PHINMA€¦ · the addition of San Benissa Garden Villas in Quezon City and Fountain Breeze will also feature high-rise buildings and townhouse units, a first such project for PPHC.

12th Floor, PHINMA Plaza, 39 Plaza Drive, Rockwell Center, Makati City

PHINMA

Bacnotan Consolidated Industries, Inc.

A n n u a l Re p o r t 2006

TA B L E O F C O N T E N TS


1 ConsolidatedFinancialHighlights

2 LettertoourShareholders

8 StatementofManagement’s ResponsibilityforFinancialStatements

9 ReportofIndependentAuditors

10 ConsolidatedBalanceSheets

11 ConsolidatedStatementsofIncome

12 ConsolidatedStatementsofChangesinEquity

13 ConsolidatedStatementsofCashFlows

15 NotestoFinancialStatements

48 BoardofDirectors

50 ManagementTeam

52 Directory

A n n u a l R e p o r t 2 0 0 6 Bacnotan Consolidated Industries, Inc. / �

2006 2005 2004DURINGTHEYEAR Revenues P2,655,940 P2,115,224 P9,952,7731/

NetIncomeAttributabletoBCIIEquityHolders 336,886 52,615 4,264,5861/

CashDividendonCommonShares - 1,528,086 1,528,086StockDividend 339,575 - -StockDividend% 20% - - ENDOFTHEYEAR CurrentAssets 4,384,201 3,885,567 5,089,650TotalAssets 7,757,327 7,077,619 8,817,789CurrentLiabilities 1,111,825 812,457 1,149,216Non-currentLiabilities 650,257 766,868 756,841EquityAttributabletoBCIIEquityHolders 5,210,644 4,868,821 6,303,676 PERSHARE

Earnings 1.65 0.25 20.901/

BookValueofCommonshares 25.58 23.90 30.94CashdividendonCommonShares - 9.00 9.00

FINANCIALRATIOS CurrentRatio 3.94 4.78 4.43DebttoEquityRatio 0.34 0.32 0.30

1/Includingdiscontinuingoperations

(amountsinthousandsexceptratiosandearningspershare)

C O N S O L I DAT E D F I N A N C I A L H I G H L I G H TS

� / Bacnotan Consolidated Industries, Inc. A n n u a l R e p o r t 2 0 0 6

L E T T E R TO O U R S H A R E H O L D E R S

This year, as Bacnotan Consolidated Industries, Inc. (BCII) turned fifty, we are pleased to report very encouraging results for our company and its principal subsidiaries and affiliates.

Youwillrecallthatin2003and2004,BCIIdivesteditselfofitssharesinthecementandpaperbusinessesatconsiderablevalueforitsshareholdersandthenfocusedonnewinvestmentsinvarioussectors.BCII’snew

missionistohelpbuildthenationthroughcompetitiveandwell-managedbusinessenterprisesthatwillmakelifebetterforFilipinos,particularlythrough the housing, education, energy and financial services sectors. TheCompanyand its subsidiaries aim tobuild affordableanddecenthomes,offerhigh-qualityeducationataffordablecost,providereliableandaffordablepower,andofferattractiveinvestmentopportunitiestoencouragecapitalformation.

In linewith itsnewmission, in2005and2006, thecompany investedin additional equity in the housing and financial services sectors, and venturedintotheeducationsectorwiththeacquisitionoftwoschools.

For 2006, Bacnotan Consolidated Industries, Inc. (BCII) is pleased toreportaconsolidatednetincomeattributabletoequityshareholdersoftheparentcompanyofP336.9million,upfromincomeofP52.6millionin2005,asaresultofincreasedincomeattheparentcompanylevelandgreater income contribution from its subsidiaries and affiliates. Earnings pershareisP1.65in2006,comparedtoP0.25in2005.

BCII’s new mission is to help build

the nation through competitive and

well-managed business enterprises

that will make life better for Filipinos,

particularly through the housing,

education, energy and financial

services sectors.


E N E R GY

OnDecember28,2006,TransAsiaOilandEnergyDevelopmentCorporation (TA), a 26% affiliate of BCII, acquired CIP II Power Corporation(CIPP)forP147.3million.CIPPoperatesa21MWBunker-C fired power plant in CIP (Carmelray Industrial Park) II, a 45-hectare Special Economic Zone with approximately 50locators, mostly semiconductor manufacturers and exporters,in Calamba, Laguna. This acquisition is TA’s first investment in the powerdistributionbusinessand,withajointventurepowerplantinBulacanandtheGuimaraspowerplant,bringsTA’scapacityto76.4MW.

Fortheyear2006,TApostedincomeofP327.2million,inclusiveof non-recurring income of P271.0 million representing theexcessof net fair valueover costofCIPP.Trans-Asia PowerGeneration Corporation, our joint venture with HolcimPhilippines, realized a net income of P115.7 million in 2006whileTA’sGuimaraspowerplantcontributedapproximatelyP11millioninearningsbeforeinterest,taxes,depreciationandamortization.

E D U C AT I O N

Ourtwoeducationalinstitutionsregisteredsatisfactoryresultsin an environment where the private education sector hasbeen affected by economic difficulties faced by its students and hasexperiencedheightenedcompetitionfromstateandlocalgovernmentschools.

Araullo University (AU), owned 79 % by BCII, posted netincomeofP18.1millioncomparedtoanetlossofP18.9millionforcalendaryear2005evenasitexperiencedaslightdeclineof1.5%inenrollmentin2006.CagayandeOroCollege(COC),whichis68%-owned,ontheotherhand,likewiseexperiencedaslight1%decreaseinenrollment.Forthecalendaryear2006,

For 2006, Bacnotan Consolidated Industries, Inc. (BCII) is pleased to report a consolidated net income attributable to equity shareholders of the parent

company of P336.9 million, up from income of P52.6 million in 2005.


COCpostedanetlossofP11.6millionduetocostsattributableto an early retirement program designed to create a leanerorganization that will set the stage for profitable operations in futureyears.

BothAUandCOChave initiatedamarketingcampaignwiththetagline“WalangImposible”.Tobetterserveitsstudents,bothschoolsshalloffernewprograms,includingtechnicalandvocation courses, and shall offer loyalty and work-to-studyprograms.

H O U S I N G

PhinmaPropertyHoldingsCorporation,owned35%byBCII,is the leading developer of affordable, medium rise buildingsinMetroManila. In 2006, PhinmaProperties completed the947-unitSpazioBernardoproject inQuezonCity,andbeganworkonthe319-unitexpansion,namedSpazioBernardoWestVillas.Forthecalendaryear2006,PhinmaPropertiespostednetincomeofP48.7million,comparedtoP23millionlastyear.

This year we eagerly look forward to 2,500 new units withtheadditionofSanBenissaGardenVillasinQuezonCityand

Fountain Breeze will also feature high-rise buildings and townhouse units, a first such project for PPHC.

In 2006, Phinma Properties

completed the 947-unit

Spazio Bernardo project in

Quezon City, and began work on

the 319-unit expansion, named

Spazio Bernardo West Villas.


thelaunchofitsFountainBreezeprojectinSucat,Parañaque.InadditiontoPhinmaProperties’usualmedium-risebuildings,Fountain Breeze will also feature high-rise buildings andtownhouse units, a first such project for the company. Developmentworkona3-hectarepropertyinLasPiñasshalllikewisebeginin2007.

F I N A N C I A L S E RV I C E S

TheincomeofABCapitalandInvestmentCorporation,BCII’saffiliate in the financial services industry, increased 85.5% during theyeartoP128million, includingaP52milliongainonsaleof investment property. AB Capital also benefited from the favorable financial markets, marked by a bullish stock market, InitialPublicOfferings(IPOs)andfollow-onofferings.

During the year, AB Capital participated as underwriter inmajor IPOs,andservedasoneof the issuemanagersof theP12-BHomeGuarantyCorporation zero-couponbond. ABCapitallikewiselauncheditsownUnitInvestmentTrustFund(UITF),anequityfund,tobetterserveitsinvestingmarket.

The income of AB Capital and Investment Corporation, BCII’s affiliate in the financial services industry, increased 85.5% during the year to P128 million.

This year we eagerly look forward to 2,500 new units with the addition of San Benissa Garden Villas in Quezon City and the launch of its Fountain Breeze project in Sucat, Parañaque.


OT H E R B U S I N E S S E S

UnionGalvasteelCorporation, the leader in thepre-paintedsteel roofing sector, posted net income of P60.4 million last year, up fromP26.3million in2005. Sales volume increasedfrom32.2thousandmetrictonsto36.6thousandmetrictonsin2006.Duringtheyear,UGCintroducedtwonewhigh-valueproductstothemarket:theSteelFramedHouseandwoodgrainspandrel,andbeguntheupgradeofitscolorcoatinglinefrom36,000MTto40,000MTperyear.

UGC expects a 12% to 15% growth for demand in roofing and relatedsteelproducts inthecomingyear, inviewofpositivemacro-economic indicators, stronger government fiscal positionandastrongdemandintyphoon-damagedareas.

BacnotanIndustrialParkCorporation(BIPC)continuedtofacedifficulties during the year, due to the soft market. Revenue fromport operations increased fromP16.6million to P19.5millionin2006.However,duetotheslowdowninsales,BIPCendedtheyearwithalossofP10.8million.

PA R E N T C O M PA N Y

BCIIitselfandAtlasHoldingsCorporation(AHC),BCII’s90%-owned subsidiary, benefited from the strong financial markets. Atlas Holdings Corporation posted a net income of P61.9million,whileBCII’sownrevenueandotherincomeincreasedtoP334.7million,comparedtoP187.9million in2005,afteradjustmentsforextraordinarydividendincomein2005.TheCompanydeclared a 20% stockdividend in 2006 and a15%stockdividendonMarch30,2007.

UGC expects a 12% to 15% growth for demand in roofing and related steel products in the coming year


O U T LO O K

Forthecomingyear,wewillactivelypursueopportunities inthe privatization of National Power Corporation in tandemwith other local and foreign companies. We are also keenonpursuingopportunitiesinmining.Ineducation,weremaindeterminedtoacquireathirdschool,inlinewithourvisionofanetworkofthreetofiveschoolsthroughoutthePhilippines.Allow us to reiterate that our commitment to education isnotonlyour response to the cryingneed for better qualityeducation, especially for the poor, but is also based on ourconvictionthattheseinvestmentsshallenhancevaluesforourshareholdersaswell.

Wearelikewiseenthusiasticaboutthetremendousprospectsin the affordable housing sector. We are confident PhinmaPropertiesshallmakefurther inroads inthissectorandshallbewell-positionedforanInitialPublicOfferingin2008.

The first fifty years have been exciting and fruitful ones fortheCompany,andwelookforwardtothecomingyearswithoptimism. Weare, as always, grateful toourDirectorswhohave guided us and counseled us, and to our shareholders,some of whom have been with BCII since the company’sinception.Wearegratefulforyourtrustinthenewdirectionswehavetaken,andshallcontinuetocountonyoursupportinthefuture.

In education, we remain

determined to acquire a third

school, in line with our vision

of a network of three to

five schools throughout the

Philippines.

Ra m o n R . D e l Rosa r i o , J r.P re s i d e n t

O sca r J . H i l a d oC h a i r m a n o f t h e B o a rd


Securities and Exchange CommissionSEC Building, EDSA, GreenhillsMandaluyong City

The management of BACNOTAN CONSOLIDATED INDUSTRIES, INC. AND SUBSIDIARIES is responsible for all information and representations contained in the consolidated balance sheets as of December 31, 2006 and 2005 and the related consolidated statements of income, changes in equity and cash flows for the years ended December 31, 2006, 2005 and 2004. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the Philippines and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality.

In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the Company’s audit committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other employees who exercise significant roles in internal controls.

The Board of Directors reviews the consolidated financial statements before such statements are approved and submitted to the stockholders of the company.

SyCip Gorres Velayo & Co., the independent auditors appointed by the Board of Directors and Stockholders, have audited the consolidated financial statements of the Company and its Subsidiaries in accordance with auditing standards generally accepted in the Philippines and have expressed their opinion on the fairness of presentation upon completion of such audit, in their report to the Stockholders and the Board of Directors.

OSCAR J. HILADO

Chairman of the Board

RAMON R. DEL ROSARIO, JR. VICTOR J. DEL ROSARIO President Executive Vice President and CFO

STAT E M E N T O F M A N A G E M E N T ’S R E S P O N S I B I L I T YFO R F I N A N C I A L STAT E M E N TS

R E P O R T O F I N D E P E N D E N T AU D I TO R S


STAT E M E N T O F M A N A G E M E N T ’S R E S P O N S I B I L I T YFO R F I N A N C I A L STAT E M E N TS

The Stockholders and Board of Directors Bacnotan Consolidated Industries, Inc.

We have audited the accompanying financial statements of Bacnotan Consolidated Industries, Inc. and Subsidiaries, which comprise the consolidated balance sheets as at December 31, 2006 and 2005, and the consolidated statements of income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2006, 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. ln 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.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Bacnotan Consolidated Industries, Inc, and Subsidiaries as of December 31, 2006 and 2005, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2006 in accordance with Philippine Financial Reporting Standards.

SYCIP GORRES VELAYO & CO.

Bennette A. Daplas-Bachoco Partner CPA Certificate No. 86740 SEC Accreditation No. 0112-AR-l Tax Identification No. 129-433-970 PTR No. 0266524, January 2, 2007, Makati City

March 30,2007

R E P O R T O F I N D E P E N D E N T AU D I TO R S

�0 / Bacnotan Consolidated Industries, Inc. A n n u a l R e p o r t 2 0 0 6

C O N S O L I DAT E D B A L A N C E S H E E TS

December �� 00� 2005ASSETS Current Assets Cashandcashequivalents(Notes8and29) P��,�0� P356,451Financial assets at fair value through profit or loss (Notes 9 and 29) �,��,�� 2,408,243Tradeandotherreceivables-net(Notes10,20and29) ��,�� 368,804Inventories-net(Notes11and20) ��,��0 667,764Inputtax ��,�� 75,287Derivativeassets(Note29) ��,�0� –Othercurrentassets-net ��,�0� 9,018 TotalCurrentAssets �,��,�0� 3,885,567

Noncurrent Assets Investmentsandadvancesatequity-net(Note12) ��,�� 815,029Available-for-saleinvestments(Notes13and29) ��0,�� 329,207Property,plantandequipment-net(Notes14and20) �,��,�� 1,343,420Investmentproperties-net(Note15) ��,�� 535,813Intangibles-net(Note16) ��,��0 82,527Deferredtaxassets(Note30) ��,�0� 41,648Othernoncurrentassets-net(Notes17and29) ��,�� 44,408 TotalNoncurrentAssets �,��,�� 3,192,052 P�,��,�� P7,077,619

LIABILITIES AND EQUITY Current Liabilities Notespayable(Notes18and29) P��,�� P253,560Tradeandotherpayables(Notes19and29) ��,�� 276,547Unearnedrevenues ��,�� 80,309Trustreceiptspayable(Notes11and29) �0�,�� 106,202Incomeandothertaxespayable ��,�0� 7,831Duetorelatedparties(Notes27and29) �0,�� 17,415Currentportionoflong-termdebt(Notes20and29) ��,�� 70,593 TotalCurrentLiabilities �,��,�� 812,457

Noncurrent Liabilities Long-termdebt-netofcurrentportion(Notes20and29) ��,�� 557,781Deferredrentrevenue ��,0�� 54,225Deferredtaxliabilities(Note30) ��,�� 105,456Pension and other post-employment benefits (Note 31) �,�� 10,468Othernoncurrentliabilities(Note27) ��,�� 38,938 TotalNoncurrentLiabilities ��0,�� 766,868

Equity Equityattributabletoequityholdersoftheparent: Capitalstock(Note21) �,0��,�� 1,697,749 Additionalpaid-incapital ��,�� 255,785 Shareinequitycomponentofconvertiblenotes(Notes3and20) ��,�0� 15,409 Share in unrealized gains on financial assets of associates (Note 12) �,�� 3,412 Retainedearnings(Note21) �,��,�� 2,896,466 �,��0,�� 4,868,821Minorityinterest ��,�0� 629,473 TotalEquity �,��,�� 5,498,294 P�,��,�� P7,077,619 See accompanying Notes to Consolidated Financial Statements.

A n n u a l R e p o r t 2 0 0 6 Bacnotan Consolidated Industries, Inc. / ��

Years Ended December �� 00� 2005 2004 Continuing Continuing Continuing Discontinuing Operations Operations Operations Operations Total (In Thousands, Except Per Share Data)

REVENUE(Note27) Saleofgoods P�,��,��0 P1,688,760 P1,466,570 P7,988,664 P9,455,234Investmentincome ��,�� 179,642 88,622 141,868 230,490Tuitionandschoolfees ��,�0� 182,771 76,464 – 76,464Rentalincome ��,�� 15,746 14,600 – 14,600Portandcargohandlingservices ��,�0� 16,631 13,209 – 13,209Saleofrealestate �,��0 31,674 16,192 – 16,192Freight – – – 146,584 146,584 �,��,��0 2,115,224 1,675,657 8,277,116 9,952,773COST OF SALES, FREIGHT SERVICES, EDUCATIONAL SERVICES AND REAL ESTATE(Notes22,25,26and27) �,��,�� 1,601,832 1,194,601 5,857,088 7,051,689 ��,�� 513,392 481,056 2,420,028 2,901,084EXPENSES Generalandadministrative(Notes23,25and26) ��,�� 235,027 352,069 978,291 1,330,360Selling(Notes24,25and26) ��,�� 106,307 73,618 93,041 166,659 ��,�� 341,334 425,687 1,071,332 1,497,019OTHER INCOME (EXPENSES) Foreignexchangegains(losses)-net (��,�0� ) (156,487) 95,587 (50,352) 45,235Interest expense and financing charges (��,�� ) (108,780) (281,555) (817,804) (1,099,359)Equityinnetearningsofassociates(Note12) ��,�� 57,473 190,552 – 190,552Gainonequityadjustmentofaconsolidated subsidiaryandanassociate – 49,099 14,775 – 14,775Netgainonderivatives(Note29) ��,�� 27,217 – – –Gainonsaleofavailable-for-saleinvestments ��,0�� – – – –Excessofthenetfairvalueofacquired company’s identifiable assets and liabilities overcost(Notes7and16) – – 3,970 – 3,970Gainonsaleofinvestmentsinconsolidated subsidiaries,associatesandother investments-net(Note6) – – 1,474 5,902,094 5,903,568Others-net �,�� 17,193 41,008 (24,218) 16,790 ��,�� (114,285) 65,811 5,009,720 5,075,531INCOME BEFORE INCOME TAX ��,�� 57,773 121,180 6,358,416 6,479,596PROVISION FOR (BENEFIT FROM) INCOME TAX (Note30) Current ��,�� 11,292 13,776 100,735 114,511Deferred (�,�� ) (6,115) (6,374) 41,814 35,440 ��,�� 5,177 7,402 142,549 149,951NET INCOME P��,�� P52,596 P113,778 P6,215,867 P6,329,645Attributable To Equityholdersoftheparent P��,�� P52,615 P149,675 P4,114,911 P4,264,586Minorityinterest ��,�� (19) (35,897) 2,100,956 2,065,059Netincome P��,�� P52,596 P113,778 P6,215,867 P6,329,645Basic/Diluted Earnings Per Common Share - Attributable to Equity Holders of the Parent (Note33) P�.�� P0.25 P0.71 P20.2 P20.9 See accompanying Notes to Consolidated Financial Statements.

C O N S O L I DAT E D STAT E M E N TS O F I N C O M E

�� / Bacnotan Consolidated Industries, Inc. A n n u a l R e p o r t 2 0 0 6

C O N S O L I DAT E D STAT E M E N TS O F C H A N G E S I N EQ U I T Y

Years Ended December �� 00� 2005 2004 (In Thousands, Except Par Value Information)

CAPITAL STOCK-P10parvalue(Note21)Preferredshares Balanceatbeginningofyear P– P2,558 P252,558 Retirement – (2,558) (250,000) Balanceatendofyear – – 2,558Commonshares-netofsubscriptionsreceivable ofP124in2006and2005andP400in2004 Balanceatbeginningofyear �,��,�� 1,697,473 1,697,473 Stockdividends-20% ��,�� – – Decreaseinsubscriptionreceivable – 276 – Balanceatendofyear �,0��,�� 1,697,749 1,697,473 �,0��,�� 1,697,749 1,700,031ADDITIONAL PAID-IN CAPITAL ��,�� 255,785 255,785SHARE IN EQUITY COMPONENT OF CONVERTIBLE NOTES(Notes3and20) ��,�0� 15,409 –SHARE IN UNREALIZED GAINS ON FINANCIAL ASSETS OF ASSOCIATES Balanceatbeginningofyear �,�� – –Effect of change in accounting for financial instruments – 21 –Additionsduringtheyear* �,�� 3,391 –Balanceatendofyear �,�� 3,412 –RETAINED EARNINGS Appropriatedforfutureinvestments: Balanceatbeginningofyear �,000,000 – – Appropriationduringtheyear(Note21) – 1,000,000 – Balanceatendofyear �,000,000 1,000,000 –Unappropriated: Balanceatbeginningofyear �,��,�� 4,350,418 1,618,266 Effect of change in accounting for financial instruments – 21,519 – Netincome* ��,�� 52,615 4,264,586 Appropriationduringtheyear(Note21) – (1,000,000) – Stockdividendsoncommonshares-20% (��,�� ) – Cashdividendsoncommonshares-P9.00asharein2005 and2004(Note21) – (1,528,086) (1,528,086) Cashdividendsonpreferredshares-P0.87asharein2004(Note21) – – (4,348) Balanceatendofyear(Note21) �,��,�� 1,896,466 4,350,418 �,��,�� 2,896,466 4,350,418COST OF PREFERRED SHARES HELD IN TREASURY (Note21) – – (2,558)MINORITY INTEREST Balanceatbeginningofyear ��,�� 608,056 11,941,950Effect of changes in accounting for financial instruments – 10,081 –Businesscombination(Note7) ��,�� 87,381 45,253Lossonequityadjustments(Note12) – (49,098) –Dividendsreceived (�,�00 ) (25,300) (2,061,338)Acquisitionofminorityinterest (�,�� ) – –Shareinotherreserves – (1,628) 2,407Netincome ��,�� (19) 2,065,059Acquisitions(Notes5and10) – – (11,385,275)Balanceatendofyear(Note21) ��,�0� 629,473 608,056 P�,��,�� P5,498,294 P6,911,732 *TotalrecognizedincomefortheyearsendedDecember31,2006and2005isP341,823andP56,006,respectively.

See accompanying Notes to Consolidated Financial Statements.


Years Ended December �� 00� 2005 2004 (In Thousands)

CASH FLOWS FROM OPERATING ACTIVITIES Incomefromcontinuingoperationsbeforeincometax P��,�� P57,773 P121,180Adjustmentsfor: Investmentincome (��,�� ) (170,441) (70,233) Interest expense and financing charges ��,�� 108,780 281,555 Depreciationandamortization(Note26) ��,�� 103,137 66,340 Provisions(reversalofallowance)for: Doubtfulaccounts ��,��0 21,619 – Impairmentofpropertyandequipment – 3,143 – Unrecoverableinputvalueaddedtax �0,�� – 58,420 Declineinvalueandimpairmentlossofinvestments – – (25,871) Write-downofinventoriestonetrealizablevalueandothers – – 1,300 Unrealizedgainonderivativeassets (��,�0� ) – – Unrealizedforeignexchangeloss(gain) ��,�� 78,499 (42,966) Loss(gain)on: (�� ) Saleofpropertyandequipment – (74) (39,238) Equityadjustmentofaconsolidatedsubsidiaryandanassociate – – (14,775) Saleofmarketableequitysecuritiesandotherinvestments (��,0�� ) (12,040) (3,473) Equityinnetearningsofassociates(Note10) (��,�� ) (57,473) (190,552) Retirementcost �,�� 9,397 3,743 Recoveryfromdeclineinvalueofmarketableequitysecurities – – (359) Realizedlossondeclineinvalueofinvestments – – 34,000Operatingincomebeforeworkingcapitalchanges ��,00� 142,320 179,071Decrease(increase)in: Tradeandotherreceivables (��,�� ) (41,109) 85,882 Inventories (��,�� ) (13,480) (108,953) Othercurrentassets (��,�� ) (24,309) (49,781)Increase(decrease)in: Tradeandotherpayables ��,�� (624,165) 489,014 Trustreceiptspayable ��,�� 26,277 (28,522) Othertaxespayable (�,��0 ) 57,704 (92,949) Unearnedrevenues �,��0 52,348 –Cashgeneratedfrom(usedfor)operations ��,�� (424,414) 473,762Interestpaid (�0�,0�� ) (108,159) (242,172)Incometaxpaid (��,�� ) (71,812) (4,845)Netcashprovidedby(usedin)operatingactivitiesofcontinuingoperations ��,�� (604,385) 226,745Gainonsaleofdiscontinuingoperations – – (5,902,094)Netcashprovidedbyoperatingactivitiesofdiscontinuingoperations – – 5,384,847Netcashprovidedby(usedin)operatingactivities ��,�� (604,385) (290,502)

CASH FLOWS FROM INVESTING ACTIVITIES Cashpaid-netofcashfrombusinessacquired(Note4) – (137,331) (216,716)Decrease(increase)in: Short-terminvestments – (71,193) (274,214) Othernoncurrentassets (�0,�� ) (42,184) (945,704) Notesreceivable – – 5,000Proceedsfromsaleof: Financial assets at fair value through profit or loss �,��,�� 1,047,200 161,004 Investmentsinsharesofstock ��,��0 91,901 – Property,plantandequipment �,�� – 66,414

(Forward)

C O N S O L I DAT E D STAT E M E N TS O F C A S H F LOW S


Years Ended December �� 00� 2005 2004 (In Thousands)

Investmentincomereceived P��,0�� P117,885 P177,033Additionsto: Property,plantandequipment (��,��0 ) (111,206) (54,374) Financial assets at fair value through profit or loss (�,��,�� ) (508,135) (98,782) Investmentsinsharesofstock (��,�� ) – (230,942) Investmentinaconsolidatedsubsidiary(Note15) – – (65,897)Dividendsreceived ��,��0 17,953 –Netcashprovidedbyinvestingactivitiesofcontinuingoperations ��,�� 404,890 (1,477,178)Proceedsfromsaleofdiscontinuingoperations(Note3) – – 7,415,751Netcashusedininvestingactivitiesofdiscontinuingoperations – – (176,817)Netcashgeneratedfrominvestingactivities ��,�� 404,890 5,761,756

CASH FLOWS FROM FINANCING ACTIVITIES Paymentsof: Cashdividends – (1,522,253) (1,518,816) Notespayable (��,�0� ) – – Long-termdebt (��,0�� ) (110,502) (41,788) Convertiblebonds – – (1,402,526)Increase(decrease)in: Minorityinterest (�,�� ) (40,756) 370,731 Othernoncurrentliabilities (�� ) (52,460) (21,347) Duetorelatedparties (�,�� ) 4,039 4,768Proceedsfrom: Long-termdebt ��,�� 192,464 – Notespayable �0�,�� – 37,899Retirementofpreferredshares – – (250,000)Redemptionoftreasuryshares – (2,558) –Net cash used in financing activities of continuing operations (��,�� ) (1,532,026) (2,821,079)Net cash used in financing activities of discontinuing operations – – (1,066,366)Net cash used in financing activities (��,�� ) (1,532,026) (3,887,445)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ��,�� (1,731,521) 1,583,809

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (��,0�� ) 18,476 11,527

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Cashandcashequivalentsofcontinuingoperationsatbeginningofyear ��,�� 2,069,496 760,030Cashandcashequivalentsofdiscontinuingoperationsatbeginningofyear – – 1,098,885 ��,�� 2,069,496 1,858,915

CASH AND CASH EQUIVALENTS AT END OF YEAR ��,�0� 356,451 3,454,251Cashandcashequivalentsofdiscontinuingoperationsatendofyear – – (1,384,755)

CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS AT END OF YEAR P��,�0� P356,451 P2,069,496 See accompanying Notes to Consolidated Financial Statements.

C O N S O L I DAT E D STAT E M E N TS O F C A S H F LOW S


N OT E S TO C O N S O L I DAT E D F I N A N C I A L STAT E M E N TS

1. Corporate Information

Bacnotan Consolidated Industries, Inc. (“the Parent Company”or “BCII”) and the following subsidiaries (collectively referredto as “the Company”) are incorporated in the Philippines andseparatelyregisteredwiththePhilippineSecuritiesandExchangeCommission(SEC):

Percentage ofOwnership

NameofSubsidiaries �00� 2005AtlasHoldingsCorporation(AHC) �0.00 90.00UnionGalvasteelCorporation(UGC) �0.�0 80.50PamantasanngAraullo(AraulloUniversity),Inc. ��.�0 78.60CagayandeOroCollegeInc.(COC)* ��.�� 66.95BacnotanIndustrialParkCorporation(BIPC) �0.00 60.00P&SHoldingsCorporation(PSHC) �0.00 60.00AsianPlaza,Inc.(API) ��.�� –

* Acquired on June 29, 2005 (see Note 7).

TheParentCompany’sprincipal activity is investmentholdingsin subsidiaries and associates. The principal activities of itssubsidiariesareasfollows:

NameofSubsidiaries PrincipalActivitiesAHC Investmentholdings

UGC Manufacture of galvanized and pre-paintediron sheets and allied products for roofing

AraulloUniversity Educational institution offering elementary,secondary and tertiary formal education,andpost-graduatecourses,aswellas,postsecondary certificate courses

COC Educational institution offering elementary,secondaryandtertiaryformaleducation,andpost-graduatecourses

BIPC Developmentofa110hectareindustrialparkwithportfacilities

PSHC Realpropertyholdings

API Leaseofrealproperty

The registered office address of the Parent Company is 12th Floor, PhinmaPlaza,39PlazaDrive,RockwellCenter,MakatiCity.

TheparentcompanyofBCIIisPhilippineInvestment-Management(PHINMA), Inc. BCII is also controlled by PHINMA under anexistingmanagementagreement.PHINMAisincorporatedinthePhilippines.

The accompanying consolidated financial statements of the CompanywereauthorizedforissuancebytheBoardofDirectors(BOD)onMarch30,2007.

2. Basis of Preparation and Statement of Compliance The accompanying consolidated financial statements of the

Company have been prepared using the historical cost basis,except for financial assets at fair value through profit or loss (FVPL), available-for-sale (AFS) investments and derivative investmentsthat have been measured at fair value. The consolidated financial statements are presented in Philippine peso, which is theCompany’sfunctionalandpresentationcurrency.Allvaluesareroundedtothenearestthousandpesounlessotherwisestated.

The accompanying consolidated financial statements have been prepared in accordance with Philippine Financial ReportingStandards(PFRS).

Allintragroupbalances,transactions,incomeandexpensesandprofits and losses resulting from intragroup transactions that are recognizedinassets,ifany,areeliminatedinfull.

3. Changes in Accounting Policies

Theaccountingpoliciesadoptedareconsistentwiththoseoftheprevious financial years except as follows:

AmendmentstoPFRSsandPhilippineInterpretationsEffectivein2006

TheCompanyhasadoptedthefollowingamendmentstoPFRSandPhilippineInterpretationduringtheyear.

• Philippine Accounting Standard (PAS) 19, Amendment -“Employee Benefits”

• PAS21,Amendment-“TheEffectsofChanges inForeignExchangeRates”

• PAS39,Amendments-“FinancialInstruments:RecognitionandMeasurement”

• PFRS 6, “Exploration for and Evaluation of MineralResources”

• PhilippineInterpretationIFRIC5,“RightstoInterestArisingfrom Decommissioning, Restoration and EnvironmentalRehabilitationFunds”

PhilippineInterpretationsEarlyAdopted• PhilippineInterpretationIFRIC8,“ScopeofPFRS2”• Philippine Interpretation IFRIC 10, “Interim Financial

ReportingandImpairment”


Theprincipaleffectsofthesechangesareasfollows:

• PAS 19, “Employee Benefits”

Amendment for Actuarial Gains and Losses, Group Plans and Disclosures. As of January 1, 2006, the CompanyadoptedtheamendmentstoPAS19.Asaresult,additionaldisclosures are made providing information about trendsin assets and liabilities in the defined benefit plans and the assumptions underlying the components of the defined benefit cost. This change has resulted in additional disclosuresbeing included for theyearsendedDecember31,2006and2005buthasnorecognitionormeasurementimpact,astheCompanychosenottoapplythenewoptionofferedtorecognizeactuarialgainsandlossesoutsidethestatementofincome.

• PAS21,“TheEffectsofChangesinForeignExchangeRates”

Amendment for Net Investment in a Foreign Operation.AsofJanuary1,2006,theCompanyadoptedtheamendmentsto PAS 21. This amendment states that all exchangedifferences arising from a monetary item that forms partof the Company’s net investment in a foreign operationare recognized in a separate component of equity inthe consolidated financial statements regardless of the currencyinwhichthemonetaryitemisdenominated.ThisamendmenthasnoimpactontheCompany’sconsolidatedfinancial statements.

• PAS 39, “Financial Instruments: Recognition andMeasurement”

Amendment for Financial Guarantee Contracts. Thisamended the scope of PAS 39 to require financial guarantee contractsthatarenotconsideredasinsurancecontractstoberecognizedinitiallyatfairvalueandtobemeasuredatthehigheroftheamountdeterminedinaccordancewithPAS37,“Provisions, Contingent Liabilities and Contingent Assets”andtheamountinitiallyrecognizedless,whenappropriate,cumulative amortization recognized in accordance withPAS18,“Revenue.”ThisamendmenthasnoimpactontheCompany’s consolidated financial statements.

Amendment for Cash Flow Hedge Accounting of Forecast Intragroup Transactions. This amended PAS 39 to permitthe foreign currency risk of a highly probable intragroupforecast transactions to qualify as hedged item in a cashflow hedge, provided that the transaction is denominated inacurrencyotherthanthefunctionalcurrencyoftheentityenteringintothattransactionandthattheforeigncurrencyrisk will affect the consolidated statement of income. Asthe Company currently has no such transactions, theamendmenthasnoimpactontheCompany’sconsolidatedfinancial statements.

Amendment for the Fair Value Option. This amendedPAS 39 to restrict the use of the option to designate anyfinancial asset or any financial liability to be measured at fair value through the statement of income. This amendmenthas no impact on the Company’s consolidated financial statements.

• PFRS 6, “Exploration for and Evaluation of Mineral

Resources”

The Company adopted PFRS 6 as of January 1, 2006,which permits an entity to develop an accounting policyfor exploration and evaluation assets without specifically considering the requirements of PAS 8, “AccountingPolicies,ChangesinAccountingEstimatesandErrors.”Thisstandard has no impact on the Company’s consolidatedfinancial statements.

• PhilippineInterpretationIFRIC5,“RightstoInterestArisingfrom Decommissioning, Restoration and EnvironmentalRehabilitationFunds”

The interpretation provides that a contributor’s obligationto pay decommissioning costs is recognized as a liabilityseparatefromitsinterestinthefund,unlessitisnotliabletopaydecommissioningcostsevenifthefundfailstopay.ThisinterpretationhasnoimpactontheCompany’sconsolidatedfinancial statements.

• PhilippineInterpretationIFRIC8,“ScopeofPFRS2”

The interpretation becomes effective for financial years beginningonorafterMay1,2006. It requiresPFRS2 tobeappliedtoanyarrangementwhereequityinstrumentsareissuedforconsiderationwhichappearstobelessthanfairvalue.TheinterpretationhasnoimpactontheCompany’sconsolidated financial statements.

• Philippine Interpretation IFRIC 10, “Interim FinancialReportingandImpairment”

This interpretation becomes effective for financial years beginningonorafterNovember1,2006.Thisinterpretationprohibits the reversal of impairment losses on goodwilland available-for-sale equity investments recognized inthe interim financial reports even if impairment is no longer presentattheannualbalancesheetdate.Thisinterpretationhas no impact on the Company’s consolidated financial statements.

FutureChangesinAccountingPoliciesTheCompanydidnotoptfortheearlyadoptionofthefollowingstandards and amendments that have been approved, but arenotyeteffective:


• PFRS 7, “Financial Instruments - Disclosures,” and thecomplementary Amendment to PAS 1, “Presentation ofFinancial Statements: Capital Disclosures” (effective forannualperiodsbeginningonorafterJanuary1,2007)

PFRS7introducesnewdisclosurestoimprovetheinformationabout financial instruments. It requires the disclosure of qualitative information about exposure to risks arisingfrom financial instruments, including specified minimum disclosuresaboutcredit risk, liquidityriskandmarketrisk,including sensitivity analysis to market risk. It replacesdisclosurerequirements inPAS32,“Financial Instruments:DisclosureandPresentation.”ItisapplicabletoallentitiesthatreportunderPFRS.TheamendmenttoPAS1introducesdisclosuresaboutthelevelofanentity’scapitalandhowitmanagescapital.TheCompanyiscurrentlyassessingtheimpactofPFRS7andtheamendmenttoPAS1andexpectsthat the main additional disclosures will be the sensitivityanalysistomarketriskandthecapitaldisclosuresrequiredbyPFRS7andtheamendmenttoPAS1.TheCompanywillapplyPFRS7andtheamendmenttoPAS1in2007.

• PFRS8,“OperatingSegments”(effectiveforannualperiods

beginningonorafterJanuary1,2009)

This PFRS adopts a management approach to reportingsegmentinformation.PFRS8willreplacePAS14,“SegmentReporting,”and is required tobeadoptedonlybyentitieswhosedebtorequityinstrumentsarepubliclytraded,orarein the process of filing with the SEC for purposes of issuing anyclassofinstrumentsinapublicmarket.TheCompanywillapplyPFRS8in2009.

• Philippine Interpretation IFRIC 9, “Reassessment ofEmbedded Derivatives” (effective for annual periodsbeginningonorafterJune1,2006)

This interpretation establishes that the date to assess theexistenceofanembeddedderivative is thedateanentityfirst becomes a party to the contract, with reassessment only if there is a change to the contract that significantly modifies the cash flows. The Company does not expect this interpretation to have a significant impact on its consolidated financial statements.

• Philippine Interpretation IFRIC 11, “PFRS 2 - Group andTreasury Share Transactions” (effective for annual periodsbeginningonorafterMarch1,2007)

This interpretation requires arrangements whereby anemployeeisgrantedrightstoanentity’sequityinstrumentstobeaccountedforasanequity-settledschemebytheentityeveniftheentitychoosesorisrequiredtobuythoseequityinstruments(e.g.,treasuryshares)fromanotherparty,ortheshareholder(s) of the entity provide the equity instruments

needed. It also provides guidance on how subsidiaries,in their separate financial statements, account for such schemeswhentheiremployeesreceiverightstotheequityinstrumentsof theparent. TheCompanydoesnotexpectthis interpretation to have an impact on its consolidatedfinancial statements.

• Philippine Interpretation IFRIC 12, “Service ConcessionAgreement” (effective for annual periods beginning on orafterJanuary1,2008)

This interpretation specifies whether the service concession infrastructure is to be recognized as property, plant andequipment of the operator and the accounting model thatapplies to the rights received by the operator in differentcircumstances. The Company does not expect thisinterpretation to have a significant impact on its consolidated financial statements.

4. Summary of Significant Accounting Policies

PrinciplesofConsolidation The consolidated financial statements include the accounts of

theParentCompanyandthesubsidiariesmentioned inNote1.The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company, using consistentaccountingpolicies.

All intercompanybalances, transactions, incomeandexpensesand profits and losses resulting from intercompany transactions thatarerecognizedinassets,areeliminatedinfull.

Subsidiaries are fully consolidated from the date control is

transferredtotheParentCompanyandceasetobeconsolidatedfromthedatecontrolistransferredoutoftheParentCompany.

Araullo University has been included in the 2004 consolidatedfinancial statements using the purchase method of accounting. Accordingly, the 2004 consolidated statements of income andcash flows include the results of operations and cash flows of AraulloUniversityfromitsinitialacquisitiondate(April28,2004)toDecember31,2004.Thepurchaseconsiderationshavebeenallocatedtotheassetsandliabilitiesonthebasisoffairvalueatthedateofacquisition.

Similarly, COC has been included in the 2005 consolidatedfinancial statements using the purchase method of accounting. Accordingly, the 2005 consolidated statements of income andcash flows include the results of operations and cash flows of AraulloUniversityfromitsinitialacquisitiondate(June29,2005)toDecember31,2005.Thepurchaseconsiderationshavebeenallocatedtotheassetsandliabilitiesonthebasisoffairvalueatthedateofacquisition.


Minority interest represents the portion of profit or loss and net assets in subsidiaries not held by the Parent Company and ispresented separately in the consolidated statement of incomeandwithinequity in theconsolidatedbalancesheet,separatelyfromequityattributabletoequityholdersoftheparent.

BusinessCombination Business acquisitions are accounted for using the purchase

methodofaccounting.

CashandCashEquivalents Cashincludescashonhandandinbanks.Cashequivalentsare

short-term,highlyliquidinvestmentsthatarereadilyconvertibletoknownamountsofcashwithoriginalmaturitiesofthreemonthsor less and that are subject to an insignificant risk of change in value.

FinancialAssetsandLiabilities Financial assets and financial liabilities are recognized initially

at fair value. Transaction costs are included in the initialmeasurement of all financial assets and liabilities, except for financial instruments measured at FVPL.

The Company recognizes a financial asset or a financial liability in the consolidated balance sheet when it becomes a party tothe contractual provisions of the instrument and derecognizesa financial asset (or part of a financial asset) when it no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrumentis sold, or all the cash flows attributable to the instrument are passed to an independent third party. A financial liability (or a part of a financial liability) is derecognized when the obligation isextinguished.Inthecaseofaregularwaypurchaseorsaleoffinancial assets, recognition and derecognition, as applicable, is doneusingsettlementdateaccounting.

Financial instruments are classified as liabilities or equity in accordancewiththesubstanceofthecontractualarrangement.Interests, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity net, of any related income tax benefits. Financial instruments areoffsetwhenthereisalegallyenforceablerighttooffsetandintentiontosettleeitheronanetbasisortorealizetheassetandsettletheliabilitysimultaneously.

Financial assets are classified into the following categories:

Financial asset at FVPL, loans and receivables, held-to-maturity (HTM) investments, and available for sale financial assets. Financial liabilities are classified as either at FVPL or as other liabilities. The Company determines the classification at initial recognitionand,whereallowedandappropriate,re-evaluatesthisdesignationateveryreportingdate.

• Financial Assets at FVPL

A financial asset is classified in this category if acquired principallyforthepurposeofsellingorrepurchasing intheneartermoruponinitialrecognition,itisdesignatedbythemanagement as FVPL. Financial assets or financial liabilities are designated by management as at FVPL on initial recognitionwhenthefollowingcriteriaaremet:

a. The designation eliminates or significantly reduces the inconsistenttreatmentthatwouldotherwisearisefrommeasuringtheassetsorliabilitiesorrecognizinggainsorlossesonthemonadifferentbasis;or

b. The assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed andtheirperformanceevaluatedonafairvaluebasis,inaccordancewithadocumentedriskmanagementorinvestmentstrategy;or

c. The financial instrument contains an embedded derivative, unless the embedded derivative does notsignificantly modify the cash flows or it is clear, with little or no analysis, that it would not be separatelyrecorded.

Derivatives are also categorized as held at FVPL, except those derivatives designated and considered as effectivehedginginstruments.

Financial assets and financial liabilities at FVPL are recorded intheconsolidatedbalancesheetatfairvalue.Changesinfair value on financial assets and liabilities designated at fair value through profit or loss are recorded in the consolidated statementofincome.Interestearnedorincurredisrecordedin interest and other financial income or charges, respectively, while dividend income is recorded according to the termsofthecontract,orwhentherightofthepaymenthasbeenestablished.

TheCompany’sderivativeinstruments,investmentsinmutualandcommontrust funds,bonds,treasurybills,marketableequity securities and short-term investments are classified as financial assets at FVPL (see Note 9).

Derivatives recorded at FVPL TheCompanyentersintoshort-termforwardcurrencycontracts

to hedge its currency exposure. Derivative instruments areinitiallyrecognizedatfairvalueonthedateinwhichaderivativetransaction is entered into or bifurcated, and are subsequentlyre-measured at fair value. Derivatives are carried as assetswhen the fair value is positive and as liabilities when the fairvalueisnegative.TheCompanyhasoptednottodesignateitsderivativetransactionsunderhedgeaccounting. Consequently,gainsandlossesfromchangesinfairvalueofthesederivativesare recognized immediately in the consolidated statement ofincome.


Thefairvaluesoffreestandingforwardcurrencytransactionsarecalculated by reference to current forward exchange rates forcontracts with similar maturity profiles.

• LoansandReceivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments and are not quoted in anactivemarket.Suchassetsarecarriedatamortizedcostusingtheeffectiveinterestratemethod.Gainsandlossesare recognized in incomewhen the loansand receivablesare derecognized or impaired, as well as through theamortizationprocess.Loansandreceivablesareincludedincurrentassetsifmaturityiswithinoneyearfromthebalancesheet date, and as non current assets if maturity date ismorethanoneyearfromthebalancesheetdate.

The Company’s trade and other receivables are classified as loansandreceivables.

• HTMInvestments

Quoted nonderivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Company has the positiveintention and ability to hold to maturity. Such assets arecarried at amortized cost using the effective interestmethod.

Gainsandlossesarerecognizedinincomewhentheloansand receivables are derecognized or impaired, as well asthrough the amortization process. HTM financial assets are classified as current if maturity is within 12 months from the balance sheet date. Otherwise, these are classified as noncurrentassets.

The Company did not classify any financial asset as held-to-maturity.

• AFSInvestments

AFS financial assets are those nonderivative financial assets that are designated as AFS or are not classified in any of the three preceding categories. After initial recognition,AFS financial assets are measured at fair value with gains or lossesbeingrecognizedasaseparatecomponentofequityuntiltheinvestmentisderecognizedoruntiltheinvestmentisdeterminedtobeimpairedatwhichtimethecumulativegainorlosspreviouslyreportedinequityisincludedintheconsolidated statement of income. AFS financial assets are classified as current if they are expected to be realized within12monthsfromthebalancesheetdate.Otherwise,these are classified as noncurrent assets.

The Company’s investments in listed and unlisted equitysecurities are classified as AFS financial assets (see Note 13).

The fair value for financial instruments traded in active markets at thebalancesheetdateisbasedontheirquotedmarketpriceordealerpricequotations(bidpriceforlongpositionsandaskpriceforshortpositions),withoutanydeductionfortransactioncosts.Whencurrentbidandaskingpricesarenotavailable,thepriceofthemostrecenttransactionprovidesevidenceofthecurrentfair value as long as there has not been a significant change in economiccircumstancessincethetimeofthetransaction.

For all other financial instruments not listed in an active market,

the fair value is determined by using appropriate valuationtechniques. Valuation techniques include net present value techniques,comparisontosimilarinstrumentsforwhichmarketobservablepricesexist,andotherrelevantvaluationmodels.

DerecognitionofFinancialAssetsandLiabilities Financial Assets. A financial asset (or, where applicable a part of

a financial asset or part of a group of similar financial assets) is derecognizedwhere:

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

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

• the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantiallyall the risks and rewards of the asset, or (b) has neithertransferrednorretainedsubstantiallyalltherisksandrewardsoftheasset,buthastransferredcontroloftheasset.

Where the Company has transferred its rights to receive cash flows fromanassetorhasenteredintoapass-througharrangement,andhasneithertransferrednorretainedsubstantiallyalltherisksandrewardsoftheassetnortransferredcontroloftheasset,theasset is recognized to theextentof theCompany’s continuinginvolvementintheasset.

Financial Liabilities. A financial liability is derecognized when the obligationundertheliabilityisdischargedorcancelledorexpires.Where an existing financial liability is replaced by another from thesamelenderonsubstantiallydifferentterms,orthetermsofan existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognitionof anew liability, and thedifference in therespective carrying amounts is recognized in profit or loss.

ImpairmentofFinancialAssets TheCompanyassessesateachbalancesheetdatewhethera

financial asset or group of financial assets is impaired.


Assets Carried at Amortized Cost. Ifthereisobjectiveevidencethat an impairment loss on loans and receivables carried atamortized cost has been incurred, the amount of the loss ismeasuredasthedifferencebetweentheasset’scarryingamountand the present value of estimated future cash flows (excluding futurecreditlossesthathavenotbeenincurred)discountedatthefinancial asset’s original effective interest rate (i.e., the effective interestratecomputedatinitialrecognition).Thecarryingamountoftheassetshallbereducedeitherdirectlyorthroughuseofanallowanceaccount.Theamountofthelossshallberecognizedin profit or loss.

The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individuallyassessed 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 assessedfor impairment.Assetsthatareindividuallyassessedforimpairmentandforwhichanimpairmentlossisorcontinuestoberecognizedarenotincludedinacollectiveassessmentofimpairment.

If, in a subsequent period, the amount of the impairment lossdecreasesandthedecreasecanberelatedobjectivelytoaneventoccurring after the impairment was recognized, the previouslyrecognizedimpairmentlossisreversed.Anysubsequentreversalofanimpairmentlossisrecognizedintheconsolidatedstatementofincome,totheextentthatthecarryingvalueoftheassetdoesnotexceeditsamortizedcostatthereversaldate.

Assets Carried at Cost. If there is objective evidence that animpairment loss on an unquoted equity instrument that is notcarried at fair value because its fair value cannot be reliablymeasured,theamountofthelossismeasuredasthedifferencebetween the asset’s carrying amount and the present value ofestimated future cash flows discounted at the current market rate of return for a similar financial asset.

Available-for-Sale Financial Assets. For AFS investments, theCompany assesses at each balance sheet date whether thereis objective evidence that a financial asset or group of financial assetsisimpaired.

In case of equity investments classified as AFS, this would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence ofimpairment, the cumulative loss - measured as the differencebetweentheacquisitioncostandthecurrentfairvalue,lessanyimpairment loss on that financial asset previously recognized in the consolidated statement of income. Impairment losses onequity investments are not reversed through the consolidated

statementofincome.Increasesinthefairvalueafterimpairmentarerecognizeddirectlyinequity.

In the case of debt instruments classified as AFS, impairment is basedon the samecriteria as loansand receivablesandHTMfinancial assets. Interest continues to be accrued at the original effectiveinterestrateonthereducedcarryingamountoftheasset.If,inthesubsequentyear,thefairvalueofadebtinstrumentcanbeobjectivelyrelatedtoanassetoccurringaftertheimpairmentlosswasrecognizedintheconsolidatedstatementofincome,theimpairmentlossisreversedthroughtheconsolidatedstatementofincome.

Interest-BearingLoansandBorrowings Allloansandborrowingsareinitiallyrecognizedatthefairvalue

oftheconsiderationreceivedlessdirectlyattributabletransactioncosts.

After initial recognition, interest-bearing loans and borrowingsaresubsequentlymeasuredatamortizedcostusingtheeffectiveinterestmethod.

Gains and losses are recognized in net profit or loss when the liabilities are derecognized as well as through the amortizationprocess.

EmbeddedDerivatives Anembeddedderivativeisseparatedfromthehostcontractand

accountedforasaderivativeifallofthefollowingconditionsaremet:a)theeconomiccharacteristicsandrisksoftheembeddedderivativearenotcloselyrelatedtotheeconomiccharacteristicsandrisksofthehostcontract;b)aseparateinstrumentwiththesame terms as the embedded derivative would meet the definition ofaderivative;andc)thehybridorcombinedinstrumentisnotrecognized at fair value through profit or loss.

Embeddedderivativesaremeasuredatfairvalue,andarecarriedasassetswhenthefairvalueispositiveandasliabilitieswhenthefairvalueisnegative.TheCompanyhasoptednottodesignateitsderivativetransactionsasaccountinghedges.Consequently,gainsandlossesfromchangesinfairvalueofthesederivativesare recognized immediately in the consolidated statement ofincome.

Day 1 Profit Wherethetransactionpriceinanon-activemarketisdifferentfrom

thefairvaluefromotherobservablecurrentmarkettransactionsinthesameinstrumentorbasedonavaluationtechniquewhosevariablesincludeonlydatafromobservablemarket,theCompanyrecognizesthedifferencebetweenthetransactionpriceandfairvalue (a ‘Day 1’ profit) in the consolidated statement of income unless it qualifies for recognition as some other type of asset. In cases where use is made of data which is not observable,the difference between the transaction price and model valueis recognized in the consolidated statement of income only


when the inputsbecomeobservableorwhen the instrument isderecognized. For each transaction, the Company determinesthe appropriate method of recognizing the ‘Day 1’ profit amount.

Inventories Inventories,excludinglandheldforsaleanddevelopmentcosts,

are valued at the lower of cost or net realizable value. Costsincurred in bringing each inventory to its present location andconditionareaccountedforasfollows:

Finishedgoods - determinedusing themovingaveragemethod;costincludesdirectmaterialsandlaborandaproportionofmanufacturingoverhead costs based onnormaloperatingcapacitybutexcludesborrowingcosts;

Rawmaterials,spareparts - atcostusingthemovingandothers averagemethod.

Landheldforsaleandtherelateddevelopmentcostsarevaluedatthelowerofcost,whichincludesexpendituresfordevelopmentandimprovements,ornetrealizablevalue.

Thenetrealizablevalueofinventories,exceptspareparts,istheselling price in the ordinary course of business, less the costsof processing, development, selling and distribution. The netrealizablevalueofsparepartsisthecurrentreplacementcost.

InvestmentsinAssociates TheCompany’s investments in itsassociatesareaccountedfor

undertheequitymethod.TheseareentitiesinwhichtheCompanyhas significant influence and which are neither subsidiaries nor joint ventures of the Company. The investments in associatesarecarriedintheconsolidatedbalancesheetatcostpluspost-acquisition changes in the Company’s share in net assets oftheassociates, lessanyimpairment invalue.Theconsolidatedstatement of income reflects the Company’s share in the results of operations of the associates. Unrealized gains arising fromtransactions with its associates are eliminated to the extent ofthe Company’s interest in the associates, against the relatedinvestments.Unrealizedlossesareeliminatedsimilarlybutonlytotheextentthatthereisnoevidenceofimpairmentoftheassettransferred.TheCompany’sinvestmentinanassociateincludesgoodwillonacquisition,whichisrecordedinaccordancewiththeaccountingpolicyforgoodwill.

When the Company’s accumulated share in net losses ofan associate equals or exceeds the carrying amount of theinvestment, including advances for future conversion to equity,the Company discontinues the recognition of its share inadditional lossesandthe investment is reportedatnilvalue. Iftheassociatesubsequentlyreportsnetincome,theCompanywill

resumeapplyingtheequitymethodonlyafteritsshareinthatnetincomeequalstheshareinnetlossesnotrecognizedduringtheperiodtheequitymethodwassuspended.

Property,PlantandEquipment Property,plantandequipment,except land,arecarriedatcost

less accumulated depreciation, depletion and any impairmentloss. Land is carried at cost (initial purchase price and othercost directly attributable to bringing such asset to its workingcondition)lessanyimpairmentloss.Thecostofproperty,plantand equipment, except land, comprises its purchase price,including any applicable import duties, capitalized borrowingcostsandothercostsdirectlyattributabletobringingtheassettoitsworkingconditionandlocationforitsintendeduse.

Expenditures incurred after the property, plant and equipmenthavebeenputintooperation,suchasrepairsandmaintenance,arenormallychargedtocurrentoperationsintheyearthecostsareincurred.

Depreciationiscomputedusingthestraight-linemethodoverthefollowingestimatedusefullivesoftheassets:

Plantsiteimprovements 10-30yearsBuildingsandinstallations 20-40yearsPortfacilitiesandequipment 22.5yearsMachineryandequipment 10-30yearsTransportationandotherequipment 2-10years

Theusefullivesanddepreciationmethodarereviewedperiodicallytoensurethattheperiodsanddepreciationmethodareconsistentwith the expected pattern of economic benefits from items of property,plantandequipment.

Wheneachmajorinspectionisperformed,itscostisrecognizedinthecarryingamountoftheproperty,plantandequipmentasareplacementiftherecognitioncriteriaaremet.

Anitemofproperty,plantandequipmentisderecognizedupon

disposal or when no future economic benefits are expected from itsuseordisposal.Anygainorlossarisingonderecognitionoftheasset(calculatedasthedifferencebetweenthenetdisposalproceedsandcarryingamountoftheasset)iscreditedorchargedtocurrentoperations.

Construction in-progressrepresentsplantandpropertiesunderconstruction/developmentandisstatedatcost.Thisincludescostof construction, plant and equipment, borrowing costs directlyattributable to such asset during the construction period andotherdirectcosts. Construction in-progress isnotdepreciateduntilsuchtimewhentherelevantassetsarecompletedandreadyforoperationaluse.


InvestmentProperties Investment properties are measured initially at cost, including

transaction costs. The carrying amount includes the cost ofreplacingpartofanexistinginvestmentpropertyatthetimethecostisincurred,iftherecognitioncriteriaaremet,andexcludesthe costs of day-to-day servicing of an investment property.Subsequenttoinitialrecognition,investmentpropertiesarestatedatcostlessaccumulatedimpairmentinvalue.

Investment property is derecognized when either it has beendisposed of or when the investment property is permanentlywithdrawn from use and no future economic benefit is expected fromitsdisposal.Anygainsorlossesontheretirementordisposalof an investment property are recognized in the consolidatedstatementofincomeintheyearofretirementordisposal.

Transfersaremadetoinvestmentpropertywhen,andonlywhen,thereisachangeinuse,evidencedbyendingofowner-occupation,commencementofanoperatingleasetoanotherpartyorendingofconstructionordevelopment.Transfersaremadefrominvestmentpropertywhen,andonlywhen,thereisachangeinuse,evidencedby commencement of owner-occupation or commencement ofdevelopmentwithaviewtosale.

Goodwill Goodwillacquiredinabusinesscombinationisinitiallymeasured

atcostbeingtheexcessofthecostofthebusinesscombinationover the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initialrecognition,goodwill ismeasuredatcostlessanyaccumulatedimpairmentlosses.Goodwillisreviewedforimpairment,annuallyormorefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvaluemaybeimpaired.

For the purpose of impairment testing, goodwill acquired in abusinesscombinationis,fromtheacquisitiondate,allocatedtoeachoftheCompany’scash-generatingunits,orgroupsofcash-generating units, that are expected to benefit from the synergies of thecombination,irrespectiveofwhetherotherassetsorliabilitiesoftheCompanyareassignedtothoseunitsorgroupsofunits.Eachunitorgroupofunitstowhichthegoodwillissoallocated:

• representsthelowestlevelwithintheCompanyatwhichthegoodwill is monitored for internal management purposes;and

• isnotlargerthanasegmentbasedontheCompany’sprimaryortheCompany’sanysecondaryreportingformatdeterminedinaccordancewithPAS14,“SegmentReporting.”

Impairmentisdeterminedbyassessingtherecoverableamount

of thecash-generatingunit (groupofcash-generatingunits), towhich the goodwill relates. Where the recoverable amount ofthecash-generatingunit(groupofcash-generatingunits)islessthan the carrying amount, an impairment loss is recognized.Where goodwill forms part of a cash-generating unit (group of

cash-generating units) and part of the operation within thatunit is disposed of, the goodwill associated with the operationdisposedof is includedinthecarryingamountoftheoperationwhendeterminingthegainorlossondisposaloftheoperation.Goodwilldisposedofinthiscircumstanceismeasuredbasedontherelativevaluesoftheoperationdisposedofandtheportionofthecash-generatingunitretained.

StudentLists Thecostofstudentlistsacquiredinabusinesscombinationisthe

fairvalueasofdateofacquisition.Followinginitialrecognition,studentlistsarecarriedatcostlessaccumulatedamortizationandanyaccumulatedimpairmentlosses.Studentlistsareamortizedover three years and assessed for impairment whenever thereis an indication that the student lists may be impaired. Theamortizationperiodandtheamortizationmethodarereviewedatleast at each financial year-end. Changes in the expected useful lifeor theexpectedpatternofconsumptionof futureeconomicbenefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated aschangesinaccountingestimates.

Provisions Provisions are recognized when the Company has a present

obligation (legal or constructive) as a result of a past event, itis probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimatecanbemadeoftheamountoftheobligation.Iftheeffectofthetimevalueofmoneyismaterial,provisionsaredeterminedby discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Wherediscounting isused, the increasedueto thepassageoftimeisrecognizedasinterestexpense.

RevenueRecognition Revenue is recognizedtotheextent that it isprobablethat the

economic benefits associated with the transaction will flow to the Companyandtheamountofrevenuecanbemeasuredreliably.The following specific recognition criteria must also be met before revenueisrecognized:

Sale of Goods. Revenue is recognized when the significant risks andrewardsofownershipofthegoodshavepassedtothebuyer.

Tuition and School Fees. Incomefromtuitionandschoolfeesisrecognizedasincomewhenearnedbasedonatime-proportionbasis.Tuitionandschoolfeesreceivedpertainingtothesummersemester and the next fiscal year are recorded as “Unearned revenues,”intheconsolidatedbalancesheet.

Freight.Revenueisrecognizedwhenservicesarerendered.

Rental.Revenueisrecognizedonastraight-linebasisovertheleaseterm.


Sale of Real Estate. Revenuefromthesaleofrealestate,whichincludescostof landanddevelopment, isaccountedforunderthe percentage of completion method when the Companyhas material obligations under the sales contracts to provideimprovementsafterthepropertyissold.Underthismethod,thegain on sale is recognized as the related obligations are fulfilled.

Development cost of land sold before the completion of thedevelopmentisdeterminedbasedonactualcostsandestimatedcosts to complete the development as determined by projectcontractorsandtheCompany’stechnicalstaff.

The estimated future expenditures for development related torealestatesoldareincludedunder“Othernoncurrentliabilities”accountintheconsolidatedbalancesheet.

Port Services.Revenuefromportoperationsisrecognizedwhenservicesarerendered.

Interest. Revenue is recognizedasthe interestaccrues (takingintoaccounttheeffectiveyieldontheasset).Interestisincludedaspartof“Investmentincome”inthe“Otherincome(expenses)”itemintheconsolidatedstatementofincome.

Equity in Net Earnings.Revenueisrecognizedinaccordancewiththeequitymethodofaccountingforinvestmentsinassociates.

Gain on Sale of Investments and Marketable Equity Securities. Revenueisrecognizedforthedifferencebetweentheproceeds(net of disposal costs) and its carrying value upon sale ofinvestmentsandmarketableequitysecurities.

RetirementCosts BCII, Araullo University, COC, BIPC and UGC have distinct

funded, noncontributory defined benefit retirement plans covering allpermanentemployees,eachadministeredbytheirrespectiveRetirement Committees. Retirement costs are actuariallydetermined using the projected unit credit method. Actuarialgainsandlossesarerecognizedasincomeorexpensewhenthenetcumulativeunrecognizedactuarialgainsandlossesforeachplan at the end of the previous financial reporting year exceed 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses arerecognizedovertheexpectedaverageremainingworkinglivesoftheemployeesparticipatingintheplans.

The past service cost, if any, is recognized as an expense ona straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately followingtheintroductionof,orchangesto,apensionplan,pastservicecostisrecognizedimmediately.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses notrecognized,reducedbypastservicecostnotyetrecognized

andthefairvalueofplanassetsoutofwhichtheobligationsaretobe settleddirectly. If suchaggregate is negative, theassetismeasuredatthelowerofsuchaggregateortheaggregateofcumulative unrecognized net actuarial losses and past servicecost and the present value of any economic benefits available in the formof refunds fromtheplanor reductions in the futurecontributionstotheplan.

If the asset is measured at the aggregate of cumulative

unrecognizednetactuariallossesandpastservicecostandthepresent value of any economic benefits available in the form of refunds from the plan or reductions in the future contributionsto theplan,netactuarial lossesof thecurrentperiodandpastservicecostofthecurrentperiodarerecognizedimmediatelytotheextentthattheyexceedanyreductioninthepresentvalueofthose economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial lossesofthecurrentperiodandpastservicecostofthecurrentperiodarerecognizedimmediately.Similarly,netactuarialgainsofthecurrentperiodafterthedeductionofpastservicecostofthecurrentperiodexceedinganyincreaseinthepresentvalueoftheeconomic benefits stated above are recognized immediately if the assetismeasuredattheaggregateofcumulativeunrecognizednetactuariallossesandpastservicecostandthepresentvalueof any economic benefits available in the form of refunds from the planorreductionsinthefuturecontributionstotheplan.Ifthereisnochangeoradecreaseinthepresentvalueoftheeconomicbenefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period arerecognizedimmediately.

OperatingLeases Operating lease payments are recognized as expense in the

consolidatedstatementof incomeonastraight-linebasisovertheleaseterm.

BorrowingCosts Borrowingcostsaregenerallyexpensedasincurred.Borrowing

costs are capitalized if they are directly attributable to theacquisitionorconstructionofaqualifyingasset. Capitalizationof borrowing costs commences when the activities to preparethe asset are in progress and expenditures and borrowingcostsarebeing incurred. Borrowingcostsarecapitalizeduntiltheassetsaresubstantially readyfor their intendeduse. If thecarryingamountoftheassetexceedsitsrecoverableamount,animpairmentlossisrecorded.

AssetImpairment The Company assesses at each reporting date whether there

isan indication thatanassetmaybe impairedwheneventsorchanges in circumstances indicate that the carrying value ofanassetmaynotberecoverable. Ifanysuch indicationexistsand if the carrying value exceeds the estimated recoverableamount, the assets or cash generating units are written downto their recoverable amounts. An asset’s recoverable amount


is the higher of an asset’s or cash-generating unit’s fair valuelesscosts toselland itsvalue inuseand isdetermined foranindividual asset, unless the asset does not generate cash inflows thatarelargelyindependentofthosefromotherassetsorgroupsofassets. Where thecarryingamountofanassetexceeds itsrecoverable amount, the asset is considered impaired and iswrittendowntoitsrecoverableamount.Inassessingvalueinuse,the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to theasset.Impairmentlossesarerecognizedintheconsolidatedstatementofincomeinthoseexpensecategoriesconsistentwiththefunctionoftheimpairedasset.

Anassessmentismadeateachreportingdateastowhetherthere

isanyindicationthatpreviouslyrecognizedimpairmentlossesmaynolongerexistormayhavedecreased.Ifsuchindicationexists,the recoverable amount is estimated. A previously recognizedimpairment loss is reversedonly if therehasbeenachange intheestimatesusedtodeterminetheasset’srecoverableamountsincethelastimpairmentlosswasrecognized.Ifthatisthecasethecarryingamountoftheassetis increasedtoitsrecoverableamount. That increased amount cannot exceed the carryingamount thatwouldhavebeendetermined,netofdepreciation,had no impairment loss been recognized for the asset in prioryears. Such reversal is recognized in profit or loss unless the asset iscarriedat revaluedamount, inwhichcase the reversalis treated as a revaluation increase. After such a reversal thedepreciationchargeisadjustedinfutureperiodstoallocatetheasset’s revised carrying amount, less any residual value, on asystematicbasisoveritsremainingusefullife.

ForeignCurrency-denominatedTransactions The consolidated financial statements are presented in Philippine

peso, which is the Company’s functional and presentationcurrency. Transactions denominated in foreign currencies arerecordedusingtheexchangerateatthedateofthetransaction.Monetaryassetsandliabilitiesdenominatedinforeigncurrenciesare restatedusing theclosing rateof exchangeat thebalancesheet date. Exchange gains or losses arising from foreigncurrency-denominated transactions are credited or charged tocurrentoperations.

IncomeTax

Current Tax. Current tax assets and liabilities for the currentandpriorperiodsaremeasuredat theamount expected toberecoveredfromorpaidtothetaxauthorities.Thetaxratesandtaxlawsusedtocomputetheamountarethosethatareenactedorsubstantivelyenactedatthebalancesheetdate.

Deferred Tax.Deferredincometaxisprovided,usingthebalancesheetliabilitymethod,onalltemporarydifferencesatthebalancesheet date between the tax bases of assets and liabilities andtheir carrying amounts for financial reporting purposes.

Deferred income tax is provided using the liability method ontemporary differences at the balance sheet date between thetax bases of assets and liabilities and their carrying amountsfor financial reporting purposes. Deferred tax liabilities are recognizedforalltaxabletemporarydifferences,except:

• where the deferred tax liability arises from the initialrecognition of goodwill or of an asset or liability in atransaction that isnotabusinesscombinationand,at thetime of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• inrespectoftaxabletemporarydifferencesassociatedwithinvestments in subsidiaries and associates. Where thetimingof the reversalof the temporarydifferencescanbecontrolledanditisprobablethatthetemporarydifferenceswillnotreverseintheforeseeablefuture.

Deferredtaxassetsarerecognizedforalldeductibletemporary

differences, carry-forward benefit of unused tax credits and unusedtax losses,totheextentthat it isprobablethattaxableprofit will be available against which the deductible temporary differences, and the carry-forward of unused tax credits andunusedtaxlossescanbeutilizedexcept:

• where the deferred tax asset relating to the deductibletemporary difference arises from the initial recognition ofanassetor liability ina transaction that isnotabusinesscombination and, at the time of the transaction, affectsneither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associatedwith investments insubsidiariesandassociates. Deferredtaxassetsarerecognizedonlytotheextentthatitisprobablethatthetemporarydifferenceswillreverseintheforeseeablefuture and taxable profit will be available against which the temporarydifferencescanbeutilized.

Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthatitisnolongerprobable that sufficient taxable profit will be available to allow allorpartofthedeferredtaxassettobeutilized.Unrecognizeddeferredtaxassetsarereassessedateachbalancesheetdateand are recognized to the extent that it has become probablethat future taxable profit will allow the deferred tax assets to be recovered.

Deferredtaxassetsandliabilitiesaremeasuredatthetaxratesthatareexpectedtoapplytotheyearwhentheassetisrealizedortheliabilityissettled,basedontaxrates(andtaxlaws)thathavebeenenactedorsubstantivelyenactedatthebalancesheetdate.

Incometaxrelatingtoitemsrecognizeddirectlyinequityisrecognizedinequityandnotintheconsolidatedstatementofincome.


Deferred tax assets and deferred tax liabilities are offset, if alegallyenforceablerightexiststosetoffcurrenttaxassetsagainstcurrent tax liabilities and thedeferred taxes relate to the sametaxableentityandthesametaxauthority.

EarningsPerCommonShare(EPS) BasicEPSiscomputedbydividingnetincome(afterdeducting

dividends on preferred shares) attributable to the commonshareholders by the weighted average number of outstandingcommonsharesduringtheyearaftergivingretroactiveeffecttoanystockdividenddeclaredduringtheyear.

The Company does not have potential common shares norotherinstrumentsthatmayentitletheholdertocommonshares.Hence,dilutedEPSisthesameasbasicEPS.

SegmentReporting TheCompany isorganized into fourmajorbusinesssegments.

SuchbusinesssegmentsarethebasesuponwhichtheCompanyreportsitsprimarysegmentinformation.FinancialinformationonbusinesssegmentsispresentedinNote35totheconsolidatedfinancial statements.

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.

SubsequentEvents Postyear-endeventsthatprovideadditionalinformationaboutthe

Company’spositionatthebalancesheetdate(adjustingevents)are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in thenotes to the consolidated financial statements when material.

5. Significant Accounting Judgments and Estimates

Judgments Management has made judgment, apart from those involving

estimations, inaccountingfor itsoperatingleasecommitments,with the Company as lessor. The Company has entered intocommercialpropertyleasesonitsinvestmentpropertyportfolio.The Company has determined that it retains all the significant risks and rewards of ownership of these properties which areleasedoutonoperatingleases.

EstimationUncertainty Thekeyassumptionsconcerningthefutureandotherkeysources

ofestimationuncertaintyatthebalancesheetdate,thathaveasignificant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussedbelow.

Impairment Testing of Goodwill. The Company performsimpairment testing of goodwill on an annual basis or morefrequentlyifeventsorchangesincircumstancesindicatethatthecarryingvaluemaybe impaired. Thisrequiresanestimationofthevalueinuseofthecash-generatingunittowhichthegoodwillis allocated. Value in use is determined by making an estimate of the expected future cash flows from the cash generating unit and applies a discount rate in order to calculate the presentvalue of these cash flows. Goodwill acquired through business combination has been allocated to one cash generating unit.The recoverable amount of the goodwill has been determinedbased on value in use calculation using cash flow projections covering a five year period. The carrying amounts of goodwill asofDecember31,2006and2005areP40.0millionandP67.6million,respectively,includedunder“Intangibles”accountintheconsolidatedbalancesheets.Thecarryingamountofgoodwill,includedunder“Investmentsandadvancesatequity”account,isP5.1millionasofDecember31,2006and2005.Noimpairmentlossongoodwillwasrecognizedinbothyears.

Impairment of Investments in Associates.TheCompanyassessesimpairment on investments in associates whenever events orchanges in circumstances indicate that thecarryingamountoftheassetmaynotberecoverable.Thisrequiresanestimationofthevalueinuseofthecash-generatingunits.EstimatingthevalueinuserequirestheCompanytomakeanestimateoftheexpectedfuture cash flows from the cash-generating unit and also to chooseasuitablediscountrateinordertocalculatethepresentvalue of those cash flows. The carrying amounts of investments andadvancesasofDecember31,2006and2005aredisclosedin Note 12 to the consolidated financial statements.

Impairment of AFS Investments.TheCompanytreatsAFSequity

investments as impaired when there has been a significant or prolongeddeclinedinthefairvaluebelowitscostorwhereotherobjective evidence of impairment exists. The determination ofwhat is “significant” or “prolonged” requires judgment. In addition, theCompanyevaluatesotherfactors,includingnormalvolatilityin share price for quoted equities and the future cash flows and thediscountfactorsforunquotedequities.ThecarryingvaluesofAFSinvestmentsasofDecember31,2006and2005areP280.3millionandP329.2million,respectively.

Deferred Tax Assets.Thecarryingamountofdeferredtaxassetsisreviewedateachbalancesheetdateandreducedtotheextentthat it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to beutilized.

UnrecognizeddeferredtaxassetsasofDecember31,2006and2005amountedtoP1.0millionandP1.3million,respectively.

Input Taxes. Thecarryingamountsofinputtaxeswerereducedto the extent that it is no longer probable that sufficient revenue subject to value added tax (VAT) will be available to allow all or


partoftheinputtaxestobeutilized.Allowanceforunrecoverableinput taxes amounted to P55.5 million and P25.0 million as ofDecember31,2006and2005.

Estimating Useful Lives of Property, Plant and Equipment. TheCompany estimates the useful lives of property, plant andequipmentbasedon theperiodoverwhich theproperty, plantandequipmentareexpectedtobeavailableforuseandonthecollective assessment of industry practice, internal technicalevaluation and experience with similar assets. The estimateduseful lives of property, plant and equipment are reviewedperiodically and updated if expectations differ materially fromprevious estimates due to physical wear and tear, technical orcommercial obsolescence and legal or other limits on the useof the property, plant and equipment. However, it is possiblethatfutureresultsofoperationscouldbemateriallyaffectedbychanges in theestimatesbroughtaboutbychanges in factors.Theamountsandtimingofrecordingofexpensesforanyperiodwouldbeaffectedbychangesinthesefactorsandcircumstances.The carrying amounts of property, plant and equipment as ofDecember 31, 2006 and 2005 are disclosed in Note 14 to theconsolidated financial statements.

Estimating Allowances for Doubtful Accounts. Allowance fordoubtfulaccountsismaintainedatalevelconsideredadequatetoprovideforpotentiallyuncollectiblereceivables.Thelevelofallowance is based on the status of the accounts receivable,past collection experience and other factors that may affectcollectibility.Theallowanceisestablishedbychargestoincomein the form of provision for doubtful accounts. The carryingamountsoftradeandotherreceivablesasofDecember31,2006and 2005 are disclosed in Note 10 to the consolidated financial statements.

Estimating Net Realizable Value of Inventories. The Companycarriesinventoriesatnetrealizablevaluewhenthisbecomeslowerthancostduetodamage,physicaldeterioration,obsolescence,changesinpricelevelsorothercauses.ThecarryingamountsofinventoriesasofDecember31,2006and2005aredisclosedinNote 11 to the consolidated financial statements.

Pension Benefits.ThedeterminationoftheCompany’sobligation

and cost of pension benefits is dependent on the selection of certain assumptions used by actuaries in calculating suchamounts.TheassumptionsdescribedinNote31includeamongothers,discountrates,expectedreturnsonplanassetsandratesofsalaryincrease.InaccordancewithPFRS,actualresultsthatdifferfromtheassumptionsareaccumulatedandamortizedoverfuture periods and therefore, generally affect the recognizedexpenseandrecordedobligationinsuchfutureperiods.

6. Discontinued Operations

OnJuly5,2004,therespectiveBODofBCIIandAHC,approvedandannouncedthesaleoftheirownershipinterest(21.31%forBCIIand29.69%forAHC)inUnionCementHoldingsCorporation(UCHC) to Cemco Holdings, Inc., a stockholder of UCHC, forUS$89.4 million and US$124.6 million, respectively, or a totalofUS$214.0million.TheBODofBCIIandAHCdecidedtosellthe said shares due to the significant changes in the cement business brought about by globalization. BCII will then focuson its other businesses namely, energy, affordable housing,educational services and financial services. The transaction was completedonAugust12,2004,uponsigningofthedeedofsaleandcollectionoftheproceedsofthesale.BCIIandAHC’sgainonsaleofinvestmentinUCHCiscomputedasfollows:

BCII AHC Total (In Thousands) Proceedsfromsaleof UCHCshares,netof taxesandother relatedexpenses P4,743,963 P6,378,893 P11,122,856 Lesscarryingvalueof investmentinUCHCas ofAugust12,2004 2,174,883 3,045,879 5,220,762 Gainonsaleofinvestment inUCHC P2,569,080 P3,333,014 P5,902,094

OnJuly5,2004,theBODofAHCapprovedtheoffsettingofthenotes payable, including the related accrued interest, to Holderfin B.V. totaling to P3.7 billion (US$66.7 million) against the proceeds from thesaleofUCHC toCemco. Netcash receivedbyAHCfromthesaleamountedtoP2.7billion(US$57.9million).

The cash inflow related to the disposal is as follows:

Amount (In Thousands) CashreceivedasofAugust12,2004 P7,415,751 LesscashandcashequivalentsofUCHC asofAugust12,2004 1,384,755 Net cash inflow P6,030,996

The 2004 consolidated financial statements present revenues, expenses and cash flows from operating, investing and financing activities of discontinuing cement operations separately fromcontinuingoperations.

The gain and costs directly attributable to the sale were classified as part of discontinuing operations in the 2004 consolidatedstatementofincome.


TheassetsandliabilitiesofdiscontinuingcementoperationsasofAugust12,2004,areasfollows:

Amount (In Thousands ) Currentassets P5,374,025 Noncurrentassets 25,109,722 30,483,747 Currentliabilities 5,970,354 Noncurrentliabilities 8,557,808 14,528,162 Minorityinterest 6,247,226 Netassets P9,708,359

7. Acquisitions of COC and Araullo University

AcquisitionofCOC OnJune29,2005,theCompanypurchased1,951,038sharesof

stockofCOCrepresenting66.95%ownershipinterestforP204.5million,ofwhichP45.7millionwascontingentupontheapprovalby the Philippine Congress and National TelecommunicationsCommission of the transfer of the franchise to operate thebroadcastingnetworkbyNovember9,2005.AsofDecember31,2005,theP45.7millionwasrecognizedasaliabilityandincludedtothecostof thebusinesscombinationat theacquisitiondateasmanagementdeemedthatsuchadjustment isprobable. Asof December 31, 2006, the approval for the franchise was notyetobtainedbythesellingshareholders.Assuch,in2006,theadjustment on the liability was recognized by management in2006prospectively,withacorrespondingreversalofthecarryingamountofbroadcastingassetamountingtoP15.4millionandtheentire amount of goodwill arising from the initial accounting ofCOCacquisitionofP27.5million(seeNote16)andarecognitionofthebalanceintheconsolidatedstatementofincome.

COCisapubliccorporationincorporatedinthePhilippines.

TheacquisitionofCOChasbeenaccountedforusingthepurchasemethod. The fair values of the identifiable acquired assets and liabilitiesofCOCasofdateofpurchaseareasfollows:

Amount (In Thousands )

Currentassets P71,396 Noncurrentassets 365,199 436,595 Currentliabilities (62,386) Noncurrentliabilities (109,818) P264,391

The cash outflow related to the acquisition is as follows:

Amount (In Thousands )

Cashpaidonacquisitiondates P158,779Lesscashofacquiredsubsidiary 21,448Net cash outflow P137,331

AraulloUniversity On April 28, 2004, the Company purchased 353,208 shares of

stock of Araullo University representing 56.77% ownershipinterestforP94.0million.AraulloUniversityisaprivateeducationalinstitutionincorporatedinthePhilippines.

The acquisition of Araullo University has been accounted forusing the purchase method. The fair values of the identifiable acquiredassetsandliabilitiesofAraulloUniversityasofApril28,2004areasfollows:

Amount (In Thousands ) Currentassets P10,516 Noncurrentassets 264,688 275,204 Liabilities (210,370) P64,834

OnOctober4,2004,theBoardofTrusteesandstockholdersofAraulloUniversityapprovedtheincreaseinitsauthorizedcapitalstockfromP10milliondividedintoonemillioncommonshares,with par value of P10 a share to P300 million divided into 30millioncommonshares,withthesameparvalue.Further,AraulloUniversity will issue 16 million new shares at par value of P10fromtheincreaseinauthorizedcapitalstockunderapreemptiverightsofferingtoallstockholdersofrecordasofOctober4,2004.Thesaid increase inauthorizedcapital stockwasapprovedbytheSEConApril5,2005.

In December 2004, the Company subscribed to additional12,711,886sharesfromtheincreaseincapitalstockforP127.1million.ThisresultedinanincreaseintheCompany’sownershipinterestinAraulloUniversityto78.60%.

The additional acquisition of Araullo University has been

accountedforusingthepurchasemethod.Thefairvaluesoftheidentifiable acquired assets and liabilities of Araullo University as ofdateofacquisitionareasfollows:

Amount (In Thousands ) Currentassets P35,112 Noncurrentassets 327,680 362,792 Currentliabilities (43,688) Noncurrentliabilities (78,862) P240,242


Goodwill from the acquisitions amounted to P40.1 million (seeNote16).

The cash outflow related to the acquisitions is as follows:

Amount (In Thousands ) Cashpaidonacquisitiondates P221,122 Lesscashofacquiredsubsidiary 4,406 Net cash outflow P216,716

8. Cash and Cash Equivalents

Thisaccountconsistsof: �00� 2005 (In Thousands) Cashonhandandinbanks P��,�� P56,853 Short-termdeposits ��,�� 299,598 P��,�0� P356,451

Cashinbanksearnsinterestatapplicablemarketrates.Short-termdepositsaremadeforvaryingperiodsofuptothreemonthsdependingontheimmediatecashrequirementsoftheCompany,andearninterestattherespectiveshort-termdepositrates.

9. Financial Assets at Fair Value Through Profit or Loss

Thisaccountconsistsof: �00� 2005 (In Thousands)

Investmentsinmutualand commontrustfunds P�,0��,��0 P534,459 Investmentsinbondsandtreasurybills �0�,�� 1,347,069 Short-terminvestments ��,�� 526,315 Investmentsintrustaccounts �0,�� – Marketableequitysecurities �,�� 400 P�,��,�� P2,408,243

10. Trade and Other Receivables

Thisaccountconsistsof: �00� 2005 (In Thousands)

Trade(seeNote20) P��,�� P321,146 Advancestosuppliersandcontractors ��,�� 34,506 Accruedinterest(seeNote29) ��,�� 30,524 Duefromrelatedparties(seeNote29) �,�� 6,469 ReceivablefromBCIIRetirement/Gratuity Plan(BCIIRetirement) ��,�� 4,604 Advances to officers and employees �,�� 2,547 Others ��,�� 25,460 �0�,�� 425,256 Lessallowancefordoubtfulaccounts ��,�� 56,452 P��,�� P368,804

As of December 31, 2006 and 2005, trade receivables totalingP265.9millionandP220.2millionwereassignedtocreditorbanksassecurityforUGC’ssyndicatedloanandconvertiblenotes(seeNote20).

11. Inventories

Thisaccountconsistsof:

�00� 2005 (In Thousands)

Atcost: Finishedgoods(seeNote20) P��0,�� P341,609 Landheldforsaleanddevelopment costs(seeNote20) ��,�� 183,505 Rawmaterials ��,�� 115,588 Atnetrealizablevalue- Sparepartsandothers ��,�� 27,062 P��,��0 P667,764

LandheldforsalerepresentsparcelsoflandlocatedinBatangasIndustrialPark(Park)whichareavailableforsale.AsofDecember31,2006,allofthedevelopmentcostsrepresentexpendituresforthedevelopmentandimprovementofthelandinthePark.

TheacquisitioncostofsparepartsandotherinventoriescarriedatnetrealizablevalueamountedtoP24.8millionandP33.2millionasofDecember31,2006and2005respectively.

Underthetermsoftheagreementscoveringliabilitiesundertrust

receipts, inventories amounting to P404.8 million and P106.2million as of December 31, 2006 and 2005, respectively, havebeenreleasedtoUGCintrustforthebank.UGCisaccountabletothebankforthetrusteedinventoriesoritssalesproceeds.

12. Investments and Advances at Equity

TheCompany’sownershipinassociatesisasfollows:

Percentage ofOwnership Direct Indirect PhinmaPropertyHoldings Corporation(PPHC) 34.94 – Trans-AsiaOilandEnergyDevelopment Corporation(TAOil) 25.66 – ABCapitalandInvestment Corporation(ABCapital) 18.29 – LuzonBagCorporation* 20.61 – AsiaCoalCorporation* 12.08 5.99 BacnotanSteelIndustries Incorporated(BSII) – 18.65

* Ceased commercial operations


Themovementsanddetailsofinvestmentsandadvancesareasfollows:

�00� 2005 (In Thousands) Acquisitioncosts: Balanceatbeginningofyear P�,��,�� P1,148,370 Additions ��,�� 3,415 Returnofcapital – (462) Balanceatendofyear �,��,�� 1,151,323 Accumulatedequityinnetlosses: Balanceatbeginningofyear (��,�� ) (537,024) Equityinnetearningsfortheyear ��,�� 57,473 Dividendsreceived (��,��0 ) (17,953) Returnofcapital – (1,350) (��,�� ) (498,854) Shareinotherreservesofanassociate: Balanceatbeginningofyear �,�� 21 Additionduringtheyear �,�� 3,391 Balanceatendofyear �,�� 3,412 ��,�� 655,881 Totalinvestments ��,�� 655,881 AdvancestoAsianPlaza,Inc. (AsianPlaza) – 159,148 Totalinvestmentsandadvances P��,�� P815,029

Thedetailedcarryingvaluesofinvestmentsinassociateswhich

areaccountedforundertheequitymethodareasfollows:


TAOil P��,�� P435,546 PPHC �0�,�� 120,722 ABCapital ��,�� 99,258 AsiaCoal �� 355 P��,�� P655,881

The following table illustrates summarized financial information of theCompany’sinvestmentsinassociates:


Shareintheassociates’netassets: Currentassets P��0,�� P566,080 Noncurrentassets ��,�0� 449,733 Currentliabilities (�0�,�� ) (151,582) Noncurrentliabilities (��,�� ) (121,983) Preferredstock (��,�� ) (91,443) Netassetsattributabletocommon stockholders P��,�0� P650,805 Share in the associates’ revenue and profits: Revenue P��,�� P269,882 Netincome ��,�� 57,473 Carryingamountoftheinvestments P��,�� P655,881

As of December 31, 2006 and 2005, the Company’s carryingamount of investments exceeded equity in the net assets ofassociates by P5.1 million representing goodwill related to ABCapital.

Status of operations and significant transactions of certain associatesareasfollows:

a. TAOil

TAOil is involved inpowergenerationandoilandmineralexplorationactivities.

On December 28, 2006, TA Oil acquired 100% of theoutstanding shares of stock of CIP II Power Corporation(CIPP),awhollyownedsubsidiaryofAscendasUtilitiesPteLtd,aSingaporeancorporation. CIPPoperatesa21MWBunker C-fired power plant in CIP II Special Economic Zone inCalamba,Laguna.

On March 27, 2006, the BOD of TA Oil declared a cashdividend of P0.04 a share to all common stockholders ofrecordasofMay23,2006.TheCompanyreceivedP11.2millioncashdividendsfromTAOil.

OnMarch14,2005, theBODofTAOildeclareda regular

cashdividendofP0.04ashareandspecialcashdividendofP0.04asharetoallcommonstockholdersofrecordasofMarch30,2005.TheCompanyreceivedP17.0millioncashdividendsfromTAOil.

OnOctober16,2005,theCompanyreceivedastockdividendfrom TA Oil, increasing the number of shares held by theCompanyfrom212.3millionsharesto276.1millionshares.

b. PPHC

PPHCisengagedinrealestatedevelopment,principallyinlowandmiddlecosthousingandverticaldevelopment.

OnMay3,2006,theBODofPPHCdeclaredcashdividendofP0.01asharetoallcommonstockholdersof recordasofJune30,2006.TheCompanyreceivedP7.9millioncashdividendsfromPPHC.

c. ABCap

ABCapitalisaninvestmenthousethatengagesincorporatefinance, fixed-income securities dealership, stock brokerage andfundmanagement.


d. AsiaCoal

Asia Coal is engaged in the trading of coal. BeginningNovember1,2000,AsiaCoalceasedalltradingoperations.

On January 11, 2005, the BOD and stockholders of AsiaCoal declared a 40% cash dividend paid on January 17,2005toallshareholdersofrecordasofJanuary11,2005.The Company received P0.1 million cash dividends fromAHC.

On January 11, 2005, the BOD and stockholders of AsiaCoalapprovedthedecreaseintheauthorizedcapitalstockofAsiaCoalfromP20million,consistingof200,000shareswithaparvalueofP100ashare, toP5million,consistingof50,000shareswith thesameparvalue. TheCompanyreceivedP1.8millionfromAsiaCoalasaresultofthesaidreductionincapitalstock,whichresultedintherecognitionofgainonreturnofcapitalofP1.4million.

e. AsianPlaza

AsianPlazaisengagedinrealestatebusiness.In2006,theCompanysubscribedto396,100commonsharesofAsianPlaza(representing57.62%interest)foratotalsubscriptionamountofP198.0million.TheCompanyapplieditsP159.1millionadvancesasofDecember31,2005aspayment toitssubscriptionandpaid incashtheremainingbalanceofP38.9million.

13. Available-for-Sale Investments

This account consists of investments in unquoted equitysecurities:


ABCapital-preferredshares P��0,000 P250,000 UnitedPulpandPaperCo.Inc. – 68,807 Others ��,�� 69,360 ��,�� 388,167 Lessaccumulatedimpairmentlosses ��,�� 58,960 P��0,�� P329,207

AFS financial assets consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate.

Theunquotedavailable-for-sale investmentsarecarriedatcostlessaccumulatedimpairmentlossessinceitsfairvaluecannotbereliablymeasured.

14. Property, Plant and Equipment

Followingarethedetailsofthisaccount:

December31, December ��, 2005 Additions Disposals Reclassification �00�

Cost: Landandplant siteimprovements P367,394 P– P– P– P��,�� Buildingsand improvements 623,340 19,251 – (5,176) ��,�� Portfacilitiesand equipment 223,663 786 – – ��,�� Machineryand equipment 602,895 17,056 (18,795) (15,393) ��,�� Transportationand otherequipment 268,505 46,963 (9,558) (35,879) ��0,0�� 2,085,797 84,056 (28,353) (56,448) �,0��,0�� Lessaccumulateddepreciation: Landandplant siteimprovements 9,765 645 – – �0,��0 Buildingsand improvements 167,550 28,939 – (3,386) ��,�0� Portfacilitiesand equipment 63,567 9,997 – – ��,�� Machineryand equipment 350,828 35,445 (18,795) – ��,�� Transportationand otherequipment 152,426 31,345 (6,943) (19,880) ��,�� 744,136 106,371 (25,738) (23,266) �0�,�0� 1,341,661 (22,315) (2,615) (33,182) �,��,�� Constructionin-progress 1,759 7,489 – – �,�� Netbookvalue P1,343,420 (P14,826) (P2,615) (P33,182) P�,��,��

December31, 2004 (Asrestated– Reclassi- December31, see Note 3) Acquisition Additions Disposals fication Impairment 2005

(In Thousands)

Cost:

Landandplant

siteimprovements P246,182 P120,395 P817 P– P– P– P367,394

Buildingsand

improvements 338,741 232,131 50,131 (715) 3,052 – 623,340

Portfacilitiesand

equipment 223,498 – 165 – – – 223,663

Machineryand

equipment 529,755 84,790 24,388 (56) (35,982) – 602,895

Transportationand

otherequipment 158,722 41,641 33,930 (879) 35,091 – 268,505

1,496,898 478,957 109,431 (1,650) 2,161 – 2,085,797

Lessaccumulateddepreciation:

Landandplant

siteimprovements 9,225 – 540 – – – 9,765

Buildingsand

improvements 96,961 46,425 24,191 (715) 688 – 167,550

Portfacilitiesand

equipment 53,595 – 9,972 – – – 63,567

Machineryand

equipment 266,505 55,881 41,039 (56) (12,541) – 350,828

Transportationand

otherequipment 83,738 34,351 20,295 (953) 11,852 3,143 152,426

510,024 136,657 96,037 (1,724) (1) 3,143 744,136

986,874 342,300 13,394 74 2,162 (3,143) 1,341,661

Constructionin-progress 2,146 – 1,775 – (2,162) – 1,759

Netbookvalue P989,020 P342,300 P15,169 P74 P– (P3,143) P1,343,420


AsofDecember31,2006and2005,theunamortizedcapitalizedborrowingcostsincludedaspartofproperty,plantandequipmentamounted to P3.5 million and P3.8 million, respectively. Noborrowingcosthasbeencapitalizedin2006and2005.

Certainproperty,plantandequipmentofUGC,AraulloUniversityandPSHCtotalingP815.7millionandP1.0billionasofDecember31,2006and2005wereusedassecurityfortheirrespectivelong-termdebtandconvertiblenotesasdisclosedinNote20.

15. Investment Properties


December31, December ��,

2005 Additions Transfer �00�

Cost:

Land P532,254 P1,696 P– P��,��0

Buildingsforlease 4,449 297,734 (71) �0�,��

Buildingimprovements – 26 53,806 ��,��

536,703 299,456 53,735 ��,��

Lessaccumulateddepreciation:

Buildingsforlease 890 30,301 – ��,��

Buildingimprovements – 2,506 – �,�0�

890 32,807 – ��,��

535,813 266,649 53,735 ��,��

Add:constructioninprogress – 53,989 (53,735) ��

P535,813 P320,638 P– P��,��

Investment properties are stated at cost less accumulateddepreciation. The fair value of the land and buildings andimprovements totaled P1,246.9 million as determined byindependent firms of appraisers at P684.5 million, P531.8 million andP30.6millionasofDecember31,2006,June8,2006andMarch6,2006,respectively.

Thebuildingisbeingdepreciatedover20years.

16. Intangibles


December31, Amortiza- Adjustment December ��,

2005 tion (seeNote7) �00�

(In Thousands)

Cost:

Goodwill(seeNote7) P67,555 – (P27,497) P�0,0��

Studentlist 25,380 – – ��,��0

92,935 (27,497) ��,��

Accumulated

amortization-

Studentlist 10,408 8,460 – ��,��

P82,527 8,460 (P27,497) P��,��0

17. Other Noncurrent Assets



Inputtax-netofallowancefor unrecoverableamountof P55.5millionin2006and P25.0millionin2005 P�,�� P30,263 Others ��,�� 14,145 P��,�� P44,408

18. Notes Payable

This account consists of notes payable of the followingsubsidiaries:


UGC P��0,�� P252,560 BIPC �,000 1,000 P��,�� P253,560

UGC’s notes payable consist of unsecured short-term peso-denominated loans from a local bank and a financial institution withannualinterestratesrangingfrom6.0%to9.625%payablewithin90daysto180daysbothin2006and2005.

19. Trade and Other Payables



Trade P�0�,�� P80,592 Accrualsfor: Professionalfeesandothers (seeNote27) ��,��0 79,351 Interest(seeNote27) ��,0�� 21,180 Personnelcost ��,�0� 18,191 Others ��,0�� 77,233 P��,�� P276,547


20. Long-term Debt

This account consists of long-term liabilities of the followingsubsidiaries:


UGC: Syndicatedloan P��,��0 P181,624 Equitable-PCIBankloan ��,�� 163,148 ConvertibleNotes(CNs) ��,�� 51,065 ��,��0 395,837 PSHC ��,�� 141,681 AraulloUniversity ��,�� 45,330 BIPC ��,��0 22,384 COC �,000 23,142 ��0,0�� 628,374 Lesscurrentportion ��,�� 70,593 P��,�� P557,781 UGC The syndicated loan and CNs were obtained from five local

financial institutions, namely Bank of Philippine Islands, Equitable-PCIBank,MetropolitanBankandTrustCompany,LandBankofthePhilippinesandSecurityBankandTrustCompany(collectivelyreferredtoasCreditor-Banks).

SyndicatedLoan Thetermsoftheloanagreementareasfollows:

Interest 10.5% for the first three years and base rate (latest weighted average auctionresultforthe91-dayT-billrateduringthefourbankingdaysimmediatelyprecedingtheinterestratesettingdate)plus2.5%perannumforthelastsixyears

Repaymentperiod 25 equal quarterly installments untilSeptember2008

Equitable-PCIBankLoan Thisloanwasavailedofintwotranchesunderthefollowingterms:

Interest Tranche 1 - 10% for the first three years andbaserateplus2.5%perannumforthelastsixyears

Tranche2-10.5%perannum,andonprincipal payment dates, additionalinterest will be paid which is equaltobase rateplus2.5%perannumorsumof (1) 50%ofaveragePhilippineInterbank Borrowing Rate (PHIBOR)and (2) 50% of base rate, plus 2.5%per annum, if the base rate is 2.0%higher or lower than PHIBOR uponprepaymentormaturity

Repaymentperiod • First tranche is payable in 25quarterly installments untilSeptember2008

• Second tranche is payable in 2annual installments commencingin2008

CNs TheCNswereissuedtotheCreditor-BanksofUGC’ssyndicated

loan.ThefeaturesoftheCNsareasfollows:

Faceamount P61.4millionInterest 10.5% per annum for the first three

years and base rate plus 2.5% perannumorsumof (1)50%ofaveragePhilippine Interbank Borrowing Rate(PHIBOR) and (2) 50% of base rate,plus2.5%perannum,ifthebaserateis2.0%higheror lowerthanPHIBORuponprepaymentormaturity

RepaymentPeriod Payable in two annual installmentsstarting2008

Conversionright Convertible into 20,418,224 unissuedordinary common shares (Shares) ata conversion price equivalent to thecurrentparvalueoftheSharesofP2.5pershare

Conversionperiod Convertible at any time at the optionof the holders of the CNs subject tofull compliance with the conversionprocedures as defined in the loan agreements

Minimumamount Equivalenttothefacevalueofofconversion 100,000 shares; any conversion in

excess of the minimum amount shallbeinmultiplesof50,000shares

IncompliancewithPAS32,UGCseparatelyaccounted for theliabilityandequitycomponentsoftheCNs.Theallocationwasbasedonthefairvalueoftheliabilitycomponentasofissuancedate. BCII’sshare in theequitycomponentofP15.4million isshown under the equity section of the consolidated balancesheet.In2006and2005UGCrecognizedP4.2millionandP3.5millioninterestexpensepertainingtotheaccretionoftheliabilitycomponent of the CNs. Effective interest rate of the CNs is17.3%.


AsofDecember31,2006,thecarryingvaluesofUGC’spropertiescoveredbytheDeedofSecondMortgageandchattelmortgageareasfollow:

Carrying Values as of December 31, Loan DescriptionofProperty 2006 Syndicatedloan, Land,plantsiteimprovements, P589.6million Equitable-PCI buildingsandinstallations Bankloan,CNs andmachineryandequipment ofCalambaandDavaoplants Syndicated loan,CNs Inventories P694.8million Tradereceivables 265.9million Machineryandequipment 5.5million

Thecovenantsoftheforegoingloanagreementsincludecertainrestrictions and requirements common to the syndicated loan,Equitable-PCIBankloanandCNsofUGC,amongothers,andasfollows:

OtherCovenants • Maintenanceofthefollowingratios: Current ratio of not less than

1.0:1.0 for the duration of the loanagreements

Debttoequityratioofnotlessthan3.0:1.0 beginning on the 7th fiscal yearfrom1999

• Restrictions on declaration andpayment of dividends, incurrenceof new long-term debt, enteringinto management agreement otherthan with PHINMA and enteringinto merger or consolidation withany other company without priorconsentofthecreditors

AsofDecember31,2006,UGCis incompliancewiththedebt

covenants.

PSHC This represents interest-bearing loan of P154.0 million payable

to United Pulp and Paper Co., Inc. (UPPC) arising from theacquisition of land from UPPC, then an associate, payable intwo installments amounting to P44.0 million on July 15, 2008andP110.0milliononJuly15,2013.This loanispresentedaspartof“long-termdebt”intheconsolidatedbalancesheetsatitsestimatedpresentvalueasofthebalancesheetdate.Thepresentvalueoftheloanwascalculatedusinganeffectiveinterestrateof11.03%and12%in2006and2005,respectively.Tosecurethepaymentoftheloan,PSHCconstitutedamortgageonthelandinfavorofcertaincreditorsofUPPC.

ThepayableearnsanannualinterestataratewhichwillbesubjecttomutualagreementbyUPPCandPSHConeachanniversarydate. Interest expenseon thepayable toUPPC,computedat9.1%of theoutstandingprincipalbalance, amounted toP14.0millionbothin2006and2005.

PSHCleasesthelandtoUPPCforaperiodof50years,renewablefor another 25 years upon the approval of the PhilippineDepartmentofTradeandIndustry.Annualleaseincomeduringthe entire lease term is fixed at P14.6 million. In connection with thelease,UPPCwasrequiredtomakealeasedepositwithPSHCofP55.5millioninJuly2003andadditionalP2.9millioninApril2005, aggregated and reflected as “Other noncurrent liabilities” at the estimated present value at balance sheet date, andrefundabletoUPPCupontheexpirationofthelease.Theleasedeposit’spresentvaluewascalculatedusinganeffectiveinterestrateof12%perannum.AdditionalrentincomeresultingfromtheaccretionofleasedepositamountedtoP1.1millionbothin2006and2005.

AraulloUniversity This represents the outstanding principal contracted by the

previousownersofAraulloUniversityandthebalanceofunpaidinterestasofDecember7,2004whichwererestructuredintoa10-yeartermloan.Therestructuredtermscallforthepaymentoftheloanin36quarterlyamortizationsstartingonFebruary28,2005 at fixed amounts covering both principal and interest, with any unpaid principal balance payable in full on the final quarter. Interestontheloanshallbesubjecttoquarterlyrepricingbasedontheprevailingbankprimerateplusminimumspreadof4%.

The loan iscollateralizedbyAraulloUniversity’s land, includingexisting and future improvements thereon, and a specific complete set of merchant marine technology equipment. ThecarryingamountofthecollateralizedassetsisP309millionasofDecember31,2006.

The loan covenants include, among others, restrictions withrespect topaymentofcashdividends,mergerorconsolidationwith another corporation, availment of additional loans exceptsuppliercreditsandworkingcapitalloans.

AsofDecember31,2006,AraulloUniversityisincompliancewiththeloancovenants.


BIPC ThetermsoftheBIPC’srestructureddebtareasfolows:

Facility Long-termDebtPaymentterm Tenyears,inclusiveofafour-yeargrace

periodonprincipalrepaymentInterest rates 8.0% fixed interest rate for the entire

termoftheloanInterestpayments 3-yeargraceperiodoninterestpayment

throughJune9, 2008. Interest tobeincurred during the grace period, netof 4 million partial interest paymentto be made on June 9, 2008 will becapitalized

Principalpayment 3½-year grace period on principalamortization up to December 10,2008 and seven equal semi-annualpaymentstocommenceonDecember10,2008

Security First party real estate mortgage overvacant industrial lots under TransferCertificate Title (TCT) No. 98732 and TCT No. 100923 located at BarrioLumbang Municipality of Calaca,Batangas registeredunder thenameofBIPCaggregatingto62,342squaremeterswithappraisedvalueofP58.4millionasofDecember31,2006

COC COC’s debt in 2005 represents two 15-year term loans from a

localbankpayablein54quarterlyinstallmentsuntilOctober23,2016.Theloansweresecuredbyregisteredrealestatemortgageoverland.In2006,COCpreterminateditstermloans.

21. Equity

a. CapitalStock ThecompositionoftheParentCompany’scapitalstockis

asfollows:

NumberofShares �00� 2005 2004 Preferred-cumulative, nonparticipating ClassA Authorized �00,000 100,000 100,000 Issued: Balanceatbeginningofyear – 36,000 36,000 Retirement – (36,000) – Balanceatendofyear – – 36,000

NumberofShares �00� 2005 2004 ClassB Authorized �00,000 900,000 900,000 Issued: Balanceatbeginningofyear – 219,756 219,756 Retirement – (219,756) – Balanceatendofyear – – 219,756 ClassAA Authorized �0,000,000 50,000,000 50,000,000

ClassBB Authorized �0,000,000 50,000,000 50,000,000 Issued: Balanceatbeginningofyear – – 25,000,000 Retirement – – (25,000,000) Balanceatendofyear – – – Totalpreferredsharesissued – – 255,756 Common Authorized ��0,000,000 420,000,000 420,000,000 Issued: Balanceatbeginningofyear ��,��,��0 169,747,320 169,747,320 Stockdividends ��,��,�� – – Balanceatendofyear �0�,�0�,�� 169,747,320 169,747,320 Subscribed ��,�� 39,994 39,994 Issuedandsubscribed �0�,��,�� 169,787,314 169,787,314

ThefollowingpreferredshareshavebeenredeemedatissuecostandwereretiredonOctober5,2005uponapprovalbytheBOD.

Class IssueDate NumberofShares Amount (In Thousands )

A November9,1995 36,000 P360 B -do- 219,756 2,198 255,756 P2,558

b. RetainedEarnings

OnSeptember6,2006,theParentCompanydeclared20%stockdividendtoallshareholdersofrecordasofAugust11,2006.

On October 5, 2005, the BOD appropriated P1 billion of

retainedearningsforfutureinvestments.

On September 30, 2004, the Parent Company declared aspecialcashdividendofP9asharetocommonshareholdersofrecordasofSeptember15,2004,paidonSeptember30,2004. On March 3, 2005, the Parent Company declaredanother special cash dividend of P9 a share to commonshareholdersofrecordasofMarch3,2005paidonApril18,2005.


22. Cost of Sales, Educational Services and Real Estate

Costofsales,educationalservicesandrealestateofcontinuingoperationsconsistof:

�00� 2005 2004 (In Thousands) Costofsales P�,��,��0 P1,474,947 P1,147,782 Costofeducational services ��,�� 109,556 37,093 Costofrealestatesold �,�� 17,329 9,726 P�,��,�� P1,601,832 P1,194,601

Thedetailsofcostofsales,educationalservicesandrealestateareasfollows:

�00� 2005 2004 (In Thousands) Inventoriesused P�,��,�� P1,329,045 P1,003,711 Personnelcosts (seeNotes25and27) ��,�� 116,737 65,846 Depreciation(seeNote26) ��,�0� 56,822 42,410 Equipmentrunning ��,�� 12,423 40,224 Others ��,�� 86,805 42,410 P�,��,�� P1,601,832 P1,194,601

Costoffreightservicespertainssolelytodiscontinuingoperations.

23. General and Administrative Expenses

General and administrative expenses of continuing operationsconsistof:

�00� 2005 2004 (In Thousands) Personnelcosts (seeNotes25and27) P��,�� P54,001 P112,023 Depreciation(seeNote26) �0,�� 34,389 20,342 Outsideservices �0,�� 33,398 112,064 Taxesandlicenses ��,�� 24,506 10,074 Transportationandtravel �,��0 3,931 3,626

Provisionforimpairment losses,unrecoverable value-addedtaxand doubtfulaccounts ��,�� 3,143 58,420 Others ��,�� 81,659 35,520 P��,�� P235,027 P352,069

24. Selling Expenses

Sellingexpensesofcontinuingoperationsconsistof:

�00� 2005 2004 (In Thousands) Personnelcosts (seeNote25) P��,�0� P28,005 P24,226 Commission ��,�� 22,314 17,119 Advertising ��,�� 13,547 2,726 Transportationandtravel �,�� 6,632 9,013 Depreciation (seeNote26) �,�� 2,776 2,212 Others ��,��0 33,033 18,322 P��,�� P106,307 P73,618

25. Personnel Costs

Personnelcostsofcontinuingoperationsconsistof:

�00� 2005 2004 (In Thousands) Salaries, employee benefits andbonuses P��,00� P182,983 P190,536 Retirementandother post-employment benefits (seeNotes27and31) ��,�� 14,811 3,907 Training �,�� 778 1,163 Others ��,�� 171 6,489 P��,�� P198,743 P202,095

26. Depreciation and Amortization

Depreciationandamortizationofcontinuingoperationsrelatetothefollowingassets:

�00� 2005 2004 Property,plantandequipment: Costofsales,educational servicesandrealestate P��,�0� P56,822 P42,410 Generalandadministrative expenses �0,�� 34,389 20,342 Sellingexpenses �,�� 2,776 2,212 Otherexpenses(income) – 2,050 (2,154) Studentslist �,��0 6,878 3,530 P��,�� P102,915 P66,340


27. Related Party Transactions

Subsidiaries,AssociatesandRelatedCorporations

BSII In2004,BCIItransferredits31.08%directequityinBSIItoBIPC,

a60%-ownedsubsidiary.Asaresult,beginningsuchdate,ithasan18.65%indirectinterestinBSII.

Intheordinarycourseofbusiness,theCompanygrantedinterestandnoninterest-bearingcashadvancestoBSII.

In June 1997, BSII and BIPC entered into a Memorandum ofAgreementwherebyBSIIwillconstructitsplantintheParkandpayitspro-ratashareintheparkdevelopmentcosts.BSII’sshareamounting toP56.9millionwascomputedbasedonestimateddevelopment cost and paid to BIPC in August 1997. The totalamountreceivedwasinitiallyrecordedunder“Othernoncurrentliabilities” account in the consolidated balance sheet andsubsequentlyreducedforBSII’sshareinanydevelopmentcostsincurredeachyear.AsofDecember31,2006and2005,basedonthepercentageofcompletionofthedevelopmentoftheportbyBIPC, thebalanceof the liabilityamounted toP15.6millionandP18.4million,respectively.

UPPC UPPCisasubsidiaryofSiamPulpandPaperPublicCompany

Limited,whoalsoowns40%oftheoutstandingcapitalstockofPSHC.

PSHC receives assistance from UPPC in carrying out certainadministrativefunctions.StartingOctober1,2005,PSHCpays,onamonthlybasis,P0.02millionforvariousgeneralaccountingand financial services rendered by UPPC.

PSHC has noninterest-bearing cash advances from UPPCamountingtoP0.5millionandP0.7millionasofDecember31,2006and2005,respectively.

OnDecember27,2006,PSHCsold its investment insharesofstockofUPPC,whichwasacquiredatP276.5million, toSiamPulpandPaperPublicCompany,Ltd.atasellingpriceofP85.6million.Accordingly,PSHCrecordedagainonsaleofinvestmentamountingtoP17.1million,thiswasrecordedas“GainonsaleofAFSinvestment”intheconsolidatedstatementofincome.

ABCapital TheCompanyowns18.29%ofthesharesofstockofABCapital.

Transactions with AB Capital pertain to short-term placementsmade by the Company in AB Capital and interest-bearingadvancesgrantedtoABCapital.

Others Other related party transactions primarily relate to the grant of

advancestoandsharingofexpenseswithothercompanieswhicharealsounderthecommoncontrolofPHINMA,namely,PPHC,T-OInsuranceBrokers, Inc.,PhinmaCondominiumCorporationandUnicon.

Amountsandoutstandingbalancesrelatingtotheaforementionedtransactionsareasfollows:

AmountsDueto AmountsDuefrom

RelatedParty NatureofTransaction Year Amount RelatedParties RelatedParties (In Thousands) BSII Shareinexpenses 2006 P82 P– P15 2005 – – – 2004 2,115 396 2,115

UPPC Shareinexpenses 2006 8,310 – 96 2005 – – – 2004 – 558 – ABCapital Grantofinterest-bearing advancesandshort-termplacements 2006 4,151 – 157 2005 38 – 38 2004 – – 50,020

Others Shareinexpenses 2006 10,374 – 6,478 2005 24,515 – 24,515 2004 11,119 8,612 10,119


ManagementandDirectors’Compensation BCII,BIPC,UGC,COCandAraulloUniversityareundercommon

management by PHINMA, and pay PHINMA a fixed annual managementfeeplusanannualbonusbasedonacertainpercentageof the respective companies’ adjusted net income, as defined in the management contract between PHINMA and the respectivecompanies,pursuanttotheprovisionsofthesamecontract.

Totalmanagementfeesandbonusesincurredin2006,2005and2004amountedtoP44.1million,P22.0millionandP327.7million,respectively.Therelatedunpaidamount,includedunder“Tradeandotherpayables”accountintheconsolidatedbalancesheets,isP27.5millionandP12.3millionasofDecember31,2006and2005,respectively.

The Company also granted noninterest-bearing advances toPHINMA, which were offset against management bonuses,amountingtoP152.2millionin2004andsharedexpenseswithPHINMA.

AHC recognized bonus to directors computed based on netincomeaftertaxbeforedirectors’bonus.BCIIcomputedbonusto its directors based on net income before the effect of theequity method of accounting. Directors’ bonus amounted toP10.0millionin2006,P7.9millionin2005andP339.9millionin2004. The related unpaid amount, included under “Trade andother payables” account in the consolidated balance sheets,isP10.0millionandP7.9millionasofDecember31,2006and2005,respectively.

Compensation of key management personnel of the Company

areasfollows:

�00� 2005 2004

Short-term employee benefits P��,�� P24,851 P130,654

Post-employment benefits -

Retirement benefits �,�� 2,032 4,830

Sickleaveand

vacationleave �� 1,911 660

P�0,�� P28,794 P136,144

28. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments comprise of cash andshort-termdeposits,corporatepromissorynotesandbonds,government bonds and treasury bills, listed shares of stocks,andinvestmentsinmutualandcommontrustfunds,inPhilippinepeso,USdollarandEurocurrencies.Themainpurposeofthesefinancial instruments is to finance the Company’s investments. The Company also has financial assets and liabilities, such as tradeandother receivablesand tradeandotherpayables thatarisedirectlyfromoperations.

ThemainrisksarisingfromtheCompany’streasurytransactionsare liquidity risk, interest rate risk, foreign currency risk andcreditrisk.Carefulstudy,skill,prudenceandduediligenceareexercisedatalltimesinthehandlingofthefundsoftheCompany.An Investment Committee reviews and approves policies anddirections for investments and risk management. The basicparametersapprovedbytheInvestmentCommitteeare:

InvestmentObjective SafetyofPrincipalTenor Three year maximum for any

security, with average durationbetweenoneandtwoyears

ExposureLimits a. For banks and fund managers:maximum of 20% of total fundsoftheCompanyperbankorfund

b. For peso investments: minimalcorporate exposure except forregisteredbonds

c. ForUSdollarorEuroinvestments:maximum 70% in Philippinegovernment or corporatesecurities, 10% in Asian bonds,and20%innon-Asianbonds.

ForeignCurrencyRisk Foreign exchange risks on the US dollar and Euro currencies

are managed through constant monitoring of the political andeconomic environment. Returns are also calibrated on a percurrency basis to account for the perceived risks with higherreturnsexpectedfromweakercurrencies.


The following table shows the foreign currency-denominated financial assets and liabilities and their peso equivalents as of December 31, 2006and2005:

�00� 2005

Foreign Currency Peso Equivalent ForeignCurrency PesoEquivalent

(In Thousands)

InUSDollar:

Cashandcashequivalents US$�,�� P��,�� US$1,230 P65,339

Short-terminvestments �,�� ,�� 8,216 436,178

Investmentsinmutualandcommontrustfunds �� ,�� 1,945 103,278

Investmentsinbondsandtreasurybills �,�� 0,�0� 8,572 455,085

US$��,��0 P�,0��,0�� US$19,963 P1,059,880

InEuro:

Cashandcashequivalents EUR �,��0 P��,�� EUR1,370 P86,092

Investmentsinbondsandtreasurybills �,�� ,0�� 2,833 177,945

EUR �,�� P��0,�� EUR4,203 P264,037

InJPY:

Cashandcashequivalents ¥��,��0 P��,�� ¥– P–

In translating foreign currency-denominated financial assets into pesoamounts,theexchangeratesusedwereP49.03toUS$1.00andP64.60toEUR1.00asofDecember31,2006andP53.09toUS$1.00andP62.82toEUR1.00asofDecember31,2005.

CreditRisk TheCompany tradesonlywith theCompany’sdulyaccredited

domestic and foreign banks and mutual funds. Investmentsper financial institution are subject to a maximum of 20% of the Company’sinvestiblefunds.

For trust funds and mutual funds, the Company’s investmentscannot exceed 10% of the trust or mutual fund’s total assets.Investmentperformancesarereviewedregularly.

Investmentsinnon-ratedsecuritiesaresubjecttoacomprehensivecredit and business review in coordination with dealers orunderwriters.For ratedcorporatebondsandsovereignbonds,creditratingstudiesandupdatesfromthemajorratingagenciesareusedasreferences.

TheCompany’sexposuretocreditriskarisesfromdefaultofthecounterparty with a maximum exposure equal to the carryingamountoftheseinstruments.

LiquidityRisk Liquidityrisksaremanagedbyrestrictinginvestmentsprincipally

topublicly tradedsecuritieswithahistoryofmarketabilityandbydealingwithonly largereputabledomesticand internationalinstitutions.

The maturities of the investments are determined by theCompany’s projected cash payments. The average durationadherestoguidelinesprovidedbytheInvestmentCommittee.

InterestRateRisk Thefollowingtablesetsoutthecarryingamount,bymaturity,of

the Company’s financial instruments that are exposed to interest raterisk:


Within Morethan

InterestRates 1Year 1-2years 2-3Years 4-5years 5years Total

�00� Fixed rate

Specialsavingsaccount(PHP) .05–4.75% P17,323 P– P– P– P– P17,323

Placements(PHP) 2.5–4.75% 529,961 – – – – 529,961

Investmentsinmutualandunit

investmenttrustfunds(PHP) 6.00–8.73% 759,754 – – – – 759,754

Investments in fixed treasury notes

andbonds(PHP) 4.875–9.125% 24,150 3,912 29,268 82,750 82,277 222,357

Long-termdebt(PHP) 8%–10.5%+2.5% – 39,176 81,324 6,799 – 127,299

Placements(US$) 2.5–4.75% 202,578 – – – – 202,578

Timedeposits(US$) 2.5438% 5,829 – – – – 5,829


andbonds(US$) 4.875–9.125% 25,227 4,232 176,625 75,223 39,103 320,410

Placements(EUR) 2.5–4.75% 90,348 – – – – 90,348

Timedeposits(EUR) 1.85%–4.62% 21,480 – – 128,185 – 149,665


andbonds(EUR) 4.875–9.125% – – 30,853 - – 30,853

Placements(JPY) 2.5–4.75% 48,139 – – – – 48,139

�00� Floating rate

Long-termdebt(PHP) 9.05%–9.47% 119,188 138,371 3,900 13,575 53,361 328,395

Payabletorelatedparties(PHP) 9.10% – 44,000 – – 98,775 142,775

Within Morethan

InterestRates 1Year 1-2years 2-3Years 4-5years 5years Total

�00� Fixed rate

Specialsavingsaccount(PHP) 5.0%–6.8% P39,090 P– P– P– P– P39,090

Placements(PHP) 6.8%–8.6% 84,300 – – – – 84,300

Investmentsintreasurybills(PHP) 7.1%–7.4% 176,292 – – – – 176,292

Investments in fixed treasury notes (PHP) 7.1%–7.6% 22,966 50,149 253,768 144,277 – 471,160

Short-terminvestments(PHP) 8.6%–11.4% 66,403 – – – – 66,403

Receivables(PHP) 10.6%–11.4% 30,894 – – – – 30,894

CurrentportionofLong-termdebt(PHP) 12.0% 3,333 – – – – 3,333

Long-termdebt(PHP) 8.0%–13.0% – 3,331 55,154 78,365 15,292 152,142

Timedeposits(US$) 1.6%–3.8% 1,177 – – – – 1,177

Investmentsinbonds(US$) 8.4%–9.4% 800 – 5,956 1,550 – 8,306

Timedeposits(EUR) 0.6%–1.8* 1,341 – – – – 1,341

Investmentsinbonds(EUR) 9.1% – – – 1,275 – 1,275

Investments in fixed treasury notes (EUR) 9.4% 317 – – – – 317

�00� Floating rate

Advances from affiliates (PHP) 0.09 20,894 – – – – 20,894

CurrentportionofLTD(PHP) Prime+4% 2,934 – – – – 2,934

Long-termdebt(PHP) Prime+4% 66,164 165,367 134,916 19,536 85,458 471,441

Payabletorelatedparties(PHP) 0.09 12,634 – – – – 12,634


Interest on financial instruments classified as fixed rate was fixed untilthematurityoftheinstrument.

Other financial assets at FVPL are non-interest bearing investments andarethereforenotsubjecttointerestratevolatility.

29. Financial Instruments

Fair Values Setoutbelowisacomparisonbycategoryofcarryingamounts

and fair values of all of the Company’s financial instruments that arecarriedintheconsolidatedbalancesheet.

Carrying Amount Fair Value

�00� 2005 �00� 2005

(In Thousands)

Financialassets:

Cashandcash

equivalents P��,�0� P356,451 P��,�0� P356,451

Financialassetsat

fairvaluethrough

profit or loss �,��,�� 2,408,243 �,��,�� 2,408,243

Tradeandother

receivables-net ��,�� 368,804 ��,�� 368,804

Available-for-sale

investments ��0,�� 329,707 ��0,�� 329,707

Financialliabilities:

Notespayable ��,�� 253,560 ��,�� 253,560

Tradeandother

payables ��,�� 276,547 ��,�� 276,547

Trustreceiptspayable �0�,�� 106,202 �0�,�� 106,202

Duetorelatedparties �0,�� 17,415 �0,�� 17,415

Long-termdebt

(includingcurrent

portion) ��0,0�� 628,374 ��,�� 637,248

Thefollowingmethodsandassumptionsareusedtoestimatethefair value of each class of financial instruments:

Cash and Cash Equivalents, Trade and Other Receivables, Notes Payable, Trade and Other Payables, Trust Receipts Payable and Due to Related Parties. Thecarryingamountsapproximatefairvalues due to the relatively short-term maturities of the financial instruments.

Financial Assets at FVPL and AFS Investments.Quotedmarketprices have been used to determine the fair value of financial assets at FVPL and listed AFS investments. Unlisted AFS investmentsaremeasuredatcostlessaccumulatedimpairmentlosssincethefairvalueisnotreadilydeterminable.

Derivative Asset.Thefairvalueoffreestandingforwardcurrencytransactions is calculated by reference to current forwardexchange rates for contracts with similar maturity profiles.

Long-term Debt. The fair value of interest-bearing fixed-rate loan

is based on the discounted value of expected future cash flows using the applicable rates for similar types of loans. Discountratesusedrangefrom11.47%to19.16%.

DerivativeInstruments Freestanding Derivatives. AsofDecember31,2006,theCompany

has outstanding currency forward contracts with an aggregatenotional amount of US$9.5 million, and weighted averagecontractedforwardrateofP53.291toUS$1.00.Thenetfairvaluegain on these currency forward contracts as of December 31,2006amountedtoP40.3millionandwasincludedin“Derivativeassets”accountinthe2006consolidatedbalancesheet.

The net movements in fair value changes of these derivative

assetsareasfollows(inthousands):

BalanceatJanuary1,2006 P–

Netchangeinfairvalueduringtheyear 60,039

Fairvalueofsettledcontracts (19,713)

BalanceatDecember31,2006 P40,326

Embedded Derivatives. EmbeddedforeigncurrencyderivativeswerebifurcatedfromcertainoftheCompany’spurchasecontracts,whicharedenominatedinacurrencythatisneitherthefunctionalcurrencyofaparty to thecontractnor the routinecurrency forthetransaction.NosuchpurchaseordersareoutstandingasofDecember31,2006and2005.

The net movements in fair value changes of these embeddedderivativesareasfollow:

�00� 2005

(In Thousands)

Balanceatbeginningofyear P– P357

Netchangesinfairvalueduringtheyear ��,�� 27,217

Fairvalueofsettledcontracts (�0,0�� ) (27,574)

Balanceatendofyear P�,��0 P–


The net changes in fair values of derivatives and embeddedderivativesduringtheyearareshownas“netgainonderivatives”inthe2006consolidatedstatementofincome.

30. Income Tax

ThecomponentsoftheCompany’sdeferredtaxassets(liabilities)areasfollows:

�00� 2005

(In Thousands)

Deferredtaxassets:

Revaluednetassetsofasubsidiary P�,�� P5,750

Allowancefordoubtfulaccounts �,�� 4,059

Unearnedtuitionfee �,�� 6,327

Accruedretirementexpense �� 997

NOLCO �� 1,076

Provisionforimpairmentlosses �� 314

Unrealizedforeignexchangelosses � 65

Unrealizedgainorchangeinfairvalue – 14,027

MCIT – 8,998

Unamortizedpastservicecost – 35

P��,�0� P41,648

�00� 2005

(In Thousands)

Deferredtaxliabilities:

Revaluednetassets (P��,�� ) (P40,958)

Revaluationincrement (��,�� ) (27,593)

Expansionofschoolfacilities (��,��0 ) (13,153)

Pensionasset (�,�� ) (8,378)

Excessoftheoriginalvalue

overthediscountedvalue

oflong-termdebt (�,�� ) –

Unamortizedcapitalizedborrowingcost (�,0�� ) (1,347)

Derivativeasset (�� ) –

Prepaidcommission (�� ) –

Unrealizedgainonchangeinfairvalue (� ) –

Unrealizedforeignexchangegains – (14,027)

(P��,�� ) (P105,456)

The Company’s deductible temporary differences, unusedNOLCOandMCITforwhichnodeferredtaxassetisrecognizedintheconsolidatedbalancesheet,areasfollows:

�00� 2005

(In Thousands)

NOLCO P��,�� P1,182,061

Allowancefor:

Doubtfulaccounts ��,�� 18,459

Unearnedrevenue �,�0� –

Write-downofinventories

tonetrealizablevalue �� 6,100

Unrealizedforeignexchangelosses – 74,284

MCIT �0,�� 28,614

Unamortizedpastservicecost �0,�� 9,462

Impairmentlosses �� 1,597

Accrual for retirement benefits

andothers ��,�� 20,314

P�,0��,�� P1,340,891

SomeoftheCompany’sdeferredtaxassetsarenotrecognizedsince management believes that it is no longer probable thatsufficient future taxable profit will be available to allow said deferredtaxassetstobeutilized.

AraulloUniversityandCOC,asprivateeducational institutions,

aretaxedbasedontheprovisionsofRepublicAct(RA)No.8424,whichwaspassed into laweffectiveJanuary1,1998. Section27(B) of RA No. 8424 defines and provides that: “A Proprietary Educational Institution is any private school maintained andadministered by private individuals or groups with an issuedpermit to operate from the Department of Education, Cultureand Sports, or Commission on Higher Eduction, or TechnicalEducationandSkillsDevelopmentAuthority,asthecasemaybe,inaccordancewiththeexistinglawsandregulations-shallpayataxoftenpercent(10%)ontheirtaxableincome”.

MCIT totaling P10.6 million can be deducted against regularcorporateincometax(RCIT)duewhileNOLCOtotalingP968.7million can be claimed as deduction against regular taxableincomeasfollows:

Amount

DateIncurred ExpiryDate MCIT NOLCO

(In Thousands)

December31,2004 December31,2007 P6,401 P739,014

December31,2005 December31,2008 1,871 79,874

December31,2006 December31,2009 2,314 150,648

Total P10,586 P969,536


MCIT and NOLCO totaling P8.1 million and P80.2 million,respectively,expiredin2005.

A reconciliation between the statutory tax rates and theCompany’seffectivetaxratesonincome(loss)beforeincometaxandminorityinterestofcontinuingoperationsisasfollows:

�00� 2005 2004

Applicablestatutorytaxrates ��.0% 32.5% 32.0%

Incometaxeffectsof:

Dividendincome (�.�) (63.8) .–

Interestincome

subjectedto

lower final tax rate (�.0) (19.4) (3.2)

Gainondilutionofequity

interest – (0.3) (9.1)

Nondeductibleinterest

expense 0.� 0.8 1.4

Unrecognizeddeferred

assetsandothers (�0.�) 59.2 (18.8)

Effectivetaxrates �.�% 9.0% 2.3%

31. Retirement and Other Post-employment Benefits

BCII, UGC, BIPC, COC and Araullo University have actuariallycomputedretirementplanscoveringallpermanentemployees.

Accrued pension benefits consist of accrual for:

�00� 2005 2004

(In Thousands)

Pensionliability-net P�,�� P7,758 P886

Vacation and sick leave �,��0 2,710 5,596

P�,�� P10,468 P6,482

Employee benefits included under general and administrative expensesconsistof:

�00� 2005 2004

(In Thousands)

Pensionexpense-net P�,�� P9,397 P3,743

Vacation and sick leave ��,�� 5,414 164

Netpensionexpense P��,0�� P14,811 P3,907

Annualcontributiontotheretirementplanconsistsofapaymentto cover thecurrent servicecosts for the yearplusapaymenttowardfundingtheactuarialaccruedliability.

The following tables summarize the components of net benefit expenserecognizedintheconsolidatedstatementsofincomeandthe fundedstatusandamounts recognized in theconsolidatedbalancesheetsfortherespectiveplans.

Netpensionexpenseconsistsof:

�00� 2005 2004

(In Thousands)

Interest cost on benefit

obligation P�,�� P9,356 P5,047

Currentservicecost �,�� 4,939 3,315

Expectedreturnon

planassets (�,�� ) (4,910) (3,837)

Netactuariallossrecognized ��0 12 –

Netpensionexpense P�,�� P9,397 P4,525

Detailsofnetpensionliabilityareasfollows:

�00� 2005 2004

(In Thousands)

Present value of defined

benefit obligation P�0�,�� P91,556 P43,193

Fairvalueofplanassets (�0,�� ) (54,669) (44,902)

Unfundedobligation ��,�� 36,887 (1,709)

Benefits paid – (21,467) –

Unrecognizednetactuarial

losses (��,�� ) (7,662) 2,595

Benefit liability P�,�� P7,758 P886


Changes in the present value of the defined benefit obligation are asfollows:

�00� 2005 2004

(In Thousands)

Balanceatbeginningofyear P��,�� P43,192 P45,046

Set-upofbeginningbalance

ofsubscribers – 25,186 –

Actuariallosses(gains) ��,�� 10,511 (9,663)

Interestcost �,�� 9,532 4,882

Currentservicecost �,�� 4,939 3,315

Benefits paid (��,�0� ) (1,804) (388)

Balanceatendofyear P�0�,�� P91,556 P43,192

Changesinthefairvalueofplanassetsareasfollows:

�00� 2005 2004

(In Thousands)

Balanceatbeginningofyear P��,�� P44,902 P36,904

Set-upofbeginningbalance

ofsubscribers – 999 –

Expectedreturn �,��0 4,905 3,837

Contributionsbyemployer �,�� 5,244 11,782

Actuarialgains(losses) (�� ) 423 (7,233)

Benefits paid (��,�� ) (1,804) (388)

Balanceatendofyear P�0,�� P54,669 P44,903

Actualreturnonplanassets P�,�� P5,328 P8,941

The principal assumptions used in determining pension benefits areasfollows:

�00� 2005 2004

Discountrates �% 11% 13%

Expectedratesofreturnonassets �% 9% 11%

Ratesofsalaryincrease �0% 10% 9%

Themajorcategoriesofplanassetsasapercentageofthefairvalueoftheplanassetsareasfollows:

�00� 2005

Equities ��% 27%

Mutualandtrustfunds �% –

Fixedincomesecurities ��% 57%

Property �% 8%

Receivablesandothers �% 8%

�00% 100%

The expected return on plan assets is based on the Company’sexpectationthatassetswillyieldatleastequaltotherisk-freeratefortheapplicableperiodoverwhichtheobligationistobesettled.

Experience adjustments on plan assets and plan liabilities are

P1.0milliongainandP3.1millionloss,respectively,in2006.

32. Commitment and Contingencies

a. UnusedCreditLines

UGC has the following unused approved credit lines withlocal banks and financial institutions:

Nature Amount

(In Thousands )

Lettersofcredit/trustreceipts P96,980

Billspurchaseline 115,000

Invoice financing 72,366

Settlementrisk 252,250

Forwardcontract 30,000

b. CommitmentsUnderOperatingLeaseAgreements

Future minimum lease rentals payable until 2007 undernoncancellableoperatingleasesamountedtoP5.4million.

c. PropertyAgreement

On March 2, 2006, API entered into an agreement withParamount Property Management Company to manage,administer,operateandmaintainthebuildingforamonthlyrate of P0.07 million exclusive of VAT. The fee shall be escalated annually by 10% or the rate of the country’sinflation, whichever is higher.

d. Others

Therearecontingentliabilitiesarisingfromlawsuitsprimarilyinvolving collection cases filed by third parties and for tax assessmentsoccurring in theordinarycourseofbusiness.Onthebasisof informationfurnishedbythelegalcounsel,managementbelievesthatnoneofthesecontingencieswillmaterially affect the Company’s financial position and results ofoperations.


34. Segment Information

Segmentinformationispreparedonthefollowingbasis:

BusinessSegments

TheCompanyconductsthemajorityofitsbusinessactivitiesin

the following five areas:

• Cement

• Steel

• Propertydevelopment

• Investmentholdings

• Educationalservices

BusinessSegmentsData

(See page 46 for table.)

33. EPS Computation

2004

�00� 2005 Continuing Discontinuing Total

(In Thousand)

Netincomeattributabletoequityholdersoftheparent P��,�� P52,615 P149,675 P4,114,911 P4,264,586

Cashdividendsonpreferredshares – – (4,348) – (4,348)

(a) Netincomeapplicabletocommonshareholders P��,�� P52,615 P145,327 P4,114,911 P4,260,238

Numberofsharesoutstandingatbeginningofyear ��,��,�� 169,787,314 169,787,314 169,787,314 169,787,314

Effectof20%stockdividend ��,��,�� 33,957,463 33,957,463 33,957,463 33,957,463

(b) Weightedaveragenumberofcommonsharesoutstanding �0�,��,�� 203,744,777 203,744,777 203,744,777 203,744,777

Basic/DilutedEPSattributabletoequityholdersoftheparent(a/b) P�.�� P0.25 P0.71 P20.2 P20.9

35. Note to Consolidated Statements of Cash Flows

Noncash investing and financing activities consist of:

�00� 2005 2004

Considerationfortheacquisitionoftheshares

ofstockofCOCwhichwascontingentupon

theapprovalbythePhilippineCongress P– P45,729 P–

ProceedsfromsaleofUCHCsharesoffset

againstnotesandinterestpayableto

Holderfin B.V. – – 3,707,104

CashdividendsofAHCtoFLSandIFU

offsetagainstnotesandinterestreceivable P– P– P922,520

AcquisitionofminorityinterestofAHC

onaccount – – 182,571

36. Other Matters

a. BIPC’sPortOperations

BIPC was granted a Permit to Operate a permanent andnon-commercialportbythePhilippinePortsauthority(PPA)onApril6,1999until theexpirationdateof theForeshoreLeaseContractonJuly22,2022.

On October 11, 2003, the PPA granted BIPC a Permit toOperateaprivatecommercialportuptoMay14,2005.BIPChas also secured a Foreshore Lease Agreement from theDepartment of Energy and National Resources for 78,331sq.m.foreshoreareaandhascompleteditsPortOperatingPolicywithemphasisonsafetyandproperportuse,orderlyberth reservation in order to avoid congestion and conflict in berth schedule and efficient load and/unload operations.


b. LicensetoSellofBIPC

BIPCisregisteredwiththeHousingandLanduseRegulatoryBoardunderEONo.648andwasgrantedaLicensetoSell.

c. Quasi-reorganizationofUGC

OnOctober21,2003,UGC’smanagementpresentedtotheBOD a proposed quasi-reorganization to eliminate UGC’sdeficit. The plan involved:

• Decrease in the authorized capital stock throughreductioninparvaluefromP10asharetoP5ashare,therebygeneratingAPIC;and

• Application of the APIC to the beginning balance ofUGC’s deficit.

The proposed quasi-reorganization is based on UGC’s deficit as of December 31, 2002. In 2004, UGC’s managementpresented to the BOD and the stockholders a revisedproposal for quasi-reorganization based on UGC’s 2003deficit. The revised plan involved:

• Reduction in par value from P10 a share to P2.50 ashare,therebygeneratingAPIC;and

• Applicationofthe“RevaluationIncrement inProperty,Plant and Equipment” account against the resultingdeficit after APIC application.

TherevisedplanwasapprovedbytheBODandthestockholderson December 8, 2004. The certificate of the decrease of capital stockwasissuedbytheSEConJanuary25,2005.

37. Amendments on VAT and Income Tax Laws

InMay2005,RepublicAct(R.A.)No.9337wassignedintolaw,amendingcertainprovisionsofTaxReformActof1997includingthe Expanded Value Added Tax (VAT) Act (EVAT). R.A. No. 9337 tookeffectonNovember1,2005.

R.A.No.9337introducesthefollowingchanges,amongothers:

a. Lifting of exemptions on power, fuel and on services ofdoctorandlawyers,amongothertransactions.

b. Upon recommendation of the Secretary of Finance andafter any of the following conditions has been satisfied, the PresidentofthePhilippines isgiventhepowerto increasethe EVAT rate from 10% to 12% starting January 1, 2006 if the following conditions have been satisfied:

• VAT collection as a percentage of Gross Domestic Product (GDP)of thepreviousyearexceeds twoandfour-fifth percent (2 4/5%); or

• National government deficit as a percentage of GDP ofthepreviousyearexceedsoneandone-halfpercent(1½%).

c. RCITrateincreasedto35%from32%effectiveNovember1, 2005 and will revert to 30% effective January 1, 2009.TheRCITrateshallbeappliedontheamountcomputedbymultiplyingthenumberofmonthscoveredbythenewratewithintheyearbythetaxableincomeofthecorporationfortheyear,dividedbytwelve.

d. Input VAT credit in every quarter shall not exceed 70% of the output VAT.

Beginning February 1, 2006, the EVAT rate shall be 12%.

38. Events after the Balance Sheet Date

OnMarch29,2007,theBODofAHCdeclaredcashdividendofP40persharetotalingP88milliontoallshareholdersofrecordasofdeclarationdatetobepaidonApril11,2007.

OnMarch30,2007,theBODofBCIIdeclared15%stockdividendtoallshareholdersof recordasof June5,2007tobepaidonJune30,2007.


Segment Information


Consolidated(a)

�00� 2005 2004(Asrestated(seeNote3) Eliminations (Asrestated-seeNotes3and10)

Property Investment Educational Property Investment Educational Property Investment Educational Steel Development Holdings Services Steel Development Holdings Services Cement Steel Development Holdings Services �00� 2005 2004 �00� 2005 2004

(In Thousands)

Revenues

Segmentrevenue(b) �,��,�� ,�0� ��,�� ,�� 1,681,427 48,305 45,820 190,566 8,136,121 1,466,683 29,401 79,895 80,179 – 15,359 – �,��,�� 1,981,477 9,792,279

Investmentincome �,�� 0,�� 1,899 1,199 111,026 563 141,868 1,522 – 126,867 149 – (1,088) (58,305) ��,��0 113,599 212,101

Totalrevenues �,��,0�� ,�� ,�� ,�� 1,683,326 49,504 156,846 191,129 8,277,989 1,468,205 29,401 206,762 80,328 – 14,271 (58,305) �,��,�� 2,095,076 10,004,380

Results

Segmentresults ��,��0 �,�0� ��,��0 ��,�� 115,366 12,212 10,834 (10,220) 1,623,310 195,672 (14,211) 7,480,831 24,134 ��,�� (75,403) 122,177 ��,�� 52,788 9,431,913


Interestexpense (��,0�� ) (�,�� ) (��,�� ) (��,�� ) (80,562) (1,734) (16,889) (9,315) (817,804) (74,050) (329) (260,351) (5,131) (��,�� ) (280) 58,306 (��,�� ) (108,780) (1,099,359)

Benefit from (provision for) income tax (��,�� ) (�,�� ) (�,�� ) �,0�� (10,430) (210) 11,207 (6,744) (142,549) 10,060 (1,039) (15,643) (1,709) �,�� 1,000 929 (��,�� ) (5,177) (149,951)

Shareofminorityinterest – – – – – – – – (271,298) – – – – (��,�� ) 19 (1,793,761) (��,�� ) 19 (2,065,059)

Netincome(loss) �0,�� (�,�� ) �0�,�� ,�� 26,273 11,467 116,178 (25,716) 533,527 133,204 (15,579) 7,331,704 17,443 ��,�� (75,752) (1,670,654) ��,�� 52,449 6,329,645

Segmentassets �,��,�0� ��,�� ,��,��0 ��,�� 1,287,908 613,582 5,365,082 688,921 – 1,155,360 607,531 7,910,014 359,566 (�,0��,�� ) (919,521) (1,239,702) �,��,�� 7,035,972 8,792,769

Deferredtaxassets �� – �,�� 9,295 1,120 14,027 11,455 – 16,850 – – 2,591 �,�� (5,751) 5,579 ��,�0� 41,648 25,020

Totalassets �,��,�� ,��0 �,��,��0 �0�,�� 1,297,203 614,702 5,379,109 700,376 – 1,172,210 607,531 7,910,014 362,157 (�,0��,0�� ) (913,770) (1,234,123) �,��,�� 7,077,620 8,817,789

Segmentliabilities �,0��,�� ,�0� ��,�0� ��,0�� 856,853 86,616 333,284 251,317 – 734,811 90,154 940,816 102,993 (�0,�00 ) (62,032) (5,375) �,��,�� 1,466,038 1,863,399

Incomeandothertaxespayable ��,�� ,�� ,�� ,�� 681 202 773 6175 – 7,398 230 2,812 – – – – ��,�0� 7,831 10,440

Deferredtaxliabilities ��,�� – ��,�0� 2,949 – 14,027 40,746 – 1,344 – 11,318 – ��,�� 47,734 19,566 ��,�� 105,456 32,218

Totalliabilities �,0�0,�� 0�,�� ,�� ,�� 860,483 86,818 348,084 298,238 – 743,553 90,384 954,946 102,993 (��,�� ) (14,298) 14,191 �,��,�� 1,579,325 1,906,057

Capitalexpenditures �0,�� ,�� – ��,��0 53,258 497 6,709 50,742 99,615 22,822 111 421 – – – – ��,�� 111,206 122,969

Depreciation,amortizationanddepletion �0,0�� ,0�� ,�� ,�� 44,472 10,463 10,315 37,887 1,155,739 41,936 10,415 9,374 7,097 – – – ��,��0 103,137 1,224,561

(a) Balances include discontinuing operations.(b) There are no inter-segment revenues.


Segment Information


Consolidated(a)

�00� 2005 2004(Asrestated(seeNote3) Eliminations (Asrestated-seeNotes3and10)

Property Investment Educational Property Investment Educational Property Investment Educational Steel Development Holdings Services Steel Development Holdings Services Cement Steel Development Holdings Services �00� 2005 2004 �00� 2005 2004

(In Thousands)

Revenues

Segmentrevenue(b) �,��,�� ,�0� ��,�� ,�� 1,681,427 48,305 45,820 190,566 8,136,121 1,466,683 29,401 79,895 80,179 – 15,359 – �,��,�� 1,981,477 9,792,279


Totalrevenues �,��,0�� ,�� ,�� ,�� 1,683,326 49,504 156,846 191,129 8,277,989 1,468,205 29,401 206,762 80,328 – 14,271 (58,305) �,��,�� 2,095,076 10,004,380

Results

Segmentresults ��,��0 �,�0� ��,��0 ��,�� 115,366 12,212 10,834 (10,220) 1,623,310 195,672 (14,211) 7,480,831 24,134 ��,�� (75,403) 122,177 ��,�� 52,788 9,431,913


Interestexpense (��,0�� ) (�,�� ) (��,�� ) (��,�� ) (80,562) (1,734) (16,889) (9,315) (817,804) (74,050) (329) (260,351) (5,131) (��,�� ) (280) 58,306 (��,�� ) (108,780) (1,099,359)

Benefit from (provision for) income tax (��,�� ) (�,�� ) (�,�� ) �,0�� (10,430) (210) 11,207 (6,744) (142,549) 10,060 (1,039) (15,643) (1,709) �,�� 1,000 929 (��,�� ) (5,177) (149,951)

Shareofminorityinterest – – – – – – – – (271,298) – – – – (��,�� ) 19 (1,793,761) (��,�� ) 19 (2,065,059)

Netincome(loss) �0,�� (�,�� ) �0�,�� ,�� 26,273 11,467 116,178 (25,716) 533,527 133,204 (15,579) 7,331,704 17,443 ��,�� (75,752) (1,670,654) ��,�� 52,449 6,329,645

Segmentassets �,��,�0� ��,�� ,��,��0 ��,�� 1,287,908 613,582 5,365,082 688,921 – 1,155,360 607,531 7,910,014 359,566 (�,0��,�� ) (919,521) (1,239,702) �,��,�� 7,035,972 8,792,769

Deferredtaxassets �� – �,�� 9,295 1,120 14,027 11,455 – 16,850 – – 2,591 �,�� (5,751) 5,579 ��,�0� 41,648 25,020

Totalassets �,��,�� ,��0 �,��,��0 �0�,�� 1,297,203 614,702 5,379,109 700,376 – 1,172,210 607,531 7,910,014 362,157 (�,0��,0�� ) (913,770) (1,234,123) �,��,�� 7,077,620 8,817,789

Segmentliabilities �,0��,�� ,�0� ��,�0� ��,0�� 856,853 86,616 333,284 251,317 – 734,811 90,154 940,816 102,993 (�0,�00 ) (62,032) (5,375) �,��,�� 1,466,038 1,863,399

Incomeandothertaxespayable ��,�� ,�� ,�� ,�� 681 202 773 6175 – 7,398 230 2,812 – – – – ��,�0� 7,831 10,440

Deferredtaxliabilities ��,�� – ��,�0� 2,949 – 14,027 40,746 – 1,344 – 11,318 – ��,�� 47,734 19,566 ��,�� 105,456 32,218

Totalliabilities �,0�0,�� 0�,�� ,�� ,�� 860,483 86,818 348,084 298,238 – 743,553 90,384 954,946 102,993 (��,�� ) (14,298) 14,191 �,��,�� 1,579,325 1,906,057

Capitalexpenditures �0,�� ,�� – ��,��0 53,258 497 6,709 50,742 99,615 22,822 111 421 – – – – ��,�� 111,206 122,969

Depreciation,amortizationanddepletion �0,0�� ,0�� ,�� ,�� 44,472 10,463 10,315 37,887 1,155,739 41,936 10,415 9,374 7,097 – – – ��,��0 103,137 1,224,561

(a) Balances include discontinuing operations.(b) There are no inter-segment revenues.


B O A R D O F D I R EC TO R S

RamonV.DelRosario,Sr.ChairmanEmeritus

OscarJ.HiladoChairmanoftheBoard

RamonR.DelRosario,Jr.President



Left to right

MagdelenoB.Albarracin,Jr.Director

VictorJ.DelRosarioDirector

JoseL.CuisiaDirector

RobertoM.LaviñaDirector

WillibaldoJ.UyDirector

FelipeB.AlfonsoDirector

NoelD.Vasquez,S.J.Director

GuillermoD.LuchangcoDirector


M A N A G E M E N T T E A M


1 RamonR.DelRosario,Jr. President

2 MagdalenoB.Albarracin,Jr. SeniorExecutiveVicePresident

3 VictorJ.DelRosario ExecutiveVicePresident and Chief Financial Officer

4 RobertoM.Laviña SeniorVicePresident-Treasurer

5 JuanL.Diaz CorporateSecretary

6 ReginaB.Alvarez SeniorVicePresident

7 CarlosI.Arguelles Vice President - Compliance Officer

8 OnisimoL.Prado AssistantVicePresident-InternalAudit

9 CecilleB.Arenillo AssistantVicePresident-Treasury

10 RizalinaP.Andrada AssistantVicePresident-Finance

6

4 5

2 3 9 10

1 7 8


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D I R EC TO RY



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PHINMA


A n n u a l Re p o r t 2006

PHINMA€¦ · the addition of San Benissa Garden Villas in Quezon City and Fountain Breeze will also feature high-rise buildings and townhouse units, a first such project for PPHC.

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