                   =


9. Inventories

   This account consists of:

                                                                                          2005
                                                                         2006     (As restated)
       Finished goods                                                          =
                                                              P1,192,363,771 P1,237,537,219
                                                              =
       Goods in process                                           154,977,829       94,166,963
       Raw materials                                            1,791,184,352    2,006,916,066
       Containers and packaging materials                         915,193,405      775,114,133
       Spare parts and supplies                                   710,790,467      509,426,409
       Less: allowance for inventory write-down                  (101,388,287)     (44,336,788)
                                                                4,663,121,537    4,578,824,002
       Materials-in-transit                                       728,468,830    1,128,971,186
                                                                               =
                                                              P5,391,590,367 P5,707,795,188
                                                              =




                                                                               *SGVMC100000*
                                                 - 100 -

                                                    =              =                 =
   The write-down recognized as expense amounted to P57.0 million, P23.4 million and P53.0 million
   in 2006, 2005 and 2004, respectively.

   As discussed in Note 2, the Group considers any adjustment necessary for obsolescence in
   determining NRV.

                                                                                        =
   Under the terms of the agreements covering liabilities under trust receipts totaling P 661.1 million and
   =
   P1,230.0 million as of September 30, 2006 and 2005, respectively, certain inventories have been
   released to the Group in trust for the banks. The Parent Company is accountable to these banks for
   the trusteed merchandise or their sales proceeds.


10. Other Current Assets

   This account consists of:

                                                                                              2005
                                                                        2006          (As restated)
       Prepaid insurance and other expenses                     P114,196,426
                                                                =                    =
                                                                                     P130,495,071
       Others                                                      8,399,618           11,045,860
                                                                P122,596,044
                                                                =                    P141,540,931
                                                                                     =

   As discussed in Note 3, starting on October 1, 2005, the Group changed its accounting for pre-
   milling costs that were incurred during post milling season. These pre-milling costs are now
   included in profit or loss. These costs were previously deferred and charged to production costs only
   in the next applicable sugar crop year which coincides with the milling season.

                                  =
   Derivative assets amounting to P3.20 million were included under other assets. This consists of
   =                                   =
   P0.14 million currency forwards and P3.06 million currency options.


11. Investments and Advances

   This account consists of:

                                                                                            2005
                                                                        2006        (As restated)
       Acquisition cost                                       =
                                                              P1,197,593,846      P1,197,593,846
                                                                                  =
       Accumulated equity in net earnings:
       Balance at beginning of year                              612,282,125     482,278,659
       Equity in net earnings for the year                       319,996,500     244,623,123
       Dividends received                                       (171,391,485)   (114,619,657)
       Balance at end of year                                    760,887,140     612,282,125
       Advances                                                            –      22,049,905
                                                              =               =
                                                              P1,958,480,986 P1,831,925,876




                                                                               *SGVMC100000*
                                             - 101 -


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

URC also has an interest in Robinsons Land Corporation (RLC), where it exercises significant
influence. In 2004, URC received, by way of assignment, shares of stock of RLC in full settlement
                                              =
for the JGSHI notes that matured amounting to P564.3 million. This was accounted for at carrying
amounts since the transaction was between related parties namely, JGSHI, the transferor and ultimate
Parent Company, and URC, the transferee and subsidiary.

Subsequent Event
In October 2006, the Group disposed the RLC shares it held, including the shares amounting to
=
P564.3 million it received from JGSHI by way of assignment, for a total consideration of about
P4.9 billion where a gain of about P3.0 billion was recognized.
=                                  =

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

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

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

                                                            HURC                              RLC
                                             2006             2005             2006          2005
                                            =
                                            P000             =
                                                             P000              =
                                                                               P000          P000
                                                                                             =
    Current assets                        245,786          213,747         3,689,732     2,726,792
    Noncurrent assets                       2,702            3,463        29,069,664    22,994,986
    Current liabilities                 (176,214)        (144,425)      (12,728,197)   (7,562,147)
    Noncurrent liabilities                      –                –       (5,405,441)   (4,523,855)
    Revenue                               558,417          483,788         6,643,111     5,119,258
    Costs and expenses                  (521,587)        (438,351)       (4,355,652)     3,760,507
    Net income                             36,830           31,579         1,724,996     1,231,895

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




                                                                            *SGVMC100000*
                                                                                     - 102 -


12. Investment Properties

       This account consists of:

                                                                                                                    2006                           2005
                Cost                                                                                        P107,947,364
                                                                                                            =                              =
                                                                                                                                           P107,947,364
               Accumulated depreciation:
                 Balance at beginning of the year                                                               18,149,045                     14,550,800
                 Depreciation for the year                                                                       3,598,245                      3,598,245
                 Balance at end of the year                                                                     21,747,290                     18,149,045
               Net Book Value                                                                                 P86,200,074
                                                                                                              =                              P89,798,319
                                                                                                                                             =

                                                                          =              =
       Total rental income earned from investment properties amounted to P 50.0 million, P53.3 million and
       P51.0 million for the years ended September 30, 2006, 2005 and 2004, respectively. The rental
       =
       income is shown as part of the “Other income (charges)” account in the consolidated statements of
       income.

                                                                                    =
       The fair value of investment properties as of September 30, 2006 amounted to P 240.0 million.


13. Property, Plant and Equipment

       The rollforward analysis of this account follows:

September 30, 2006

                                                                                                                       Furniture,

                                      Land             Land     Buildings and   Machinery and     Transportation     Fixture and    Construction       Equipment

                                   (Note 17)    Improvements    Improvements        Equipment         Equipment       Equipment       in Progress       in Transit            Total

Cost
At October 1, 2005             =
                               P875,814,973    =              =              =
                                               P1,247,270,922 P5,404,710,282 P21,323,566,820      =
                                                                                                  P1,532,088,249 P1,093,223,914
                                                                                                                 =                  =
                                                                                                                                    P564,652,478    =
                                                                                                                                                    P574,592,107     P
                                                                                                                                                                     =32,615,919,745

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

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

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

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

(Forward)




                                                                                                                                    *SGVMC100000*
                                                                                      - 103 -


                                                                                                                            Furniture,

                                       Land             Land     Buildings and   Machinery and       Transportation        Fixture and     Construction          Equipment

                                    (Note 17)   Improvements    Improvements         Equipment           Equipment         Equipment        in Progress           in Transit              Total

Accumulated Depreciation,

Amortization and

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

Depreciation, amortization

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

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

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

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

Net book value as of

September 30, 2006              =
                                P958,734,712    P630,713,963
                                                =               =              =
                                                                P3,559,514,182 P12,051,850,148        P473,611,182
                                                                                                      =                 =
                                                                                                                        P594,583,835      =
                                                                                                                                          P591,516,328       P1,703,378,173 P20,563,902,523
                                                                                                                                                             =              =



September 30, 2005

                                                                                                                           Furniture,
                                       Land             Land    Buildings and      Machinery and     Transportation      Fixture and     Construction          Equipment
                                    (Note 17)   Improvements    Improvements           Equipment        Equipment         Equipment        in Progress          in Transit                 Total
Cost
At October 1, 2004              =
                                P860,053,707    =            P
                                                P842,016,886 =4,920,697,414      =
                                                                                 P19,344,981,698 =1,385,017,013
                                                                                                 P                     P987,544,038
                                                                                                                       =                 =
                                                                                                                                         P525,195,846        =
                                                                                                                                                             P231,562,252        =
                                                                                                                                                                                 P29,097,068,854
Additions                         15,761,266     405,254,036     487,254,657        1,948,609,948      171,948,826      105,820,156        48,720,141         463,279,379          3,646,648,409
Retirements/disposal                       –               –                –        (292,041,883)     (25,036,750)          (71,818)               –                   –           (317,150,451)
Reclassifications and others               –               –       (3,241,789)       322,017,057           159,160           (68,462)      (9,263,509)       (120,249,524)           189,352,933
At September 30, 2005            875,814,973    1,247,270,922   5,404,710,282     21,323,566,820     1,532,088,249     1,093,223,914      564,652,478         574,592,107         32,615,919,745
Accumulated Depreciation,
    Amortization and
    Impairment Loss
At October 1, 2004                         –     258,743,464    1,972,940,444       9,751,169,957    1,001,131,740      655,456,052                 –                   –         13,639,441,657
Depreciation, amortization
    and impairment loss
    (Note 21)                              –     176,049,337     230,041,987        1,274,335,582      107,079,463       52,490,736                 –                   –          1,839,997,105
Retirements/disposal                       –               –                –       (151,139,684)      (24,113,852)          (56,257)               –                   –           (175,309,793)
Reclassifications and others               –               –         552,354         138,388,562        48,081,989          112,514                 –                   –            187,135,419
At September 30, 2005                      –     434,792,801    2,203,534,785     11,012,754,417     1,132,179,340      708,003,045                 –                   –         15,491,264,388
Net book value as of
    September 30, 2005          =
                                P875,814,973    =            =
                                                P812,478,121 P3,201,175,497      =
                                                                                 P10,310,812,403     P399,908,909
                                                                                                     =                 =
                                                                                                                       P385,220,869      =
                                                                                                                                         P564,652,478        =
                                                                                                                                                             P574,592,107        =
                                                                                                                                                                                 P17,124,655,357



                                              =
       In 2004, impairment loss amounting to P150.1 million represent the write-down in the net book value
       of idle machinery and equipment items to nil amounts in the branded segment. The impairment loss
       was determined using the net selling price as the net realizable value.

                                                                       =
       Depreciation and amortization charged to operations amounted to P 2,289.1 million in 2006,
       =                         =
       P1,843.6 million in 2005, P2,028.7 million in 2004.




                                                                                                                                          *SGVMC100000*
                                                     - 104 -


    As discussed in Note 3, PAS 21 provides restrictive conditions for the capitalization of foreign
                                                                                            =
    exchange losses. The net cumulative capitalized foreign exchange losses amounted to P 187.1
                                                =
    million, net of accumulated depreciation of P100.9 million as of September 30, 2006 and 2005.
    Upon the adoption of PAS 21 on October 1, 2005, the Group adjusted previously recorded
    undepreciated capitalized foreign exchange losses against beginning retained earnings and prior
    years’ consolidated financial statements have been restated.

    There are no capitalized borrowing costs in 2006, 2005 and 2004, as funds used for the construction
    of qualifying assets are sourced from internally generated funds.

    The total costs of fully depreciated property, plant and equipment that are still in use amounted to
    =
    P6,411.0 million as of September 30, 2006.

                                                                       =
    Property, plant and equipment with an aggregate net book values of P97.3 million has been pledged
    as security for long-term debts.

    The Group has contractual commitments for the acquisitions of machinery and equipment with a
                            =
    total contract value of P1,315.6 million as of September 30, 2006. These acquisitions are intended
    for the expansion of the production capacities for the beverage and sugar businesses of the Group.


14. Biological Assets

    This account consists of:

    September 30, 2006

                                                       Swine                       Poultry
                                                   (At fair value)                 (At cost)
                                                  Mature              Immature            Mature
At October 1, 2005                         =
                                           P504,844,065            P224,602,896
                                                                   =                 =
                                                                                     P88,759,302     =
                                                                                                     P818,206,263
Additions                                  1,659,396,764             66,583,548      125,517,604     1,851,497,916
Disposal                                  (1,742,678,885)          (192,062,936)    (117,051,610)   (2,051,793,431)
Gain arising from changes in fair value
    less estimated point-of-sale costs      133,853,626           110,855,562                 –       244,709,188
At September 30, 2006                       555,415,570           209,979,070        97,225,296       862,619,936




                                                                                   *SGVMC100000*
                                                     - 105 -


                                                      Swine                                  Poultry
                                                  (At fair value)                           (At cost)
                                                 Mature                Immature              Mature
Accumulated Depreciation
At October 1, 2005                                    –                        –         (57,563,853)      (57,563,853)
Additions                                             –                        –         (73,762,770)      (73,762,770)
Disposal                                              –                        –           85,710,140       85,710,140
Net                                        =
                                           P555,415,570             =
                                                                    P209,979,070         =
                                                                                         P51,608,813     P817,003,453
                                                                                                         =


September 30, 2005

                                                       Swine                         Poultry
                                                   (At fair value)                   (At cost)
                                                  Mature              Immature              Mature
At October 1, 2004                         =
                                           P398,932,774            P107,307,813
                                                                   =                   =
                                                                                       P81,844,496       P588,085,083
                                                                                                         =
Additions                                  1,308,648,397             64,793,359        133,786,513       1,507,228,269
Disposal                                  (1,335,421,402)          (155,737,359)      (126,871,707)     (1,618,030,468)
Gain arising from changes in fair value
    less estimated point-of-sale costs      132,684,296               208,239083                   –        340,923,379
At September 30, 2005                       504,844,065              224,602,896          88,759,302        818,206,263
Accumulated Depreciation
At October 1, 2004                                    –                        –         (37,607,850)      (37,607,850)
Additions                                             –                        –         (96,912,312)      (96,912,312)
Disposal                                              –                        –           76,956,309       76,956,309
Net                                        P504,844,065
                                           =                        =
                                                                    P224,602,896         =
                                                                                         P31,195,449     P760,642,410
                                                                                                         =


    The Group has about 190,385, 172,331 and 158,710 heads of swine as of September 30, 2006, 2005
    and 2004, respectively, and about 425,539, 349,409, and 33,052 heads of poultry as of September
    30, 2006, 2005 and 2004, respectively.


15. Other Noncurrent Assets

    This account consists of:

                                                                                  2006               2005
         Goodwill - net                                                  P844,548,190
                                                                         =                 =
                                                                                           P1,085,237,005
         Trademark                                                         190,223,400                  –
         Miscellaneous deposits                                             65,184,054         60,988,528
         Others                                                            426,235,112        124,839,622
                                                                       P1,526,190,756
                                                                       =                   P1,271,065,155
                                                                                           =




                                                                                         *SGVMC100000*
                                                  - 106 -


   In March 2000, URCICL formed two wholly owned subsidiaries namely Hong Kong China Foods
   Co. Ltd. and URC Asean Brands Co. Ltd. These companies were incorporated in British Virgin
   Islands. These two wholly-owned subsidiaries acquired majority ownership of certain companies in
                                         =
   the Asian region for approximately P2.8 billion. The excess of the acquisition cost over the fair
   values of the net assets acquired resulted in goodwill. The goodwill arising from these acquisitions
   has been translated at the applicable year-end exchange rate. The acquisition of SONEDCO in 1988
   also resulted in goodwill. As discussed in Note 2, the Group has elected not to restate any business
   combinations that occurred before the date of transition to PFRS. Instead, the carrying amount of
   goodwill at transition date will be tested at least annually for impairment.

   The rollforward analysis of the goodwill account follows:

                                                                                         2005
                                                                         2006    (As restated)
       Cost                                                                    =
                                                               P1,085,237,005 P1,085,237,005
                                                               =
       Impairment loss                                           (240,688,815)               –
       Net                                                                     =
                                                                 P844,548,190 P1,085,237,005
                                                                 =

   Due to continued losses from operations in China subsidiaries, the allocated goodwill on these
                                                                             =
   subsidiaries has been written down and an impairment loss amounting to P240.7 million was
   recognized.

                                                          =
   As discussed in Note 3, negative goodwill amounting to P36.7 million has been charged to the
   retained earnings beginning October 1, 2005 and 2004.

   The trademark has an indefinite useful life.


16. Loans Payable

   This account includes short-term clean loans obtained from local banks. Interest is based on
   prevailing market rates and these are repriced quarterly. Interests on the loans are paid as they
                                                                             =                 =
   become due. Accrued interest payable on the above loans amounted to P 9.4 million and P5.2 million
   as of September 30, 2006 and 2005, respectively, and is shown as part of “Accrued expenses” under
   the “Accounts payable and Accrued expenses” account in the consolidated balance sheets (Note 17).




                                                                             *SGVMC100000*
                                                 - 107 -


17. Accounts Payable and Accrued Expenses

   This account consists of:

                                                                                                2005
                                                                         2006           (As restated)
       Accounts payable - trade                               P2,764,524,367
                                                              =                      P1,510,800,222
                                                                                     =
       Accrued expenses (Note 16)                               1,040,466,083          1,104,680,388
       Advances from stockholders (Note 19)                       111,249,863            269,077,808
       Customers’ deposits                                         74,158,180             87,769,543
       Others                                                     151,757,971            160,667,589
                                                              P4,142,156,464
                                                              =                      =
                                                                                     P3,132,995,550

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

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

   The details of the accrued expenses account follow:

                                                                         2006                  2005
       Accrued advertising and promotions                       P394,057,469
                                                                =                     =
                                                                                      P482,511,664
       Accrued interest expense                                   359,113,003           462,899,960
       Accrued freight and handling costs                          61,234,898            51,112,026
       Others                                                     226,060,713           108,156,738
                                                              P1,040,466,083
                                                              =                     =
                                                                                    P1,104,680,388

   Accrued expenses are normally settled monthly throughout the financial year.

                                       =
   Derivative liabilities amounting to P12.5 million were included under other liabilities in 2006. This
               =                                    =
   consists of P0.20 million currency forwards and P12.3 million currency options.




                                                                                *SGVMC100000*
                                               - 108 -


18. Long-term Debt

   This account consists of:

                                                                      2006            2005
       Foreign Currencies:
           Balance of US$200 million, 8.25% Guaranteed
               Notes Due 2012, interest payable on
               January 20 and July 20 of each year starting
               January 20, 2005                                             =
                                                            P10,042,000,000 P11,202,000,000
                                                            =
           Balance of US$125 million, 9% Guaranteed
               Notes Due 2008, interest payable on
               February 6 and August 6 of each year
               starting August 6, 2003                        6,276,250,000   7,001,250,000
           Balance of US$100 million, 8 3/8% Guaranteed
               Notes Due December 2006, interest payable
               on June 19 and December 19 of each year        1,869,908,313   2,905,127,240
           Balance of loans from a foreign bank, payable
               in 10 to 16 equal semi-annual amortization       229,849,990     364,000,841
           Balance of loans from a foreign bank, payable
               in 14 equal semi-annual amortization             155,480,237     223,018,406

       Philippine Pesos:
           Balance of restructured loans from Philippine
               Sugar Corporation payable in 25 equal
               annual amortizations                              52,416,293      63,050,972
           Balance of a five-year promissory note payable
               in 6 semi-annual amortization with
               remaining balance at maturity                     500,000,000    700,000,000
                                                              19,125,904,833 22,458,447,459
       Debt issuance costs                                        91,189,279    188,247,523
                                                              19,034,715,554 22,270,199,936
       Less: Current portion                                   2,534,798,394    372,891,534
                                                                             =
                                                            P16,499,917,160 P21,897,308,402
                                                            =




                                                                              *SGVMC100000*
                                                - 109 -


Guaranteed Notes Due 2012
On January 14, 2005, URC Philippines, Limited, a wholly owned subsidiary, issued US$200 million,
8.25% Guaranteed Notes Due 2012 (Notes due 2012) guaranteed by the Parent Company. Unless
previously redeemed or purchased and cancelled, the Notes due 2012 will be redeemed at their
principal amount, plus accrued and unpaid interest, on January 20, 2012. Underwriting fees and
other expenses incurred in connection with the issuance of the Notes due 2012 have been deferred
and are being amortized over the terms of the respective debt securities issued. The unamortized
                                                       =          =
balance of the related debt issuance costs amounted to P 65.0 and P145.3 million as of September 30,
2006 and 2005, respectively.

Guaranteed Notes Due 2008
On February 5, 2003, URC Philippines, Limited issued US$125 million, 9% Guaranteed Notes Due
2008 (Notes due 2008) guaranteed by the Parent Company. Unless previously redeemed or
purchased and cancelled, the Notes due 2008 will be redeemed at their principal amount, plus
accrued and unpaid interest, on February 6, 2008. The unamortized balance of the related debt
                            =                 =
issuance costs amounted to P25.6 million and P40.4 million as of September 30, 2006 and 2005,
respectively.

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

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

                                                                       =                 =
The unamortized balance of the related debt issuance costs amounted to P 0.6 million and P2.5
million as of September 30, 2006 and 2005, respectively.

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

                   2006                 2005          Maturity Date        Interest Rate Interest Payment Date
            P229,849,990
            =                    =
                                 P364,000,841        April 30, 2008   EURIBOR/USD          October and April
                                                                       LIBOR ranging
                                                                         from 2.822% to
                                                                              4.257% per
                                                                                 annum

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




                                                                                *SGVMC100000*
                                                - 110 -


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

   The loans in foreign currencies were converted using the September 30, 2006 and 2005 closing rates
      =                   =
   of P50.210 to US$ and P56.010 to US$1, respectively.

   Philippine Sugar Corporation
                                                          =
   The loan is payable in 25 equal annual amortization of P9.9 million and bears interest at 7.5% per
                                                    =                =
   annum. Unpaid interest on the loan amounted to P3.6 million and P3.5 million as of September 30,
   2006 and 2005, respectively.

   Five-Year Promissory Note
   The Parent Company obtained a five-year loan from Metropolitan Bank and Trust Company, payable
                                     =
   in 6 semi-annual amortization of P100 million to commence on the 30th of the month from draw
   date, with the remaining balance payable at maturity. The loan, which bears interest at prevailing
   market rates, is used to finance capital expenditures relative to expansion of snackfood, candy and
   biscuits operations of the branded consumer foods segment. The loan is collateralized by negative
   pledge on certain assets. The loan agreement contains certain provisions which, among others,
   impose negative covenants relating to the Parent Company’s ownership structure and nature of
   business, merger or consolidation with another entity, and acquisition of its own capital stock.

   Total interest expense and other related charges on all of these long-term debts amounted to
   =
   P1,832.0 million, =1,741.8 million and P1,044.9 million for the years ended September 30, 2006,
                     P                     =
   2005 and 2004, respectively.


19. Related Party Disclosures

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

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




                                                                              *SGVMC100000*
                                             - 111 -


                                          =                       =
Sales to affiliated companies amounted to P586.3mmillion in 2006, P460.9 million in 2005 and
=
P336.3 million in 2004.

Other related party transactions include: (a) purchases of polypropylene resin for bi-axially oriented
                                   =               =                  =
polypropylene film amounting to P568.3 million, P750.4 million and P795.7 million for the years
ended September 30, 2006, 2005 and 2004, respectively, from JG Summit Petrochemical Corporation
                                                 =               =                   =
(Petrochem); (b) power purchase amounting to P129.0 million, P199.3 million and P99.1 million for
the years ended September 30, 2006, 2005 and 2004, respectively, from Litton Mills, Inc. and
                                                                   =              =
Petrochem; (c) rental expenses of certain properties amounting to P 27.6 million, P19.5 million in
          =
2005 and P15.8 million in 2004 from JGSHI; and (d) rental income of certain properties amounting
   =              =                  =
to P42.3 million, P32.6 million and P50.8 million for the years ended September 30, 2006, 2005 and
2004, respectively, mostly from Digital Telecommunications Philippines, Inc. (Digitel).

JGSHI also provides the Group certain corporate services including corporate finance, corporate
planning, procurement, human resources, legal and corporate communications.

                                                                                        =
As of September 30, 2006 and 2005, the net due from (to) related parties amounted to P 317.7 million
     =
and (P121.4) million, respectively. Outstanding balances as of year end are unsecured and interest
free. As of September 30, 2005 and 2004, the Group has not made any provision for doubtful
amounts owed by related parties. This assessment is undertaken each financial year through
examining the financial position of the related party and the market in which the related party
operates.

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

                                                                     2006               2005
    Savings and current accounts                               P4,999,815
                                                               =                   =
                                                                                   P268,075
    Short-term investments                                              –         91,213,171
                                                               P4,999,815
                                                               =                P91,481,246
                                                                                =

Loans from shareholders
As of September 30, 2006 and 2005, the Group has outstanding advances from stockholders of the
                      =                 =
Group amounting to P111.25 million and P269.10 million, respectively. The advances are included
in the “Accounts payable and accrued expenses” account in the consolidated balance sheets and bear
interest at prevailing market rates.

                                                      =               =
Compensation for key management personnel amounted to P584.6 million, P517.3 million and
=
P496.8 million in 2006, 2005 and 2004, respectively.




                                                                            *SGVMC100000*
                                                 - 112 -


20. Capital Stock and Cumulative Translation Adjustments

   Capital stock
   On October 7, 2005, the BOD approved the increase in the authorized capital stock from
   =
   P2,000,000,000 divided into 1,998,000,000 common shares and 2,000,000 preferred shares both at
   P1 par value per share to P3,000,000,000 divided into 2,998,000,000 common shares and 2,000,000
   =                         =
                            =
   preferred shares both at P1 par value per share. On a special meeting of the stockholders held on
   November 22, 2005, the stockholders also approved the above increase in the authorized capital stock
   and the 15% stock dividends to all stockholders of record as of January 14, 2006, which was
   subsequently approved by the SEC on December 16, 2005. On December 19, 2005, the SEC
                                                                 =                        =
   authorized the issuance of 252,971,932 common shares with P1 par value per share or P252, 971,932
   to cover the 15% stock dividends declared by the BOD and ratified by the stockholders.

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

   The authorized preferred stock is 12% cumulative, nonparticipating, nonvoting and redeemable at par
   upon dissolution and liquidation of the Parent Company. The authorized preferred stock is 2,000,000
   shares at par value of P1 per share. There are no issuances of preferred stock.

   The authorized common stock is 2,998,000,000 shares in 2006 and 1,998,0000,000 shares in 2005
                            =
   and 2004 at par value of P1 per share. A reconciliation of the number of common shares outstanding
   as of September 30, 2006, 2005 and 2004 follows:

                                                       2006               2005               2004
       Beginning of the year                  1,686,479,549      1,686,479,549      1,686,479,549
       Issuances during the year                535,371,932                  –                  –
       End of the year                        2,221,851,481      1,686,479,549      1,686,479,549

   On August 3, 2001, the Parent Company’s BOD approved the issuance of 55,659,008 shares to
   JGSHI, Robinson’s Supermarket Corporation, and its major stockholder in exchange for two (2)
                                                                              =
   parcels of land and certain marketable securities, respectively, valued at P 250,465,533. This is
   reflected as “Deposits for future stock subscriptions” in the consolidated balance sheets. On June 19,
   2003, the SEC approved the issuance of 49,871,556 shares for the two (2) parcels of land. The
   remaining 5,787,452 shares are subject to the approval of the SEC.

   Cumulative translation adjustments
   The cumulative translation adjustments account is used to record the exchange differences arising
   from the translation of the financial statements of foreign subsidiaries.




                                                                                 *SGVMC100000*
                                                 - 113 -


21. Retained Earnings

   Appropriation
   In December 2003, the BOD approved the appropriation of retained earnings amounting to
   P3.0 billion for plant expansion.
   =

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

                                                   2006                 2005                   2004
       Date of declaration                      April 20, 2006        May 5, 2005          May 4, 2004
       Dividend per share                             P0.54
                                                      =                   =
                                                                          P0.30                  =
                                                                                                 P0.30
       Total dividends                        =
                                              P1,198.8 million      =
                                                                    P505.9 million       =
                                                                                         P505.9 million
       Date of record                           May 19, 2006          June 3, 2005        June 20, 2004
       Date of payment                          June 15, 2006        June 29, 2005        July 14, 2004

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


22. Cost of Sales and Services

   This account consists of:

                                                                             2005                  2004
                                                        2006         (As restated)         (As restated)
       Raw materials used                    =
                                             P19,975,260,129     =
                                                                 P16,640,705,039       P15,020,126,478
                                                                                       =
       Direct labor (Note 25)                    741,356,852         669,759,560           760,571,580
       Other manufacturing costs (Notes 24
            and 25)                             5,659,055,964       6,078,021,097         5,041,847,612
       Total manufacturing cost                26,375,672,945      23,388,485,696        20,822,545,670
       Goods in process                           (60,810,866)        (10,830,264)          (20,696,212)
       Cost of goods manufactured              26,314,862,079      23,377,655,432        20,801,849,458
       Finished goods                              45,112,152         (69,942,746)         (322,411,429)
                                             =
                                             P26,359,974,231     P23,307,712,686
                                                                 =                     P20,479,438,029
                                                                                       =




                                                                                     *SGVMC100000*
                                                  - 114 -


23. Operating and Other Administrative Expenses

   This account consists of:

                                                                             2005                2004
                                                        2006         (As restated)       (As restated)
       Personnel expense (Note 25)            =
                                              P1,046,561,391     P1,032,734,740
                                                                 =                     P766,433,261
                                                                                       =
       Advertising and promotion                2,347,929,155      1,838,916,104       1,741,969,942
       Freight and other selling expenses       1,874,294,290      1,453,400,399       1,234,915,048
       Depreciation, impairment, repairs
           and maintenance (Note 24)             270,033,107        243,501,008          424,173,251
       Other administrative expenses             627,221,154        885,485,752          609,170,466
                                              =
                                              P6,166,039,097     P5,454,038,003
                                                                 =                    =
                                                                                      P4,776,661,968

   Revenue Regulation (RR) No. 10-2002 defines expenses to be classified as EAR expenses and sets a
   limit for the amount that is deductible for tax purposes. EAR expenses are limited to 0.5% of net
   sales for sellers of goods or properties or 1% of net revenue for sellers of services. For sellers of both
   goods or properties and services, an apportionment formula is used in determining the ceiling on such
                                                                                 =
   expenses. Entertainment and representation (EAR) expenses amounted to P 19.2 million in 2006,
   =                           =
   P14.6 million in 2005 and P11.3 million in 2004.


24. Depreciation and Amortization

   Depreciation and amortization are distributed as follows:

                                                                            2005                 2004
                                                        2006        (As restated)        (As restated)
       Cost of sales and services              =
                                               P1,813,572,239      P1,513,518,513
                                                                   =                   P1,404,500,544
                                                                                       =
       Operating and other administrative
            expenses                              177,414,814         151,957,986         397,032,084
       Other charges                              298,132,401         178,118,851         227,125,639
                                               =
                                               P2,289,119,454      P1,843,595,350
                                                                   =                   P2,028,658,267
                                                                                       =



25. Personnel Expenses

   Personnel expenses consist of:

                                                                            2005                 2004
                                                       2006         (As restated)        (As restated)
       Salaries, wages and other staff cost   =
                                              P1,365,897,499     =
                                                                 P1,258,083,567       P1,217,985,716
                                                                                      =
       Employee benefits                         500,440,853        403,502,033          357,183,564
       Pension expense (income) (Note 26)        (55,723,791)        54,732,596                      –
                                              =
                                              P1,810,614,561     P1,716,318,196
                                                                 =                    P1,575,169,280
                                                                                      =




                                                                                     *SGVMC100000*
                                                - 115 -


   The above amounts are distributed as follows:

                                                    2006              2005               2004
       Cost of sales and services            =
                                             P764,053,170      P683,583,456
                                                               =                  P808,736,019
                                                                                  =
       Operating and other administrative
           expenses                           1,046,561,391     1,032,734,740       766,433,261
                                            =
                                            P1,810,614,561    =
                                                              P1,716,318,196     =
                                                                                 P1,575,169,280



26. Retirement Costs

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

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

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

   Pension expense charged to operations, including amortization of past service cost, amounted to
    =                          =
   (P55.7) million in 2006 and P54.7 million in 2005.

                                                                        2006                2005
       Present value of unfunded obligation                    P753,987,300
                                                               =                   P593,828,500
                                                                                   =
       Fair value of plan assets                              (1,162,943,500)     (1,098,144,300)
       Excess of fair value of plan assets over present value
           of unfunded obligation                               (408,956,200)      (504,315,800)
       Unrecognized actuarial loss (gain) - net                  (18,565,205)       (68,316,196)
       Net pension asset                                      (P427,521,405)
                                                               =                       =
                                                                                      (P572,631,996)
       Asset limit to be recognized in consolidated
           balance sheets                                     (P236,346,400)
                                                               =                   =
                                                                                  (P170,110,800)
       Net pension asset in excess of the asset ceiling not
           recognized in the consolidated balance sheets      (P191,175,005)
                                                               =                   =
                                                                                  (P402,521,196)




                                                                                *SGVMC100000*
                                              - 116 -


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

                                                                    2006              2005
    Present value of available future contributions         P236,346,400
                                                            =                 P170,110,800
                                                                              =
    Unrecognized actuarial loss - net                                  –                 –
    Asset ceiling limit to be recognized in the
        consolidated balance sheets                         P236,346,400
                                                            =                 =
                                                                              P170,110,800

Movements in the fair value of plan assets follow:

                                                                     2006           2005
    Balance at beginning of year                                          =
                                                          P1,098,144,300 P1,027,773,000
                                                          =
    Expected return on plan assets                             76,195,900     71,609,400
    Actual contributions                                        5,770,500      5,770,500
    Benefits paid                                            (25,034,700)   (15,333,900)
    Actuarial gain - net                                        7,867,500      8,325,300
    Balance at end of year                                                =
                                                          P1,162,943,500 P1,098,144,300
                                                          =
    Actual return on plan assets                             P79,934,700
                                                             =              P79,934,700
                                                                            =

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

                                                                     2006              2005
    Balance at beginning of year                            P593,828,500
                                                            =                 P438,717,300
                                                                              =
    Current service cost                                       35,275,200        26,159,500
    Interest cost                                              67,463,600        58,780,200
    Benefits paid                                             (35,546,509)      (23,387,296)
    Actuarial loss - net                                       92,966,509        93,558,796
    Balance at end of year                                  P753,987,300
                                                            =                 P593,828,500
                                                                              =

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

                                                                      2006              2005
    Current service cost                                      P35,275,200
                                                              =                 =
                                                                                P26,159,500
    Interest cost                                               67,463,600        58,780,200
    Expected rate of return on plan assets                    (76,195,900)      (71,609,400)
    Net actuarial loss (gain) recognized during
        the year                                              (82,266,691)        41,402,296
                                                             (P55,723,791)
                                                              =                 =
                                                                                P54,732,596




                                                                           *SGVMC100000*
                                                        - 117 -


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

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

   The discount rate used as of September 30, 2006 for the determination of the projected
   pension obligation for the fiscal year 2006 to 2007 was 8.80%.

   The plan assets consist of the following:

                                                                                    2006             2005
        Cash                                                                     P26,130
                                                                                 =                =
                                                                                                  P24,827
        Receivables                                                        1,289,301,558    1,207,826,532
        Liabilities                                                         (126,384,188)    (109,707,059)
                                                                                          =
                                                                         P1,162,943,500 P1,098,144,300
                                                                         =

                                         =
   The group expects to contribute about P11.4 million into the pension fund for the annual period
   ending September 30, 2007.


27. Net Sales and Services

   This account consists of:

                                                                  2006                2005              2004
   Sale of goods and services                          =
                                                       P32,634,185,065     P28,912,271,738
                                                                           =                 =
                                                                                             P25,276,021,317
   Sale of agricultural produce                          2,304,920,601       1,946,080,629     1,957,179,246
   Gain from change in fair value less point-of-sale
        costs of biological assets                         244,709,188         340,923,379       124,677,393
                                                       =
                                                       P35,183,814,854     =
                                                                           P31,199,275,746   =
                                                                                             P27,357,877,956




                                                                                         *SGVMC100000*
                                                  - 118 -


28. Investment Income

   This account consist of:

                                                            2006               2005                2004
   Interest income on financial assets at FVPL    =
                                                  P2,044,697,457     P1,764,739,009
                                                                     =                   =
                                                                                         P1,349,423,791
   Interest income on cash and cash equivalents       96,913,776        102,388,986          49,611,822
   Dividend income                                   177,903,257         41,526,253          40,076,892
   Others                                                300,919            225,850             163,558
                                                  =
                                                  P2,319,815,409     =
                                                                     P1,908,880,098      =
                                                                                         P1,439,276,063



29. Finance Costs

   This account consist of:

                                                              2006                2005                 2004
   Interest expense on long-term debt               =
                                                    P1,814,587,075      =
                                                                        P1,720,652,986       =
                                                                                             P1,041,618,864
   Interest expense on loans payable                   443,065,132         368,178,926          493,018,284
   Other financing charges                                 623,001           2,298,019            2,749,522
   Others                                               13,675,694          23,654,880           11,194,199
                                                    =
                                                    P2,271,950,902      =
                                                                        P2,114,784,811       =
                                                                                             P1,548,580,869



30. Income Taxes

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

                                                                                                   2005
                                                                             2006          (As restated)
        Deferred tax assets:
           Allowance for doubtful accounts                         P174,591,181
                                                                   =                      =
                                                                                          P165,336,869
          Provision for inventory write down                          13,615,167             13,615,167
          Allowance for mortality                                      9,586,407              9,586,407
                                                                     197,792,755            188,538,443
        Deferred tax liabilities:
          Undistributed income of foreign subsidiaries               273,437,500           218,750,000
          Unrealized foreign exchange gain (loss)                     98,620,522            (3,862,106)
          Gain arising from changes in fair value less
           estimated point-of-sale costs of swine stocks               88,477,912           119,323,183
          Others                                                       32,215,777            23,372,245
                                                                      492,751,711           357,583,322
        Net deferred tax liabilities                               (P294,958,956)
                                                                    =                     =
                                                                                         (P169,044,879)




                                                                                  *SGVMC100000*
                                                         - 119 -


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

                                                                      2006              2005              2004
       Statutory income tax rate                                   34.75%             32.00%            32.00%
       Additions (reductions):
         Net income of foreign subsidiaries for
            which no tax was provided                              (14.87)            (14.74)           (30.61)
         Equity in net earnings of investees not
            subject to tax                                           (3.49)            (2.82)            (1.15)
         Decline in value of marketable securities                   (3.55)            (1.47)                 –
         Interest income subject to final tax                        (0.19)            (0.32)            (0.14)
         Reduction in allowable interest expense                       0.14              0.04              0.04
         Interest income exempt from tax                             (4.88)            (0.35)            (0.07)
         Others                                                        3.70              4.70            (0.07)
       Effective income tax rate                                   11.61%             17.04%                –%

   Republic Act (RA) No. 9337
   RA No. 9337 was recently enacted into law amending various provisions in the existing 1997
   National Internal Revenue Code. Among the reforms introduced by the said RA, which became
   effective on November 1, 2005, are as follows:
   · Increase in the corporate income tax rate from 32% to 35% with a reduction thereof to 30%
       beginning January 1, 2009;
   · Increase in value-added tax (VAT) rate from 10% to 12%, effective February 1, 2006 as
       authorized by the Philippine president pursuant to the recommendation of the Secretary of
       Finance subject to compliance to certain economic conditions;
   · Revised invoicing and reporting requirements for VAT;
   · Expanded scope of transactions subject to VAT; and
   · Provided thresholds and limitations on the amounts of VAT credits that can be claimed.


31. Basic and Diluted Earnings Per Share

   The basic and diluted EPS amounts were computed as follows:

                                                                      2006               2005              2004
       Net income                                          =
                                                           P3,018,916,609     =
                                                                              P2,526,249,661    P2,112,320,173
                                                                                                =
       Divide by the weighted average number of shares       2,127,851,482      1,939,451,481     1,939,451,481
                                                                     =
                                                                     P1.42              P1.30
                                                                                        =                 P1.09
                                                                                                          =


   The basic and diluted EPS for the years ended September 30, 2005 and 2004 have been retroactively
   adjusted to take into account the effects of the increase in the authorized capital stock, a portion of
   which was subscribed by way of stock dividends.

   There are no potential dilutive common shares during the year.




                                                                                          *SGVMC100000*
                                                 - 120 -


32. Commitments and Contingencies

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

   Capital commitments
                                                            =
   As of September 30, 2006, the Group had commitments of P1,315.6 million, principally relating to
   the expansion and completion of sugar refinery and production lines for SONEDCO and branded
   consumer food division, respectively. These commitments are for the acquisition of new machinery
   and equipment items.

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

       The Group leases land where certain of its facilities are located. The operating lease agreements
       are for periods ranging from 1 to 99 years from the date of the contracts and are renewable under
       certain terms and conditions. The Group’s rentals incurred on these leases (included in
       “Operating and other administrative expenses’ account in the consolidated statements of income)
                     =             =                  =
       amounted to P62.4 million, P46.5 million and P35.9 million for the years ended September 30,
       2006, 2005 and 2004, respectively.

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

   (b) Operating lease commitments - Group as lessor
   The Group has entered into a one-year renewable, noncancellable lease with Digitel covering land and
   building where Digitel’s office spaces are located. The future minimum lease receivable under this
                              =
   operating lease amounts to P33.6 million.


33. Financial Instruments

   Financial Risk Management Objectives and Policies

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




                                                                                *SGVMC100000*
                                              - 121 -


The BOD reviews and approves the policies for managing each of these risks. The Group monitors
market price risk arising from all financial instruments and regularly reports financial management
activities and the results of these activities to the BOD.

The Group’s risk management policies are summarized below:

Interest Rate Risk
The Group’s exposure to market risk for changes in interest rates relates primarily to the Group’s
long-term debt obligations.

The Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. The
Group’s policy is to manage its interest cost using a mix of fixed and variable rate debt. The Group’s
policy has been revised, to target a ratio of 98% fixed rate USD debt to total USD debt, and 10%
fixed rate PHP debt to total PHP debt.

As of September 30, 2006, 95% of the Group’s borrowings are at a fixed rate of interest.

Foreign Exchange Risk
The Group’s foreign exchange risk results primarily from movements of the Philippine Peso (PHP)
against the United States Dollar (USD) with respect to USD-denominated financial assets (such as
cash and cash equivalents and short-term investments and financial instruments at FVPL) and USD-
denominated financial liabilities. Majority of revenues are generated in PHP, while substantially all
of capital expenditures are in USD. In addition, 97% of debt as of September 30, 2006 was
denominated in USD.

Credit Risk
Customers are subject to standard credit evaluation and verification procedures. The Credit and
Collection Department of the Group continuously provides credit notification and implements
various credit actions, depending on assessed risks, to minimize credit exposure. Receivable balances
of trade customers are being monitored on a regular basis and appropriate credit treatments are
executed for overdue accounts. Likewise, other receivable balances are also being monitored and
subjected to appropriate actions to manage credit risk.

With respect to credit risk arising from the other financial assets of the Group, which comprise cash
and cash equivalents, and financial assets at FVPL, the Group’s exposure to credit risk arises from
default of the counterparty, with a maximum exposure equal to the carrying amount of these
instruments. The Group has a counterparty credit risk management policy which allocates investment
limits based on counterparty credit ratings and credit risk profile.




                                                                           *SGVMC100000*
                                              - 122 -


The credit risk is concentrated to the following customers:

                             Type of customer                                  Percentage
     Related parties                                                             20.0%
     Unaffiliated parties:
         Supermarkets and convenience stores                                     41.4
         Distribution companies                                                  38.6
                                                                                 80.0
     Total                                                                      100.0%

Liquidity Risk
The Group seeks to manage its liquidity profile to be able to finance capital expenditures
and service maturing debts. To cover its financing requirements, the Group intends to use internally
generated funds and available long-term and short-term credit facilities.

As part of its liquidity risk management, the Group regularly evaluates its projected and actual cash
flows. It also continuously assesses conditions in the financial markets for opportunities to pursue
fund raising activities, in case any requirements arise. Fund raising activities may include bank loans,
export credit agency facilities, and capital market issues.

Financial Risk on Biological Assets
The Group is exposed to financial risks arising from changes in market prices of livestock and meat
products. The Group does not anticipate that livestock and meat products will decline significantly
in the foreseeable future and, therefore, has not entered into derivative or other contracts to manage
the risk of a decline in market prices. The Group reviews its outlook for market prices regularly in
considering the need for active financial risk management.

Financial Assets and Liabilities

The table below presents a comparison by category of carrying amounts and estimated fair values of
all the Group’s financial instruments as of September 30, 2006:

                                                              Carrying Value       Fair Value
                                                                   (In Thousand Pesos)
   Financial assets:
       Cash and cash equivalents                                 P5,979,875
                                                                 =                   =
                                                                                     P5,979,875
       Financial instruments at FVPL                             17,889,646          17,889,646
       Trade and other receivables - net                           4,641,131           4,641,131
   Financial liabilities:
       Loans payable                                              4,026,418           4,026,418
       Accounts payable and accrued expenses                      4,142,156           4,142,156
       Trust receipts and acceptances payable                       661,147             661,147
       Long-term debt (including current portion)                19,034,716          19,052,963




                                                                               *SGVMC100000*
                                               - 123 -


Fair values of financial assets are estimated as follows:

The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:

Nonderivative Financial Instruments
The fair values of cash and cash equivalents, financial instruments at FVPL and trade and other
receivables are approximately equal to their carrying amounts.

For variable rate loans that reprice every three months, the carrying value approximates the fair value
because of recent and regular repricing based on current market rates. For variable rate loans that
reprice every six months, the fair value is determined by discounting the principal amount plus the
next interest payment using the prevailing market rate for the period up to the next repricing date.
The variable rate PHP loans reprice every three months.

For fixed rate loans, the fair values are determined by discounting the principal amount using the
prevailing market rate.
The subsequent sections will discuss the Group’s derivative financial instruments according to the
type of financial risk being managed and the details of derivative financial instruments that are
categorized into those accounted for as hedges and those that are not designated as hedges.

Foreign exchange and interest rate risks
Information on the Group’s foreign currency-denominated monetary assets and liabilities and their
Philippine peso equivalents as of September 30, 2006 are as follows:

                                                         US Dollar Peso Equivalent
         Assets
         Cash and cash equivalents                        $97,269     =
                                                                      P4,883,876
         Financial assets at FVPL                         314,747     15,803,447
         Trade and other receivables - net                 33,127       1,663,307
         Other current assets                               4,916         246,832
                                                         $450,059     22,597,462
         Liabilities
         Loans payable                                       35,765    1,795,761
         Accounts payable and accrued expenses               18,545      931,144
         Current portion of long-term debt                    3,173      159,316
         Long-term debt (net of current portion)            372,992   18,727,929
                                                            430,475   21,614,150
         Net foreign currency-denominated assets            $19,584     =
                                                                        P983,312




                                                                             *SGVMC100000*
                                                               - 124 -


       The following table shows information about the Group’s financial instruments that are exposed to
       interest rate risk and presented by maturity profile.
                                                                                 Total              Total Premium and     Carrying Value
                              Within a year     1 to 5 years Above 5 years   (In USD)           (in PHP) Issuance Costs         (In PHP)
Liabilities:
Long-term debt
  (including current
  portion)
US$ guaranteed
  notes                        $44,916,123    $125,000,000 $200,000,000 $369,916,123     P18,573,488,540
                                                                                         =                 P91,189,279 P18,482,299,261
                                                                                                           =           =
  Interest rate        USD LIBOR + 0.75%            9.00%        8.25%
Philippine peso              =
                             P500,000,000                                P52,416,293
                                                                         =                 P552,416,293
                                                                                           =                                552,416,293
  Interest rate                                                               7.50%
                                                                                         P19,125,904,833
                                                                                         =                 =           =
                                                                                                           P91,189,279 P19,034,715,554


     Freestanding Derivatives

     Freestanding derivatives that are not designated as hedges consist of:

                                              Currency Forwards              Currency Options
      Derivative assets                                  P141,090
                                                         =                          P3,059,007
                                                                                    =
      Derivative liabilities                               197,074                   12,293,954
      Notional amount (in US$)                             800,000                   41,000,000
      Maturity                                    Less than a year              Less than a year

     These are included under “Other current assets” and “Accounts payable and accrued expenses” in the
     consolidated balance sheets. Mark-to-market changes on these instruments are accounted for directly
                                                                   =
     in the consolidated statements of income and this amounted to P1.5 million for the year ended
     September 30, 2006.


34. BOI Incentives

     Parent Company
     Under the terms of its registration with BOI, the Parent Company is entitled, among others, to the
     following incentives:

     a. Income tax holiday;
     b. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of export
        products and forming parts thereof;
     c. Tax credit on domestic capital equipment;
     d. Tax and duty-free importation of capital equipment;
     e. Exemption from wharfage dues and any export tax, duty, impost and fees; and
     f. Other non-fiscal incentives that may be applicable.




                                                                                                  *SGVMC100000*
                                             - 125 -


URSUMCO
The five (5) year income tax holiday granted to URSUMCO under its old BOI registration as a new
domestic producer of refined sugar in 1995 expired in 2000. However, the following incentives are
still available to URSUMCO under its old BOI registration:

a. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of export
   products and forming parts thereof;
b. Additional deduction from taxable income on wages subject to certain terms and conditions;
c. Exemption from wharfage dues and any export tax, duty impost and fees for ten (10) years from
   date of registration;
d. Exemption from taxes and duties on imported spare parts and suppliers for certain producers at
   least 70% of production; and
e. Other non-fiscal incentives that may be applicable.

In 2004, the URSUMCO applied for a new registration with the BOI as expanding producer of
refined sugar and molasses. The application for registration for the new activity was approved and
granted by the BOI in April 2004. Under the terms of its new registration, URSUMCO is entitled,
among others, to the following incentives:

a. Income tax holiday for a period of three (3) years from April 2004 or actual start of operations,
   whichever is earlier;
b. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of export
   products and forming parts thereof for ten (10) years from start of commercial operations;
c. Additional deduction from taxable income on wages subject to certain terms and conditions;
d. Exemption from wharfage dues and any export tax, duty impost and fees for ten (10) years from
   date of registration;
e. Exemption from taxes and duties on imported spare parts and suppliers for export producers with
   Customs Bonded Manufacturing Warehouse exporting at least 70% of production; and
f. Importation of consigned equipment for a period of ten (10) years from date of registration.

SONEDCO
Under the terms of its registration with BOI, SONEDCO is entitled, among others, to the following
incentives:

a. Tax credit on capital equipment;
b. Tax and duty-free importation of capital equipment; and
c. Tax credit for taxes and duties on raw materials used for its export products and forming part
   thereof.

CFC Clubhouse Property, Inc.
This subsidiary manufactures PET bottles for use as packaging materials for the beverage division.




                                                                          *SGVMC100000*
                                                 - 126 -


   Under the terms of its registrations with BOI, CFC Property Clubhouse, Inc. is entitled, among others,
   to the following incentives:

   a. Income tax holiday;
   b. Additional deduction from taxable income on wages subject to certain terms and conditions;
   c. Employment of foreign nationals;
   d. Tax credits on taxes and duties on raw materials and supplies used in the manufacture of export
      products and forming parts thereof for ten (10) years from start of commercial operations;
   e. Simplification of customs procedures for the importation of equipment, spare parts, raw materials
      and supplies;
   f. Access to Customs Bonded Manufacturing Warehouse subject to Custom rules and regulations
      provided firm exports at least 70% of production output;
   g. Exemption from wharfage dues and any export tax, duty, impost and fees Exemption from taxes
      and duties on imported spare parts and suppliers for export producers with Customs Bonded
      Manufacturing Warehouse exporting at least 70% of production; and
   h. Importation of consigned equipment for a period of ten (10) years from date of registration.


35. Supplementary Cash Flow Information

   In 2006, the noncash financing activity pertains to the issuances of shares of stock through the
                                                =
   application of stock dividends amounting to P253 million.

   In 2004, the noncash investing activity pertains to receipt ‘by way of assignment’ of RLC shares in
                          =
   full settlement of the P564.3 million worth of JGSHI notes that matured.


36. Approval of the Consolidated Financial Statements

   The accompanying consolidated financial statements of the Group were authorized for issue by the
   audit committee and the BOD on January 16, 2007.




                                                                               *SGVMC100000*
 SGV & CO                                                            SyCip Gorres Velayo & Co.
                                                                     6760 Ayala Avenue
                                                                                                 Phone: (632) 891-0307
                                                                                                 Fax:   (632) 819-0872
                                                                     1226 Makati City            www.sgv.com.ph
                                                                     Philippines
                                                        - 127 -                                  BOA/PRC Reg. No. 0001
                                                                                                 SEC Accreditation No. 0012-F




Independent Auditors’ Report
On Supplementary Schedule



The Stockholders and the Board of Directors
Universal Robina Corporation
110 E. Rodriguez Avenue
Bagumbayan, Quezon City


We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of Universal Robina Corporation and Subsidiaries included in this Form 17-A and have issued
our report thereon dated January 16, 2007. Our audits were made for the purpose of forming an opinion
on the basic consolidated financial statements taken as a whole. The schedules listed in the Index to
Financial Statements and Supplementary Schedules are the responsibility of the Company's management.
These schedules are presented for purposes of complying with Securities Regulation Code Rule 68 and
are not part of the basic consolidated financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic consolidated financial statements and, in our
opinion, fairly state in all material respect the financial data required to be set forth therein in relation to
the basic consolidated financial statements taken as a whole.



SYCIP GORRES VELAYO & CO.



Arnel F. de Jesus
Partner
CPA Certificate No. 43285
SEC Accreditation No. 0075-A
Tax Identification No. 152-884-385
PTR No. 0266544, January 2, 2007, Makati City

January 16, 2007




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


                                                                                            *SGVMC100000*
                             UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
                                  SCHEDULE A - FINANCIAL ASSETS AT FVPL
                               (CURRENT MARKETABLE EQUITY SECURITIES AND
                                    OTHER SHORT-TERM INVESTMENTS)
                                           SEPTEMBER 30, 2006


                                            Number of                                           Value Based
                                            Shares or                                            on Market
                                             Principal                       Amount            Quotations at          Income
Name of Issuing Entity and                Amount of Bonds                  Shown in the        Balance Sheet         Received
Description of Each Issue                   and Notes                     Balance Sheet             Date            and Accrued




Temporary investments                                                 P   16,737,417,695   P   16,737,417,695   P   1,764,739,009


                                                                      P   16,737,417,695   P   16,737,417,695   P   1,764,739,009




Marketable securities                                                 P    1,152,228,593   P    1,152,228,593   P      41,526,253


                                                                      P    1,152,228,593   P    1,152,228,593   P      41,526,253




                                                            - 128 -
                                                      UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
                                                     SCHEDULE B - ADVANCES TO OFFICERS AND EMPLOYEES
                                                RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES, RELATED
                                             PARTIES AND PRINCIPAL STOCKHOLDERS (OTHER THAN RELATED PARTIES)
                                                                     SEPTEMBER 30, 2006




                             Beginning                                                                                     Ending Balance
        Name of Debtor        Balance                     Additions                Collections           Current            Non-Current         Total




                         P               -           P            -        P                     -   P             -   P            -       P           -


Total                    P               -           P            -        P                     -   P             -   P            -       P           -




                                                                         - 129 -
                                                                                                       UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
                                                                                                      SCHEDULE C - LONG-TERM INVESTMENTS IN SECURITIES
                                                                                                        (NONCURRENT MARKETABLE EQUITY SECURITIES,
                                                                                                           OTHER LONG-TERM INVESTMENTS IN STOCK,
                                                                                                                   AND OTHER INVESTMENTS)
                                                                                                                     SEPTEMBER 30, 2006



                                                                                                                                                                                                                                       Dividends
                                                                  BEGINNING BALANCE                                        ADDITIONS                              DEDUCTIONS                          ENDING BALANCE               Received/accrued
                                                                                                                                                                                                                                          from
                                                                                                                                                                                                                                    Investments Not
                                                              Number                                                                                                                            Number                               Accounted for
                                                                                                                                                                                                                                      by the Equity
                                                               Shares                                         Equity in                                                                         Shares
                                                                                                                                                                                                                                        Method
                                                             of Principal                                 Earnings (Losses)                             Distribution of                       of Principal
                Name of Issuing Entity and                   Amount of                 Amount in            of Investees                                 Earnings by                           Amount of            Amount in
                Description of Investment                Bonds and Notes                Pesos               for the Period             Others             Investees            Others       Bonds and Notes            Pesos




Robinson's Land Incorporated                                 435,747,367       P     1,741,767,454    P       301,520,000        P                  P   (151,391,543)     P             0      435,747,367    P   1,891,895,911    P              0
HUNT- Universal Robina Corporation                              1,400,000              68,108,517               18,476,500                               (19,999,942)                   0        1,400,000          66,585,075                    0



Total                                                        437,147,367       P     1,809,875,971    P       319,996,500        P              0   P   (171,391,485)     P             0      437,147,367    P   1,958,480,986    P              0




                                                                                                                                                                                                                       5,845,304
Note:                          Description of investments                   Percentage of ownership
                               HUNT- Universal Robina Corporation              50%
                               Robinson's Land Corporation                     19%




                                                                                                                                 - 130 -
                       UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
                         SCHEDULE D - ADVANCES TO UNCONSOLIDATED
                                 SUBSIDIARIES AND AFFILIATES
                                     SEPTEMBER 30, 2006




                                                               Beginning           Ending
                                      Name of Affiliate         Balance           Balance




Hunt - Universal Robina Corporation                              30,420,018        32,564,115
Robinsons Supermarket                                             6,550,249         1,301,414
Digital Telecommunications Philippines., Inc.                   161,654,769       190,783,939
Cebu Air, Inc.                                                   26,643,557        31,157,291
Robinsons Land Corporation                                        4,237,531         3,996,832
Cebu Pacific Manufacturing Corporation                           10,138,027
Chic Centre Corp.                                                 4,469,726         4,741,004
Cebu Industrial                                                   7,466,934              -
Hello Snacks Food Corporation                                    31,014,633
Hongkong Peggy Foods                                             58,031,128
Big R Store                                                       1,465,873         1,448,109
Robinson's Convenient Store                                       2,106,417         1,851,841
Litton Mills, Inc.                                                                147,720,037
JG Summit Group                                                                    36,173,092
Terai Industrial Corporation                                                        9,736,125
Others                                                           12,183,169        15,507,869


                                                           P   356,382,031    P   476,981,668


See Note 19 to the Consolidated Financial Statements.



                                                 - 131 -
                                            UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
                                             SCHEDULE E - PROPERTY, PLANT AND EQUIPMENT
                                                          SEPTEMBER 30, 2006




                                                                                                            Other Changes-
                                                   Beginning           Additions at                           Additions                Ending
        Classification                              Balance               Cost            Retirements        (Deductions)              Balance




Cost:
        Land                                 P     875,814,973    P     82,919,739    P             0   P                   0   P     958,734,712
        Land improvements                         1,247,270,922        321,786,331        252,073,629              63,132            1,317,046,756
        Buildings and improvements                5,404,710,282        912,799,970        116,456,870         164,811,932            6,365,865,314
        Machinery and equipment                  21,323,566,820       2,135,914,709        27,001,112        1,123,001,083          24,555,481,500
        Transportation equipment                  1,532,088,249        153,795,249         99,319,774          75,184,454            1,661,748,178
        Furniture, fixtures and equipment         1,093,223,914        311,338,569         16,838,048          49,231,020            1,436,955,455
        Equipment in transit                       574,592,107        1,431,350,739                 0         (302,564,673)          1,703,378,173
        Construction in progress                   564,652,478         480,889,910                  0         (454,026,060)           591,516,328
                                             P   32,615,919,745   P   5,830,795,216   P   511,689,433   P      655,700,888      P   38,590,726,416




                                                                      - 132 -
                                            UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
                                                SCHEDULE F - ACCUMULATED DEPRECIATION
                                                          SEPTEMBER 30, 2006




                                                                           Additions                             Other Changes-
                                                    Beginning           Charged to Costs                            Additions            Ending
        Description                                  Balance             and Expenses          Retirements        (Deductions)           Balance




Cost:
        Land improvements                     P     434,792,801    P        215,529,734    P             0   P     36,010,258     P     686,332,793
        Buildings and improvements                 2,203,534,785            273,250,625          5,793,493        335,359,215          2,806,351,132
        Machinery and equipment                   11,012,754,417          1,543,260,456        128,888,350         76,504,829         12,503,631,352
        Transportation equipment                   1,132,179,340            127,398,568         95,580,181         24,139,269          1,188,136,996
        Furniture, fixtures and equipment           708,003,045             126,081,826          4,141,943         12,428,692           842,371,620
                                              P   15,491,264,388   P      2,285,521,209    P   234,403,967   P    484,442,263     P   18,026,823,893




                                                                       - 133 -
                                                 UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
                                                           SCHEDULE G - OTHER ASSETS
                                                               SEPTEMBER 30, 2006




                                                                         Deductions/Amortizations           Other Changes-
                              Beginning            Additions        Charged to cost       Charged to           Additions         Ending
       Description             Balance              at cost          and expenses      Other accounts        (deductions)        Balance


Goodwill                 P   1,085,237,005   P              0   P     240,688,815      P         0      P                    P      844,548,190
Trademark                                0        190,223,400                                                                       190,223,400
Miscellaneous deposits          60,988,528                  0                    0               0               4,195,526           65,184,054
Others                         124,839,622                  0                    0               0             301,395,490          426,235,112

                         P   1,271,065,155   P    190,223,400   P     240,688,815      P         0      P      305,591,016   P     1,526,190,756




                                                                             - 134 -
                                                     UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
                                                             SCHEDULE H - LONG-TERM DEBT
                                                                   SEPTEMBER 30, 2006




                                                          Amount                                  Amount              Amount
                           Name of Issuer and          Authorized by                          Shown as               Shown as
                           Type of Obligation            Indenture                                Current           Long-Term               Total         Remarks




URC Philippines, Ltd. 8.25%
             Guarantedd Notes Due 2012           $      200,000,000                   P                     0   P   10,042,000,000   P   10,042,000,000 See Note below


URC Philippines, Ltd. 9%
             Guarantedd Notes Due 2008           $      125,000,000                                         0        6,276,250,000        6,276,250,000    - do -


Bayerische Vereinsbank AG                        Euro 11,430,473                                  44,422,925          111,057,312          155,480,237     - do -


                                                 $       6,236,038                           114,924,995              114,924,995          229,849,990     - do -


Philippine Sugar Corporation                                         0                             5,542,161           46,874,132           52,416,293     - do -


Metrobank and Trust Co.                                              0                       500,000,000                        0          500,000,000     - do -


Universal Robina (Cayman), Ltd. 8 3/8%
             Guaranteed Notes Due 2006           $      64,727,000                         1,869,908,313                        0         1,869,908,313    - do -


                                                                                      P    2,534,798,394        P   16,591,106,439   P   19,125,904,833
Less: Debt Issuance Cost                                                                                    0          91,189,279           91,189,279
                                                                                           2,534,798,394            16,499,917,160       19,034,715,554




Note:                      The terms, interest rate, collaterals and other relevant information
                           are shown in the Notes to Consolidated Financial Statements.




                                                                                     - 135 -
                         UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
                          SCHEDULE I - ADVANCES FROM UNCONSOLIDATED
                                   SUBSIDIARIES AND AFFILIATES
                                        SEPTEMBER 30, 2006




                                                               Beginning          Ending
                                  Name of Affiliate             Balance           Balance




JG Summit Petrochemical Corp.                                     4,353,006         34,549,094
Hongkong Peggy Foods                                                      -         49,416,775
Litton Mills, Inc.                                               76,304,923
Terai Industrial Corp.                                           28,731,925
Pan Pacific Investment Co. Ltd.                                 215,433,895          3,904,581
Solid Finance                                                   59,285,027         39,660,442
Xiamen Ting teng                                                 20,827,991         19,090,896
Shanghai Ting                                                             -          8,328,835
JG Summit Group                                                  68,502,438
Others                                                            4,305,558          4,372,041


                                                           P   477,744,763    P    159,322,664


See Note 19 to the Consolidated Financial Statements.




                                                 - 136 -
                                               UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES
                                                         SCHEDULE K - CAPITAL STOCK
                                                             SEPTEMBER 30, 2006



                                                                        Number of
                                                                     Shares Reserved                       Number of Shares Held By
                                  Number of        Number of
                                                  Shares Issued   for Options, Warrants,
                                   Shares
                                                      and            Conversions, and
   Title of Issue                 Authorized                                                                           Directors,
                                                   Outstanding         Other Rights
                                                                                                                        Officers
                                                                                            Affiliates                    and           Others
                                                                                                                       Employees



Preferred stock - P1 par value      2,000,000         None


Common stock - P1 par value      2,998,000,000    2,221,851,481                            1,317,053,808                2,692,043     902,105,630




                                                                           - 137 -
                                              -138-


      UNIVERSAL ROBINA CORPORATION AND SUBSIDIARIES

                                  INDEX TO EXHIBITS

                                         FORM 17-A


No                                                                                Page No,


(3)     Plan of Acquisition, Reorganization, Arrangement,
           Liquidation, or Succession                                                *

(5)     Instruments Defining the Rights of Security Holders,
          Including Indentures                                                       *

(8)     Voting Trust Agreement                                                       *

(9)     Material Contracts                                                           *

(10) Annual Report to Security Holders, Form 17-Q or
       Quarterly Report to Security Holders                                          *

(13) Letter re: Change in Certifying Accountants                                     *

(16) Report Furnished to Security Holders                                            *

(18) Subsidiaries of the Registrant                                                  139

(19) Published Report Regarding Matters Submitted
       To Vote of Security Holders                                                       *

(20) Consent of Experts and Independent Counsel                                       *

(21) Power of Attorney                                                                *

(29) Additional Exhibits
       Letter re Disclosure Rules on
       Executive Compensation                                                         *




___________

*These Exhibits are either not applicable to the Company or require no answer.\
                                                  -139-




EXHIBIT 18 SUBSIDIARIES OF THE REGISTRANT

 Universal Robina Corproration has the following subsidiaries that are directly and indirectly
 owned:

                                                        Country of          Percentage of Ownership
             Investee Companies                      Incorporation            Direct       Indirect

 CFC Corporation                                       Philippines            100.00             –
 Universal Robina (Cayman, Ltd.)                   Cayman Islands             100.00             –
 URC Philippines, Limited                        British Virgin Islands       100.00             –
 Universal Robina Sugar Milling
     Corporation (URSUMCO)                            Philippines             100.00             –
 Southern Negros Development Corporation
     (SONEDCO)                                             - do -                –           94.00
 CFC Clubhouse, Incorporated (formerly
     CFC Keebler, Incorporated)                            - do -             100.00             –
 CFC Clubhouse Property, Inc. (formerly
     CFC Keebler Property, Inc.)                         - do -               100.00           –
 URC International Co. Ltd. (URCICL)             British Virgin Islands       77.00            –
 Hong Kong China Foods Co., Ltd.                         - do -                 –            77.00
 URC Asean Brands Co., Ltd.                              - do -                 –            77.00
 URC Hong Kong Company Limited
     (formerly Hong Kong Peggy Snacks
     Foods Co., Limited)                               Hong Kong                 –           100.00
 Tianjin Pacific Foods Manufacturing Co.,
            Ltd.                                            China                –           100.00
 Shanghai Peggy Foods Co., Ltd.                             - do -               –           100.00
 Xiamen Tongan Pacific Food Co., Ltd.                       - do -               –           100.00
 URC Foods (Singapore) Pte. Ltd. (formerly
     Pan Pacific Snacks Pte. Ltd.)                         Singapore             –           100.00
 URC (Thailand) Co., Ltd. (formerly Thai
     Peggy Foods Co. Ltd.)                                 Thailand              –           100.00
 Panyu Peggy Foods Co., Ltd.                                China                –            90.00
 URC Snack Foods (Malaysia) Sdn. Bhd.
     (formerly Pacific World Sdn. Bhd.)                    Malaysia              –            91.52
 Ricellent Sdn. Bhd.                                        - do -               –            54.03
 PT URC Indonesia                                          Indonesia             –           100.00
 Nissin – Universal Robina Corporation                    Philippines          65.00            –
 URC Confectionary Corporation [(URCCC)
     (formerly JOYCO – Univeral Robina
     Corporation)]                                          - do -             100.00          –
 URC Vietnam Co., Ltd.                                     Vietnam               –           100.00

								
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