[Note: for the website only. NOT to be included in the printed version of the Prospectus:]

Transcription

1 [Note: for the website only. NOT to be included in the printed version of the Prospectus:] The Prospectus is being displayed in the website to make the Prospectus accessible to more investors. The Philippine Stock Exchange, Inc. ( PSE ) assumes no responsibility for the correctness of any statements made or opinions or reports expressed in the Prospectus. Furthermore, the PSE makes no representation as to the completeness of the Prospectus and disclaims any liability whatsoever for any loss arising from or in reliance in whole or in part on the contents of the Prospectus.

2 . Initial Public Offering of 36,012,000 primary common shares of Calata Corporation at an Offer Price of PhP7.50 per share to be listed and traded on the Second Board of the Philippine Stock Exchange, Inc. Issue Manager and Underwriter Unicapital, Inc. Selling Agents The Trading Participants of The Philippine Stock Exchange, Inc. Financial Advisor Absolute Traders and Consulting Services, Inc. This Prospectus is dated May 9, 2012 ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATION CONTAINED HEREIN IS TRUE AND CURRENT.

3 CALATA CORPORATION Mc Arthur Hi-way, Banga 1 st, Plaridel Bulacan, Philippines (044) This Prospectus relates to the offer and sale to the public of 36,012,000 Common Shares with par value of PhP1.00 per share (the Offer Shares ) of Calata Corporation (the Company ), a corporation organized under Philippine law, by way of subscription and sale on the Second Board of The Philippine Stock Exchange ( PSE ) at an Offer Price of PhP7.50 per share (the Offer Price ). The offering will consist of a primary offer (the Primary Offer ) to be offered from the Company s authorized but unissued common stock, of 36,012,000 Common Shares at the Offer Price. After the completion of the Offer, the Offer shares will represent ten percent (10%) of the Company s issued and outstanding capital stock of 360,112,000 common shares. The Offer Shares shall be listed and traded under the stock symbol CAL. On December 29, 2011, the Company filed a Registration Statement covering the Offer Shares with the Securities and Exchange Commission ( SEC ), in accordance with the provisions of the Securities Regulation Code. On December 29, 2011, the Company filed its application for the listing and trading of the Offer Shares and the shares of the company that are already issued and outstanding on the PSE. The Offer is conditioned on the listing of the Offer Shares on the PSE. Approval by the PSE will be granted subject to compliance by the Company with the requirements for listing. However, such approval for listing is merely permissive and does not constitute a recommendation or endorsement of the Offer by the PSE. The PSE assumes no responsibility for the correctness of any of the statements made or opinions expressed in this Prospectus. Furthermore, the PSE makes no representation as to the completeness and expressly disclaims any liability whatsoever for any loss arising from or in reliance upon the whole or any part of the contents of this Prospectus. The Company was registered with the SEC on July 23, 1999 under the name Planters Choice Agro Products, Inc. with an authorized capital stock of PhP1,000, divided into 10,000 common shares with a par value of PhP On February 22, 2010, the Company obtained approval from the SEC for the change in its corporate name to Calata Corporation. On August 17, 2011, the SEC approved the Company s application for increase in capital stock from an authorized capital stock of PhP1,000, divided into 10,000 common shares with a par value of PhP per share to PhP345,400, divided into 345,400,000 shares with a par value of PhP1.00 per share. Thereafter, on August 25, 2011, the SEC approved a further increase in the Company s authorized capital stock to PhP845,400, divided into 845,400,000 shares with a par value of PhP1.00 per share. Immediately prior to the Offer, the Company has a total of 324,100, outstanding Common Shares. Immediately after the completion of the Offer, the Company will have a total of 360,112,000 Common Shares issued and outstanding. All of the Common Shares of the Company in issue or to be issued pursuant to the Offer (collectively the Common Shares ) are unclassified and have, or upon issue will have, identical rights and privileges. The Common Shares may be owned by any person or entity regardless of citizenship or nationality subject to the limits prescribed by the Philippine Constitution and laws on foreign ownership for certain types of domestic companies. See Plan of Distribution and Philippine Foreign Investment, Foreign Ownership on pages 26 and 197, respectively. 3

4 The Company s Board of Directors (the Board ) is authorized to declare cash or stock dividends or a combination thereof. A cash dividend declaration requires the approval of the Board and no shareholder approval is necessary. A stock dividend declaration requires the approval of the Board and shareholders representing at least two-thirds of the Company s outstanding capital stock. Holders of outstanding shares on a dividend record date for such shares will be entitled to the full dividend declared without regard to any subsequent transfer of shares. The Company has no fixed dividend policy as of the moment but it intends its dividend policy whether in stock or in cash to be strictly subject to statutory limitations. See Dividend Policy on page 43. Through the Primary Offer and based on the Offer Price, the Company expects to raise gross proceeds of approximately PhP270,090, The Offer Price was determined on the basis of a price-to-earnings (P/E) multiple variation approach and through a book-building process. See Determination of the Offer Price on page 28. The net proceeds from the Primary Offer, determined by deducting from the gross proceeds, the total issue management, underwriting and selling fees, listing fees, taxes and other related fees and expenses, will be used by the Company to establish additional distribution outlets nationwide and for general working capital requirements, to finance the growth and expansion plans of its business. Unicapital, Inc., as the Issue Manager and Underwriter, shall receive an estimated fee of 3.0% of the gross proceeds of the Offer, inclusive of amounts to be paid to any other underwriters and selling agents. See Use of Proceeds on page 36. Unless otherwise stated, all information contained in this Prospectus has been supplied by the Company. The Company, through its Board, having made all reasonable inquiries, accepts full responsibility for the information contained in this Prospectus and confirms that this Prospectus contains all information with regard to the Company, its business and operations and the Offer Shares, which as of the date of this Prospectus are material in the context of the Offer; that, to the best of its knowledge and belief as of the date hereof, the information contained in this Prospectus are true and correct and are not misleading in any material respect; that the opinions and intentions expressed herein are honestly held; and, that there are no other facts, the omission of which makes this Prospectus, as a whole or in part, misleading in any material respect. The delivery of this Prospectus shall not, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. Unicapital, Inc. as the Issue Manager and Underwriter, will firmly underwrite the Offer Shares and warrants that it has exercised the level of due diligence required under existing regulations in ascertaining that all material information contained in this Prospectus are true. Except for its failure to exercise the required due diligence, the Issue Manager and the Underwriter assumes no responsibility for any breach of the representations of the Company. See Plan of Distribution on page 26. Absolute Traders and Consulting Services, Inc. is the Financial Advisor of the Company for the IPO. Market data and certain industry information used throughout this Prospectus were obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified and neither the Company nor the Issue Manager and Underwriter make any representation as to the accuracy and completeness of such information. In making an investment decision, would-be applicants are advised to carefully consider all the information contained in this Prospectus, including the following key points characterizing potential risks in an investment in the Offer Shares: 4

5 Risks relating to the Company and its business, including: Dependency on programs developed or supported by the Department of Agriculture of the Philippines; Risk of being affected by changes in the preferences or purchasing power of consumers; Risks of the Company not executing its sales strategy efficiently; Risks of Natural Calamities and Pestilence; Risk of Outbreak of Animal Diseases; Exposure to Liquidity Risk; Credit Risk; Dependence on the company s sales team; Risk of products not meeting customer s requirements and those that are related to contracts/business arrangements with customers; Risk of Non-exclusivity of distribution agreements/contracts/business arrangements, duration and terms for renewal and those that are related to distribution agreements/contracts/business arrangements with suppliers. Work Stoppage Risk of not effectively implementing the business/expansion plan. Regulatory Risk Risks relating to the Offer Shares, including: No guarantee of listing on the PSE; Potential limited liquidity in the market for the Offer Shares and market volatility of the price for the Offer Shares; Dilution. Risks relating to the Philippines, including Slowdown in the Philippine economy; Political or social instability For a more detailed discussion on the risks in investing, see section on Risk Factors on page 29 of this Prospectus, which, while not intended to be an exhaustive enumeration of all risks, must be considered in connection with a purchase of the Offer Shares. The readers of this Prospectus are further enjoined to consult their financial advisers, tax consultants, and other professional advisers with respect to the acquisition, holding, or disposal of the Offer Shares described herein. This Prospectus includes forward-looking statements. The Company has based these forwardlooking statements largely on its current expectation and projections about future events and financial trends affecting its business and operations. Words including, but not limited to believe, may, will, estimates, continues, anticipates, intends, expects, and similar words are intended to identify forward-looking statements. In light of the risks and uncertainties associated with forward-looking statements, investors should be aware that the forward-looking events and circumstances in this Prospectus may not occur. The Company s actual results could differ significantly from those anticipated in the Company s forward-looking statements. The Offer Shares are offered solely on the basis of the information contained and the representations made in the Prospectus. No dealer, salesman or other person has been authorized by the Company or the Issue Manager and Underwriter to issue any advertisement or to give any information or make any representation in connection with the Offer other than those contained in this Prospectus and, if issued, given or made, such advertisement, information or 5

6 representation must not be relied upon as having been authorized by the Company or the lssue Manager and Undenrriter. This Prospectus does not constitute an offer of, or an invitation by or on behalf of, the Company or the lssue Manager and Undenrvriter to subscribe for or purchase any of the Offer Shares. Neither may this Prospectus be used as an offer to, or solicitation by, anyone in any jurisdiction or in any circumstance in which such offer or solicitation is not authorized or lawful. The distribution of this Prospectus and the Offer in certain jurisdictions may be restricted py law. Persons who come into possession of this Prospectus are required by the Company and the lssue Manager and underwriter to inform them about, and to observe any such restrictions. ALL REGISTRATION REQUIREMENTS HAVE BEEN MET AND ALL INFORMATION CONTAINED HEREIN IS TRUE AND CURRENT. The Company is organized under the laws of the Republic of the Philippines. lts principal office is located at Mc Arthur Hi-way, Banga 1st, Plaridel Bulacan, Philippines with teiephone number (044) and (044) Any inquiry regarding this Prospectus should be fonrrrarded to the Company, Unicapital, lnc., and Absolute Traders and Consulting Services, lnc. CALATA CORPORATION By: JOSEPH H. CALATA (Chairman) MAY O 7?ffiT =ss&t?9f,13oi3"$%,"y"tlx,..,i,'3't:ilsjilt*-,li"fil,3",rar,*mil,r.,i 2009 in Manila, Philippines.. Doc. No Paoe No 'fu/ ))' : Bo6kNo-zEEV Series of 2012 TTY. RRTIIH L" EA lil T,r:l F r Piri!,? c UIITII IlIii'iiIq :! ls1: RELL Hs.;t:j,-."-,..,,, i;r.tt".}:f.lj7 la.-.,".. 1..,.t" llui-..;,!rl Fil? lic, i, i,- :,.:1" 1: l:lii:,!h JAN.?, sili' ti PA 5,6 CII! IBF ils-88 +7t+5

7 TABLE OF CONTENTS Glossary of Terms 9 Parties to The Offer 12 Executive Summary 13 Summary Financial Information 15 The Offer 19 Terms and Conditions of the Offering 20 Selling Shareholders 25 Plan of Distribution 26 Determination of the Offer Price 28 Risk Factors 29 Use of Proceeds 36 Description of Shares 41 Manual on Corporate Governance 45 List of Stockholders 48 Capitalization 49 Dilution 51 General Corporate Information 53 Common Stockholders 55 Organization 58 Directors and Senior Management 59 Executive Compensation 66 Information with Respect to the Company 69 Business Flow Chart 70 Distribution Products for Business Flow of Operation 79 Business Strategy 89 Competition 94 Industry Overview 99 Plans and Programs 147 Material Contracts 152 Management Discussion and Analysis 158 Properties 182 Legal Proceedings 184 Security Ownership Of Certain Record And Beneficial Shareholders 185 7

8 Interest of Experts and Independent Counsel 187 Regulatory and Environmental Matters 189 Related Party Transactions 192 Philippine Stock Market 195 Philippine Foreign Investment, Foreign Ownership and Exchange Controls 200 Philippine Taxation 202 Responsibility Of Directors And Officers 205 Expenses Other Than Underwriting, Discounts and Commissions 206 Investor Relation Information 207 Financial Statements 208 8

9 GLOSSARY OF TERMS Applicant Application Absolute Traders Banking Day BPI BIR Broiler A person, whether natural or juridical, who seeks to subscribe to the Offer Shares by submitting an Application under the terms and conditions prescribed in this Prospectus An application to subscribe to Offer Shares pursuant to the Offer Absolute Traders and Consulting Services, Inc.; also referred to as the Financial Advisor A day (except Saturdays, Sundays and holidays) on which banks in the Philippines are open for business Bureau of Plant Industry Bureau of Internal Revenue Chickens raised specifically for chicken meat production BSP Common Shares Company Corporation Code DA Dealer DENR Distribution Outlets Distributor Board of Directors, BOD, Board, Directors Eligible Investors Firm Order Hogs Bangko Sentral ng Pilipinas, the central bank of the Philippines The Company s shares of common stock, each with a par value of PhP1.00 Calata Corporation Batas Pambansa Blg. 68, otherwise known as The Corporation Code of the Philippines Department of Agriculture Individual or firm that buys goods from a producer or distributor for wholesale and/or retail reselling. Department of Environment and Natural Resources A place of business specifically for distribution and sale of commercial products to dealers, retailers or directly to end consumers. Individual or firm that buys commercial products, warehouses them and resells them to dealers, retailers or directly to end users. Directors of the Company Applicants who are qualified to subscribe to the Offer Shares Firm orders and commitments to purchase the Offer Shares A domesticated swine weighing 120 pounds (54 kilograms) or more, raised specifically for pork meat production 9

10 IPO Issue Manager and Underwriter Initial Public Offering Unicapital, Inc. Listing Date May 23, 2012 Local Small Investor or LSI Offer Price Offer Shares PhP P/E PDTC Philippine Nationals Prospectus PSE Qualified Institutional Buyer A share subscriber or purchaser who is willing to subscribe or purchase a minimum board lot or whose subscription or purchase does not exceed PhP25, PhP ,012,000 Primary Common Shares Philippine Pesos, the lawful currency of the Republic of the Philippines Price-to-Earnings The Philippine Depository and Trust Corporation, the central securities depositary of, among others, securities listed and traded on the PSE The term shall mean any of the following: (1) a citizen of the Philippines or a domestic partnership or association wholly owned by citizens of the Philippines; or (2) a corporation organized under the laws of the Philippines at least 60% of the capital stock outstanding and entitled to vote of which is owned and held by citizens of the Philippines; or (3) a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least 60% of the fund will accrue to the benefit of the Philippine nationals. Where a corporation and its non-filipino stockholders own stocks in an SEC-registered enterprise, at least 60% of the capital stocks outstanding and entitled to vote of both corporations must be owned and held by citizens of the Philippines and at least 60% of the members of the Board of Directors of both corporations must be citizens of the Philippines, in order that the corporations shall be considered Philippine nationals. This Prospectus together with all its annexes, appendices and amendments, if any The Philippine Stock Exchange, Inc. The term refers to any of the following: mutual funds, pension or retirement funds, commercial or universal banks, trust companies, investment houses, insurance companies, investment companies, finance companies, venture capital firms, government financial institutions, trust departments of commercial or universal banks, non-bank quasi banking institutions, Trading Participants of the PSE for their dealer accounts, non-stock savings and loan associations, educational assistance funds and other institutions of similar nature determined as such by the SEC 10

11 Receiving Agent and Escrow Agent SCCP SEC SRC Stock and Transfer Agent Trading Day Trading Participants Underwriter Underwriting Agreement UI USD VAT BDO Unibank, Inc. Trust And Investments Group Securities Clearing Corporation of the Philippines The Philippine Securities and Exchange Commission Republic Act No. 8799, otherwise known as The Securities Regulation Code BDO Unibank, Inc. Trust And Investments Group Any day on which trading is allowed in the PSE Member brokers of the PSE Unicapital, Inc. The agreement entered into by and between the Company and the Underwriter, indicating the terms and conditions of the Offer and providing that the Offer shall be fully underwritten by the Underwriter Unicapital, Inc.; also referred to as Issue Manager and/or Underwriter U.S. Dollars, the lawful currency of the United States of America Value Added Tax 11

12 PARTIES OF THE OFFER The Issuer : CALATA CORPORATION Mc Arthur Hi-way, Banga 1 st, Plaridel Bulacan, Philippines Issue Manager & Underwriter : UNICAPITAL, INC. 3/F Majalco Building, Benavidez cor. Trasierra Streets, Legaspi Village 1229 Makati City, Philippines Financial Advisor : ABSOLUTE TRADERS AND CONSULTING SERVICES, INC Shaw Boulevard Mandaluyong City, Philippines Selling Agents : TRADING PARTICIPANTS OF THE PHILIPPINE STOCK EXCHANGE, INC. Legal Counsel to the Issuer : FABELLA AND FABELLA LAW OFFICE (FABELLA LAW) 1060-A Clamor Compound, Novaliches Caloocan City, Philippines Legal Counsel to the Underwriter: : VILLARAZA CRUZ MARCELO & ANGANGCO (CVC LAW) 11 th Avenue corner 39 th Street, Bonifacio Global City 1634 Metro Manila, Philippines Auditors : ALBA ROMEO & CO. 7 th Floor Multinational Bancorporation Centre 6805 Ayala Avenue Makati City 1226, Philippines Stock Transfer, Escrow Agent and Receiving Bank : BDO UNIBANK, INC. TRUST AND INVESTMENT GROUP BDO Corporate Center 7899 Makati Avenue Makati City, Philippines 12

13 EXECUTIVE SUMMARY The following summary does not purport to be complete and is taken from and qualified in its entirety by the more detailed information including the Company s financial statements and notes relating thereto as attached in this Prospectus. For discussion of certain matters that should be considered in evaluating any investment in the Offer Shares, see the section entitled Risk Factors beginning on page 29 of this Prospectus. OVERVIEW OF THE COMPANY Formerly known as Planters Choice Agro Products, Inc., the Company was incorporated in July 23, Previous to that, the business was organized as a single proprietorship enterprise called J. Melvins which was named after the brothers Joseph H. Calata and Melvin H. Calata. In the Philippines, CALATA CORPORATION is the largest combined distributor of agrochemicals, feeds, fertilizers, veterinary medicines and other agricultural products coming from manufacturers or business partners, such as San Miguel Corporation for B-Meg Feeds and veterinary products, Syngenta, Bayer, Jardine, Dupont, Sinochem, for agro-chemicals, East West Seeds, Monsanto, Planters Products for its agricultural seeds and Swire, Viking for fertilizers. To date, Calata Corporation has a total authorized capital stock of PhP 845,400, divided into 845,400,000 common shares with PhP 1.00 par value per share. The Company has 7 directors namely; Mr. Joseph H. Calata, Mr. Benison Paul De Torres, Dr. Jaime C. Laya, Mr. Baltazar N. Endriga, Mr. George A. Nava, Amb. Jose A. Zaide and Mr. Harvey S. Keh.As elected during the most recent stockholders meeting held on November 25, 2011, Mr. Joseph H. Calata serves as the Chairman, President and Chief Executive Officer of the Company and Mr. Benison Paul De Torres is appointed as the Chief Operating Officer and Chief Financial Officer. The Company is an emerging leader in the Philippine Agricultural Industry. The Company has increased its annual revenues from roughly PhP200 Million in 2003 to more than PhP1.8 Billion in 2010 equivalent to an 800% increase in revenues for the past seven years of operation. THE OFFER The Company, through the Underwriter, is offering up to 36,012,000 primary Common Shares at the Offer Price of PhP7.50 per share. The Offer Shares have a par value of PhP1.00 per share and are being made available for subscription and purchase in the Philippines. The Offer Shares will represent approximately 10% of the Company s issued and outstanding capital stock of 360,112,000 shares immediately after the completion of the Offer. COMPETITIVE STRENGTHS The Company believes that its strengths lie in the following: Comprehensive Range of Products Aggressive Distribution Strategies Efficient Sales and Logistic System Attractive growth prospects Strong market position More information on the Company s Competitive Strengths may be found in the INFORMATION WITH RESPECT TO THE COMPANY on page

14 BUSINESS STRATEGY The Company plans to further strengthen its position and increase its market share in the business. The Company intends to achieve this by pursuing the following strategies: Increase product awareness Increase market presence Improve customer and market knowledge Expansion of market share Expansion and diversification to operations related to the existing business RISK OF INVESTING Before making an investment decision, investors should carefully consider the risks associated with an investment in the Company s Common Shares. These risks include: Dependency on programs developed or supported by the Department of Agriculture of the Philippines; Risk of being affected by changes in the preferences or purchasing power of consumers; Risks of the Company not executing its sales strategy efficiently; Risks of Natural Calamities and Pestilence; Risk of Outbreak of Animal Diseases; Exposure to Liquidity Risk; Credit Risk; Dependence on the company s sales team; Risk of products not meeting customer s requirements and those that are related to contracts/business arrangements with customers; Risk of Non-exclusivity of distribution agreements/contracts/business arrangements, duration and terms for renewal and those that are related to distribution agreements/contracts/business arrangements with suppliers. Work Stoppage Risk of not effectively implementing the business/expansion plan. There can be no guarantee that the Offer Shares will be listed on the PSE. There may be no liquidity in the market for the Offer Shares and the price of the Offer Shares may fall. A slowdown in the Philippine economy could adversely affect the Company. Political or social instability could adversely affect the financial results of the Company. Regulatory Risk. Please refer to the Risk Factors on page 29 of this Prospectus for a more detailed discussion. CORPORATE INFORMATION The Company s principal place of business is at Mc Arthur Hi-way, Banga 1 st, Plaridel Bulacan, Philippines with telephone number (044) The Company s website is The Company can likewise be reached for inquiries on its Investor Relations Program through its telephone number (044) ) and fax number (044)

15 SUMMARY FINANCIAL INFORMATION The selected financial information set forth in the following table has been derived from the Company s audited financial statements for the fiscal years ended 31 December 2011, 2010 and 2009 and should be read in conjunction with the financial statements and notes thereto contained in this Prospectus and the section entitled Management s Discussion and Analysis of Financial Condition on page 154 and other financial information included herein. The Company s financial statements were prepared by BDO ALBA ROMEO and Co., in accordance with Philippine Financial Reporting Standards. The summary financial information set out below does not purport to project the results of operations or financial condition of the Company for any future period or date. KEY PERFORMANCE INDICATORS The Company s top five (5) key performance indicators are listed below: For the year ended Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2009 Dec. 31, 2008 Audited Audited Audited Audited Current Ratio Debt to Equity Ratio Earnings per Share Earnings before Interest and Taxes 4 169,794,248 75,015,214 31,566,350 24,257,924 Return on Equity 5 50% 407% 67% 86% 1 Current Assets / Current Liabilities 2 Bank Loans/Stockholders Equity 3 Net Income/Outstanding Shares 4 Net Income plus Interest Expenses and Provision for Income Tax 5 Net Income / Average Stockholders Equity These key indicators were chosen to provide Management with a measure of the Company s financial strength (i.e., Current Ratio, Debt to Equity Ratio, and Earnings before Interest and Taxes) and the Company s ability to maximize the value of its stockholders investment in the Company (i.e., Return on Equity, Earnings per Share). Current ratio shows the liquidity of the Company by measuring how much current assets it has over its current liabilities. The Debt to Equity Ratio indicates how much debt the Company has incurred for each amount of equity in the Company. A higher ratio means that the Company is more aggressive in its use of capital. Earnings per share shows how much the Company is earning for each share that is currently issued and outstanding. Earnings before interest and taxes indicates how much income the Company is generating from its entire operations before interest charges and taxes are deducted. Return on Equity shows how much profits the Company is making for each amount of equity invested in the Company. Likewise, these ratios are used to gauge the performance of the Company in the industry in which in operates. 15

16 BALANCE SHEET STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2011, 2010 and 2009 Notes ASSETS Current assets Cash on hand and in banks 6 P204,788,818 P19,106,061 P20,210,402 Trade and other receivables, net 7 252,529, ,864, ,031,218 Loans receivables 8 15,000,000 15,000,000 Advances to related parties 20 66,495,612 34,872,831 3,372,096 Inventories 9 179,835, ,244, ,142,762 Prepayments and other current assets 5,622,210 1,592,204 - Total current assets 724,270, ,679, ,384,382 Noncurrent assets Loans receivables 8 120,000,000 - Investment properties ,152,963 - Property and equipment, net 11 72,765,320 25,218,793 1,942,440 Deferred tax assets 22 1,858, , ,170 Total noncurrent assets 328,777,252 25,629,977 5,599,706 Total assets P1,053,048,072 P661,309,821 P598,984,088 LIABILITIES AND EQUITY Current liabilities Trade and other payables 12 P134,698,952 P169,363,509 P236,321,172 Loans payable ,500, ,500, ,511,459 Advances from related parties 20 52,461,454 - Dividends payable 15 25,000,000 - Income tax payable 46,562,355 19,344,822 5,307,284 Total current liabilities 651,222, ,208, ,139,915 Non-current liability Pension liability 21 1,820,747 1,370, ,566 Total liabilities 653,043, ,578, ,090,481 Equity Share capital ,100,000 1,000,000 1,000,000 Retained earnings 75,904, ,876 13,893,607 Total equity 400,004,564 1,730,876 14,893,607 16

17 Total liabilities and equity P1,053,048,072 P661,309,821 P598,984,088 INCOME STATEMENT STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 Notes Sales 16 P2,001,710,303 P1,798,059,555 P1,808,099,952 Cost of sales 17 (1,774,403,120) (1,655,407,570) (1,688,694,868) Gross profit 227,307, ,651, ,405,084 Operating expenses 18 (63,300,990) (67,833,353) (88,020,559) Other operating income 19 1,959, Profit from operations 165,966,027 74,818,632 31,384,525 Finance income 6, 8 3,828, , ,825 Finance costs 13 (26,934,023) (26,725,754) (20,904,375) Profit before tax 142,860,225 48,289,460 10,661,975 Provision for income tax 22 (42,686,537) (14,452,191) (3,166,546) Profit for the year 100,173,688 33,837,269 7,495,429 Other comprehensive income Total comprehensive income P100,173,688 P33,837,269 P7,495,429 Basic and diluted earnings per share 24 P0.69 P3, P

18 CASH FLOW STATEMENT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009 Notes Cash flows from operating activities Profit before tax P142,860,225 P48,289,460 P10,661,975 Adjustments for: Depreciation 11, 18 5,780,083 5,755, ,469 Impairment loss on receivables 7, 18 4,375, Pension costs 18, , , ,573 Gain on disposal of property and equipment 19 (1,914,123) - - Finance income 6, 8 (3,828,221) (196,582) (181,825) Finance costs 13 26,934,023 26,725,754 20,904,375 Operating income before working capital changes 174,657,937 80,994,402 31,879,567 Decrease (increase) in: Trade and other receivables 86,814,231 (51,832,961) (23,332,775) Advances to related parties (1,226,567) (78,500,735) (6,414,415) Inventories 44,409,521 44,898,193 (8,048,240) Prepayments and other current assets (6,494,604) (1,592,204) - Increase (decrease) in: Trade and other payables (34,664,557) (66,957,663) 14,602,256 Advances from related parties 52,461, Cash provided by (used in) operations 315,957,414 (72,990,968) 8,686,393 Finance income received 6 973, , ,825 Income taxes paid (14,452,191) (540,667) (453,348) Net cash provided by (used in) operating activities 302,478,444 (73,335,053) 8,414,870 Cash flows from investing activities Increase in related party loans receivable 8 (120,000,000) - - Increase in advances to related parties (28,482,091) - - Acquisition of investment properties 10 (134,152,963) - - Acquisition of property and equipment 11 (53,326,610) (29,032,075) (816,542) Net cash used in investing activities (335,961,664) (29,032,075) (816,542) Cash flows from financing activities Issuance of additional shares ,100, Net availments (payments) of short-term loans payable 13 (77,000,000) 127,988,541 17,361,746 Finance cost paid 13 (26,934,023) (26,725,754) (20,904,375) Net cash provided by (used in) financing activities 219,165, ,262,787 (3,542,629) Net increase (decrease) in cash on hand and in banks 185,682,757 (1,104,341) 4,055,699 Cash on hand and in banks January 1 19,106,061 20,210,402 16,154,703 December 31 P204,788,818 P19,106,061 P20,210,402 Information on significnt non-cash transactions Cash dividend distribution through offsetting 15 P- P47,000,000 P- Gain on disposal of property an equipment 19 (1,914,123) - - Advances to related parties 20 1,914,123 (47,000,000) - P- P- P- 18

19 THE OFFER The Company, through the Underwriter, is offering up to 36,012,000 primary Common Shares at the Offer Price of PhP7.50 per share. The Offer Shares have a par value of PhP1.00 per share and are being made available for subscription and purchase in the Philippines. The Offer Shares will represent approximately 10% of the Company s issued and outstanding capital stock of 360,112,000 shares immediately after the completion of the Offer. The Offer will commence at 9:00 a.m. of May 10, 2012 and will end at 12:00 noon of May 16, The Offer Shares will be listed on the Second Board of the PSE upon submission to the PSE of the SEC Permit to Sell Securities, among other conditions imposed by the PSE for the listing of the Offer Shares. Lock-Up Under the revised listing rules of the PSE applicable to companies applying for listing in the PSE s Second Board, existing shareholders who own an equivalent of at at least 10% of the issued and outstanding Common Shares of the Company are required not to sell, assign or otherwise dispose of their Common Shares for a minimum of 365 days after the Listing of the Offer Shares. The shares of these existing shareholders shall be locked-up through an escrow arrangement with BDO Unibank, Inc. The following shareholders, each owning at least 10% of the outstanding Common Shares of the Company prior to the Offer, are covered by the 365-day lock-up requirement reckoned from Listing Date: Prior to the Offer Shareholders No. of Shares % Offered to be Sold No. of Shares After the Offer No. of Shares JOSEPH H. CALATA 217,699, ,699, Total 217,699, ,699,994 % 19

20 TERMS AND CONDITIONS OF THE OFFERING Issuer Offer Shares... Offer Price... Offer Period Calata Corporation The Company, through the Underwriter, is offering up to 36,012,000 primary Common Shares from its authorized and unissued Capital Stock with a par value of PhP1.00 per share. The Offer Shares are being offered at the Offer Price of PhP7.50 per Offer Share. The Offer Price range was established primarily through the use of market-based valuation methodologies. The Offer Period shall commence at 9:00 a.m., Manila time on May 10, 2012 and end at 12:00 noon, Manila time on May 16, The Company and the Underwriter reserve the right to extend or shorten the Offer Period, subject to the prior approval of the PSE. Applications must be received by the Receiving Agent not later than 11:00 a.m. Manila Time on May 16, Applications received thereafter or without the required documents will be rejected. Applications shall be considered irrevocable upon submission to the Underwriter, and shall be subject to the terms and conditions of the Offer as stated in this Prospectus and in the Application. The actual subscription and/or purchase of the Offer Shares shall become effective only upon the actual listing of the Offer Shares on the PSE. Eligible Investors and Restrictions on Ownership.. The Offer Shares may be subscribed or held by any person of legal age or duly organized and existing corporations, partnerships or other corporate entities regardless of nationality. However, the Philippine Constitution and related statutes set forth restrictions on foreign ownership of Philippine companies engaged in certain activities. The Philippine Constitution also limits foreign equity ownership in companies owning land or operating a public utility to 40% of the companies capital stock. Thus, any subsequent transfer of Shares must comply with the nationality restrictions. In the event that foreign ownership of the Company s issued and outstanding capital stock will exceed the permissible level, the Company has the right to reject a transfer request by persons other than Philippine Nationals and has the right not to record such purchases in the books of the Company. 20

21 Minimum Subscription.. Procedure for Application. Applications shall be for a minimum of 100 Offer Shares. Applications in excess of this minimum shall be in multiples of One Hundred (100) shares. No subscription or application for multiples of any other number shall be considered. Application forms to purchase Offer Shares may be obtained from the Underwriter or Selling Agent listed in this Prospectus. All Applications shall be evidenced by the application to purchase form, duly executed in each case by one completed signature card which, for corporate and institutional applicants, should be authenticated by the corporate secretary, and the corresponding payment for the Offer Shares covered by the Application and all other required documents. The duly executed Application and required documents should be submitted during the Offer Period to the same office where it was obtained. If the Applicant is a corporation, partnership or trust account, the Application must be accompanied by the following documents: A certified true copy of the applicant s latest articles of incorporation and by-laws and other constitutive documents (each as amended to date) duly certified by its corporate secretary; A certified true copy of the Applicant s Philippine SEC certificate of registration duly certified by its corporate secretary; and A duly notarized corporate secretary s certificate setting forth the resolution of the applicant s board of directors or equivalent body authorizing the purchase of the Offer Shares indicated in the Application, identifying the designated signatories authorized for the purpose, including his or her specimen signature, and certifying to the percentage of the applicant s capital or capital stock held by Philippine citizens and/or corporations, at least 60% of whose issued and outstanding capital is owned by Philippine citizens. Foreign corporate and institutional applicants who qualify as Eligible Investors, in addition to the documents listed above, are required to submit in quadruplicate, a representation and warranty stating that their purchase of the Offer Shares to which their Application relates will not violate the laws of their jurisdiction of incorporation or organization, and that they are allowed under such laws, to acquire, purchase and hold the Offer Shares. Payment Terms.. The purchase price must be paid in full in Pesos upon the submission of the duly accomplished and signed 21

22 application form and signature card together with the requisite attachments. Payment for the Offer Shares shall be made either by: (i) a personal or corporate check/s drawn against an account with a BSP authorized bank at any of its branches located in Metro Manila; or (ii) a manager s or cashier s check issued by such authorized bank. All checks should be made payable to Calata Corporation IPO. The check must be dated the same date as the application. The applications and the related payments will be received at any of the offices of the Underwriter, the Selling Agents and the Issuer. Acceptance/Rejection of Applications. The actual number of Offer Shares that an Applicant will be allowed to subscribe to in the Offer is subject to the confirmation of the Underwriter. Application shall be subject to the final approval of the Company. The Company reserves the right to accept or reject, in whole or in part, any Application due to any grounds specified in the Underwriting Agreement entered into by the Company and the Underwriter. Applications where checks are dishonored upon first presentation and Applications which do not comply with the terms of the Offer shall be rejected. Moreover, any payment received pursuant to the Application does not mean approval or acceptance by the Company of the Application. An Application, when accepted, shall constitute an agreement between the Applicant and the Company for the Subscription to the Offer Shares at the time, in the manner and subject to terms and conditions set forth in the Application and those described in this Prospectus. Notwithstanding the acceptance of any Application by the Underwriter or its duly authorized representatives, acting for or on behalf of the Company, the actual subscription and purchase by the applicant of the Offer Shares will become effective only upon listing of the Offer Shares on the PSE and upon the obligations of the Underwriter under the Underwriting Agreement becoming unconditional and not being suspended, terminated, cancelled, on or before the Listing Date, in accordance with the provisions of such agreements. If such conditions have not been fulfilled on or before the period provided above, all the application payments will be returned to the applicants without interest and, in the meantime, the said application payments will be held in a separate bank account with the Receiving Agent. Refunds... In the event that the number of Offer Shares to be received by an Applicant, as confirmed by the Underwriter, is less than the number covered by its 22

23 Application, or if an Application is rejected by the Company, then the Underwriter shall refund, without interest, within 5 Banking Days from the end of the Offer Period, all, or a portion of the payment corresponding to the number of Offer Shares wholly or partially rejected. All refunds shall be made through the Underwriter or Selling Agent with whom the applicant has filed the Application, at the applicant s risk. Registration and Lodgment of Shares with PDTC. All of the issued and outstanding Shares, including treasury shares and the Offer Shares will be issued in scripless form through the electronic book-entry system of BDO Unibank, Inc., Trust and Investment Group as the Stock Transfer Agent and lodged with PDTC as depository agent on listing date through PSE Trading Participants nominated by the Applicants. The Offer Shares are required to be lodged with PDTC. The Applicants must provide the required information in the space provided in the Application to effect the lodgment. The Offer Shares will be lodged with the PDTC prior to the Listing Date. The Applicant may request for the upliftment of their shares and to receive stock certificates evidencing their investment in the Offer Shares through his/her trading participant after the Listing Date. Any expense to be incurred from such issuance of certificates shall be borne by the Applicant. Registration of Foreign Investments. Restriction on Issuance and Disposal of Shares The BSP requires that investments in shares of stock funded by inward remittance of foreign currency be registered with the BSP if the foreign exchange needed to service capital repatriation or dividend remittance will be sourced from the banking system. The registration with the BSP of all foreign investments in the Offer Shares will be the responsibility of the foreign investors. See discussion on Philippine Foreign Investment, Exchange Controls and Foreign Ownership in the Company s Prospectus. Mr. Joseph Calata, who owns 217,699,994 or more than ten percent (10%) of the issued and outstanding Common Shares of the Company after the Offer, is required under the revised listing rules of the PSE applicable to companies applying for listing on the PSE Second Board, not to sell, assign or otherwise dispose of their Common Shares for a minimum period of 365 days after the Listing Date. The PSE will require the Company, as a condition to the listing of the Common Shares, not to issue new shares in its capital or grant any rights to or issue any securities convertible into or exchangeable for, or otherwise carrying rights to acquire or subscribe to, any shares in its capital or enter into any arrangement or agreement whereby new shares or any such securities may be 23

24 issued for a period of 180 days after the Listing Date, except for Stock Dividends and Employee Stock Option Plans. Listing and Trading Expected Timetable.. The Company s application for the listing of the Common Shares was approved by the PSE on April 25, All of the Common Shares in issue or to be issued including the Offer Shares are expected to be listed on the PSE on May 23, Trading is expected to commence on the same date. The expected timetable of the Offer is tentatively scheduled as follows: Start of the Offer Period. May 10, 2012 Deadline for Submission of Application for Trading Participants. May 16, 2012 Deadline for Submission of Application for LSIs......May 16, 2012 Deadline for Submission of Application for the General Public. May 16, 2012 End of Offer Period... May 16, 2012 Date of Lodgment of Shares with PDTC...May 21, 2012 Listing Date and Commencement of Trading on the PSE. May 23,

25 SELLING SHAREHOLDERS Since the Offer is comprised of all primary common shares, therefore there will be no selling shareholders. 25

26 DISTRIBUTION OF THE OFFER PLAN OF DISTRIBUTION The IPO will consist of a total of 36,012,000 Primary Offer Shares. The Company plans to make available up to 7,202,400 Offer Shares or 20% of the Offer Shares, for distribution to the Trading Participants of the PSE. Each. PSE Broker shall initially be allocated up to 54,100 Offer Shares (computed by dividing the Offer Shares allocated to the PSE Brokers between one hundred thirty three [133] PSE Brokers) and subject to reallocation as may be determined by the PSE. Based on the initial allocation for each trading participant of 54,100 Offer Shares, there will be a total of 7,100 residual Offer Shares to be allocated as may be determined by the PSE. Up to 3,601,200 Offer Shares, or 10% of the Offer Shares, shall be made available to Local Small Investors. The term Local Small Investors is defined as a share subscriber or purchaser who is willing to subscribe or purchase a minimum board lot or whose subscription or purchase does not exceed PhP25, Should the total demand for the Offer Shares in the Local Small Investors subscription exceed the maximum allocation, the Underwriter shall allocate the Offer Shares by balloting. In the event that the Local Small Investors demand for its 10% allocation, the general public may avail of the remaining Offer Shares. Should the total demand from Local Small Investors be less than the 10% allotted to them, the unsold allocation shall be reallocated back for distribution to the general public. The Offer Shares will be firmly underwritten by the Underwriter, Unicapital, Inc. The Trading Participants shall act as Selling Agents for the Offer, pursuant to the distribution guidelines of the PSE. On or before 11:00 a.m Manila time on May 14, 2012, each Trading Participant shall submit to the PSE its firm orders and commitments to purchase the Offer Shares (the Firm Order ). The payment for the Firm Orders shall be made on May 16, Firm Orders from the Trading Participants will be confirmed by the PSE by 9:30 a.m. on May 15, In no case shall a Trading Participant be awarded more than the Offer Shares indicated in its Firm Order and covered by its payment. Offer Shares not taken up by the Trading Participants and Local Small Investors will be distributed by the Underwriter directly to its clients and the general public. A portion of these may be used for a book-building program. Qualified Institutional Buyers that may be invited to participate in the book-building process shall be limited to the following: mutual funds, pension or retirement funds, commercial or universal banks, trust companies, investment houses, insurance companies, investment companies, finance companies, venture capital firms, government financial institutions, trust departments of commercial or universal banks, non-bank quasi banking institutions, Trading Participants of the PSE for their dealer accounts, non-stock savings and loan associations, educational assistance funds and other institutions of similar nature determined as such by SEC. None of the Offer Shares have been designated to be sold to specified individuals. The Company shall pay a fee to the Issue Manager and the Underwriter upon receipt by the Company of the proceeds of the Offer, pursuant to the Underwriting Agreement executed between the Company, the Issue Manager and the Underwriter. Out of the fee that it will receive from the Company, the Underwriter shall cede to the Selling Agents their corresponding respective selling commissions. The fee to be derived by the Issue Manager and the Underwriter from the Offer is estimated to be PhP8,102,700.00, inclusive of amounts which will be ceded to the Selling Agents in accordance with existing industry practice. 26

27 THE ISSUE MANAGER AND UNDERWRITER Incorporated in the Philippines in 1994, Unicapital, Inc. has an authorized capital of P500,000,000.00, of which P424,713, worth of shares are issued and outstanding. It obtained its license to operate an investment house in June 29, 1994 and is licensed by the SEC to engage in underwriting or distribution of securities to the public. A certificate of registration on the application for renewal of Unicapital s license was issued on December 29, 2011 and is valid for three years. Unicapital s most recent payment for the renewal of its license was on November 24, Its executives have extensive experience in the capital markets and were involved in a substantial number of major equity and debt issues. Unicapital s Board of Directors is chaired by Menardo R. Jimenez, Sr. UNDERWRITING COMMITMENT The Offer will be underwritten on a firm commitment basis at the Offer Price. The Underwriter and the Company will enter into, on or before the start of the Offer Period, an Underwriting Agreement wherein the Underwriter will agree to subscribe or procure subscribers for, or to purchase, or procure purchasers for the Offer. The underwriting and selling fees to be paid by the Company in relation to the Offer shall be equivalent to three percent (3%) of the gross proceeds from the Offer. Unicapital does not have any direct or indirect interest in the Company or in any securities thereof (including options, warrants or rights thereto), and other than as Underwriter for the Offer, it does not have any relationship with the Company. Neither does Unicapital have any right to designate or nominate a member to the Board of Directors of the Company. The Underwriter does not have any contract or other arrangement with the Company by which the Underwriter may put back to the Company any unsold securities of the Offer. The Underwriter shall not receive any amount from the proceeds of the IPO aside from the underwriting and selling fees. THE SELLING AGENTS The Trading Participants shall act as Selling Agents for the Offer, pursuant to the distribution guidelines of the PSE. The selling fees for the Selling Agents that is equivalent to one percent one percent (1%) of the gross proceeds from the Offer shall come from the underwriting and selling fees to be paid by the Company in accordance with existing industry practice. THE FINANCIAL ADVISOR Absolute Traders and Consulting Services, Inc. ( Absolute Traders ) acts as the Financial Advisor to the Company, providing financial consulting services. Established in 2007, Absolute Traders is also engaged in business advisory services, research projects, seminars, in-house trainings, conferences, and workshops. Absolute Traders maintains its principal office at 1507 Shaw Boulevard, Mandaluyong City, Philippines with telephone number

28 DETERMINATION OF THE OFFER PRICE The Offer Price is PHP 7.50 per share, as determined through a book-building process and discussions between the Company and the Underwriter. Prior to the Offer, there has been no public trading market for the Shares. Among the factors considered in determining the Offer Price range were the prevailing market conditions, the Company s historical performance, the business potential and the ability to generate earnings and cash flow of the Company, and the prevailing market valuation of companies currently listed in the PSE engaged in comparable businesses. The Offer Price may not have any correlation to the actual book value of the Offer Shares. The final Offer Price shall be determined through a book-building approach. The Company s forward looking statements are based on a number of assumptions about circumstances or events that have not yet occurred, including, but not limited to certain assumptions relating to the Company s revenue growth, and are subject to significant uncertainties and contingencies, as stated in the section Risk Factors on page 29, that are beyond the Company s control. Under no circumstances should the use of the forward looking statements as a basis for pricing the Offer Shares be regarded as a representation, warranty, promise or prediction with respect to the accuracy of the underlying assumptions, or that the Company will achieve or is likely to achieve this particular result. 28

29 RISK FACTORS Prospective investors should carefully consider the risks described below, in addition to the other information contained in this Prospectus, including the Company s financial statements and notes relating thereto included herein, before making any investment decision relating to the Offer Shares. This section does not purport to disclose all the risks and other significant aspects of investing in the Offer Shares. The Company s past performance is not an indication of its future performance. The occurrence of any of the events discussed below and any additional risks and uncertainties not presently known to the Company or are currently considered immaterial could have a material adverse effect on the Company s business, result of operations, financial condition and prospects and could cause the market price of the Common Shares to fall significantly and investors may lose all or part of their investment. The risk factors discussed in this section are of equal importance and are only separated into categories for ease of reference. The price of securities can and do fluctuate, and the price of an individual security may experience upward or downward movements, and may even lose all of their value. There is an inherent risk that losses may be incurred rather than profits made as a result of buying and selling securities. There is an extra risk of losses when securities are bought from smaller companies. There may be a significant difference between the buying price and the selling price of these securities. Investors should seek professional advice regarding any aspect of the securities such as the nature of the risks involved in the trading of the securities, especially in the trading of high-risk securities. Each investor should consult his own counsel, accountant and other advisors as to legal, tax, business, financial and related aspects of an investment in the Offer Shares. This risk disclosure does not purport to disclose all of the risks and other significant aspects of investing in these securities. Investors should undertake independent research regarding the Company and study the trading of securities before commencing any trading activity. Investors may request publicly available information on the Offer Shares and the Company from the SEC. RISKS RELATING TO THE COMPANY AND ITS BUSINESS The Company s business may be affected by any program developed or supported by the Department of Agriculture of the Philippines. The Company s revenue comes primarily from the sale of agricultural products. Any agricultural program that the Department of Agriculture develops for the farmers of the country may affect the Company s. In the event that the government is unable to effectively implement its programs, this might result in a slowdown of the Company s business as farmers might not have the required resources to purchase the Company s products. There is no guarantee that the Philippine government will not change or prioritize programs for agriculture in the coming years. To mitigate this risk, the Company updates itself regularly with the Department of Agriculture s policies or programs developed for the agricultural product industry. This allows the Company to react quickly to government programs relating to agricultural products. It also enables the Company to plan ahead to meet the Department of Agriculture s ongoing or future policies or programs. The Company also conducts its own marketing activities to promote the use or consumption of its product. The Company intends to strengthen its marketing efforts nationwide. The Company s business and operations may be affected by any changes in the preferences or purchasing power of consumers. 29

30 The Company s ability to increase or maintain sales is dependent on the public s continued acceptance of its products. Changes in demographic, social or health proclivity may alter the demand for the Company s products. Any adverse downturn in the economy of the Philippines may cause consumers to opt for cheaper or more affordable products. Cheaper alternatives are supplied by the government and the private sector, both of which are readily available in the market. To mitigate this risk, the Company, through its comprehensive line of products, provides options and alternatives to its customers, which may attract a loyal following from certain niche markets. Furthermore, the Company participates in the subsidies provided by the national government and passes the savings on to its customers and consumers. The Company may not efficiently execute its strategy to increase sales volume due to the traditional mindset of the Filipino farmer. The Company intends to grow its sales through expansion of related business activities, additional tie-ups, and aggressive marketing strategies. The success of these strategies cannot be guaranteed because farmers in the Philippines are used to traditional methods of agriculture. Thus they may not be susceptible to the innovations the Company s products may bring. Failure to change the mindset of its target market may hinder the Company s growth. To mitigate this risk, the Company employs innovative marketing and sales activities in order to encourage the use and loyalty of customers. The Company provides information campaigns in the form of trainings and seminars. In addition, the Company provides initiatives such as promos, sampling, and boothing. To ensure its continuous growth and strength in sales, the Company intends to hire additional manpower for its sales and marketing team. Details on the Company s marketing, sales, and distribution may be found in the Information with Respect to the Company beginning page 69. In terms of exclusivity of supplier contracts and their duration, the Company does not have exclusive distribution agreements with most of its suppliers. The distribution agreements are automatically renewed yearly upon the option of both parties and under terms and conditions agreed upon. Except for its exclusive distribution agreement with San Miguel Foods, Inc. (Feeds), Syngenta Philippines, Inc. (Agro Chemicals) and Monsanto Philippines, Inc. (Seeds),the Company does not have exclusive distribution agreements with the rest of its suppliers of agro chemicals, fertilizers and seeds. This means that other suppliers of the company may, without any legal impediment, enter into distribution agreements with other distributors, hence, decrease in one way or the other, supply of distribution products to the Company and consequently decrease in the sales derived from their products. In general, all supply and distribution agreements are renewed on a yearly basis. Renewal may be express when parties opt to execute a written agreement or implied when parties continue to do business dealings with each other such as taking of orders of supplies. The Company does not usually have duly executed distribution agreements with the rest of its suppliers of agro chemicals, fertilizers and seeds. Furthermore, based on industry practice, actual exclusive distribution agreements are not issued on a yearly basis. In the case of non-exclusive distribution agreements, no formal agreement is executed except for some. Instead, certifications are issued to attest that the Company is a distributor of the pertinent supplier products indicating therein exclusivity or non-exclusivity. However, for other non-exclusive suppliers, certifications are not even given since supply of the products continues for so long as the Company places an order. Nevertheless, to substitute the absence of supply and distribution agreements, the Company strictly enforces proper documentation of transactions with suppliers. The Company religiously 30

31 fills up Purchase Orders which, upon acknowledgment by the supplier, a Sales Invoice is issued. Hence, the Purchase Order and the Sales Invoice signify the contract / agreement between the Company and the supplier. Furthermore, it is worth mentioning that San Miguel Foods, Inc. (SMFI), Syngenta Philippines, Inc. (Syngenta) and Monsanto Philippines, Inc. (Monsanto) are the top suppliers of Calata Corporation in their respective product classifications. For the fiscal year end 31 December 2011, sales from SMFI products (B-Meg Feeds) to different customers accounted for almost 100% of the Company s Feeds Business and 52% of the Company s total sales. Sales from Syngenta to different customers accounted for 61% of the Agrochem Business and 13% of the Company s total sales. Sales from Monsanto to different customers accounted for 47% of the Seeds Business and 1% of the Company s total sales. In the aggregate, the combined sales of SMFI, Syngenta and Monsanto accounts to 56% of the Company s total sales. Considering this, the Company strictly complies with its obligation to these suppliers by implementing a strategic marketing strategy and exerting all efforts necessary in meeting targets and delivering mutually agreed upon results from sales to ensure continuity of exclusivity in the distribution of their products. This approach is likewise being implemented for suppliers with whom the Company does not have exclusive distribution agreements with. Compliance with all of the Company s obligations with suppliers whether grantors of exclusive or non-exclusive distribution agreements shall greatly contribute in ensuring the annual renewal of the agreements with its suppliers. Apart from being a distributor of feeds, agrochemicals, fertilizers and seeds, with the Company venturing into retailing of its distribution products, competition will be expected from existing retailers. However, in order to likewise be competitive, the Company intends to take advantage of the quality of its products, especially those with which it has exclusive distribution agreements as well as its competitive pricing system. The Company likewise plans to provide rebates and incentive schemes for loyal customers of its planned retail stores and establish an effective after sales service system. Regulatory Risk The Company s business is subject to regulatory approvals, such as the issuance of permits for distribution and importation licenses. The products sold by the Company, such as, veterinary medicines, agrochemicals, fertilizer, pesticide and feeds must be registered with the proper government agency prior to sale or distribution. The cancellation of their registrations will adversely affect the Company s business. The registration of the products is primarily the responsibility of the suppliers. The Company ensures that it secures all necessary regulatory approvals relating to its operations. Risk of Natural Calamities and Effects of Pestilence The Company s revenues are highly dependent on the weather conditions in the Philippines. Severe drought or flooding in a certain agricultural region will significantly affect the productivity of the farmer. This will highly affect the demand for fertilizers, pesticides and other agricultural chemicals. Furthermore, the effects of pestilence on agricultural crops can have a significant effect on the demand for the distribution products used in growing them. Crop farmers may be unable to engage in their farming and growing activities since the agricultural land may not be fit for planting. To mitigate this risk related to natural calamities, the Company, in partnership with its key suppliers, would distribute new products manufactured through the use of modern technology to 31

32 withstand if not totally resist the devastating effects forces of nature bring. The Company likewise distributes other agricultural products which are unaffected by natural calamities such as animal feeds for poultry, hogs and ducks. Lastly, to mitigate the effects of pestilence, apart from the distribution of superior quality agricultural products which can help in strengthening the immunity of plants to any damage caused, the Company designates its farm aid technicians to provide an information campaign to educate farmers on how to combat pestilence through proper farming practices as well as the introduction and proper utilization of modern farming technology. Risk of Outbreak of Animal Diseases The Company s revenues may be affected by the outbreak of swine and poultry diseases because the demand for animal feeds will decrease. To mitigate this risk the Company in partnership with its key suppliers currently deploys farm assistant technicians in the field to prevent and/or treat the disease. In addition, the Company distributes veterinary medicines that help prevent or treat the disease. Exposure to Liquidity Risk This represents the risk or difficulty in raising funds to meet the Company s commitment associated with financial obligation and daily cash flow requirement. The Company is exposed to the possibility that adverse exchanges in the business environment and/or its operations would result to substantially higher working capital requirements and the subsequent difficulty in financing additional working capital. The Company addresses liquidity concerns primarily through cash flows from operations and short-term borrowings, if necessary. The Company likewise regularly evaluates other financing instruments to broaden the Company s range of financing sources. Credit Risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. In order to minimize exposure to this risk, the receivable balances are monitored on an ongoing basis with the result that the Company s exposure to impairment is not significant. The Company deals only with creditworthy counterparty duly approved by the Board of Directors. The Company depends on its competent sales team, the loss of which could adversely affect its business and growth. The Company s future growth is largely anchored on the continuous expansion of its product distribution. For this, its sales team plays a vital role in the attainment of the Company s objectives. The Company currently has provided an attractive compensation and incentive scheme to prevent senior members of the sales team from joining competitor firms in the future. The Company s reputation, business, and financial condition will be affected if the products do not meet customer s requirements pursuant to the Company s contracts / business arrangement with customers. The business of the Company is reliant on the quality of the products of its suppliers. Product defects will not only cause product returns but also affect the Company s reputation as a distributor of quality products. 32

33 Business dealings with customers of the Company are not accompanied by individualized and comprehensive contracts. The Company s business practice involves issuances of invoices for orders of customers. Initially, it will appear that the absence of such individual contracts may cause problems with the Company as customers complaints will have no parameters and hence without limit. However, because of the confidence and commitment of the Company to satisfy customers, it has shown its willingness to address customers concerns. Specifically, in order to mitigate this risk, the Company carefully selects business partners who are established institutions in their field both locally and internationally. In addition, the issued invoices set out specific guidelines of reimbursement and/or product replacement whereby the Company fully reimburses the customer by replacing the defective products. Risk of loss due to returns are not borne by the Company as the costs of replacing these products are borne by the Company s suppliers. Work Stoppage The Company is in the distribution business and the partial or total stoppage of work will significantly affect its operations. Coordination among employees is vital as each personnel in charge of a respective aspect of the distribution business is given the responsibility to ensure that the function required to be performed is in sync with the overall flow of business operations of the Company. Employee morale is likewise a key to having a dynamic and dependable workforce. The Company recognizes the importance of the workforce and ensures that all their entitlements under the law are given. In addition to that, the Company regularly holds team building activities to re-establish harmonious relationship between management and employees. Furthermore, in order not to hamper operations in the event that an employee is unable to report for work, the Company has adequately trained its employees to temporarily replace vacated responsibilities. Risk of not effectively implementing the business/expansion plan The establishment of at least one hundred (100) retail outlets under a created subsidiary is not a simple undertaking. Careful selection of strategic locations and negotiation of lease terms are important consideration, among others. Selection of trust worthy and efficient employees to operate the retail stores is also an important factor. Should the company fail in these aspects, the expansion plan may prove to be futile as the retail outlets would not be profitable. To mitigate this risk, the Company has appointed highly trained and competent personnel within its workforce to spearhead the establishment of the retail outlets. Furthermore, as supplier to the retail outlets, the Company shall provide any necessary assistance to ensure profitability such as but not limited to lower mark ups, assistance in training of outlet personnel and assistance in the marketing of the outlet as well as its products. RISKS RELATING TO THE COMPANY S COMMON SHARES There can be no guarantee that the Offer Shares will be listed on the PSE. Subscribers of the Offer Shares are required to pay for their purchase upon submission of their Applications during the Offer Period. Although the PSE has approved the Company s application to list the Offer Shares, because the Listing Date is scheduled after the Offer Period, there can be no guarantee that listing will occur on the anticipated Listing Date or at all. Delays in the admission and the commencement of trading in shares on the PSE have occurred in the past. If the PSE does not admit the Offer Shares onto the PSE, the market for the Offer Shares will be illiquid and shareholders may not be able to trade the Offer Shares. However, they would be able to sell their Shares by negotiated sale. This may materially and adversely affect the value of the Offer Shares. 33

34 There may be no liquidity in the market for the Offer Shares and the price of the Offer Shares may fall. The Shares will be listed on the PSE where trading volumes have historically been significantly smaller than on major securities markets in more developed countries and have also been highly volatile. There can be no assurance that an active market for the Offer Shares will develop following the Offer or, if developed, that such market will be sustained. The Offer Price will be determined after taking into consideration a number of factors including, but not limited to, the Company s prospects, the market prices for shares of comparable companies and prevailing market conditions. The price at which the Shares will trade on the PSE at any point in time after the Offer may vary significantly from the Offer Price. GENERAL RISKS A slowdown in the Philippine economy could adversely affect the Company. Results of operations of the Company have generally been influenced, and will continue to be influenced by the performance of the Philippine economy. Consequently, the Company s income and results of operations depend, to a significant extent, on the performance of the Philippine economy. The Philippine economy was adversely affected by the 1997 Asian financial crisis which caused a significant depreciation of the Philippine peso, rise in interest rates and downgrading of the Philippine local currency rating and the ratings outlook for the Philippine banking sector. While the Philippine economy has recovered from this crisis and has registered respectable positive economic growth starting 1999, it continues to be at risk from its significant budget deficit, volatile peso exchange rate and relatively weak banking sector. Any deterioration in economic conditions in the Philippines as a result of these or other risk factors, may materially adversely affect the Company s financial condition and results of operations. There can also be no assurance that the current or future Governments will adopt economic policies conducive to sustaining economic growth. This risk is beyond the control of the Company. Political or social instability could adversely affect the financial results of the Company. The Philippines has from time to time experienced political, social and military instability and no assurance can be given that the future political environment in the Philippines will be stable. Political instability in the Philippines occurred in the late 1980 s when Presidents Ferdinand Marcos and Corazon Aquino held office. In 2000, former President Joseph Estrada resigned from office after allegations of corruption led to impeachment proceedings, mass public protests and withdrawal of support of the military. In February 2006, President Gloria Arroyo issued Proclamation 1017 which declared a state of national emergency in response to reports of an alleged attempted coup d etat. The state of national emergency was lifted in March The country has also been subject to sporadic terrorist attacks in the past several years. The Philippine army has been in conflict with the Abu Sayyaf organization, a group alleged to have ties with the Al-Qaeda terrorist network, and identified as being responsible for kidnapping and terrorist activities. On June 30, 2010, Benigno Aquino III was sworn in as the 15 th and current president of the Republic of the Philippines. There is no assurance that the policies under the new administration will either improve or worsen the political and economic situation. 34

35 Political instability in the Philippines could negatively affect the general economic conditions and operating environment in the Philippines, which could have a material impact on the Company s business, financial condition and results of operation. This risk is beyond the control of the Company. 35

36 USE OF PROCEEDS The Company expects to raise gross proceeds from the Primary Offer of approximately PhP270,090, based on an Offer Price of PhP 7.50 per share and an Offer of 36,012,000 new Common Shares. After deducting the estimated expenses pertaining to the Primary Offer, the estimated net proceeds from the Primary Offer is PhP 242,405, COMPUTATION OF NET PROCEEDS Offer price per share PhP 7.50 Number of Offer Shares 36,012,000 Gross Proceeds 270,090,000 Underwriting and selling fees for the Offer shares 8,102,700 Tax on Initial Public Offering 10,803,600 Documentary Stamp Tax 180,060 Philippine SEC filing and legal research fees 733, PSE listing and processing fees Listing fee 2,700,840 Processing fee 56,000 Estimated professional fees 4,000,000 Estimated out-of-pocket and other expenses including printing and engraving costs 1,100,000 Total Expenses 27,677, Net Proceeds 242,412, The net proceeds that will be generated from the Offer will be used primarily by the Company to establish retail outlets nationwide and for general working capital requirements. 36

37 The Company will use the net proceeds from the Offer in the following order of priority: USE OF PROCEEDS PARTICULARS ESTIMATED AMOUNT (IN PHP) ESTABLISHMENT OF RETAIL OUTLETS NATIONWIDE SCHEDULE OF DISBURSEMENT Site Development and Building Structure Equipment Cleaning Materials Office Supplies 24,275, ,006,875 55, , Total Inventory 102,200, ,895, WORKING CAPITAL 109,517, TOTAL NET PROCEEDS 242,412, The Company is embarking on an expansion program to retail agricultural products directly to end-consumers, farmers and other small dealers in the Philippines. Please see discussion on Plan and Programs on page 143 of this Prospectus. The establishment of retail outlets shall be under a wholly-owned subsidiary duly created for the purpose. The estimated cost is estimated at PhP1,328, per outlet, and will be put up in strategic areas beyond the Company s existing distribution network. With these retail outlets, the Company will be able to: Increase business coverage. Retail outlets would enable the Company to conduct business in areas outside its current distribution network. Establish a more stable customer base. Retail outlets will cater to actual end users compared to current base of resellers who have other sources of supply. Eliminate the need to engage in price wars just to win the sales from dealers. Increase profit margins as a result of the savings from the resellers margin. Increase significantly cash in-flows to the Company because sales will be Cash on Delivery (COD), as against the resellers that demand credit terms. Help local farmers through the very low prices that the Company can offer in their stores. Farmers can get savings from resellers margins. Through scale, the Company can negotiate for the lowest prices from suppliers and then pass on the savings to the farmers. Help local farmers learn the latest technology and techniques in farming through seminars that the Company will offer for free to store customers. 37

38 Provided hereunder is an itemized breakdown of the cost per outlet: PARTICULARS COST (PhP) SITE DEVELOPMENT AND BUILDING STRUCTURE Construction Expense Paint 5, Lights 5, LDR 2, Electrical 2, Wallfan 1, Padlocks 2, Cabinets 70, Roll ups 10, Building Reconstruction Façade 60, Signage 50, Other Repair 10, Labor Expense Payroll 20, Other Expense 5, , EQUIPMENT, CLEANING MATERIALS AND OFFICE SUPPLIES Equipment PC-Based USB Biometric Device 5, Computer Set (CPU, monitor, keyboard, mouse, mouse pad & 13, AVR) Epson LX-300 Printer 7, Globe Tatoo Internet Kit (Prepaid) SmartBro Internet Kit (Prepaid) Sun Broadband Internet Kit (Prepaid) Vault 2, Web Cam 15, Push cart Scoop Weighing Scale - Big 10, Weighing Scale - Small 1, Cleaning Materials Office Supplies 3, , INVENTORY Chemicals 702, Fertilizers 194, Feeds 67, Others 57, ,022,

39 PARTICULARS COST (PhP) TOTAL COST PER OUTLET 1,328, TOTAL COST OF 100 OUTLETS Multiplied by ,895, The Company intends to complete the establishment of its Calata Corporation Retail Stores in Provided hereunder is a table of the planned nationwide distribution of the outlets: Regions Provinces No. of Stores Cordillera Administrative Region Baguio 2 Ilocos Norte 5 Ilocos Region Ilocos Sur 5 La Union 6 Pangasinan 9 Batanes 3 Cagayan Valley Cagayan 6 Isabela 6 Nueva Vizcaya 5 Aurora 5 Bataan 6 Central Luzon Bulacan 8 Nueva Ecija 8 Pampanga 7 Tarlac 7 Batangas 3 CALABARZON Cavite 2 Laguna 2 Bicol Region Albay 2 Sorsogon 3 Total stores to be established 100 The balance of the proceeds shall be used for working capital requirements for the Company s day-to-day operations which shall primarily include additional cash requirement for the supply of inventory of its retail outlets and such other incidental expenses related thereto. 39

40 The Company will not use any portion of the proceeds to discharge any debt nor to reimburse any of its officers, directors, employees or shareholders for services rendered, asset previously transferred, or money loaned or advanced. The Company will likewise not use any portion of the proceeds to acquire assets and to finance other businesses. Other than the fees relating to the underwriting and issue management of the Company, the Company will not use the proceeds to pay any financial obligations with the Underwriter and its affiliates. The foregoing discussion represents a best estimate of the use of proceeds of the Offer based on the Company s current plans and anticipated expenditures. The plans may change based on factors including changing market conditions or new information regarding the cost or feasibility of the plans. The Company s cost estimates may also change as actual costs may be different from the budgeted costs. For these reasons, the Company may find it necessary or advisable to reallocate the net proceeds with the categories described above, or to alter the plans, including the abandonment of the projects described above and/or pursuit of different projects. If for any reason the expected gross proceeds are not realized, the Company will use its internally generated funds from operations, existing credit lines, and other potential borrowings to finance the expected uses. The Company is in discussions with various parties regarding the actual locations of the new outlets. Consequently, the proceeds from the Primary Offer that will not be immediately used for the above purposes will be segregated from the other funds of the Company and maintained in separate accounts. In the event of any deviation or adjustment in the planned use of proceeds, the Company shall inform its shareholders, the SEC and the PSE in writing at least 30 days before such deviation or adjustment is implemented. Any material or substantial adjustments to the use of proceeds, as indicated above, should be approved by the Company s Board of Directors and disclosed to the PSE. In addition, the Company shall submit via the PSE s Online Disclosure System the following disclosure to ensure transparency in the use of proceeds: a. Any disbursements made in connection with the planned use of proceeds from the Offer; b. Quarterly Progress Report on the application of the proceeds from the Offer or on before the first 15 days of the following quarter; c. Annual Summary of the application of proceeds on or before January 31 of the year following the initial public offering; d. Certification of an external auditor on the accuracy of the information reported by the Company to the Exchange in the quarterly and annual reports. 40

41 DESCRIPTION OF SHARES Information relating to the Common Shares is set forth below. The description is only a summary and is qualified by reference to Philippine law and the Company s Articles of Incorporation Articles ) and By-Laws ( By-Laws ), both as amended, copies of which are available at the SEC. THE COMPANY S SHARE CAPITAL A Philippine corporation may issue common or preferred shares, or such other classes of shares with such rights, privileges or restrictions as may be provided for in its articles of incorporation and the by-laws. The Company was registered with the SEC on July 23, 1999 under the name Planters Choice Agro Products, Inc. with an authorized capital stock of PhP1,000, divided into 10,000 common shares with a par value of PhP In February 22, 2010, the Company obtained approval from the SEC for the change in its corporate name to Calata Corporation. In August 17, 2011, the SEC approved the Company s application for increase in capital stock from an authorized capital stock of PhP1,000, divided into 10,000 common shares with a par value of PhP per share to PhP345,400, divided into 345,400,000 shares with a par value of PhP1.00 per share. Thereafter, in August 25, 2011, the SEC approved a further increase in the Company s authorized capital stock to PhP845,400, divided into 845,400,000 shares with a par value of PhP1.00 per share. Immediately prior to the Offer, the Company has a total of 324,100,000 outstanding common shares. Immediately after the completion of the Offer, the Company will have a total of 360,112,000 Common Shares issued and outstanding. Prior to the Offer, there has been no public trading market for the Company s Common Shares. Rights Relating to the Common Shares Voting Rights The Company has only one class of shares; all of its shares are Common Shares. Each Common Share is equal in all respects to every other Common Share. All the Common Shares have full voting and dividend rights. The rights of the Company s shareholders include the right to notice of shareholders meetings, the right of inspection of the Company s corporate books and other shareholders rights contained in the Corporation Code of the Philippines. Fundamental Matters Requiring Stockholder Approval The Corporation Code considers certain matters as significant corporate acts that may be implemented only with the approval of shareholders, including those holding shares denominated as non-voting in the articles of incorporation. These acts, which require Board approval and the approval of shareholders representing at least 2/3 of the issued and outstanding capital stock of the Company in a meeting duly called for the purpose (except for the amendment of By-Laws and approval of management contracts in general, which require approval of shareholders representing a majority of the Company s outstanding capital stock), include: Amendment of the Articles; An increase or decrease of capital stock and incurring, creating or increasing bonded indebtedness; 41

42 Delegation to the Board of the power to amend or repeal or to adopt new By-Laws; Sale, lease, exchange, mortgage, pledge or other disposition of all or a substantial part of the Company s assets; Merger or consolidation of the Company with another corporation or corporations; Investment of corporate funds in any other corporation or for a purpose other than the primary purpose for which the Company was organized; Dissolving the Company; Declaration or issuance of stock dividends; Ratifying a contract between the Company and a Director or officer where the vote of such Director or officer was necessary for approval; Entering into a management contract where (a) a majority of Directors of the managing corporation constitutes the majority of the board of the managed company or (b) stockholders of both the managing and managed corporations represent the same interest and own or control more than one third of the outstanding capital stock entitled to vote; Removal of Directors; Ratification of an act of disloyalty by a Director; and Ratification of contracts with corporations in which a Director is also a member of the board, where the interest of the Directors is substantial in one corporation and nominal in the other. Pre-emptive Rights The Corporation Code confers pre-emptive rights in shareholders of a Philippine corporation entitling such shareholders to subscribe to all issues or other dispositions of equity related securities by the corporation in proportion to their respective shareholdings, regardless of whether the equity related securities proposed to be issued or otherwise disposed of are identical to the shares held. A Philippine corporation may provide for the denial of these pre-emptive rights in its article of incorporation. The Company s Articles of Incorporation currently contains such a denial of pre-emptive rights on all classes of shares issued by the Company and therefore further issues of shares (including treasury shares) can be made without offering such shares on a pre-emptive basis to the existing shareholders. Derivative Suits Philippine law recognizes the right of a shareholder to institute, under certain circumstances, proceedings on behalf of the corporation in a derivative action in circumstances where the corporation itself is unable or unwilling to institute the necessary proceedings to redress wrongs committed against the corporation or to vindicate corporate rights, as for example, where the directors themselves are the malefactors. Appraisal Rights The Corporation Code grants a shareholder a right of appraisal in certain circumstances where he has dissented and voted against a proposed corporate action, including: An amendment of the articles of incorporation which has the effect of adversely affecting the rights attached to his shares or of authorizing preferences in any respect superior to 42

43 those of outstanding shares of any class or of extending or shortening the term of corporate existence; The sale, lease, exchange, transfer, mortgage, pledge or other disposal of all or substantially all the assets of the corporation; The investment of corporate funds in another corporation or business or for any purpose other than the primary purpose for which the corporation was organized; and A merger or consolidation. In these circumstances, the dissenting shareholder may require the corporation to purchase his shares at a fair value which, in default, is determined by three disinterested persons, one of whom shall be named by the stockholder, one by the corporation, and the third by the two thus chosen. In the event of a dispute, the Philippine SEC will resolve any question relating to a dissenting shareholder s entitlement to exercise the appraisal rights. The dissenting shareholder will be paid if the corporate action in question is implemented and the corporation has unrestricted retained earnings sufficient to support the purchase of the shares of the dissenting shareholders. Dividends Under Philippine law, a corporation can only declare dividends to the extent that it has unrestricted retained earnings. Unrestricted retained earnings represent the undistributed earnings of the corporation which has not been allocated for any managerial, contractual or legal purposes and which are free for distribution to the shareholders as dividends. A corporation may pay dividends in cash, by the distribution of property, or by the issuance of shares. Board approval suffices for the approval of payment of cash and property dividends. Stock dividends may be paid and distributed only upon the approval of the shareholders at a meeting called for that purpose. The Corporation Code generally requires a corporation with surplus profits in excess of 100% of its paid-in capital to declare and distribute such surplus to its shareholders in the form of dividends. Notwithstanding this general rule, a Philippine corporation may retain all or any portion of such surplus when: (i) justified by definite expansion plans approved by its Board of Directors; (ii) the required consent of any financing institution or creditor for the declaration of dividends pursuant to a loan agreement which prohibits such declaration without said creditor s consent has not yet been secured; or (iii) it can be clearly shown that such retention is necessary under special circumstances. The Company s board of directors is authorized to declare cash or stock dividends or a combination thereof. A cash dividend declaration requires the approval of the Board and no shareholder approval is necessary. A stock dividend declaration requires the approval of the Board and shareholders representing at least two-thirds of the Company s outstanding capital stock. Holders of outstanding shares on a dividend record date for such shares will be entitled to the full dividend declared without regard to any subsequent transfer of shares. Under the Corporation Code, the Company may not make any distribution of dividends other than out of its unrestricted retained earnings. Each holder of a common share is entitled to such dividends as may be declared in accordance with the Company s dividend policy. Currently, the Company has no specific dividend policy program. However, the Company currently implements a dividend policy mechanism which entitles holders of common shares to receive dividends based on the recommendation of the board of directors. Such recommendation will take into consideration factors such as operating expenses, implementation of business plans, and working capital among other factors. 43

44 The Company intends to declare as a policy that dividends, whether in stock or in cash, shall be strictly subject to statutory limitations. On November 4, 2010, the Company s Board of Directors declared a cash dividend amounting to PhP 47,000, Stockholders on record as of October 31, 2010 were paid their dividend on December 8, In a meeting held on November 18, 2011, the BOD unanimously approved the declaration of cash dividends in the amount of Twenty Five Million Pesos (P25,000,000) to stockholders of record as of November 8, 2011, subject to the availability of unrestricted retained earnings to cover said dividend declaration. The Company intends to pay said dividends in the first quarter of Treasury Shares Subject to the authorization of the SEC and the required corporate approvals, the Company may acquire its own Shares, provided that, it has unrestricted retained earnings to pay for the Shares to be acquired or purchased and only for a legitimate corporate purpose. The shares repurchased by the Company shall become treasury shares that may again be disposed of at a reasonable price as may be fixed by the Board of Directors. These Shares neither have voting rights nor dividend rights as long as they remain as treasury shares. Disclosure Requirements / Right of Inspection Philippine stock corporations are required to file a general information sheet which sets forth data on their management and capital structure and copies of their annual financial statements with the SEC. Corporations must also submit their annual financial statements to the BIR. Corporations whose shares are listed on the PSE are also required to file current, quarterly and annual reports with the SEC and the PSE. Shareholders are entitled to require copies of the most recent financial statements of the corporation, which include a balance sheet as of the end of the most recent tax year and a profit and loss statement for that year. Shareholders are also entitled to inspect and examine the books and records that the corporation is required by law to maintain. The Board is required to present to shareholders at every annual meeting a financial report of the operations of the corporation for the preceding year. Change in Control The Company s Articles and By-laws do not contain any provision that will delay, deter or prevent a change in control of the Company. Other Features and Characteristics of Common Shares The Common Shares are neither convertible nor subject to mandatory redemption. All of the Company s issued Common Shares are fully paid and non-assessable and free and clear from any and all liens, claims and encumbrances. All documentary stamp tax due on the issuance of all Common Shares has been fully paid. 44

45 MANUAL ON CORPORATE GOVERNANCE The Company has submitted its Manual on Corporate Governance to the SEC in compliance with Revised Code of Corporate Governance SEC Memorandum Circular No. 6 Series of The Company's policy of corporate governance is based on its Manual. The Manual lays down the principles of good corporate governance in the entire organization. The Manual provides that it is the Board s responsibility to initiate compliance to the principles of good corporate governance, to foster the long-term success of the Company and to secure its sustained competitiveness in a manner consistent with its fiduciary responsibility, which it shall exercise in the best interest of the Company, its shareholders and other stockholders. Two independent directors to wit, Mr. Harvey Keh and Mr. George Nava, sit on the Board. The Company espouses the definition of independence pursuant to the Securities Regulation Code. The Company considers as an independent director one who, except for his director's fees and shareholdings, is independent of management and free from any business or other relationship which, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director in the Company. The Manual embodies the Company s policies on disclosure and transparency, and mandates the conduct of communication and training programs on corporate governance. The Manual further provides for the rights of all shareholders and the protection of the interests of minority stockholders. Commission of any violation of the Manual is punishable by a penalty ranging from reprimand to dismissal, depending on the frequency of commission as well as the gravity thereof. The Compliance Officer shall be responsible for determining violation/s through notice and hearing and shall recommend to the Chairman of the Board the imposable penalty for such violation, for further review and approval of the Board. The Board of Directors has constituted certain committees to effectively manage the operations of the Company. The Company s principal committees of the Board of Directors include the Executive Committee, the Audit Committee, the Compensation Committee and the Nominations Committee. A brief description of the functions and responsibilities of the key committees are set out below: COMMITTEES OF THE BOARD Executive Committee The Executive Committee is composed of three (3) members of the Board of Directors. Currently, the Executive Committee comprises Joseph H. Calata, Benison Paul B. De Torres and George A. Nava. Joseph H. Calata is the Chairman of the Committee. The Executive Committee may act by majority of all its members, on such specific matters within the competence of, and as may be delegated by the Board of Directors. Audit Committee The Audit Committee provides an oversight of financial management functions, specifically in the areas of managing credit, market, liquidity, operational, legal and other risks and is primarily responsible for monitoring the statutory requirements of the Company. The Audit Committee is responsible for the setting up of an internal audit department and for the appointment of an internal auditor, as well as an independent external auditor. It monitors and evaluates the adequacy and effectiveness of the Company s internal control systems. It ensures that the Board is taking appropriate corrective action in addressing control and compliance functions with regulatory agencies. It also ensures the Company s adherence to corporate principles, best practices and compliance with the Manual on Corporate Governance. The Audit Committee 45

46 currently comprises Baltazar Endriga, George A. Nava and Jaime C. Laya. Baltazar Endriga is the Chairman of the Committee. Compensation Committee The Compensation Committee is primarily responsible for establishing a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of corporate officers who are receiving compensation from the Group. It is responsible for providing an oversight of remuneration of senior management and other key personnel and ensuring that compensation is consistent with the Group s culture, strategy and control environment. The Compensation and Remuneration Committee currently comprises Joseph H. Calata, Harvey S. Keh and Benison Paul B. De Torres. Joseph H. Calata is the Chairman of the Committee. Nomination Committee The Nomination Committee is primarily responsible for the review and evaluation of the qualifications of all persons nominated to positions requiring appointment by the Board and the assessment of the Board s effectiveness in directing the process of renewing and replacing Board members. The Nomination Committee currently comprises Joseph H. Calata, George A. Nava and Jose A. Zaide. George A. Nava is the Chairman of the Committee. Stock Transfer Agent BDOBDI UNIBANK, INC. TRUST AND INVESTMENTS GROUP shall act as the Stock Transfer Agent for the purpose of authenticating and registering transfer of the Offer Shares as set forth in the Stock Transfer Agreement. Other Securities and Options The Company has not issued any other form of securities other than its Common Shares nor has it granted or issued any options to any person. 46

47 RECENT ISSUANCE OF EXEMPT SECURITIES On August 17, 2011, Joseph H. Calata, Daniel C. Go and Garry Lincoln C. Taboso subscribed to 52,100,000, 21,500,000, and 12,500,000 common shares, respectively, at PhP1.00 per share. Joseph H. Calata s subscription is a private placement transaction from an existing stockholder, hence, an exempt transaction under Section 10.1(e) of the Securities Regulation Code. Daniel C. Go s and Garry Lincoln C. Taboso s subscriptions are also private placement transactions under Section 10.1(k) of the Securities Regulation Code. Accordingly, Notices of Exemption dated August 27, 2011 were filed for the 3 subscriptions with the Securities and Exchange Commission on August 31, On August 25, 2011, Joseph H. Calata, Herbert P. Lipana, Rollie S. Hailili, and Dennis V. Vistan subscribed to 75,000,000, 20,000,000, 14,000,000 and 16,000,000 common shares, respectively, at PhP1.00 per share. Joseph H. Calata s subscription is a private placement transaction from an existing stockholder, hence, an exempt transaction under Section 10.1(e) of the Securities Regulation Code. Herbert P. Lipana s, Rollie S. Halili s, and Dennis V. Vistan s subscriptions are also private placement transactions under Section 10.1(k) of the Securities Regulation Code. Accordingly, Notices of Exemption dated September 7, 2011 were filed for the 4 subscriptions with the Securities and Exchange Commission on September 9, On September 9, 2011, Joseph H. Calata, Ritchie Ramille F. Isip, and Zandro L. Zulueta subscribed to 90,000,000, 9,500,000 and 12,500,000 common shares, respectively at PhP1.00 per share. Joseph H. Calata s subscription is a private placement transaction from an existing stockholder, hence, an exempt transaction under Section 10.1(e) of the Securities Regulation Code. Ritchie Ramille F. Isip s and Zandro L. Zulueta s subscriptions are also private placement transactions under Section 10.1(k) of the Securities Regulation Code. Accordingly, Notices of Exempt Transaction dated September 7, 2011 were filed for the 3 subscriptions with the Securities and Exchange Commission on September 9, 2011 containing therein copies of the following documents: SEC Form 10-1, Subscription Agreement, and Audit Verification from an Independent Auditor. 47

48 LIST OF STOCKHOLDERS OF CALATA CORPORATION As of 31 December 2011 NAME NATIONALITY par value of P1.00/sh No. of Common Shares Amount Subscribed Amount Paid Resulting Equity (%) Joseph H. Calata Filipino 217,699,994 P217,699, P217,699, Melvin H. Calata Filipino 300, , , Jennibel H. Calata Filipino 50,000 50, , Carmelita H. Mariano Filipino 30,000 30, , Cherry Lou M. Dela Cruz Filipino 20,000 20, , Daniel C. Go Filipino 21,500,000 21,500, ,500, Garry C. Taboso Filipino 12,500,000 12,500, ,500, Herbert P. Lipana Filipino 20,000,000 20,000, ,000, Rollie S. Halili Filipino 14,000,000 14,000, ,000, Dennis V. Vistan Filipino 16,000,000 16,000, ,000, Zandro L. Zulueta Filipino 12,500,000 12,500, ,500, Richie Ramille F. Isip Filipino 9,500,000 9,500, ,500, Jose A. Zaide Filipino George A. Nava Filipino Jaime C. Laya Filipino Baltazar N. Endriga Filipino Harvey S. Keh Filipino Benison Paul B. De Torres Filipino TOTAL 324,100,000 P324,100, P324,100,

49 CAPITALIZATION The following table sets forth the balance of long-term debt and shareholders equity of the Company as of December 31, This table should be read in conjunction with the Company s audited financial statements, including the notes thereto, included elsewhere in this Prospectus. TOTAL LIABILITIES AND STOCKHOLDERS EQUITY As of Dec. 31, 2011 and as adjusted after giving effect to the Offer, the total liabilities and stockholders equity of the Company are as follows: Amount (in millions) Prior to the Offer As adjusted after giving effect to the Offer Trade and other payables P P Short-term loans Advances from related parties Income tax payable Dividends payable Pension liability Total liabilities Capital stock Additional paid in capital Retained earnings Total stockholders equity Total liabilities and stockholders equity 1, , SHARE CAPITAL On August 5, 2011, the Company has increased its authorized capital stock from PhP 1,000, divided into 1,000,000 shares with par value of PhP1.00 per share to PhP345,400, divided into 345,400,000 shares with par value of PhP1.00. On August 18, 2011, the Company has increased its authorized capital stock from PhP345,400, divided into 345,400,000 shares with par value of PhP1.00 per share to PhP845,400, divided into 845,400,000 shares with par value of PhP Authorized: 845,400,000 shares at PhP1.00 par value each in 2011 and 10,000 shares at PhP par value each in ,400,000 P1,000,000 Issued and outstanding: 324,100,000 shares at PhP1.00 par value each in 2011 and 10,000 shares at PhP par value each in 2010 P324,100,000 1,000,000

50 Subscriptions and full payment of stocks are made during the period on the following dates: August 17, 2011 P86,100,000 August 25, ,000,000 September 9, ,000,000 P323,100,000 The Company currently has a total of 324,100,000 issued and outstanding common shares. After the Offer, the Company will have a total of 360,112,000 issued and outstanding common shares. 50

51 DILUTION The shareholdings of current and new shareholders of the Company immediately before and after the Offer shall be as follows: Immediately Preceding the Offer Immediately After the Offer Shareholders No. of Shares % No. of Shares % JOSEPH H. CALATA 217,699, ,699, MELVIN H. CALATA 300, , JENNIBEL H. CALATA 50, , CARMELITA H. MARIANO 30, , CHERRY LOU M. DELA CRUZ 20, , DANIEL C. GO 21,500, ,500, GARRY LINCOLN C. TABOSO 12,500, ,500, HERBERT P. LIPANA 20,000, ,000, ROLLIE S. HALILI 14,000, ,000, DENNIS V. VISTAN 16,000, ,000, RICHIE RAMILLE F. ISIP 9,500, ,500, ZANDRO L. ZULUETA 12,500, ,500, BENISON PAUL DE TORRES DR. JAIME C. LAYA BALTAZAR N. ENDRIGA GEORGE A. NAVA AMB. JOSE A. ZAIDE HARVEY S. KEH IPO INVESTORS ,012, Total 324,100, ,112,000 Note: The dilutive effect of the issuance of the Offer Shares on the abovementioned shareholders prior to the Offer assumes that the Existing Shareholders will not subscribe to the Offer Shares. As of December 31, 2011, the Company s net tangible book value was PhP398,145, or PhP1.23 per Share. If the net proceeds in the estimated amount of 242,412, raised from the initial public offering of 36,012,000 shares of stock are received and recorded, it will result in an increase in net tangible book value of PhP0.55 per share to stockholders of the Company before the Offer, and a dilution of PhP5.74 per Share to those that will subscribe to the initial public offering. 51

52 The calculation of the net tangible assets per share before and after the Offer is presented below: Before the Offer Net Tangible Book Value As of December 31, 2011 Php 398,145,595 Total No. of Shares Issued and Outstanding 324,100,000 Book Value Per Share Php 1.23 Net Proceeds Gross Proceeds At PhP 7.50 per Offer Share 270,090, Less: Expenses At PhP 7.50 per Offer Share 27,677, Net Proceeds At PhP 7.50 per Offer Share 242,412, After the Offer Net Tangible Book Value plus Net Proceeds At PhP 7.50 per Offer Share Php640,558, Total No. of Shares Issued and Outstanding 360,112, Book Value Per Share At PhP 7.50 per Offer Share Php1.78 The following presents the dilution to the original stockholders as a result of the initial public offering: Before Offer After Offer Stockholders Number of Shares % Number of Shares % Existing shareholders 324,100, % 324,100, % Public % 36,012, % Total Issued and Outstanding 324,100, % 360,112, % 52

53 INCORPORATION GENERAL CORPORATE INFORMATION The Company is duly organized as a corporation under the laws of the Philippines and was registered with the SEC on July 23,1999. ARTICLES OF INCORPORATION AND BY-LAWS The Articles of Incorporation of the Company was approved by the SEC on July 23, The latest amended Articles was approved by the SEC on February 6, 2012 to include retail trade activities as part of its primary purpose. The By-Laws of the Company was registered with the SEC on July 23, 1999 and was amended on August 17, 2011 to incorporate the requirements of Section 38 of the Securities Regulation Code on Independent Directors and to prepare the Company for its Initial Public Offering. PRIMARY PURPOSE Under the Articles, the Company s primary purpose is tot conduct, engage in and carry on, as principal or otherwise, all lawful business activities involving livestock and agricultural business, corporate or otherwise, such as but not limited to the business of acquiring, raising, breeding, slaughtering, preserving, processing, packing, canning, enveloping, storing, marketing, exporting and commercially distributing livestock such as chicken, fowl, cattle, calves, hogs, goats, sheep, lambs, all kinds of livestock and other animals, as may be permitted by law, for food purposes; the business of cultivating land and other natural resources, planting, growing, producing, buying, preserving, processing, packing, canning, enveloping, storing, marketing, exporting and commercially distributing food and agricultural products including all kinds of goods, commodities, wares and merchandise of every kind and description whether natural or artificial as may be permitted by law; the business of manufacturing, preparing, stocking, packing, buying, selling, importing and exporting, dealing in and delivering all kinds of livestock and agricultural products such as but not limited to poultry, livestock, feeds, feed additives, fertilizers, pesticides, all types of chemicals and substances used for livestock and agriculture, and/or whatsoever materials which may be necessary or incidental to their manufacture or preparation inside or outside the Philippines and all kinds of materials and products and by-products arising out of or used in the breeding and slaughtering of poultry and livestock and all other agricultural activities for food purposes; and to direct, establish, construct, acquire, sell, lease, operate and maintain slaughterhouses, dressing plants, processing plants, refrigeration plants, cold storage, warehouses, sheds, silos, bodegas, storage bins and other buildings, facilities, structures and equipment necessary or expedient for the carrying out of the purposes aforesaid. CAPITAL STRUCTURE The Company has an authorized capital stock of Eight Hundred Forty Five Million Four Hundred Thousand (845,400,000) shares with a par value of One Peso (PhP1.00) per share or a total of Eight Hundred Forty Five Million Four Hundred Thousand Pesos (PhP845,400,000.00). Currently, the Company has Three Hundred Twenty Four Million One Hundred Thousand (324,100,000) shares with a par value of One Peso (PhP1.00) per share or a total of Three Hundred Twenty Four Million One Hundred Thousand Pesos (PhP324,100,000.00). The Company has no treasury shares. CORPORATE TERM The Company is authorized to exist for a term of 50 years from the date of its incorporation. This term may be renewed through an amendment to the Articles approved by the SEC. 53

54 BUSINESS YEAR The business year of the Company begins on the first day of January and ends on the last day of December of each year. APPROVALS The issue and sale of the Common Shares to the public was duly authorized by resolutions of the Board of Directors of the Company passed on November 25, 2011 and approved by the Stockholders owning at least two-thirds of the issued and outstanding capital stock. The Initial Public Offering and initial listing of the Offer Shares of the Company duly authorized by resolutions of the Board of Directors of the Company passed on November 25, 2011 and approved by the Stockholders owning at least two-thirds of the issued and outstanding capital stock. DOCUMENTS AVAILABLE FOR INSPECTION Copies of the Articles and By-laws are available for inspection by the Company s stockholders at the principal office of the Company, during normal business hours on any day on which such office is open for business. Copies may also be inspected at the office of the SEC. 54

55 COMMON STOCKHOLDERS Calata Corporation does not have any subsidiaries but has affiliate companies as a result of having common stockholders. Furthermore, Calata Corporation is not a stockholder in any of the following affiliate companies and does not have ownership over any of the following: Affiliate Name Calata Builders Inc Relationship with Calata Corporation Common Stockholders Joseph H. Calata (70%) Melvin H. Calata (10%) Jennibel H. Calata (10%) Cherry Lou M. Dela Cruz (5%) Carmelita H. Mariano (5%) TOTAL 100% Place of Registration Bulacan Business Operations Construction of Residential and Commercial Establishments Calata Farms Inc Calata Air Inc Avestha Holding Corp. (No current subsidiary) Agri Phil Corp. Seneca Farms Common Stockholders Joseph H. Calata (70%) Melvin H. Calata (10%) Jennibel H. Calata (10%) Cherry Lou M. Dela Cruz (5%) Carmelita H. Mariano (5%) TOTAL 100% Common Stockholders Joseph H. Calata (55%) Melvin H. Calata (15%) Jennibel H. Calata (15%) Cherry Lou M. Dela Cruz (5%) Carmelita H. Mariano (10%) TOTAL 100% Common Stockholders Joseph H. Calata (0.9%) Melvin H. Calata (0.9%) Jennibel H. Calata (0.9%) Non Calata Stockholders Eusebio C. Calata (48.6%) Isabel H. Calata (48.6%) TOTAL 100% Common Stockholders Joseph H. Calata (80%) Melvin H. Calata (5%) Jennibel H. Calata (5%) Cherry Lou M. Dela Cruz (5%) Carmelita H. Mariano (5%) TOTAL 100% Sole Proprietorship Joseph H. Calata Bulacan Bulacan Bulacan Bulacan Isabela Farm projects Aircraft Leasing Holding Company Retail Distribution Broiler Projects Calata Enterprises Gastin Corporation Sole Proprietorship Joseph H. Calata Common Stockholders Joseph H. Calata (79.9%) Melvin H. Calata (0.003%) Jennibel H. Calata (0.003%) Carmelita H. Mariano (0.003%) Non Calata Stockholder Eduardo L. Santos (20%) TOTAL 100% Makati Bulacan Liason Office Distribution of Agricultural Products 55

56 ORGANIZATIONAL STRUCTURE OF AFFILIATES Calata Builders, Inc. Name Board / Officer Shares % Joseph H. Calata Chairman and President 17,500 70% Melvin H. Calata Board Member and Corporate 2,500 10% Secretary Jennibel H. Calata Board Member 2,500 10% Carmelita H. Mariano Board Member 1,250 5% Cherry Lou M. Dela Cruz Board Member 1,250 5% Benison Paul B. De Torres Treasurer Calata Farms, Inc. Name Board / Officer Shares % Joseph H. Calata Chairman and President 35,000 70% Melvin H. Calata Board Member and Corporate 5,000 10% Secretary Jennibel H. Calata Board Member 5,000 10% Carmelita H. Mariano Board Member 2,500 5% Cherry Lou M. Dela Cruz Board Member 2,500 5% Benison Paul B. De Torres Treasurer Calata Air, Inc. Name Board / Officer Shares % Joseph H. Calata Chairman and President 13,750 55% Melvin H. Calata Board Member and Corporate 3,750 15% Secretary Jennibel H. Calata Board Member 3,750 15% Carmelita H. Mariano Board Member 1,250 5% Cherry Lou M. Dela Cruz Board Member 2,500 10% Benison Paul B. De Torres Treasurer Avestha Holding Corporation (No current subsidiary) Name Board / Officer Shares % Eusebio H. Calata Board Member 53, % Isabel H. Calata Board Member and Treasurer 53, % Melvin H. Calata Board Member 1, % Joseph H. Calata Chairman and President 1, % Jennibel H. Calata Board Member and Corporate Secretary 1, % Agri Phil Corporation Name Board / Officer Shares % Joseph H. Calata Chairman and President 20,000 80% Melvin H. Calata Board Member and Corporate 1,250 5% Secretary Jennibel H. Calata Board Member 1,250 5% 56

57 Carmelita H. Mariano Board Member 1,250 5% Cherry Lou M. Dela Cruz Board Member 1,250 5% Benison Paul B. De Torres Treasurer Gastin Corporation Name Board / Officer Shares % Joseph H. Calata Chairman and President 249, % Melvin H. Calata Board Member and Corporate % Secretary Jennibel H. Calata Board Member % Carmelita H. Mariano Board Member % Cherry Lou M. Dela Cruz % Eduardo L. Santos Board Member 62,500 20% Benison Paul B. De Torres Treasurer 57

58 ORGANIZATION CORPORATE STRUCTURE President/CEO Joseph H. Calata Administrative Supervisors and Special Projects Melvin H. Calata Jennibel H. Calata Corporate Secretary Jose Marie E. Fabella Chief Financial and Operations Officer Benison Paul B. De Torres Principal Accounting Officer Janet H. Santos Accounting Staff Operations Business Development Sales Manager Human Resource and Administration Credit and Collection Logistics Sales Manager for Chemicals Document Controller Payroll Purchasing Ware House Operations Manager Office Executive Assistants General Maintenance (House Keeping) Customer Relation 58

59 DIRECTORS AND SENIOR MANAGEMENT The Company s Board of Directors is responsible for over-all management and direction of the Company. The Board meets to review and monitor the Company s future plans. The Company has 7 directors. The table below sets forth each member of the Company s Board elected during the most recent annual stockholder s meeting held on November 25, 2011 and are to serve until the next annual stockholders meeting or until their successors have been duly elected and qualified. Name Mr. Joseph H. Calata Mr. Benison Paul De Torres Dr. Jaime C. Laya Mr. Baltazar N. Endriga Amb. Jose A. Zaide Mr. George A. Nava Mr. Harvey S. Keh Jose Marie E. Fabella Designation Chairman, President And Chief Executive Officer Chief Operating Officer, Chief Financial Officer Director Director Director Independent Director Independent Director Corporate Secretary JOSEPH HERNANDEZ CALATA, 31. Mr. Calata is the Chairman/President and Chief Executive Officer of Calata Corporation. Mr. Calata has served as Member of the Board of Directors from 1999 up to the present and has been Chairman of the Board from 2009 present. Mr. Calata shall serve as Chairman and member of the Board of Directors until August 31, 2012 and until his successor is elected and qualified. Mr. Calata is responsible for bringing the Company among the top 1000 Corporations in the Philippines and transforming it into the biggest combined distributor of Agro Chemicals Feeds, Fertilizers and Seeds in the country. A member of the Management Association of the Philippines, Mr. Calata started his professional career as a Trainee Manager of then Planters Choice Agro Products, Inc. Mr. Calata was given the Gintong Kabataan Award ng Bulacan and the Gawad Dangal ng Plaridel Award in Mr. Calata earned a degree of Bachelor of Science in Commerce, Major in Management of Financial Institutions from the De La Salle University. BENISON PAUL BAUTISTA DE TORRES, CPA, 31. Mr. De Torres has been the Chief Financial Officer of Calata Corporation since Currently, in addition to said position, Mr. De Torres is the Company s Chief Operations Officer. Mr. De Torres was elected for the first time to the Board of Directors last November 25, Mr. De Torres shall serve as member of the Board of Directors until August 31, 2012 and until his successor is elected and qualified. After passing the Certified Public Accountants Examination, Mr. De Torres joined the auditing firm of Villaruz, Villaruz and Co. as junior auditor. Thereafter, from 2004 to 2006, Mr. De Torres became an auditor of Sycip, Gorres, Velayo and Co. From , he assumed the position of Financial Services Manager of Prime Outsource Corporation. Mr. De Torres earned his Bachelor of Science in Accountancy at the Philippine School of Business Administration. JOSE MARIE E. FABELLA, 35. Atty. Fabella is the Corporate Secretary of Calata Corporation. He was elected last November 25, 2011 and shall serve as such until August 31, 2012 and until his successor is elected and qualified. He is a partner at Fabella and Fabella Law Office - a firm which specializes in the practice of Corporate and Securities Law and is currently Corporate Secretary and Legal Counsel to various publicly-listed companies. After being admitted to the Philippine Bar in 2005, he immediately engaged in the practice of law by joining several law 59

60 offices as an associate lawyer. Thereafter, he served as Securities Counsel III at the Securities Registration Division in the Corporation Finance Department of the Philippine Securities and Exchange Commission until January Apart from conducting lectures to listed companies, Atty. Fabella is an MCLE lecturer on Securities Law and a Masters of Law (Commercial Law) Candidate at the San Beda College Graduate School of Law. BALTAZAR N. ENDRIGA, CPA., 73, Mr. Endriga is a Director of Calata Corporation. He was elected last November 25, 2011 and shall serve as member of the Board of Directors until August 31, 2012 and until his successor is elected and qualified. Currently, Mr. Endriga holds the following positions: Managing Partner, Endriga, Manangu, Aguilar & Associates, Certified Public Accountants; Member National Executive Council National Movement for Free Elections (NAMFREL); President, Meridian International College of Business, Arts and Technology; Board Member, Miriam College Foundation; Board Member, Kalayaan College, Private Sector Champion: National Competitiveness Council for Efficient Public and Private Sector Management; President, Libagon Academy Foundation, Inc., Libagon, Southern Leyte, a Catholic Secondary Level Institution of Learning; Adviser, Board Member, Cultural Center of the Philippines; Board Member, CIBI Foundation, Inc.;Fellow, Institute of Corporate Directors (ICD); Fellow, Institute of Solidarity in Asia; Board Member, Association of Investment Professionals Phils., Inc. Previous Positions Board Member and Treasurer, Management Association of the Philippines ( ); President and Chief Academic Officer, University of the East (Up to June 28,2005); Board Member, UE Board of Trustees (Up to June 28, 2005); Board Member, UE Foundation for Research & Advanced Studies, Inc. (UE-FRASI) (up to June 28, 2005); President, UE- Center for Review & Special Studies, Inc. (Up to June 28, 2005); Chairman, Cultural Center of the Philippines (July 13, 2001 to July 12, 2003); President, Cultural Center of the Philippines (Sept. 1, July 12, 2001); President & CEO, Phil. Central Depository (The service company handling the scripless computer-based trading at the Phil. Stock Exchange) (August 1, 1998 to January 15, 1999); President, Andersen Consulting, Inc. (now Accenture) (February 1, 1993 to August 31, 1995); Partner, Sycip, Gorres, Velayo & Co. (SGV), CPA s (1974 to January 31, 1992) (SGV & Co. is now a member firm of the Ernst and Young Worldwide.); Started its computer consulting practice in 1974 and developed it into a 150-man strong Group by Set up the firm s computer audit capability; In-charge of Information Technology ConsultingDivision, the Advanced Systems Division; In-charge, the Financial Services Ind. Division;In-charge, Information Technology Division; In-charge, Computer Audit Group; In-charge, SGV Computer Center; President, Institute of Advanced Computer Technology (I/ACT) ( ); President, Financial Executives Institute of the Philippines (FINEX) (January December 1997); Board Member, Institute of Advanced Computer Technology ( ); Member, Advisory Board Metropolitan Bank & Trust Co.,(April April 2004); Consultant to the Board, Manila Doctors Hospital (April 1998 to 2002); Board Member, FINEX Research and Development Foundation, Inc. Past Affiliations Chairman, Quality Assurance Board for the Accounting Profession, Philippine Institute of Certified Public Accountants (PICPA) ( ); Chairman, Federation of Asian Cultural Promotion (February 1998 to January 1999); Chairman, Assn. of Asia Pacific Performing Arts Centre (November 1998 to January 1999); Chairman, Advisory Council, Philippine High School for the Arts (September 1995 to January 1999); Board Member, Film Development Foundation of the Phils. (August 1995 to January 1999); Commissioner, National Commission for Culture and the Arts (September 1995 to January 1999) 60

61 Past Employment Senior Consultant- Touche Ross & Co. (New York) (Now Part of Deloitte, Touche); Management Services Div., Involved in Computerized Information Systems (June 1,1969- December 31, 1970); Supervisor and Associate L.C. Diaz & Co., CPAs Auditing and Management Consulting ( ); Faculty Member U.P. Graduate School of Business Taught Managerial Accounting (1971); Faculty Member- Asian Institute of Management Taught Managerial Information systems (1971); Faculty Member, De La Salle University Graduate School of Business (2000); Bookkeeper and Private tutor (while in college) Educational Background Master of Business Administration, Harvard Business School (1968), (Johnson Foundation Scholar and Peter Deuticke Fellow); Graduate Studies in Economics, Ateneo de Manila Graduate of School of Economics; Bachelor of Business Administration, Magna Cum Laude, major in Accounting, University of the East; Certified Public Accountant, placed sixth in Board Exams; High School Education Libagon Academy, a Catholic High School, In Libagon, Southern Leyte (1 st to 3 rd Year); UST High School 4 th Year; Elementary Education Public School in Libagon, Southern Leyte Leadership Positions / Membership in Organizations President, Financial Executives Institute of the Philippines (FINEX) (January to Dec. 1997); Chairman, Cultural Committee, Rotary Club-Makati West, 1986; Organized a Natl. Open Competition for the Arts, Apr. 1986; President, MANINDIGAN ( ) (a cause-oriented organization of young business leaders); Market Area Adviser for NAFTA- appointed by DTI for the Philippine Export Development Plan; President, Information Technology Assn. of the Phils. (ITAP) (1993 and 1994); Private Sector Representative to the National Information Technology Council ( ); Chairman, Committee on Environment Bishops-Businessmen s Conference (BBC)( ); Head of Mission, Phil. Software Export Mission to the U.S. (Sept. 1987); President, Philippine Computer Society ( , ); President, Phil. Assn. of Management Accountants (PAMA) (1978); Vice-President, National Assn. Of Accountants- Philippine-International Chapter (1976); Chairman, Committee on Computer Technology, ASEAN Federation of Accountants (1982 to 1989); Annual National Convention Chairman, Philippine Institute of Certified Public Accountants (1972); Chairman, PICPA Committee on Electronic Data processing ( ); Vice-President, Harvard Business School Association of the Philippines (1972) Recent Professional Training (selected) Philippine Institute of Certified Public Accountants (PICPA); Various seminars and workshops on Philippine Financial Reporting Standards (PFRS), Philippine Standards on Auditing (PSA), BIR Updates, Corporate Governance, Professional Ethics Institute of Corporate Directors (ICD); Various intensive courses on corporate governance Awards Most Outstanding CPA in Professional Development PICPA (1985); Most Outstanding Alumnus in Business Management, UE Alumni Association (1991); Most Outstanding CPA in Public Accounting PICPA (1994); Outstanding Alumnus in Business 2008, University of Sto. Tomas. HARVEY S. KEH, 30. Mr. Keh is an Independent Director of Calata Corporation. He was elected last November 25, 2011 and shall serve as member of the Board of Directors until August 31, 2012 and until his successor is elected and qualified. 61

62 Mr. Keh graduated from the Ateneo de Manila Quezon City in 2000 with a degree of Bachelor of Science, Major in Psychology and was Secretary-General of the Sanggunian ng mga Mag-aaral (University Student Council/Government). Currently, he holds the following positions: April Present, Asia Society Philippines, Executive Director; January 2007-Present, Ateneo de Manila University, Director for Youth Leadership and Social Entrepreneurship, School for Governance; January present, Mc Bride PET Corporation, President and Executive Director; June Present, Synergia Foundation, Founding Member, Board Member and Treasurer; Past Positions June 2007 to October 2009, Ateneo de Manila University Lecturer, Department of Theology; April December 2006, Ateneo de Manila University, Founder and Executive Director, Pathways to Higher Education Program Philippines; November March 2006 Ateneo de Manila, Parttime Faculty, Department of Theology; August 2003-February 2004, January April 2006, October February 2010, Radio Veritas, Radio Broadcaster and Commentator; August December 2006, Peoples Taliba (Newspaper), Columnist; August February 2004, The Manila Times, Columnist; , Ateneo de Manila Quezon City, Philippines, Project Officer/ Asst. Director of Student Activities; , Ateneo de Manila Quezon City, Philippines, Part-time Faculty, Department of English; 2000, Ateneo de Manila Quezon City, Philippines, Part-time Faculty, Department of Theology Socio- Civic Activities Lead Convenor and Board Member, Philippines 21 Young Leader Program, Asia Society- Philippines, Lead Convenor, Kaya Natin! Movement for Good Governance and Ethical Leadership, Columnist and Contributor, Abante and The Manila Bulletin Fellowships/ Awards Received The Outstanding Young Men of the Philippines (TOYM) 2010, For the Good Governance and Public Education; Fellow, Mirant Center for Bridging Social Divide, Asian Institute of Management (AIM); Fellow, Asia 21 Young Leaders Program, Asia Society (New York); Featured at the Philippines Yearbook 2006, The Fookien Times JOSE ABETO ZAIDE, 68. Ambassador Zaide is a Director of Calata Corporation. He was elected last November 25, 2011 and shall serve as member of the Board of Directors until August 31, 2012 and until his successor is elected and qualified. Ambassador Zaide graduated with the degree of Bachelor of Arts in Economics at the Ateneo de Mania University in Currently, he writes for the Manila Bulletin under the segment Below the Line. Prior to this, his professional experience is as follows: Ambassador to France and permanent Delegate to UNESCO2006- Nov 2008; Ambassador to Portugal and Monaco (nonresident); Chief of Protocol, Department of Foreign Affairs, Manila, ; Ambassador to the Federal Republic of Germany ; Ambassador to Austria and permanent Representative to the International Atomic Energy Agency (IAEA), United Nations Industrial Development Organization (UNIDO) and UN Organization in Vienna (UNOV); Ambassador to Slovenia and Croatia (non Resident); Assistant Secretary for European Affairs, DFA Manila1995; Assistant Secretary for Asia Pacific Affairs 1993; Charge d Affaires, d.m., Philippine Embassy, Moscow, ; Minister, Philippine Embassy, Brussels, ; First Secretary and Consul General, Philippine Embassy, New Delhi, ; Executive Director, Office of European Affairs, DFA Manila, ; Director for Western European Affairs, Office of European Affairs, DFA Manila, 1983; Second Secretary and Consul, Philippine Embassy, Bonn, ; Vice Consul, Philippine Consulate General, Hamburg, ; Special Collecting Officer, Foreign Service Staff Employee I, PCG, Hamburg, ; Clerk, DFA Manila,

63 Decorations and Other Skills Awardee of German Grand Cross by the President of the Federal Republic of Germany for Distinguished Service; Awardee of Grand Cross of Austria by the Minister of Foreign Affairs for Distinguished Service, including official visit of Philippine President; Isabela la Catolica, conferred in connection with the visit of H.M. the King of Spain and for written editorial enhancing Philippine-Spanish bilateral relations; Knight of Rizal, KOR 1984, Knight Commander of KOR 1999, founded Vienna Chapter 1999, founded Berlin Chapter 2002; Author of Bababa ba? Anecdotes of a Foreign Service Officer ; Fluent in English and Filipino, advanced German, basic French and Spanish. JAIME C. LAYA, CPA, Ph.D., 72. Dr. Laya is a Director of Calata Corporation. He was elected last November 25, 2011 and shall serve as member of the Board of Directors until August 31, 2012 and until his successor is elected and qualified. Dr. Laya graduated B.S.B.A (Accounting) Magna Cum Laude at the University of the Philippines in 1957 and placed 8 th in the 1957 CPA Board Exams; M.S. (Industrial Management), Georgia Institute of Technology, 1961; Ph. D. (Financial Management), Stanford University, He was likewise awarded the following honors: Doctor of Laws (honoris causa), Philippine Women s University; Doctor of Humanities (honoris causa), Mindanao State University, 1980; Ten Outstanding Young Men (TOYM) Awardee (Business Education),1967; Outstanding CPA in Government, Philippine Institute of Certified Public Accountants, 1979; Lifetime Achievement Award, Association of Certified Public Accountants in Public Practice, 2007; Distinguished Achievement Award, Philippine Institute of Certified Public Accountants, Currently, Dr. Laya holds the following positions: Chairman, Philtrust Bank, Dual Tech Foundation, Inc., Don Noberto Ty Foundation, National Commission for Culture and the Arts- National Committee on Monuments Sites; Director, Victorias Miling CompanyInc.(listed company), Philippines AXA Life Insurance Co., Inc., GMA Network, Inc.(listed company), GMA Holdings Inc.(listed company), Ayala Land, Inc.(listed company), Philippine Ratings Services Corporation, Philippines- Mexico Business Council; Trustee, Cultural Center of the Philippines; De La Salle University Taft, St. Paul University Quezon City, Metropolitan Museum of Manila, Yuchengco Museum, Manila Polo Club, CIBI Foundation Inc., Heart Foundation of the Philippines, Inc., Fundacion Santiago, American Historical Collection Foundation Inc., Opera Guild of the Philippines; Cofradia de la Immaculada Concepcion, Society for Cultural Enrichment, Inc., and others; He is a Columnist at the Manila Bulletin. Past Positions Minister of Education, Culture and Sports and Chairman, University of the Philippines and other State Universities and Colleges, ; Minister of the Budget, ; Chairman of Monetary Board and Governor, Central Bank of the Philippines, ; Chairman, National Commission for Culture and the Arts, as private sector representative in the cultural heritage sector, ; Professor of Business Administration and Dean, College of Business Administration, University of the Philippines, ; Action Officer, Intramuros Administration (old city restoration project), ; President, Philippine Trust Co., (Philtrust Bank), ; Founder & Chairman, J.C. Laya & Co. (Later named Laya Mananghaya & Co.,-- now Manabat Sanagustin & Co.,-- Philippine member firm of KPMG International) which grew to become one of the Philippines largest auditing consulting firms, ; Chairman and President, Association of Certified Public Accountant in Public Practice, 2003, AC PAPP Foundation, Inc, 2004 International Organizations President, Southeast Asian Ministers of Education Council, ; Chairman, Ad Hoc Working Group on International standards of Accounting and Reporting, United Nations Centre on Transitional Corporations, ; Chairman/ Member of the Philippine Delegations to the 63

64 International Monetary Fund and International Bank for Reconstruction and Development, Southeast Asian Central Banks Association, United Nations Educational, Cultural and Scientific Organizations (UNESCO) and other Meetings. Memberships Management Association of the Philippines; Financial Executives Institute of the Philippines; Philippine Institute of Certified Public Accountant; Rotary Club of Manila Books Fiscal Management and Finance, Financial Management in the Philippines (1979); Philippine Budget Management (1980); A Money and Banking; A Crisis of Confidence; Gearing for Recovery (1982); A Period of Adjustment (1983); Education A Question of Quality (1985); Moving Forward in Education (1986); Culture: Intramuros of Memory (1983) Written with Esperanza B. Gatbonton; Prusisyon: Philippines Religious Pageantry (1996). Written with Lourdes Tesoro Catañeda; Letras y Figuras: Culture in Business, Business in Culture (2001) A collection of the Author s papers on culture and the arts. Awarded by Manila Critics Circle as best Collection of Essays. 2001; Consuming Passions: Philippine Collectibles (editor, 2003), awarded by the Manila Critics Circle as Best Anthology, 2003; Potluck, Hidalgo Bonding: A family Heritage Cookbook (co-editor, 2006); Sta. Ana Church: A historical Guide 92008); Hidden Treasures, Simple Pleasures (2009). Written with Mariano C. Lao and Eriberto B. Bravo GEORGE A. NAVA, 63. Mr. Nava is an Independent Director of Calata Corporation. He was elected last November 25, 2011 and shall serve as member of the Board of Directors until August 31, 2012 and until his successor is elected and qualified. Mr. Nava graduated in 1971 with a course on Mechanical Engineering at the Mapua Institute of Technology and placed 1 st at the Mechanical Engineering Board Exam. In 1981, Mr. Nava practiced as a Professional Mechanical Engineer. In 1982, He took MBA units at the Ateneo De Manila for two years. In 1989, He graduated from the Swiss Feed Milling School in Uzwil, Switzerland. Mr. Nava has 25 accumulated years of service with San Miguel Corporation from Project Engineer to Vice-President/General Manager. He also has 41 years of experience as a Mechanical Engineer including 3 years of teaching at the National University. Other positions held are as follows: Vice President, San Miguel Purefoods Company Inc., ; Vice President/ Gen Manager, Feeds Business San Miguel Foods Inc., ; Concurrent Vice-President/ General Manager, Philippine Nutrition Technology Inc., ( a joint venture of SMPFC and Taiwan Nutrition Technology Inc.) ; Vice President and Regional Cluster Director, San Miguel Purefoods Company Inc., ; President, Philippine Association of Feed Millers Inc., ; Member, Board of Directors, Philippine Nutrition and Technology Inc., ; Member, Board of Directors, San Miguel Purefoods Company Inc., Vietnam, MELVIN H. CALATA, 35. Mr. Calata is currently one of the Administrative Supervisors and Cochairman of Special Projects for Calata Corporation. He was a member of the Board of Directors from 1999 to November 25, He was likewise Chairman of the Board of Directors from He was Corporate Secretary and General Manager of the Company from 2009-November 25, Mr. Calata is a holder of a Post Graduate Degree of Bachelor of Civil Laws at the Philippine Law School. He earned his undergraduate degree of Bachelor of Science Major in Biology at the De La Salle University. His affiliations are as follows: Senior Warden of the Free and Accepted Masons, Quingua Lodge No. 364, Member of the Bulacan Chamber of Commerce and Industry and Member of the Plarideleno Business Club, Inc. Mr. Calata was awarded as Outstanding Alumni of Centro Escolar University Malolos, Bulacan for Entrepreneurship. 64

65 JENNIBEL H. CALATA, 26. Ms. Calata is currently one of the Administrative Supervisors and Co-chairman of Special Projects for Calata Corporation. She was a member of the Board of Directors from 1999 to November 25, 2011 and was Corporate Secretary of the Company from Ms. Calata is a holder of a Bachelor s Degree in Hotel, Restaurant and Institution Management from the De La Salle University St. Benilde. 65

66 EXECUTIVE COMPENSATION Information as to the aggregate compensation during the last 2 fiscal years paid to the Company s 5 most highly compensated executive officers, and all other officers and directors, as a group, are as follows: Compensation 5 Most Highly Compensated Officers SUMMARY COMPENSATION TABLE Annual Compensation (PhP) Bonus Other Compensation Joseph H. Calata Benison Paul B. De Torres Arnold Pajarillo Vergel Formaran Janet H. Santos Total 3,504,000 4,056,000 4,584, Total Compensation of Other Unnamed Officers 1,000,000 1,000,000 1,000, TOTAL 4,504,000 5,056,000 5,584, Currently, employees of the Company do not receive supplemental benefits or incentive arrangements. Compensation of Directors Under the By-Laws of the Company, by resolution of the Board, each director, shall receive a reasonable per diem allowance for his attendance at each meeting of the Board. As compensation, the Board shall receive and allocate an amount of not more than 10% of the net income before income tax of the Company during the preceding year. Such compensation shall be determined and apportioned among directors in such manner as the Board may determine, subject to the approval of stockholders representing at least majority of the outstanding capital stock at a regular or special meeting of the stockholders. As of date, the directors have yet to pass a resolution fixing their per diem. There are no other arrangements for compensation either by way of payments for committee participation or special assignments. There are also no outstanding warrants or options held by the Company s Chief Executive Officer, other officers and/or directors. Family Relationships There are no family relationships either by consanguinity or affinity up to the 4 th civil degree among the above-identified key officers of the Company. However, Mr. Joseph H. Calata (President and CEO of the Company), Mr. Melvin H. Calata (Administrative Supervisor and Co- 66

67 chairman for Special Projects), and Ms. Jennibel H. Calata (Administrative Supervisor and Cochairman for Special Projects), are siblings. Involvement in Certain Legal Proceedings The Company is not aware of the occurrence during the past 5 years of any of the following events that are material to an evaluation of the ability or integrity of any director or executive officer: 1. Any bankruptcy petition filed by or against any business of a director, nominee for election as director, or executive officer who was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; 2. Any director, nominee for election as director, or executive officer being convicted by final judgment in a criminal proceeding, domestic or foreign, or being subject to a pending criminal proceeding, domestic or foreign, excluding traffic violations and other minor offenses; 3. Any director, nominee for election as director, or executive officer being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, commodities or banking activities; and 4. Any director, nominee for election as director, or executive officer being found by a domestic or foreign court of competent jurisdiction (in a civil action), the Commission or comparable foreign body, or a domestic or foreign exchange or other organized trading market or self - regulatory organization, to have violated a securities or commodities law or regulation, and the judgment has not been reversed, suspended, or vacated. 5. Any director, nominee for election as director, or executive officer being found by a court of competent jurisdiction to have violated the provisions of the National Internal Revenue Code, and the judgment has not been reversed, suspended, or vacated. EMPLOYEES As of the date of this Prospectus, the Company has one hundred six (106) regular employees broken down as follows: President and CEO (1), Chief Financial Officer and Chief Operations Officer (1), 13 managerial and 91 rank and file employees.provided hereunder is a breakdown of rank and file employees: Accounting Staff (3), Bulacan Operation (1), Checker (9), Collection Staff (1), Collector (8), Distributor s Sales Representative/Personnel (16), Driver (19), Distributor s Sales Personnel Farm Aide Technician (2), Distributor s Sales Representative Farm (1), Executive Assistant Bulacan (1), Executive Assistant Makati (1), Farm Aide Technician (6), HR Assistant (1), Internal Audit (1), Inventory Audit (1), Inventory Clerk (1), Key Account Sales Representative (2), Logistics Head (1), Mechanic (1), Mechanic Helper (2), Messenger (2) MIS Officer (1), Office Personnel-Pampanga (2), Office Staff- Makati (1), Office Staff-South NE (1), Sales Coordinator (2), Sales Officer (1), Vet. Med. (1), Warehouse Maintenance (1), Warehouse Staff (1). The planned construction of distribution outlets may require additional hiring to support the same, the number of which cannot be determined until completion of the said activities. Employee Contracts and Termination of Employment and Charge-In-Control Assignments 67

68 All regular employees have duly executed employment contracts which can be terminated due to any of the following reasons: unsatisfactory performance or failure to meet reasonable standards set by the management, failure to comply with terms and conditions of the contract, and for any cause or causes allowed under Philippine laws after complying with the statutory requirements for such termination. Significant Employees Although based on the Organizational Chart, the Company has key officers (President and CEO, CFO and COO and Corprorate Secretary, the Company s business is not highly dependent on the services of any particular employee. Collective Bargaining Agreements The Company has no collective bargaining agreements with its employees and there are no organized labor organizations in the Company. The Company complies with the minimum compensation and benefits standards pursuant to Philippine law. The Company has not experienced any disruptive labor disputes, strikes or threats of strikes and the Company believes that its relationship with its employees in general is satisfactory. WARRANTS AND OPTIONS There are no outstanding warrants and options held by any of the Company s directors and executive officers. 68

69 INFORMATION WITH RESPECT TO THE COMPANY HISTORY In 1976, a retail store in Plaridel, Bulacan started selling rice grains through a small retail store called Melvin s Trading, named after the Calatas newborn son. With a capital of only PhP30,000.00, the business was modest with just one helper. Four years after, they changed the store s name into J-Melvin s Trading with an addition of another son, Joseph, into the family. With the family growing, it was decided upon to add to the business by means of selling feeds. In 1983, J-Melvin s Trading was approached and offered to carry agricultural chemicals. The chemicals were initially sold per bottle. As the business grew, J-Melvin s Trading upgraded and sold the chemicals per box, and not long after, per truckload. Combining good business sense with hard work, quality service, and a mission to give back to the community, the store grew into what later became known as Planters Choice Agro Products Inc., incorporated on July 23, 1999 as an agricultural products distribution company. The Company s initial authorized capital stock of PhP1,000, divided into 10,000 common shares with a par value of PhP On February 22, 2010, the Company obtained approval from the SEC for the change in its corporate name to Calata Corporation. In August 17, 2011, the SEC approved the Company s application for increase in its authorized capital stock from PhP1,000, divided into 10,000 common shares with a par value of PhP per share to PhP345,400, divided into 345,400,000 shares with a par value of PhP1.00 per share. Thereafter, in August 25, 2011, the SEC approved a further increase in the Company s authorized capital stock to PhP845,400, divided into 845,400,000 shares with a par value of PhP1.00 per share. On February 6, 2012, the Company amended its primary purpose as a prelude to its plans to create a subsidiary to handle its retail business. In the Philippines, the Company carries the distinction of being the leading and most complete distributor for all products available in the agricultural industry. It is the country s largest combined distributor of agro-chemicals, feeds, fertilizers, veterinary medicines and other agricultural products coming from manufacturers or business partners, such as San Miguel Corporation for B-Meg Feeds and veterinary products; Syngenta, Bayer, Jardine, Dupont, Sinochem,, for agrochemicals;; East West Seeds, Monsanto, Planters Products for agricultural seeds; and Swire, Viking for fertilizers. The Company is an emerging leader in the Philippine Agricultural Industry utilizing effective marketing strategies, strong business partnerships, as well as modern technology to accurately monitor sales and client records. The Company has increased its annual revenues from roughly PhP200 Million in 2003 to more than PhP1.8 Billion in 2010 equivalent to an 800% increase in revenues for the past 7 years of operation. 69

70 FEEDS DISTRIBUTION BUSINESS FLOWCHART FEEDS SMFI, INC. B-MEG CALATA Bulacan Pampanga Pangasinan Nueva Ecija North Nueva Ecija South DEALERS Bulacan Pampanga Pangasinan Nueva Ecija North Nueva Ecija - South 70

71 AGRO CHEMICALS, FERTILIZERS, SEEDS DISTRIBUTION FLOWCHART CHEMICALS SYNGENTA Bayer CB Andrew Asia, Inc. Jardine Distribution, Inc. Leads Agricultural Products Corp Planters Products, Inc Sinochem Crop Protection (Phil), Inc. FERTILIZERS Yara International ASA, et al. OTHERS MONSANTO PHILIPPINES, INC. East West Seeds, et al. CALATA CORPORATION BULACAN DEALERS 71

72 NON-EXCLUSIVE LIST THE DISTRIBUTION PRODUCTS OF CALATA CORPORATION AS OF 2011 Provided hereunder is an non-exclusive list of distribution products of the Company, some of which have been described using their generic names: A. HOGS FEEDS FEED TYPE DESCRIPTION BRAND PIGLET BOOSTER This is a supplement or milk replacer if the milk supply of the sow is inadequate to feed the piglets, given to piglets from 5 to 20 days of age. B-meg Premium Baby Pig Booster PRE- STARTER This feed type is given to pigs from 21 to 50 days of age and weighing about 5 to 12 kilograms. B-meg Premium Hog Pre- Starter Pellet B-meg Dynamix Hog Pre- Starter Pellet STARTER Given to pigs weighing about 12 to 25 kilograms and 51 to 80 days of age B-meg Premium Hog Starter Pellet B-meg Dynamix Hog Starter Pellet B-meg Expert Hog Starter Crumble B-meg Expert Hog Starter Mash B-meg Jumbo Hog Starter Mash GROWER Next given to pigs when they are about 25 to 60 kilograms and 81 to 120 days of age B-meg Bonanza Hog Grower Pellet B-meg Dynamix Hog Grower Pellet1 B-meg Dynamix Hog Grower Pellet3 B-meg Expert Hog Grower Pellet / Mash B-meg Jumbo Hog Grower Mash B-meg Premium Hog Grower Pellet FINISHER Given when pigs reach 60 to 80 kilograms or about 121 to 145 days of age. B-meg Bonanza Finisher Pellet B-meg Expert Finisher Pellet B-meg Premium Finisher Pellet 72

73 GESTATION/BREEDER Feed type given to gilt/sow from 1 to 100 days of conception B-meg Bonanza Hog Gestating Pellet B-meg Bonanza Hog Breeder Pellet B-meg Dynamix Hog Gestating Pellet1 B-meg Dynamix Hog Gestating Pellet2 B-meg Expert Brood Sow Pellet1 B-meg Expert Brood Sow Mash B-meg Jumbo Hog Brood Sow Mash B-meg Jumbo Hog Gestating Mash B-meg Premium Hog Gestating Pellet LACTATION Given to sow from 101 days of conception to farrowing and from the start of suckling period to weaning B-meg Expert Brood Sow Pellet2 B-meg Jumbo Hog Lactating Mash B-meg Premium Hog Lactating Pellet B. BROILERS FEED TYPE DESCRIPTION BRAND CHICK BOOSTER 1-10 days old B-Meg BroilerCom Chick Booster Pureblend Premium Chick Booster Crumble Pureblend Essential Chick Booster Crumble B-Meg Integra 1000 STARTER days old B-Meg BroilerComStarterCrumbl e B-Meg BroilerComStarterMash Pureblend Premium Broiler Starter Crumble Pureblend Essential Broiler Starter Crumble B-Meg Integra 2000 FINISHER days old B-Meg BroilerComFinisherCrumb le Pureblend Premium 73

74 Broiler Finisher Crumble/Pellet Pureblend Essential Broiler Finisher Crumble/Pellet B-Meg Integra 3000 C. PULLETS AND LAYERS FEED TYPE DESCRIPTION BRAND STARTER 0-18 weeks old B-meg Chicken Layer Starter Mash LAYER 19 weeks old B-Meg Chicken Layer Crumble B-meg Chicken Layer Mash B-Meg Chicken Layer Pellet Pureblend Chicken Layer Crumble Pureblend Chicken Layer Mash D. FIGHTING COCKS FEED TYPE DESCRIPTION BRAND CHICK BOOSTER 0-15 days B-Meg Derby Ace Chick Booster Crumble STARTER 16 days- 3 months B-Meg Derby Ace Junior Starter Crumble DEVELOPER 3-5 months B-Meg Derby Ace Stag Developer Pellet CONDITIONER Pre-fight B-Meg Derby Ace Power Conditioner Pellet BREEDER LAYER Brood Hens B-Meg Derby Ace Breeder Layer Pellet PRE CONDITIONER Maintenance B-Meg Derby Ace Pre- Con-50kg E. OTHER FEEDS Pureblend Premium Duck Layer Pellet 74

75 Pureblend Regular Duck Layer Pellet Pureblend Quail Layer Mash B-Meg Pigeon Pellet MOLLUSCICIDES AGRO CHEMICALS An agent used in controlling golden apple snail, popularly known as golden kuhol, which is one of the major pest problems in rice production. Newly transplanted rice seedlings are vulnerable to golden kuhol up to 15 days after transplanting. Product List: HERBICIDES Aquadin Kuhol Kill Primalex Sure Bayluscide Maso RiceSaver 25SC Surekill Bayonet Metabait Sakuhol Trap Doblado Niclomax SnailKill Exos Niclos Stop Hit Porsnail SuperKill A chemical pesticide designed to control or destroy plants, weeds, or grasses. Herbicides tend to have wide-ranging effects on non-target species (other than those the pesticide is meant to control or kill). Product List: Advance EC Grassedge Rainbow Tornado Round-up Agroxone Grastop 70EC RiceBro Triple 2,4-D Amine Sencor Almix Red Hedonal RiceStar Xtra Vast 2,4-D Ester Sharpshooter Amine 2, 4-D Klick Rogue EC Axle SL160 Slash Advice Londax Ronstar Clear Out Stand-Out Clincher Hedonal Sofit Demolition 16SL Touchdown Devast Machete EC Sonic Gramoxone Weed Blaster (R) Direk 800 Nominee Super 2,4D Ester Lebron 160SL Weedban Ester 24-D Onecide Super Herbicide Massive Exceed Post Herb 10%SC Tiara SC50 Mower EC Gallant Pyanchor 5EC TopShot Power INSECTICIDES A chemical used specifically to kill or control the growth of insects. Farmers spray insecticides like Dichlorovas, Carbofuran, Cypermethrin, Chlorpyrifos and Lambda- Cyhalothrin to insects such as stem borers, sap feeders, defoliators and grain/root feeders. Product List: Actara Cymbush Mesurol SuperLambda 25 EC Agri-Mek 1.8EC Cypex liter + Mighty Crop Nurelle Superquick Alika Dantop Oshin 20SG Tango Applaud Decis 2.5 Padan Tamaron Arnis Dichlorvos Panlaban Top Rank 50SP Ascend Etrofolan Parapest Trebon Attack Extreme Pegasus Trigard 75

76 Baythroid 050 Fenos Pennant Tsunami Bida Flash Perfecthion Vapona Bigathrin Fuerza Prevathon Vasthrin 5EC Bigboss Furadan ULTRA Pro Axis Vectron 10EW Blizzard 50SP Hercules Provado Supra Victor 20WP Boxer Hopcin Rampage Vindex Boltrin Hytox Rimon Voliam Flexi Breaker 31.5 EC Ingram 50 SP Selecron Wave 2.5EC Brodan Karate EC Sevin Wildkid Bug Buster Lakas 5 EC Siga WokTap Bulldock Lannate Slam! 2.5EC Xentari Bushwack Lanus Smash Zorro Carbomax 3G Larvin Solomon Cardinal Lebaycid Starkle Cartap ES Legend Steward Chess 50- WG Lorsban Sumicidin Chix Magnum Sumithion Confidor Malathion Super Cartap Cruiser 350 FS Marshall 200SC Super Insecticide Cyclone Matador Super Seven FUNGICIDES A fungicide is a chemical pesticide compound that kills or inhibits the growth of fungi 1. () In agriculture, fungicide is used to control fungi that threaten to destroy or compromise crops. Product List: Aliette Curzate Goldazim Ridomil Gold Amistar Daconil Ivazeb Score Antracol WP70 Dithane Kocide Sundazim Anvil 5 SC Folicur WP25 Manager Venom Armure Fundazol 50WP. Marthseb 80 WP Vondozeb Armor Fungitox Micron Benomyl Fungufree 80WP Previcur N Benophyl Funguran Revus 250 SC Benostar 50 WP Gardenil Rovral FOLIARS AND GROWTH STIMULANTS Products used to create a synergistic effect to dramatically speed up vegetative growth and increase root mass for a healthier plant and root system. Product List: Agrowell GNSO Hoestick Siam Bloom Anaa-1000ml Golden Mango Set Humus WSG 56.9 Siam Grower Algafer GreenBee All Purpose Kasunod Foliar Star Foliar Orange Atonik Stimulant Grobest Maxigrain Star Foliar Yellow Bayfolan Growmax Pink Mega Booster Steady 10 WP Berelex - Tablet Growmax Orange Mega F21 Stimulate 1 Definition taken from 76

77 Cal-Guard r Haifa Grow MegaBoom Stoller CaB Crop Giant Orange Harvest More Nevirol Wokozim Crop Giant Yellow Harvest More Orgamin Xemas Cultar Harvest More Peters Yield Master DeltaSpray Harvest More Peters Zinc Metalate Ethrel 24 X 500ml Harvest More Peters X-Rice (X-Factor) FG Power Foliar Harvest More Peters Flower Power Harvest Richer Root Feed Fruit Power Hormex Stand RODENTICIDES These are chemical substance used to kill rats, mice, and other rodent pests. Product List: Klerat+Bitrex Racumin Ratkill Zinc Phosphide TERMITICIDE A chemical substance used as an effective form of termite control for residential, commercial, and industrial use. Product List: Biflex Hometrek Leadrex Lentrek Termex FERTILIZERS A fertilizer is a substance containing one or more recognized plant nutrients that is used for its plant nutrient content or that is designated for use, or claims to have value, in promoting plant growth. Fertilizers enhance the natural fertility of the soil or replace the chemical elements taken from the soil by previous crops. Recognized plant nutrients include: 1. Primary nutrients Nitrogen Phosphorous Potassium 2. Secondary nutrients Calcium Magnesium Sulfur 3. Micronutrients Boron Manganese 77

78 Chlorine Molybdenum Cobalt Sodium FERTILIZER GRADES UREA (46-0-0) Markang Bulaklak Swire Universal Harvester Viking Sinochem Copper Zinc Iron AMMONIUM SULFATE (21-0-0) Markang Bulaklak Sunrise Swire Universal Harvester AMMONIUM PHOSPHATE ( ) Philphos Swire Universal Harvester Atlas POTASH (0-0-60) OTHERS Atlas Zircon Philphos Swire Zircon UH Zircon Atlas kgs. Viking Zircon Bulaklak SEEDS Product List: Bitter Gourd Hot Pepper Pumpkin Sweet Pepper Cabbage Pechay Ridge Gourd Tomato Cauliflower Mustaza Patola Watermelon Radish Onion Bottle Gourd Sweet Corn Cucumber Papaya Sitao DK818RRC2/YG Eggplant Carrot Snap Beans DK9132RRC2/YG Glutinous Corn Okra Cow Pea 78

79 BUSINESS FLOW OF OPERATIONS WITH DEALERS / CUSTOMERS Buy SmartDraw!- purchased copies print t document without a watermark. Visit or call Customers or buyers of feeds, fertilizers and other products should provide requirements before making transactions and entering into dealership agreements. The Company determines the product-related requirements specified by the customer (whether verbal or written) before acceptance of an order. Customer requirements include the following: Delivery and post-delivery activities Not stated by the customer but essential for specified use or known and intended use Previous customer requirements which pertain to products currently being ordered Statutory and regulatory requirements related to the product 79

80 Any additional requirements determined by the Company. Prior to committing to the customer, the Company has a process in place for the review of requirements related to the product. The review is conducted before the order is accepted. The process ensures that: Products requirements are defined. In case the contract or order requirements differ from those formerly expressed, the sales or the appropriate departments are notified and the differences resolved before the order could be processed. Records are maintained showing the results of the review and any actions arising therefrom. Customer requirements are confirmed before acceptance. In the event that product requirements are changed, the Company promptly communicates changes to its personnel and amends relevant documents. Customers may transact through cash or credit transactions. Credit terms range from seven (7) days to ninety (90) days depending upon the evaluation and discretion of the Company. Furthermore, it is mandatory for the Company to investigate the credit-worthiness and qualification of the customer through investigation and if satisfactory, the customer shall be allowed to proceed in complying with all necessary requirements. The documents submitted shall be reviewed by the management before sales transactions are made. Customer s satisfaction shall translate to customer s payment. To ensure that the Company meets and satisfies the customer's expectations, it highlights effective customer communication as an essential element of customer satisfaction. Appropriate handling of customer communication will help reduce customer dissatisfaction and in many cases turn a dissatisfying scenario into a satisfying experience. The Company conducts post-delivery activities which include any after-sales product service provided as part of the purchase order. The Customer Relations and Sales Departments are responsible for establishing communication methods to ensure inquiries, contracts or order handling, including amendments, and customer feedback, customer complaints are communicated through telephone, , fax or letter. Customers can also send their inquiries and other concerns through These are handled expeditiously and professionally. The registration of the products sold by the Company should be the primary responsibility of the manufacturer/supplier. The Company only deals with reputable manufacturers/suppliers. On this basis, the Company assumes that all products it distributes are duly registered. DISTRIBUTION OF SALES AS REPORTED IN THE AUDITED FINANCIAL STATEMENTS December 31, 2011 December 31, 2010 December 31, 2009 Feeds P1,048,487, ,901, ,154,296 Fertilizers 487,913, ,819, ,328,819 Chemicals 442,938, ,365, ,603,649 Seeds 22,371,771 14,064,618 8,152,028 TOTAL P2,001,710,303 1,259,151,387 1,159,238,792 As reported in the Company s Audited Financial Statements for the fiscal year ended December 31, 2011, more than half of the Sales of the Company come from its feeds (52%). Sales derived from fertilizers constitute 24% while sales derived from agro chemicals constitute 22%. Finally, sales from seeds form only 1 % of the total sales. CALATA CORPORATION WAREHOUSES 80

81 WAREHOUSE ADDRESS AREA Maximum Capacity Warehouse (Bulacan) N.E. South Warehouse N.E. North Warehouse Pangasinan Warehouse Pampanga Warehouse Cabyawan, Plaridel, Bulacan San Antonio, San Leonardo, Nueva Ecija Sto. Domingo, Nueva Ecija Carriedo, Tayug, Pangasinan Lagundi, Mexico,Pampanga 5471 sqm 22,000 50kg bags of feeds and fertilizers and 25,000 cartons of agro chemicals and seeds 500 sqm. 8,000 50kg bags of feeds 300 sqm. 3,000 50kg bags of feeds 1,300 sqm. 5,000 50kg bags of feeds 406 sqm. 2,500 50kg bags of feeds Calata Corporation s affiliate company Avestha Holding Corporation (Avestha) owns the Warehouse in Plaridel, Bulacan. The stockholders of Avestha are the following: Eusebio C. Calata (48.6%), Isabel H. Calata (48.6%), Melvin H. Calata (0.9%), Joseph H. Calata (0.9%), Jennibel H. Calata (0.9%). Josefina M. Ongcuangco, businesswoman and owner of JMO Agri Trading Corporation owns N.E. North Warehouse located in San Antonio, San Leonardo, Nueva Ecija. Mr. Amado Santos, a self-employed businessman owns the N.E. North Warehouse located in Sto. Domingo, Nueva Ecija. Atty. Rolando M. Rivera, a retired law practitioner owns the Pangasinan Warehouse located at Carriedo, Tayug, Pangasinan. Mr. Nestor Sotto, a selfemployed businessman owns the Pampanga Warehouse located in Lagundi, Mexico, Pampanga. MAJOR SUPPLIERS/BUSINESS PARTNERS OF CALATA CORPORATION FEEDS SAN MIGUEL FOODS, INC. San Miguel Corporation has always been the vanguard in providing high-quality products and services to Filipinos. And today, the San Miguel seal of excellence will be found on most Filipino tables through its popular and well-loved food and beverage brands. In 1953, when it first ventured into the feeds manufacturing business, San Miguel went one step further in its drive to feed the nation. Using bacillus megatherium, a growth promotant derived from its beer brewing operations, it began supplying quality animal feeds for poultry and hog raisers nationwide. Since then, the San Miguel feed manufacturing business has grown by leaps and bounds. In 1955, it registered its flagship brand B-MEG with the Bureau of Animal Industry, giving it the distinction of getting BAI Registration Certificate No 1. From a one-ton feedmill at the San Miguel Polo Brewery, to the Manila B-MEG Plant in Balintawak, to more than 25 strategically-located feedmills that produce B-MEG products nationwide raisers are assured of fresh, high quality B-MEG feeds for the growth of their livestock 2. TERMS OF PAYMENT : 30 days 2 Company description taken from the supplier s website: 81

82 PRODUCT LIST Hog Feeds B-MEG Premium Hog Feeds B-MEG Dynamix Hog Feeds Pureblend Hog Feeds B-MEG Expert Hog Feeds Bonanza Hog Pellets Jumbo Hog Mash Poultry Feeds B-MEG Premium Layer Pureblend Layer B-MEG Expert Layer B-MEG Layer (Regular) B-MEG Premium Broiler Pureblend Broiler B-MEG Broiler (Regular) PBX Broiler B-MEG Integra Gamefowl Feeds B-MEG Derby Ace AGROCHEMICALS SYNGENTA PHILIPPINES INC. Syngenta is a leader in agriculture across the globe, bringing retailers and growers improved management solutions. With a workforce of about 300 (Philippines), Syngenta carries the company s commitment to help growers raise the productivity and quality of their crops. It provides crop protection products for rice, fruits, vegetables, corn, and even ornamentals 3. OFFICE ADDRESS : 12/F Two World Square 22 Upper McKinley Town Center Fort Bonifacio, 1630 Taguig City TERMS OF PAYMENT : 60 days PRODUCT LIST Actara Agri-mek Alika Amistar Apron Armure Chess 3 Company description taken from the supplier s website: 82

83 Cruiser Cultar Cymbush Gramoxone Karate Metabait Pegasus Revus Ridomil Gold Score Selecron Sofit Touchdown Trigard Voliam Flexi FERTILIZERS YARA INTERNATIONAL ASA Yara International ASA is the world s leading chemical company that converts energy, natural minerals and nitrogen from the air into essential products for farmers and industrial customers. As the number one global supplier of mineral fertilizers, it helps provide food and biomass which can be used for renewable energy for a growing world population. Yara s industrial product portfolio includes environmental protection agents that prevent air pollution. Yara s global workforce with more than 7,300 employees represents the great diversity and knowledge that enables it to remain a leading performer in the industry. It is headquartered in Oslo with operations in more than 50 countries and sales to about 150 countries 4. OFFICE ADDRESS : Unit 1404 Antel 2000, 121 Valero St. Salcedo Village, 1227 Makati City TERMS OF PAYMENT : 30 days PRODUCT LIST Viking Urea Viking Yara Liva Tropicote Yara Liva Nitrabor Yara Vita Magtrac Yara Vita Zintrac Yara Vita Bortrac Yara Mila Complex Yara Mila Hydran Yara Mila Winner Yara Vera Amidas 4 Company description taken from the supplier s website: 83

84 SEEDS MONSANTO PHILIPPINES, INC. Monsanto Philippines, Inc. is a wholly owned subsidiary of Monsanto Company, an American company which is the producer of leading seed brands in large-acre crops like corn, cotton, and oilseeds (soybeans and canola), as well as small-acre crops like vegetables. Monsanto Company also produce leading in-the-seed trait technologies for farmers that are aimed at protecting their yield, supporting their on-farm efficiency and reducing their on-farm costs 5. OFFICE ADDRESS : 7 th Floor, Ayala Life-FGU Center Alabang-Zapote Rd., Cor, Acacia Ave. Madrigal Business Park, Alabang, Muntinlupa City TERMS OF PAYMENT : 90 days PRODUCT LIST CORN SEEDS DK818RRC2/YG DK9132RRC2/YG OTHER SUPPLIERS BAYER CROPSCIENCE, INC. Bayer CropScience is one of the world s leading innovative cropscience companies in the area of crop protection, non-agricultural pest control, seeds and plant biotechnology. It develops and markets high performance, trusted and innovative products. Bayer CropScience has about 20,700 employees located in more than 20 countries 6. OFFICE ADDRESS : 3/F Bayer House, Canlubang Industrial Estate, Canlubang, Calamba, Laguna PLANT ADDRESS : Canlubang Industrial Estate, Canlubang, Calamba, Laguna TERMS OF PAYMENT : 75 days PRODUCT LIST Aliette Axle Bayfolan Baythroid Confidor Ethrel Fenos Gaucho Antracol Basta Bayluscide Bulldock Decis-R Etrofolan Folicur Hedonal 5 Company description taken from the supplier s website: 6 Company description taken from the supplier s website: 84

85 Hercules Hopcin Lebaycid Nominee Provado Supra Rampage Ronstar Sencor Solomon Vindex Hoestick Larvin Mesurol Pennant Racumin Ricestar Xtra Rovral Sevin Tiara Zinc Phosphide C.B. ANDREW ASIA, INC. C.B. ANDREW ASIA, INC. is a chemical company engaged in the manufacture and sales of various industrial specialty and agricultural chemicals based in Manila, Philippines. The Company markets its products both locally and in the regional markets. Formerly known as Prochem Technology Asia-Pacific, Inc., the company was founded in 1991, initially supplying the local pulp & paper mills but has been exporting to the region since 1996 and to North America since Through time, the Company has expanded its product scope to include herbicides and related products for agricultural applications 7. OFFICE ADDRESS : 2 nd Floor NOL Bldg, Commerce Avenue, Madrigal Business Park, Ayala, Alabang, Muntinlupa City PLANT ADDRESS : Building Y-2, J.Y. and Sons Compound, Philippine Veterans Center, Western Bicutan, Taguig City TERMS OF PAYMENT : 90 days PRODUCT LIST Amine 2, 4-D Clear Out Guarantee Stand Out DU PONT FAR EAST, INC. Du Pont Far East Inc. - Philippines, is a subsidiary of E.I. DuPont de Nemours & Co., Inc.- U.S.A., DuPont has been delivering the miracle of science in the Philippines since DuPont in the Philippines repackages crop protection products and produces high-grade hybrid corn seeds. Founded in 1802, the company employs more than 140 employees and operating in more than 70 countries 8. OFFICE ADDRESS : GT Tower International, Ayala Avenue, Makati City PLANT ADDRESS : Carmelray, Laguna 7 Company description taken from the supplier s website: 8 Company description taken from the DuPont Company Profile 85

86 TERMS OF PAYMENT : 60 days PRODUCT LIST Curzate M4 Londax 10WP Almix 20WP Lannate 40SP Steward Prevathon 5SC Kocide JARDINE DISTRIBUTION, INC. A member of the Jardine Matheson group and working within the framework of Jardine Engineering Corporation, HK, Jardine Distribution Inc. is a wholesale distributor of agricultural and applied construction chemicals. Originally part of Jardine Davies Inc. group. Jardine Davies acquired its name in 1974, after James Matheson & Co. of Hongkong bought into Theo H. Davies & Co., Ltd of Hawaii. Jardine Davies was one of the first foreign-held Philippine companies to be publicly owned and listed on the Philippine Stock Exchange. The company was formally organized in 2004 incorporating the agricultural and construction chemical divisions of Jardine Davies 9. OFFICE ADDRESS : 2/F Jardine Building, JM Compound, Faraday Street corner Osmeña Highway Makati City TERMS OF PAYMENT : 60 days PRODUCT LIST Agroxone Anvil Applaud Bayonet Chix Clincher Dantop Hometrek Legend Lorsban Nurelle Omex-Bio 20 Omex- Calmax Paclo Padan Porsnail Ricesaver Slash Steady Sumicidin Sumithion Surekill Tornado Vondozeb LEADS AGRICULTURAL PRODUCTS CORPORATION Leads Agri is a 100% Filipino-owned corporation that has incessantly competed with global conglomerates. Since its incorporation in February 11, 1997 and its actual start of operation in April 1997 it has emerged as one of the leading agrochemical companies in the country. At present, the entire LEADS family has more than a hundred dynamic and highly motivated employees Company description taken from the supplier s website: 10 Company description taken from the Leads Company Profile 86

87 OFFICE ADDRESS : Unit 1208 Paragon Plaza, EDSA corner Reliance St., Mandaluyong City, Phils. TERMS OF PAYMENT : 60 days PRODUCT LIST Advice Biflex Bug Buster Chaku Domarr Pro Flymax Golden Mango Set Malathion Marshall Mega Booster Mower Pyzero Rimon Stop Take off Victor Armor Blade Cartap Dichlorvos Ester 2,4 D Furadan Ultra Leadrex Manager Matador Mega F21 Niclos Rapture Starkle Sure Vectron PLANTERS PRODUCTS, INC. Planters Products was established in 1963 as a multinational corporation called Esso Standard Fertilizer and Agricultural Chemical Company. In 1970, it was purchased by the country s largest cooperative of sugar planters, the Sugar Producers Cooperative Marketing Association, and renamed Planters Products. The main business of Planters Products, Inc. is the manufacturing, production, trading and marketing of agro-chemical products. At present, the company has 19 brands of crop protection chemicals consisting of insecticides, herbicides, fungicides, plant nutrition, molluscicides, rodenticides and termiticides 11. OFFICE ADDRESS : 109 Esteban St. Legaspi Village, Makati City TERMS OF PAYMENT : COD SINOCHEM CROP PROTECTION (PHIL.) INC. Sinochem is part of the Sinochem International Corporation. It has diverse business interests in logistics, chemicals distribution and trading, integrated rubber business, and agrochemicals. Sinochem International s solid performance characterized by rapid growth and stability follows that of its parent company, Sinochem Corporation, which has been named to Fortune Global 500 for more than 20 times, ranking the 168th in OFFICE ADDRESS : 22F, Tower II, Insular Life Corporate Centre, Insular Life Drive, Filinvest Corporate City, Alabang, 1780 Muntinlupa 11 Company description taken from the Planters Products Company Profile 12 Company description taken from the supplier s website: 87

88 TERMS OF PAYMENT : Machete & New Brands = 60 days Round-up & Power= 90 days PRODUCT LIST Advance Direk Power Rogue Wave Blizzard Machete Primalex Round-up EAST WEST SEED COMPANY East West Seed Co. was established in the Philippines in 1982 by Simon Groot, a Dutch agriculturist who saw the need for seeds that were adapted to local conditions in Asia. At the time, the vegetable seed industry in Southeast Asia was little more than a seed trading system. No one was doing vegetable plant breeding, which involves years of trials, selection, crossing and investment. Simon Groot saw the opportunity for locally-developed hybrid seeds, and all the remarkable characteristics they were known for, like higher yields, better disease tolerance, better shelf life and extended growing seasons 13. OFFICE ADDRESS : Km. 54 Cagayan Valley Road, Barangay Sampaloc, San Rafael, Bulacan TERMS OF PAYMENT : 30 days PRODUCT LIST Bitter Gourd Cauliflower Cucumber Hot Pepper Mustaza Papaya Okra Ridge Gourd Bottle Gourd Snap Beans Sweet Corn Sweet Pepper Watermelon Cabbage Radish Eggplant Pechay Onion Carrot Pumpkin Patola Sitao Cow Pea Glutinous Corn Tomato 13 Company description taken from the supplier s website: 88

89 BUSINESS STRATEGY As part of the Company s vision to fortify its leadership as the country s largest combined distributor of agro-chemicals, feeds, fertilizers, veterinary medicines and other agricultural products, the Company intends to effectively carry out the following business strategies: Distribution The Company aims to effectively implement its business strategy with respect to its distribution business with the objective of (1) increasing product awareness, (2) increasing market presence and (3) improving customer and market knowledge. Increase product awareness. The Company conducts promotional activities with the objective of making the customers aware of the Company s products and its benefits. Specifically, the Company conducts the following: 1. Raffles Every purchase of the Company s distribution products at set amounts entitles a customer to a corresponding raffle stub, the winner of which shall be drawn at set dates. Prizes vary but are attractive enough to encourage customers to have a constant recall of the products to purchase in order to participate in the raffle. 2. Brochure Distribution The Company consistently distributes pamphlets and brochures as a means to introduce and update its distribution products to the public. Strategic locations are chosen for the distribution such as cockpits, farms and residential areas. 3. Event Sponsorships The Company provides sponsorships to special events such as Derby s, Fiestas and other local celebration. In exchange, the Company is given the full right to advertise its products and create additional awareness to the consuming public. Increase market presence. The Company intends to increase market penetration by securing placements in dealers that are not yet selling its distribution products. It also aims to further increase the share of its products that are being sold by dealers. 1. Mobile Stores The Company sends off mobile stores with advertisements on its distribution products. In the process, it gives samples and giveaways and promotes its dealers within the area covered. 2. Dealer Incentive and Loyalty Reward Programs In order to encourage dealers to increase the distribution products of the Company in their inventory, the Company gives attractive cash rebates per volume sales met. On the part of consumers, the Company implements a loyalty rewards program which entitles a customer to a certain amount of discount or any other amenity as set by the Company. Improve customer and market knowledge. The Company intends to teach our customers on the use of the latest products and technology thru farm trials, seminars, etc. 1. Farm Aid Technician and Medical Mission The Company creates a demand or its distribution products and improve customer and market knowledge by sending its Farm Aid Technicians and Veterinarians to visit hog growers, farmers and other end users to discuss its distribution products and its benefits. Moreover, the Farm Aid Technicians and Veterinarians establish a relationship with them by taking care of their livestock thru constant check ups and free vaccinations and other medicine. 89

90 Retailing 2. Barangay Seminars The Company also hosts seminars in the locality on how to improve farmers yield with their livestock and other agricultural products and at the same time introduces the Company s distribution products. Expansion of market share. The Company intends to expand its market share in the distribution business by venturing into retailing its distribution products. As soon as the Company secures the necessary approvals from the SEC and PSE in relation to its capital fund raising activity it shall establish a chain of Calata Corporation Retail Stores under a newly created and wholly-owned subsidiary. With this, no form of indebtedness to the Company on the part of the subsidiary will be created as the Company will be the owner of said subsidiary. The Company intends to have up to one hundred percent (100%) ownership. The organizational structure has yet to be finalized although the Company plans to put several members of its management team in the board of directors to ensure that the profitability of the subsidiary will be maximized. All sales derived from the operations of the subsidiary will be reflected in its books as its own revenue. The subsidiary s revenues may not be directly transferred to the Company. However, as a wholly-owned subsidiary, its financial statements, including the revenue, shall be consolidated with the Company upon submission of the Consolidated Audited Financial Statements. A detailed discussion is provided under the section on Plans and Programs of this Prospectus on page 147. The Company has an existing affiliate Agri Phil Corp. (Agri Phil) which is likewise engaged in retail distribution. However, it is worthy to note that Agri Phil shall not be in competition against the Calata Retail Stores for the following reasons: (1) The Calata Retail Stores shall be strategically located insofar as it will not encroach upon the operations of Agri Phil. Currently, Agri Phil is located in Luzon and has no plans of expanding nationwide since it is intended to be a private and family-owned corporation. On the other hand, Calata Corporation intends to put up its retail stores all over the Philippines in the future. However, subsequent acquisition is a possibility if ever the current stockholders of Agri Phil decide to enter into such negotiations. (2) Agri Phil is considered a customer since it purchases all its distribution products from Calata Corporation. Farms Expansion and diversification to operations related to the existing business. The Farming Operations of the Company will not be funded in whole or in part by the proceeds from the intended Initial Public Offering. Nevertheless, for the purpose of fully describing all the current and future operations of the Company, it is worthy to note that the Company intends to expand operations in other agriculture related industries like livestock farming operations. There are four main farm projects in which the Company is venturing: a) Hog Breeding (piglet production); b) Hog Growing (Hog production); c) Broiler breeding (production of eggs for hatching of chicks) d) Broiler Growing (Broiler production). A detailed discussion is provided under the section on Plans and Programs of this Prospectus on page 147. The Company has an existing affiliate - Calata Farms, which is likewise engaged in farming operations. Calata Farms was intended to be a private and family-owned corporation and was incorporated before the Company s plans to become a publicly-owned corporation. However, considering that Calata Corporation has decided to venture into the same business, the Company is carefully studying beneficial partnerships such as the consolidation of Calata Farms operations with that of the Company s and other forms of business arrangements subject to the approval of the proposed terms by all parties. 90

91 In summary, the effective implementation of the Company s business strategies shall enable it to capitalize on its competitive strengths and continue to effectively implement its marketing, sales and distribution techniques as well as increase profitability. COMPETITIVE STRENGTHS Comprehensive Range of Products Calata Corporation is the only company which has a comprehensive range of distribution products such as feeds, agro chemicals, seeds, fertilizers and veterinary medicines. Most competitors are limited only to the business of distribution of either feeds, agrochemicals or fertilizers alone. Aggressive Distribution Strategies 1. The Company strictly implements a full truck load policy. Telemarketers of the Company contact each customer in order to fill up underutilized trucks before deployment from the warehouse. The customers are segregated by area and our people instantly know which customers to contact and what products they are most likely to buy. 2. The Company makes use of its extensive customer database to identify buying patterns and specific needs of each customer. This in turn is used by the Company to proactively book orders from the customers based on their previous buying patterns while communicating new information to customers that will entice them to buy more like new promotional activities for certain products that will most likely result in increased demand. 3. The Company ensures fast processing of orders and quick delivery to customers by implementing a Next Day Delivery Policy. The Company has its own fleet of trucks as well as regular suppliers of trucking services to ensure that this policy is met even in peak season. 4. The Company has sales field personnel that are assigned specific areas and physically visit customers to book orders and handle any customer feedback and relay it to the Company for appropriate action. Established Work Processes 1. Computerized Sales, Logistics and Accounting Systems. The Company has implemented a back office system that allows its key management to (a) track inventory at any time in each warehouse, (b) determine daily sales by product, (c) measure the performance and profitability of the Company. 2. Systematic Customer Credit Approval System. The Company has its own set of documentary requirements and an independent team that conducts its own proper credit investigation for prospective customers. This reduces the incidence of bad debts. 3. Separate Sales and Credit Collection Teams. The Company has its own credit and collection team that is separate from the sales team to ensure that the company s credit and collection policy is properly followed. This is to minimize collection losses. In connection to this, the Company has established a Quality Manual enumerating Quality Procedures and Instructions which have been created and currently being implemented to meet the requirements of PNS ISO 9001:2008. The Company s Quality Manual mirrors the ISO standard and has been customized to its business. 91

92 Furthermore, said Quality Manual covers the Company s requirements and procedures in the application of a Quality Management System which is intended to comply fully with ISO 9001:2008 as a means of offering the best service and ensure the products to satisfy customer requirements. This Quality Manual represents the scope of Calata Corporation s Quality Management System, refers to the procedures established, identifies the relationships between the procedures and processes established, and defines the interaction between these processes to improve standards which have been successful in achieving, and in those areas where performance is wanting. Attractive growth prospects The Company is easily able to expand and diversify to other related businesses due to its fully established documented work processes and tested computerized systems. As a result expansion is made with less cost and effort in a shorter span of time. Strong market position The Company has a strong market position due to its long partnership with leading manufacturers such as B-Meg (the country s number one feeds brand), Syngenta (the world s number one crop protection company), Monsanto (the world s number one seed company in the world), and other established multinational product manufacturers such as Bayer, Jardine, Dupont and Sinochem. MARKETING, SALES AND DISTRIBUTION The Company conducts the following Marketing, Sales and Distribution techniques: 1. Company Technicians go to end users for product awareness and demand creation by sharing scientific and economic data regarding animal growth and explaining how the Company s products can better augment their livelihood and profitability as against other existing products in the market. 2. The Company conducts seminars to: (a) entice non-farmers to enter into the piggery business and; (b) educate farmers in using the latest technologies carried by the Company. 3. Company Technicians approach the end consumers in order to inform them of existing promotions. 4. The Company increases its brand visibility by: (a) posting ads in public utility vehicles and public places, (b) through sponsorships in major local fiestas, (c) improving the store presentation of existing dealers. 5. To increase its customer base, the Company provides free consultation services and free product samples to potential customers. 6. The Company implements dealer incentive programs in order to increase their monthly sales. 7. The Company has various warehouses strategically located in four different provinces to cover the entire distribution area. 8. The company has its own fleet of trucks to cover more than 1,000 dealers and customers. These trucks are serviced by in-house mechanics to ensure an uninterrupted service. 92

93 RESEARCH AND DEVELOPMENT The Company is engaged in the business of distribution of agro-chemicals, feeds, fertilizers, veterinary medicines and other agricultural products. Product research and development is conducted primarily by its key suppliers and business partners. 93

94 COMPETITION In the feeds distribution business, the Company is an exclusive distributor of B-Meg Feeds in the following areas: Nueva Ecija North and South NUEVA ECIJA NE- South NE-North # of Dealers 1 Aliaga Bongabon Cabanatuan Cabiao Carranglan Cuyapo Gabaldon Gapan Gen. Tinio 9 9 Gen. 10 Natividad Guimba Jaen Laur Licab Llanera Lupao Muñoz Palayan Pantabangan Peñaranda Quezon 8 22 Rizal San antonio San Isidro San Jose San Leonardo Sta. Rosa Sto. Domingo Talavera Zaragosa 2 2 TOTAL Bulacan BULACAN # of Dealers 1 Angat 16 2 Balagtas 4 94

95 3 Bustos 10 4 Bulacan 7 5 Baliuag 36 6 Bocaue 3 7 Calumpit 13 8 Guiguinto 8 9 Hagonoy Malolos Marilao 4 12 Norzagaray 8 13 Pandi Paombong 3 15 Plaridel Pulilan San Rafael Sta. Maria 38 TOTAL 248 East Pangasinan EAST PANG # of Dealers 1 Asingan 9 2 Alcala 5 3 Balungao 3 4 Bautista 1 5 Bayambang 6 6 Natividan 5 7 Rosales 2 8 San Nicolas 3 9 San Quintin 1 10 Santa Maria 6 11 Santo Tomas 1 12 Tayug Umingan 9 14 Villasis 4 TOTAL 65 Pampanga PAMPANGA # of Dealers Angeles Arayat 8 3 Candaba 4 Mabalacat 5 5 Macabebe 95

96 PAMPANGA # of Dealers 6 Magalang 17 7 Masantol 1 8 Mexico 16 9 Minalin 3 10 San Fernando City 7 11 Santa Ana 3 12 Santo Tomas TOTAL 66 There are at least twenty seven (27) major feed brands competing with B-Meg in the aforementioned areas, namely: Goldmix, Highgrade, Pigrolac, Phimico, Altlas, Robina, Feed Pro, GMP, CJ, I Feeds, Denka, Premijum Valiant, Sunjin, Hover, Purina, Danway, New Hope, Excel, Ace, Global, Vitarich, Amigo, Mulitive, Viking, Monarch, Master Gain and Legend. Based on survey from gathered field data on the sale of feeds, the Company, through the sale of its B-meg Feeds, leads other brands being sold in its respective areas of operations. Brand Bulacan Nueva Ecija Nueva Ecija Pampanga Pangasinan North South B-MEG 37% 24%-25% 18%-20% 10%-15% 30%-35% Pigrolac 17% 24%-25% 18%-20% 10%-15% 30%-35% Philmico 12% 10%-15% Others (in the 46% 50%-51% 50%-52% 55%-70% 30%-40% aggregate) TOTAL 100% 100% 100% 100% 100% The Company has aggressive distribution strategies that outstands the other distributors. Calata s computerized system contains an extensive customer database that is used to identify the buying patterns and needs of each of its customers and to guarantee the implementation of Next Day Delivery Policy of the Company. The Company is also engaged in distributing other agricultural products which it has no exclusivity arrangements. In ensuring Calata s visibility in the market, the Company posts ads in public utility vehicles and public places. The Company also sponsors local government festivities such as fiesta events and improvement of its existing dealers stores. Considering however that the Company is still in its preliminary process of fortifying its market share in the business of agrochemical, fertilizer and seed distribution as well as defining its specific areas of operation through the planned establishment of its retail stores, identification of actual competitors and data gathering on sales may not yield accurate results as of the time being. CALATA CORPORATION SUPPLIERS WITH EXISTING SUPPLY CONTRACTS SUPPLY CONTRACTS FEEDS San Miguel Foods, Inc. (B-Meg Feeds) CHEMICALS TERM / LENGTH OF CONTRACT Annual Renewal Annual Renewal 96

97 Syngenta Bayer CropScience Sinochem Crop Protection (Phil) Inc. Jardine Distribution, Inc. (Chemical) Asia Gold Trading Leads Agricultural Product Corporation CropChem Corporation(Biostadt Philippines Inc.) Cropking chemical Inc. Bongabon Farmers Trading (Sole Proprietor) Aldiz, Inc. Planters Products, Incorporated United Linkage Marketing (Sole Proprietor) Leads Environmental Health International Veterinary & Agrochemical Inc. Vast Agro Solutions, Inc. JAT Agrifarm Enterprises, Inc. Integrated Crop Trading Corporation Pest Master (St. Anne Agro Trading) C.B. Andrew Asia, Inc. (Pro-Chem Agritech, Inc.) Samson Agricultural Supply (Sole Proprietor) Global Stoller Philippines, Inc Igpami Mktg., Corp. Tillermate Enterprises SRB Commercial (Sole Proprietor) PHILOR Marthdave Co., Ltd. Zagro Corporation FERTILIZERS Yara International ASA Aurey Wy (Sole Proprietor) AgroTech Agricultural Products C & T Poultry and Agricultural Supply (Sole Proprietor) MVT Fertilizer Traders Company, Inc. VETERINARIES San Miguel Foods, Inc. Adrem Distribution Specialist, Inc. JFL Agri-Ventures (Sole Proprietor) Meditech Veterinaries SEEDS Monsanto Philippines, Inc. East West Seed Company, Inc. Jenny Perez (Sole Proprietorship) Annual Renewal Annual Renewal Annual Renewal 97

98 Jardine Distribution, Inc. (Seeds) Pioneer Hi Bred Philippines Incorporated OTHERS Progressive Poultry Supply Corp Tambo (Cracked Corn & Corn Grits) Randy Rosario (Sprayer & Sprayer Parts)(Sole Proprietor) Annual Renewal SUPPLY AND DISTRIBUTION AGREEMENTS In general, all supply and distribution agreements are renewed on a yearly basis. Renewal may be express when parties opt to execute a written agreement or implied when parties continue to do business dealings with each other such as taking of orders of supplies. Except for its exclusive distribution agreement with San Miguel Foods, Inc. (Feeds), Syngenta Philippines, Inc. (Agro Chemicals) and Monsanto Philippines, Inc. (Seeds), the Company does not usually have duly executed distribution agreements with the rest of its suppliers of agro chemicals, fertilizers and seeds. Furthermore, based on industry practice, actual exclusive distribution agreements are not issued on a yearly basis. In the case of non-exclusive distribution agreements no formal agreement is executed except for some. Instead, certifications are issued to attest that the Company is a distributor of the pertinent supplier products indicating therein exclusivity or nonexclusivity. However, for other non-exclusive suppliers, certifications are not even given since supply of the products continues for so long as the Company places an order. Nevertheless, to substitute the absence of supply and distribution agreements, the Company strictly enforces proper documentation of transactions with suppliers. The Company religiously fills up Purchase Orders which upon acknowledgment by the supplier, a Sales Invoice is issued. Hence, the Purchase Order and the Sales Invoice signifies the contract / agreement between the Company and the supplier. DEPENDENCE UPON A SINGLE CUSTOMER The Company is not dependent upon a single or a few customers, the loss of any or more of which would have a material adverse effect on the Company. There is no customer that accounts for five percent (5%) or more or the registrant s sales. As a distributor for a considerable number of towns in several provinces, the sales of the Company are widely distributed per dealer/customer in its area of operation. At most, it has three top customers as of 2011 year end combining for eleven percent (11%) of the sales of the Company namely: (a) Priscilla T. Rigor four percent (4%), (b) Baliwag Marketing Company, Inc. four percent (4%) and (c) Antonina W. Ting three percent (3%). While it is true that the Company shall be venturing into retail business, the Company takes steps to ensure that existing dealer-customers sales would not be affected by carefully locating its retail stores to an area which is beyond the reach of its existing dealer-customers. If despite the fact that the location of the Company s retail store does not encroach upon the area of its existing dealer-customers, the Company feels that said dealer-customer concerned will, in one way or the other be affected, the Company shall provide said dealer-customer additional incentive schemes, rebates and other forms of assistance to ensure that its profit will not be affected. 98

99 INDUSTRY OVERVIEW I. BRIEF BACKGROUND a. Philippine Economy At A Glance Growth in the Philippines has been averaging at about 5 percent over the past 10 years, significantly higher than the rate achieved in the previous two decades. In 2010, the Philippines grew by 7.6 percent, the highest in 30 years. In recent years, the Philippines has restored macroeconomic stability and proved resilient to recent external shocks, such as food and fuel price hikes, the global financial crisis and recession, and the impact of typhoons and El Niño. Rising and counter-cyclical remittances have provided a strong basis for currency stability and a healthy buildup of international reserves. The country currently enjoys a savings rate that exceeds investment. Its human resources are in high demand around the world. Despite these achievements, inclusive growth that benefits the poor has been a continuing challenge for the Philippines. Poverty has remained at about the same level during the last decade, with a little over a quarter of the population below the poverty line. A key challenge has been to deploy these financial and human resources more effectively in the country, especially in rural areas, by improving investment climate and creating job opportunities. The Government has now prioritized an improved business climate, infrastructure development, and public-private partnerships. Investment in human capital and social protection is another critical pillar addressed by the Government to improve the livelihoods of the poor; budget allocations have been increased for health, education, and conditional cash transfer programs. Good governance remains a high priority for the country. The current Administration s focus on anti-corruption is intended not only to improve the investment climate for domestic and foreign investors, but also to enhance social service delivery and help reduce poverty through more accountable governance. The country has a dynamic civil society and a vibrant media that help articulate the voice of the public for urgent reforms. The work of civil society groups, often highlighted in the media, has contributed to the successful promotion of specific reforms in the fields of procurement, textbook delivery, budget transparency, and community infrastructure, among others. To address these challenges and achieve inclusive growth, the Philippines Development Plan under the administration of President Benigno S. Aquino III has adopted three broad strategies, namely: a. Attaining high and sustained economic growth that provides productive employment opportunities; b. Promoting equal access to development opportunities through: better education, primary health care and nutrition, and other basic social services; equal access to infrastructure, credit, land, technology, and other productive inputs; and good governance and strong institutions to promote competition; and c. Establishing effective and responsive social protection to protect and enable those who do not have the capability to participate in the economic growth process. Underlying these broad strategies is the overarching theme of good governance. Since President Aquino s assumption of office in June 2010, he has pursued an agenda of transparency and accountability, civil society participation and anti-corruption. (Reference: 99

100 b. Profile The Philippine economy is highly dependent on agriculture. Two thirds of its current population of 75.3 million and three fourths of the poor depend on agriculture for their livelihood. While only a fifth of all the goods and services the country produces and a third of its exports come from the sector, it employs about half of the total workforce. Agriculture and fisheries registered an overall growth rate of 4.01% in 2001, which was mainly contributed by: crops (2.58%), livestock (2.87%), poultry (7.80%), and fisheries (6.05%). Of the crops, the major contributors were rice (4.56%), coconut (1.69%), and banana (2.66%). In terms of area, about a third of the country's 30 million hectares is agricultural. Traditional and current uses of the agricultural land consist of: Food crops Food grains Non-food - 52% (coconut, sugar cane, industrial crops, fruits, vegetables, root crops) - 31% (rice and other grain crops) - 17 % (pasture and cut flowers) Low productivity and low incomes from agriculture and fisheries are consistent with the prevalence of rural poverty. The situation is further aggravated by low farm gate prices of produce and high retail prices of food, which are among the highest in the region. Location: Area: Agricultural land area: arable land: permanent cropland: permanent meadows/pastures: forest land: other lands: Southeastern Asia, archipelago between the Philippine Sea and the South China Sea, east of Vietnam total: 300,000 square kilometers land: 298,170 square kilometers water: 1,830 square kilometers million hectares (2002 CAF) million hectares million hectares million hectares million hectares million hectares 100

101 About 32% of the country's total land area constitutes the agricultural land. Of this, 51% and 44% were arable and permanent croplands, respectively. (Bureau of Agricultural Statistics, 2010) Agriculture grew by 4.10% in the first quarter of Production in the crops subsector was up by 8.19% and the main contributors were palay, corn, sugarcane and banana. There was a slowdown in the livestock subsector while poultry production sustained its upward trend. Fisheries production declined. At current prices, the gross value of agricultural output amounted to PhP347.2 billion or 12.72% more than last year's record. The crops subsector which contributed 52.99% to total agricultural output, expanded by 8.19%.Production of palay and corn increased by 15.63% and 19.50%, respectively. Sugarcane production grew by 26.73%. Improved production performances were also reported for banana, cassava, cabbage and rubber. The subsector grossed PhP206.1 billion at current prices and recorded a 26.69% increase from the 2010 level. 101

102 Livestock production recorded a 0.59% growth. The subsector accounted for 15.19% of total agricultural production. Hog production inched up by 0.64%. The gross value of livestock production was PhP49.7 billion at current prices. This represented a 3.04% reduction from last year's record. The poultry subsector posted a 3.92% output increment this quarter. It shared 13.30% in total agricultural production. Chicken production grew by 3.77%. At current prices, the subsector grossed PhP39.0 billion, down by 4.35% from the 2010 level. 102

103 On the average, farm gate prices increased by 8.29% this year. Average price increment was highest in the crops subsector at 17.10%. In the fisheries subsector, average price increase was 1.89%. Prices of livestock products went down by an average of 3.61% and those of poultry products, by 7.96%. c. Economic Review GNP (at current prices): PhP 8,810 billion (at constant prices): PhP 1,655 billion GDP (at current prices): PhP 7,679 billion (at constant prices): PhP 1,432 billion Share of agriculture in GDP 18% GVA in agriculture and fishery (at current prices): PhP 1,134 billion (at constant prices): PhP 258 billion by sub-sector: Crops: 49%: palay 17%, corn 7% coconut 3%, sugarcane 2% banana 3%, others 17% Livestock: 11% Poultry: 10% Fisheries: 25% Agricultural activities and services : 5% II. GENERAL AND AGRICULTURE TRADE SITUATION a. Gross Domestic Product (GDP) 103

104 Philippine GDP grew 7.3% in , spurred by consumer demand, a rebound in exports and investments, and election-related spending. The economy weathered the global recessions better than its regional peers due to minimal exposure to troubled international securities, lower dependence on exports, relatively resilient domestic consumption, large remittances from four-to five-million overseas Filipino workers, and a growing business process outsourcing industry. Economic growth in the Philippines averaged 4.5% during the Macapagal- Arroyo administration. Despite this growth, poverty worsened, because of a high population growth rate and inequitable distribution of income. President Aquino s administration is working to reduce the government deficit from 3.9% of GDP, when it took office, to 2% of GDP by The government has had little difficulty issuing debt both locally and internationally to finance the deficits. President Aquino's first budget emphasizes education, health, conditional cash transfers for the poor, and other social spending programs, relying on the private sector to finance important infrastructure projects. Weak tax collection, exacerbated by new tax breaks and incentives, has limited the government's ability to address major challenges. The Aquino administration has vowed to focus on improving tax collection efficiency - rather than imposing new taxes - as a part of its good governance platform. 15 (Reference on preceding excerpt: - Philippines Economy Profile 2011) b. Laws and Policies of Government Institutions 16 The Department of Agriculture had its beginnings when President Emilio Aguinaldo established the Department of Agriculture and Manufacturing on June 23, By 1901, under the American colonial government, priority was given to the development of other agricultural products, such as rice and other basic commodities, as well as fishing, forestry, and mining. This new focus necessitated the establishment of the Insular Bureau of Agriculture. This bureau was put under the Department of the Interior through the Philippine Legislature's Act No The Bureau of Agriculture grew rapidly until it was abolished by the enactment of Act No. 2666, otherwise known as "An Act to Re-organize the Executive Department of the Government of the Philippine Islands," on November 18, 1916, which was implemented on January 1, This act provided for the establishment of the Department of Agriculture and Natural Resources (DANR), which would take over direct executive control, direction, and supervision of the Bureaus of Agriculture, Forestry, Lands, Science, and Weather, as well as all matters concerning hunting, fisheries, sponges and other sea products, and such others as may be assigned to it by law. By virtue of another Reorganization Act in 1932, the DANR became the Department of Agriculture and Commerce. The Bureau of Commerce, which used to be under the Department of Commerce and Communication, was placed under the reorganized Department. The Bureau of Agriculture was split into the Bureau of Plant Industry and Bureau of Animal Industry. The following year, by virtue of the same Reorganization Act, Secretary Vicente Singson Encarnacion organized the Offices of Accounts and Property and Statistics and Publication, the Fish and Game Administration, established the Divisions of Mineral Resources, Industrial Engineering, and Home Economics, a Fiber Inspection Service, and established a Scientific Library. 14 Data for 2011 is still unavailable Philippines Economy Profile Department of Agriculture Website: 104

105 Under Secretary Eulogio Rodriguez, the Divisions of Mineral Resources and Industrial Engineering, and the Scientific Library were placed under the Bureau of Science. It was also during Rodriguez's administration that the Division of Mineral Resources was converted into the Bureau of Mines by virtue of Commonwealth Act No During World War II, President Manuel L. Quezon re-appointed Rafael Alunan, Sr. as Secretary of Agriculture and Commerce up to The Department of Agriculture and Commerce was reconstituted on July 1, 1945 upon the resumption of the Commonwealth Government. President Sergio Osmeña re-appointed Vicente Singson Encarnacion as Secretary. In 1947, the Department of Agriculture and Commerce was renamed Department of Agriculture and Natural Resources by virtue of a Reorganization Act. The Department of Commerce and Industry was formed as a result of which the Bureau of Commerce, Bureau of Patents and Weather Bureau were spun off from the DANR. The Philippines became a member of the United Nations Food and Agriculture Organization under Secretary Juan G. Rodriguez. It was also during his tenure that the National Rice and Corn Production Program was launched and was coupled with the creation of the Rice and Corn Coordinating Council, which was the forerunner of the National Food and Agriculture Council (NFAC), which is now the National Agricultural and Fishery Council (NAFC). On September 14, 1959, the DANR moved to its permanent building in Diliman, Quezon City from the Agrifina Circle in Manila. With the election of President Ferdinand E. Marcos, Vice-President Fernando Lopez was appointed Secretary of Agriculture and Natural Resources for the second time. It was during his tenure that the Philippines became an exporter of rice in By virtue of Presidential Decree (P.D.) 461, which was signed into law by President Ferdinand Marcos, the DANR was reorganized in May 1974 into two departments, the Department of Agriculture and the Department of Natural Resources. On June 22, 1978, by virtue of P.D. 1397, all departments were changed to ministries. At the helm of the Ministry of Agriculture was Minister Arturo R. Tanco, Jr., who launched the innovative Masagana 99 rice production program which revolutionized the rice industry and made the Philippines a rice-exporter and self-sufficient in white corn. By virtue of P.D. 461, in June 1978, the MA established 12 regional offices each headed by a Regional Director. On February 28, 1986 as a result of the EDSA People Power Revolution, the ministership was transferred from Minister Salvador Escudero III to Ramon V. Mitra, who was immediately appointed by President Corazon C. Aquino upon her assumption into office. Guided by the principle that agriculture is business, the DA implemented policy and institutional reforms that freed the agriculture markets, enabling farmers to enjoy higher farm gate prices. These reforms included the dismantling of agricultural monopolies and the elimination of agricultural taxes. Reforms in the agricultural credit system, such as the phase-out of the direct lending scheme, were also initiated. The reorganization of the Department of Agriculture was contained in Executive Order (EO) No. 116 and was signed by President Aquino on January 30, The EO mandated the DA to promote agricultural development by providing the policy framework, public investment, and support services, which are needed for domestic and export-oriented business enterprises. No subsequent issuances and policies were made to have another reorganization of the Department of Agriculture. In 1988, the Livelihood Enhancement for Agricultural Development (LEAD) program was launched to speed up farmers' organizations access to financing, management expertise, and marketing. Agriculture and Fishery Councils (AFCs) were set up at the sectoral, regional, 105

106 provincial and municipal levels to provide inputs on major programs and policy decisions and help plan and monitor DA projects. Senen C. Bacani, appointed in January 1990, implemented the Rice Action Program (RAP) and Corn Production Enhancement Program (CPEP) enabling the Philippines to once again export rice in 1992 and attained self-sufficiency in corn, respectively. In 1992, President Fidel V. Ramos named Roberto S. Sebastian as DA chief who introduced the Key Production Approach (KPA) which became the basis in the formulation of the Medium-Term Agricultural Development Plan (MTADP). In 1996, President Ramos appointed Dr. Salvador H. Escudero III, serving for the second time as DA Secretary. During that time, he launched the Gintong Ani food production and security program. He also organized subsistence farmers into functional groups and cooperatives, aimed at transforming them into viable producers and entrepreneurs. In July 1998, President Joseph Ejercito Estrada designated William D. Dar as Acting DA Secretary who introduced the Estrada administration's 10-point agenda in agriculture and fisheries under the Agrikulturang Makamasa program. In March 1999, President Estrada named former Senate President Edgardo J. Angara as DA Secretary who authored the Agriculture and Fisheries Modernization Act of 1998 or AFMA (Republic Act No. 8435). He put into action the law s visions of transforming and modernizing the country s agriculture and fisheries sector. Domingo F. Panganiban continued the implementation of AFMA as the government s comprehensive framework and platform for rural development when he assumed office in January A month later, he was replaced by Leonardo Q. Montemayor who implemented the AFMA with special emphasis on its social equity aspect. He launched the Ginintuang Masaganang Ani Countrywide Assistance for Rural Employment and Services (GMA-CARES). Secretary Luis P. Lorenzo Jr., took the helm of the Department in December 2002 and spearheaded the launching of the Roll-On, Roll-Off or RORO transport program. The hybridization programs of the Department were intensified and interventions were focused on the Mindanao regions. Secretary Arthur C. Yap, appointed on August 23, 2004, continued to uphold the vision of a modernized smallholder agriculture and fisheries, a diversified rural economy that is dynamic, technologically advanced and internationally competitive. Under his term, Goal 1 (develop two million hectares of new lands for agribusiness to contribute two million to the 10 million jobs targeted by 2010) and Goal 2 (make food plentiful while keeping the price of "wage goods" at low prices) were unveiled. During Panganiban s 2nd term as Secretary, a total of 203,000 hectares of idle lands and 313,000 jobs were developed under Goal 1 and ten Huwarang Palengke (outstanding markets) were identified under Goal 2. Food lanes were designated for easier, faster and kotong-free transport of agricultural products.when Secretary Yap took the agri seat on October 23, 2006, he has aggressively and consistently implemented various projects and policies towards the attainment of food security and self-sufficiency. Under FIELDS, the government s centerpiece program on agriculture, unveiled during the 2008 Food Summit, Yap has set achievement records for the Philippine agri and aqua sectors. Secretary Bernie Fondevilla continued DA s mandate of providing sufficient food and sustainable livelihood for the Filipino people through modernized technologies and facilities when he took the agri seat on March On April 6, 2010, Republic Act or the Organic Agriculture Act was signed into law in the Philippines. Under Section 2 of this law, it is the policy of the State to promote, propagate, develop further and implement the practice of organic agriculture in the Philippines that will cumulatively condition and enrich the fertility of the soil, increase farm productivity, reduce pollution and destruction of the environment, prevent the depletion of natural resources, further protect the health of farmers, consumers and the general public, and save on imported farm inputs. Section 3(b) of RA defines organic agriculture as including all agricultural systems that promote the ecologically sound, socially acceptable, economically viable and technically feasible production of food and fibers. While it also includes the use of biotechnology and other 106

107 agricultural practices, it is explicitly stated therein that biotechnology shall not include genetically modified organisms On June 30, 2010, President Benigno S. Aquino III appointed two-term congressman of Quezon and civil engineer by profession Proceso J. Alcala as Secretary. One of the principal authors of Republic Act 10068, or the Organic Agriculture Act of 2010, he is keen on increasing rice production and do away with rice imports by 2013 by expanding areas planted to rice to include uplands, marshlands and idle farmlands. He introduced the concept of Agrikulturang Pilipino or Agri-Pinoy as the Department of Agriculture's over-all strategic framework that serves as a guide in the implementation of its various services and programs in and beyond. Agri-Pinoy optimizes the development of Philippine resources, natural and human, to achieve Philippines goals in agriculture and fisheries, and contribute to national development with its battlecry. "Sa Agri-Pinoy, asensyo'y tuloy-tuloy." (Source: Department of Agriculture Philippines website: III. AGRICHEM The agricultural chemical industries are required to follow the Fertilizer and Pesticides Authority (FPA) Pesticide Regulatory Policies and Implementing Guidelines before their products are allowed to be used by Philippine agriculture. This FPA guideline was patterned from the modified WHO-FAO classification. The Agrochemical Industry is under strict regulation by the FPA. The extensive regulatory data packages are being submitted to the FPA before any of the pesticide companies can register a product. The FPA licensed pesticide companies are provided with the Material Safety Data Sheet (MSDS), containing data regarding the properties of a particular substance, generated by their respective principals/manufacturers that normally follow the directives/formats of EU and USA. The manufacturers who normally supply products to the local companies develop the MSDSs. For their labels, they are mandated to develop labels that are in accordance to FPA Guidelines. Pesticide Industries have the knowledge and capacity to prepare MSDS and labels as well as to classify chemicals and mixtures following the FPA Guidelines. The hazard classification has been communicated in the context of risk arising from the use of agricultural chemicals. The FPA had facilitated the effective hazard communication by the institutionalization of the Product Stewardship Program. This program requires that for each pesticide product, the registrant is made primarily responsible for the conduct for its product stewardship program. The pesticide stakeholders implement the product stewardship activities such as farmers/dealers training on product safe use. Part of the training includes hazard communication. a. Prices The table below represents the available dealer prices from 2008 to October of the more commonly used pesticides in the country, classified accordingly as fungicide, insecticide, weedicide, molluscide and rodenticide. The information enumerated is that of the commercially known and available brands of pesticides. 17 Data for November and December 2011 are still unavailable. 107

108 Pesticide: Dealers' Prices by Geolocation, Farm Chemical Form, Farm Chemical, Period and Year Annual Annual Annual October PHILIPPINES Liquid Actara (F) Agrozeb (F) Amure; Armure (F) Antracol (F) Anvil (F) Applaud (F) Benlate (F) Captan;Capton;Capitan (F) Champion (F) Crown (F) Cupravit (F) Curzate (F) Daconil (F) Detonate 40 SP (F) Diafuran (F) Dithane;Dithane M-45 (F) Fungitox (F) Funguran; Funguran-OH (F) Hinosan (F) Hopkill (F) Kocide; Hocide (F) Kumulus (F) Manager (F) Mancozeb (F) Maneb (F) Manzate (F) Manzeb (F) Melody Duo (F) Microthiol DF (F) Monet (F) Nordox (F) Opevicur (F) Padan (F) Premium (F) Procure (F) Rebin (F) Redeem (F) Ridomil (F) Saprol (F)

109 Savior (F) Score (F) Selicon (F) Seven Powder (F) Shotgun (F) Stinger (F) Topsin M (F) Tranzeb (F) Vitigran Blue (F) Vondozeb (F) Wonder (F) Adder (I) Admire (I) Agriaden (I) Agrisaver (I) Allitte (I) Arrow (I) Ascend (I) Attack (I) Basudin (I) Baycarb (I) Bayfolan (I) Baythroid (I) Berdugo (I) Bida (I) Bloomate (I) Boxer (I) Brodan (I) Bugbuster (I) Bulldock (I) Bullet (I) Bull's Eye (I) Bushwack (I) Capture (I) Cartap (I) Carvil (I) Check (I) Chess (I) Chix (I) Chlorpyrifos (I) Click; klik (I) Combat (I) Confidor SL 100 (I)

110 Corsair (I) CPM (I) Cyclone (I) Cygrex (I) Cymbush (I) Cypermethrin (I) Cypex (I) Decide (I) Decis 2.5 (I) Decis R; Decis 100 (I) Diacarb (I) Diamond (I) Diazol 40 (I) Dimotrin (I) Eltra (I) Etropolan (I) Fenom D; Phenom D (I) Flash (I) Furadan (I) General (I) Goal (I) Gusathion (I) Hammer (I) Hercules (I) Hi-per (I) Hoestick (I) Hopcin (I) Hostathion (I) Hytox (I) Karate (I) King (I) Knock-out (I) Kris (I) Lakas (I) Lannate (I) Larvin (I) Leadmark (I) Lebaycid (I) Lorsban (I) Magic (I) Magnum (I) Malathion (I) Marshal (I)

111 Master (I) Matador (I) Maton (I) Mepcin (I) Mimic (I) Model (I) Mustang (I) Nurelle (I) Nuvacron (I) Parapest (I) Pennant (I) Plus (I) Predator (I) Provado-sudra (I) Punis-X (I) Rador (I) Regent (I) Ripcord (I) Selecron; Selectron (I) Sevin (I) Sherpa (I) Siga (I) Smash (I) Sniper (I) Solnet (I) Sonic (I) Sumialpha (I) Sumicidin (I) Super M (I) Super Quick (I) Supremo (I) Swat (I) Tamaron (I) Tenant (I) Terminator (I) Todas (I) Trebon (I) Triplex; Triple 50 EC (I) T.K.O. 50 EC (I) Vertex (I) Vexter (I) Vindex Plus; Vendix (I) Viper (I)

112 Warrior (I) Winner; Win (I) Wokosim (I) Zinc Metalate (I) Zorgen WP 85 (I) Aquatin; Aquadine (M) Bayluscide (M) Bayonet (M) Control (M) Ethrel (M) Flip (M) Hit (M) Kuzak (M) Maso (M) Metabait (M) Moluxide (M) Niclus M (M) Parakuhol (M) Porsnail (M) Snail Kill (M) Snail Tox (M) Speed (M) Stop (M) Surekill; Surekel (M) Swipe (M) Trap (M) Powder (R) (R) Racumin (R) Rat Kill (R) Ratoxin (R) Snip (R) Zinc Phosphate (R) Zinc Phosphide (R) D (W) (W) Ace (W) Activo (W) Advance (W) Advice (W) Afalon (W) Agrowell (W) Agroxone (W)

113 Almix (W) Atrazine (W) Basagran (W) Basta (W) Bavistin (W) Blade (W) Blink (W) Bolo (W) Burndown (W) Clean Up (W) Cleanfield (W) Clear Out (W) Clincher (W) Compro (W) Direk (W) Divron (W) Drago (W) Ester 24 (W) Gramoxone;Gramazone (W) Grassedge (W) Hedonal (W) Herbadox (W) Herbistar (W) Hero (W) Karet 40 (W) Karmex;Kormex (W) Lambast (W) Lespro (W) Lomenc (W) Machete;Butachlor (W) Nominee (W) Onecide (W) Paragrass (W) Pillarxone (W) Pounce (W) Power (W) Ramoxol (W) Rice Guard (W) Rice Star (W) Rilof-H (W) Ripit (W) Rogue (W)

114 Ronstar (W) Round-up (W) Sharpshooter (W) Slash (W) Solfit; Sofit (W) Sonic 600EC (W) Sumithion (W) Tornado (W) Toro (W) Twister (W) Weedban (W) Weedkill (W) Korthrine (I) Poker (I) Protek (I) Indosulfan (F) Vitigran Blue (I) Goal (W) Rice Guard (W) Grass cutter (W) Redeem (F) Smash (I) Applaudl (F) Thunder (W) Tornado (W) Herbistar (W) Melody Duo (F) Powder (M) Actara (M) Perfecthin (I) U-kew (F) Arrivo (I) Butakill (W) Phylate (F) Solid Actara (F) Agrozeb (F) Amure; Armure (F) Antracol (F) Anvil (F) Applaud (F) Benlate (F) Captan;Capton;Capitan (F) Champion (F)

115 Crown (F) Cupravit (F) Curzate (F) Daconil (F) Detonate 40 SP (F) Diafuran (F) Dithane;Dithane M-45 (F) Fungitox (F) Funguran; Funguran-OH (F) Hinosan (F) Hopkill (F) Kocide; Hocide (F) Kumulus (F) Manager (F) Mancozeb (F) Maneb (F) Manzate (F) Manzeb (F) Melody Duo (F) Microthiol DF (F) Monet (F) Nordox (F) Opevicur (F) Padan (F) Premium (F) Procure (F) Rebin (F) Redeem (F) Ridomil (F) Saprol (F) Savior (F) Score (F) Selicon (F) Seven Powder (F) Shotgun (F) Stinger (F) Topsin M (F) Tranzeb (F) Vitigran Blue (F) Vondozeb (F) Wonder (F) Adder (I)

116 Admire (I) Agriaden (I) Agrisaver (I) Allitte (I) Arrow (I) Ascend (I) Attack (I) Basudin (I) Baycarb (I) Bayfolan (I) Baythroid (I) Berdugo (I) Bida (I) Bloomate (I) Boxer (I) Brodan (I) Bugbuster (I) Bulldock (I) Bullet (I) Bull's Eye (I) Bushwack (I) Capture (I) Cartap (I) Carvil (I) Check (I) Chess (I) Chix (I) Chlorpyrifos (I) Click; klik (I) Combat (I) Confidor SL 100 (I) Corsair (I) CPM (I) Cyclone (I) Cygrex (I) Cymbush (I) Cypermethrin (I) Cypex (I) Decide (I) Decis 2.5 (I) Decis R; Decis 100 (I) Diacarb (I) Diamond (I)

117 Diazol 40 (I) Dimotrin (I) Eltra (I) Etropolan (I) Fenom D; Phenom D (I) Flash (I) Furadan (I) General (I) Goal (I) Gusathion (I) Hammer (I) Hercules (I) Hi-per (I) Hoestick (I) Hopcin (I) Hostathion (I) Hytox (I) Karate (I) King (I) Knock-out (I) Kris (I) Lakas (I) Lannate (I) Larvin (I) Leadmark (I) Lebaycid (I) Lorsban (I) Magic (I) Magnum (I) Malathion (I) Marshal (I) Master (I) Matador (I) Maton (I) Mepcin (I) Mimic (I) Model (I) Mustang (I) Nurelle (I) Nuvacron (I) Parapest (I) Pennant (I) Plus (I)

118 Predator (I) Provado-sudra (I) Punis-X (I) Rador (I) Regent (I) Ripcord (I) Selecron; Selectron (I) Sevin (I) Sherpa (I) Siga (I) Smash (I) Sniper (I) Solnet (I) Sonic (I) Sumialpha (I) Sumicidin (I) Super M (I) Super Quick (I) Supremo (I) Swat (I) Tamaron (I) Tenant (I) Terminator (I) Todas (I) Trebon (I) Triplex; Triple 50 EC (I) T.K.O. 50 EC (I) Vertex (I) Vexter (I) Vindex Plus; Vendix (I) Viper (I) Warrior (I) Winner; Win (I) Wokosim (I) Zinc Metalate (I) Zorgen WP 85 (I) Aquatin; Aquadine (M) Bayluscide (M) Bayonet (M) Control (M) Ethrel (M) Flip (M) Hit (M)

119 Kuzak (M) Maso (M) Metabait (M) Moluxide (M) Niclus M (M) Parakuhol (M) Porsnail (M) Snail Kill (M) Snail Tox (M) Speed (M) Stop (M) Surekill; Surekel (M) Swipe (M) Trap (M) Powder (R) (R) Racumin (R) Rat Kill (R) Ratoxin (R) Snip (R) Zinc Phosphate (R) Zinc Phosphide (R) D (W) (W) Ace (W) Activo (W) Advance (W) Advice (W) Afalon (W) Agrowell (W) Agroxone (W) Almix (W) Atrazine (W) Basagran (W) Basta (W) Bavistin (W) Blade (W) Blink (W) Bolo (W) Burndown (W) Clean Up (W) Cleanfield (W) Clear Out (W)

120 Clincher (W) Compro (W) Direk (W) Divron (W) Drago (W) Ester 24 (W) Gramoxone;Gramazone (W) Grassedge (W) Hedonal (W) Herbadox (W) Herbistar (W) Hero (W) Karet 40 (W) Karmex;Kormex (W) Lambast (W) Lespro (W) Lomenc (W) Machete;Butachlor (W) Nominee (W) Onecide (W) Paragrass (W) Pillarxone (W) Pounce (W) Power (W) Ramoxol (W) Rice Guard (W) Rice Star (W) Rilof-H (W) Ripit (W) Rogue (W) Ronstar (W) Round-up (W) Sharpshooter (W) Slash (W) Solfit; Sofit (W) Sonic 600EC (W) Sumithion (W) Tornado (W) Toro (W) Twister (W) Weedban (W) Weedkill (W)

121 Korthrine (I) Poker (I) Protek (I) Indosulfan (F) Vitigran Blue (I) Goal (W) Rice Guard (W) Grass cutter (W) Redeem (F) Smash (I) Applaudl (F) Thunder (W) Tornado (W) Herbistar (W) Melody Duo (F) Powder (M) Actara (M) Perfecthin (I) U-kew (F) Arrivo (I) Butakill (W) Phylate (F) Data not available... Data not yet available October 2011 Preliminary F-fungicide I-insecticide M-molluscicide R-rodenticide W-weedicide Latest update: :00 Source: Bureau of Agricultural Statistics Copyright: Yes Contact: Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: Unit:liquid in pesos per liter and solid in pesos per kilogram The next table shows the dealers prices of the most commonly used fertilizer grades from 2007 to There is significant increase in the prices during the last five years. 121

122 Fertilizers: Dealers' Prices by Geolocation, Fertilizer Grade, Period and Year December PHILIPPINES Ammophos ( ) , , Ammosul (21-0-0) Complete ( ) , , , , Urea (45-0-0) , , , Data not available... Data not yet available November 2011 Preliminary Data based on BAS Weekly Cereals and Fertilizer Price Monitoring (WCFPM) covering 5 dealer-respondents per province Latest update: :00 Source: Bureau of Agricultural Statistics Contact: Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: amsad@bas.gov.ph Unit: pesos per sack of 50 kilograms The dealers prices of pesticides by farm chemical and chemical form are listed in the table below, from 2008 to October 2011, accordingly classified as fungicide, insecticide, molluscide, weedicide and rodenticide. Pesticide: Dealers' Prices by Region and by Province Annual Annual Annual October Farm Chemical Form Farm Chemical Liquid Actara (F) Liquid Agrozeb (F) Liquid Amure; Armure (F) Liquid Antracol (F) Liquid Anvil (F) Liquid Applaud (F) Liquid Benlate (F) Liquid Captan;Capton;Capitan (F) Liquid Champion (F) Liquid Crown (F) Liquid Cupravit (F) Liquid Curzate (F) Liquid Daconil (F) Liquid Detonate 40 SP (F) Liquid Diafuran (F) Liquid Dithane;Dithane M-45 (F) Liquid Fungitox (F) Liquid Funguran; Funguran-OH (F) Liquid Hinosan (F) Liquid Hopkill (F) Liquid Kocide; Hocide (F) Liquid Kumulus (F) Liquid Manager (F) Liquid Mancozeb (F) Liquid Maneb (F) Liquid Manzate (F) Liquid Manzeb (F) Liquid Melody Duo (F) Liquid Microthiol DF (F)

123 Liquid Monet (F) Liquid Nordox (F) Liquid Opevicur (F) Liquid Padan (F) Liquid Premium (F) Liquid Procure (F) Liquid Rebin (F) Liquid Redeem (F) Liquid Ridomil (F) Liquid Saprol (F) Liquid Savior (F) Liquid Score (F) Liquid Selicon (F) Liquid Seven Powder (F) Liquid Shotgun (F) Liquid Stinger (F) Liquid Topsin M (F) Liquid Tranzeb (F) Liquid Vitigran Blue (F) Liquid Vondozeb (F) Liquid Wonder (F) Liquid Adder (I) Liquid Admire (I) Liquid Agriaden (I) Liquid Agrisaver (I) Liquid Allitte (I) Liquid Arrow (I) Liquid Ascend (I) Liquid Attack (I) Liquid Basudin (I) Liquid Baycarb (I) Liquid Bayfolan (I) Liquid Baythroid (I) Liquid Berdugo (I) Liquid Bida (I) Liquid Bloomate (I) Liquid Boxer (I) Liquid Brodan (I) Liquid Bugbuster (I) Liquid Bulldock (I) Liquid Bullet (I) Liquid Bull's Eye (I) Liquid Bushwack (I) Liquid Capture (I) Liquid Cartap (I) Liquid Carvil (I) Liquid Check (I) Liquid Chess (I) Liquid Chix (I) Liquid Chlorpyrifos (I) Liquid Click; klik (I) Liquid Combat (I) Liquid Confidor SL 100 (I) Liquid Corsair (I) Liquid CPM (I) Liquid Cyclone (I) Liquid Cygrex (I) Liquid Cymbush (I) Liquid Cypermethrin (I) Liquid Cypex (I) Liquid Decide (I) Liquid Decis 2.5 (I) Liquid Decis R; Decis 100 (I) Liquid Diacarb (I)

124 Liquid Diamond (I) Liquid Diazol 40 (I) Liquid Dimotrin (I) Liquid Eltra (I) Liquid Etropolan (I) Liquid Fenom D; Phenom D (I) Liquid Flash (I) Liquid Furadan (I) Liquid General (I) Liquid Goal (I) Liquid Gusathion (I) Liquid Hammer (I) Liquid Hercules (I) Liquid Hi-per (I) Liquid Hoestick (I) Liquid Hopcin (I) Liquid Hostathion (I) Liquid Hytox (I) Liquid Karate (I) Liquid King (I) Liquid Knock-out (I) Liquid Kris (I) Liquid Lakas (I) Liquid Lannate (I) Liquid Larvin (I) Liquid Leadmark (I) Liquid Lebaycid (I) Liquid Lorsban (I) Liquid Magic (I) Liquid Magnum (I) Liquid Malathion (I) Liquid Marshal (I) Liquid Master (I) Liquid Matador (I) Liquid Maton (I) Liquid Mepcin (I) Liquid Mimic (I) Liquid Model (I) Liquid Mustang (I) Liquid Nurelle (I) Liquid Nuvacron (I) Liquid Parapest (I) Liquid Pennant (I) Liquid Plus (I) Liquid Predator (I) Liquid Provado-sudra (I) Liquid Punis-X (I) Liquid Rador (I) Liquid Regent (I) Liquid Ripcord (I) Liquid Selecron; Selectron (I) Liquid Sevin (I) Liquid Sherpa (I) Liquid Siga (I) Liquid Smash (I) Liquid Sniper (I) Liquid Solnet (I) Liquid Sonic (I) Liquid Sumialpha (I) Liquid Sumicidin (I) Liquid Super M (I) Liquid Super Quick (I) Liquid Supremo (I) Liquid Swat (I)

125 Liquid Tamaron (I) Liquid Tenant (I) Liquid Terminator (I) Liquid Todas (I) Liquid Trebon (I) Liquid Triplex; Triple 50 EC (I) Liquid T.K.O. 50 EC (I) Liquid Vertex (I) Liquid Vexter (I) Liquid Vindex Plus; Vendix (I) Liquid Viper (I) Liquid Warrior (I) Liquid Winner; Win (I) Liquid Wokosim (I) Liquid Zinc Metalate (I) Liquid Zorgen WP 85 (I) Liquid Aquatin; Aquadine (M) Liquid Bayluscide (M) Liquid Bayonet (M) Liquid Control (M) Liquid Ethrel (M) Liquid Flip (M) Liquid Hit (M) Liquid Kuzak (M) Liquid Maso (M) Liquid Metabait (M) Liquid Moluxide (M) Liquid Niclus M (M) Liquid Parakuhol (M) Liquid Porsnail (M) Liquid Snail Kill (M) Liquid Snail Tox (M) Liquid Speed (M) Liquid Stop (M) Liquid Surekill; Surekel (M) Liquid Swipe (M) Liquid Trap (M) Liquid 123 Powder (R) Liquid 1707 (R) Liquid Racumin (R) Liquid Rat Kill (R) Liquid Ratoxin (R) Liquid Snip (R) Liquid Zinc Phosphate (R) Liquid Zinc Phosphide (R) Liquid 2-4-D (W) Liquid 9121 (W) Liquid Ace (W) Liquid Activo (W) Liquid Advance (W) Liquid Advice (W) Liquid Afalon (W) Liquid Agrowell (W) Liquid Agroxone (W) Liquid Almix (W) Liquid Atrazine (W) Liquid Basagran (W) Liquid Basta (W) Liquid Bavistin (W) Liquid Blade (W) Liquid Blink (W) Liquid Bolo (W) Liquid Burndown (W) Liquid Clean Up (W)

126 Liquid Cleanfield (W) Liquid Clear Out (W) Liquid Clincher (W) Liquid Compro (W) Liquid Direk (W) Liquid Divron (W) Liquid Drago (W) Liquid Ester 24 (W) Liquid Gramoxone;Gramazone (W) Liquid Grassedge (W) Liquid Hedonal (W) Liquid Herbadox (W) Liquid Herbistar (W) Liquid Hero (W) Liquid Karet 40 (W) Liquid Karmex;Kormex (W) Liquid Lambast (W) Liquid Lespro (W) Liquid Lomenc (W) Liquid Machete;Butachlor (W) Liquid Nominee (W) Liquid Onecide (W) Liquid Paragrass (W) Liquid Pillarxone (W) Liquid Pounce (W) Liquid Power (W) Liquid Ramoxol (W) Liquid Rice Guard (W) Liquid Rice Star (W) Liquid Rilof-H (W) Liquid Ripit (W) Liquid Rogue (W) Liquid Ronstar (W) Liquid Round-up (W) Liquid Sharpshooter (W) Liquid Slash (W) Liquid Solfit; Sofit (W) Liquid Sonic 600EC (W) Liquid Sumithion (W) Liquid Tornado (W) Liquid Toro (W) Liquid Twister (W) Liquid Weedban (W) Liquid Weedkill (W) Liquid Korthrine (I) Liquid Poker (I) Liquid Protek (I) Liquid Indosulfan (F) Liquid Vitigran Blue (I) Liquid Goal (W) Liquid Rice Guard (W) Liquid Grass cutter (W) Liquid Redeem (F) Liquid Smash (I) Liquid Applaudl (F) Liquid Thunder (W) Liquid Tornado (W) Liquid Herbistar (W) Liquid Melody Duo (F) Liquid 123 Powder (M) Liquid Actara (M) Liquid Perfecthin (I) Liquid U-kew (F) Liquid Arrivo (I)

127 Liquid Butakill (W) Liquid Phylate (F) Solid Actara (F) Solid Agrozeb (F) Solid Amure; Armure (F) Solid Antracol (F) Solid Anvil (F) Solid Applaud (F) Solid Benlate (F) Solid Captan;Capton;Capitan (F) Solid Champion (F) Solid Crown (F) Solid Cupravit (F) Solid Curzate (F) Solid Daconil (F) Solid Detonate 40 SP (F) Solid Diafuran (F) Solid Dithane;Dithane M-45 (F) Solid Fungitox (F) Solid Funguran; Funguran-OH (F) Solid Hinosan (F) Solid Hopkill (F) Solid Kocide; Hocide (F) Solid Kumulus (F) Solid Manager (F) Solid Mancozeb (F) Solid Maneb (F) Solid Manzate (F) Solid Manzeb (F) Solid Melody Duo (F) Solid Microthiol DF (F) Solid Monet (F) Solid Nordox (F) Solid Opevicur (F) Solid Padan (F) Solid Premium (F) Solid Procure (F) Solid Rebin (F) Solid Redeem (F) Solid Ridomil (F) Solid Saprol (F) Solid Savior (F) Solid Score (F) Solid Selicon (F) Solid Seven Powder (F) Solid Shotgun (F) Solid Stinger (F) Solid Topsin M (F) Solid Tranzeb (F) Solid Vitigran Blue (F) Solid Vondozeb (F) Solid Wonder (F) Solid Adder (I) Solid Admire (I) Solid Agriaden (I) Solid Agrisaver (I) Solid Allitte (I) Solid Arrow (I) Solid Ascend (I) Solid Attack (I) Solid Basudin (I) Solid Baycarb (I) Solid Bayfolan (I) Solid Baythroid (I)

128 Solid Berdugo (I) Solid Bida (I) Solid Bloomate (I) Solid Boxer (I) Solid Brodan (I) Solid Bugbuster (I) Solid Bulldock (I) Solid Bullet (I) Solid Bull's Eye (I) Solid Bushwack (I) Solid Capture (I) Solid Cartap (I) Solid Carvil (I) Solid Check (I) Solid Chess (I) Solid Chix (I) Solid Chlorpyrifos (I) Solid Click; klik (I) Solid Combat (I) Solid Confidor SL 100 (I) Solid Corsair (I) Solid CPM (I) Solid Cyclone (I) Solid Cygrex (I) Solid Cymbush (I) Solid Cypermethrin (I) Solid Cypex (I) Solid Decide (I) Solid Decis 2.5 (I) Solid Decis R; Decis 100 (I) Solid Diacarb (I) Solid Diamond (I) Solid Diazol 40 (I) Solid Dimotrin (I) Solid Eltra (I) Solid Etropolan (I) Solid Fenom D; Phenom D (I) Solid Flash (I) Solid Furadan (I) Solid General (I) Solid Goal (I) Solid Gusathion (I) Solid Hammer (I) Solid Hercules (I) Solid Hi-per (I) Solid Hoestick (I) Solid Hopcin (I) Solid Hostathion (I) Solid Hytox (I) Solid Karate (I) Solid King (I) Solid Knock-out (I) Solid Kris (I) Solid Lakas (I) Solid Lannate (I) Solid Larvin (I) Solid Leadmark (I) Solid Lebaycid (I) Solid Lorsban (I) Solid Magic (I) Solid Magnum (I) Solid Malathion (I) Solid Marshal (I) Solid Master (I)

129 Solid Matador (I) Solid Maton (I) Solid Mepcin (I) Solid Mimic (I) Solid Model (I) Solid Mustang (I) Solid Nurelle (I) Solid Nuvacron (I) Solid Parapest (I) Solid Pennant (I) Solid Plus (I) Solid Predator (I) Solid Provado-sudra (I) Solid Punis-X (I) Solid Rador (I) Solid Regent (I) Solid Ripcord (I) Solid Selecron; Selectron (I) Solid Sevin (I) Solid Sherpa (I) Solid Siga (I) Solid Smash (I) Solid Sniper (I) Solid Solnet (I) Solid Sonic (I) Solid Sumialpha (I) Solid Sumicidin (I) Solid Super M (I) Solid Super Quick (I) Solid Supremo (I) Solid Swat (I) Solid Tamaron (I) Solid Tenant (I) Solid Terminator (I) Solid Todas (I) Solid Trebon (I) Solid Triplex; Triple 50 EC (I) Solid T.K.O. 50 EC (I) Solid Vertex (I) Solid Vexter (I) Solid Vindex Plus; Vendix (I) Solid Viper (I) Solid Warrior (I) Solid Winner; Win (I) Solid Wokosim (I) Solid Zinc Metalate (I) Solid Zorgen WP 85 (I) Solid Aquatin; Aquadine (M) Solid Bayluscide (M) Solid Bayonet (M) Solid Control (M) Solid Ethrel (M) Solid Flip (M) Solid Hit (M) Solid Kuzak (M) Solid Maso (M) Solid Metabait (M) Solid Moluxide (M) Solid Niclus M (M) Solid Parakuhol (M) Solid Porsnail (M) Solid Snail Kill (M) Solid Snail Tox (M) Solid Speed (M)

130 Solid Stop (M) Solid Surekill; Surekel (M) Solid Swipe (M) Solid Trap (M) Solid 123 Powder (R) Solid 1707 (R) Solid Racumin (R) Solid Rat Kill (R) Solid Ratoxin (R) Solid Snip (R) Solid Zinc Phosphate (R) Solid Zinc Phosphide (R) Solid 2-4-D (W) Solid 9121 (W) Solid Ace (W) Solid Activo (W) Solid Advance (W) Solid Advice (W) Solid Afalon (W) Solid Agrowell (W) Solid Agroxone (W) Solid Almix (W) Solid Atrazine (W) Solid Basagran (W) Solid Basta (W) Solid Bavistin (W) Solid Blade (W) Solid Blink (W) Solid Bolo (W) Solid Burndown (W) Solid Clean Up (W) Solid Cleanfield (W) Solid Clear Out (W) Solid Clincher (W) Solid Compro (W) Solid Direk (W) Solid Divron (W) Solid Drago (W) Solid Ester 24 (W) Solid Gramoxone;Gramazone (W) Solid Grassedge (W) Solid Hedonal (W) Solid Herbadox (W) Solid Herbistar (W) Solid Hero (W) Solid Karet 40 (W) Solid Karmex;Kormex (W) Solid Lambast (W) Solid Lespro (W) Solid Lomenc (W) Solid Machete;Butachlor (W) Solid Nominee (W) Solid Onecide (W) Solid Paragrass (W) Solid Pillarxone (W) Solid Pounce (W) Solid Power (W) Solid Ramoxol (W) Solid Rice Guard (W) Solid Rice Star (W) Solid Rilof-H (W) Solid Ripit (W) Solid Rogue (W) Solid Ronstar (W)

131 Solid Round-up (W) Solid Sharpshooter (W) Solid Slash (W) Solid Solfit; Sofit (W) Solid Sonic 600EC (W) Solid Sumithion (W) Solid Tornado (W) Solid Toro (W) Solid Twister (W) Solid Weedban (W) Solid Weedkill (W) Solid Korthrine (I) Solid Poker (I) Solid Protek (I) Solid Indosulfan (F) Solid Vitigran Blue (I) Solid Goal (W) Solid Rice Guard (W) Solid Grass cutter (W) Solid Redeem (F) Solid Smash (I) Solid Applaudl (F) Solid Thunder (W) Solid Tornado (W) Solid Herbistar (W) Solid Melody Duo (F) Solid 123 Powder (M) Solid Actara (M) Solid Perfecthin (I) Solid U-kew (F) Solid Arrivo (I) Solid Butakill (W) Solid Phylate (F) Data not available... Data not yet available October 2011 Preliminary F-fungicide I-insecticide M-molluscicide R-rodenticide W-weedicide Latest update: :00 Source:Bureau of Agricultural Statistics Copyright:Yes Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: Unit:liquid in pesos per liter and solid in pesos per kilogram I. Foreign Trade Importation of crude fertilizer and agricultural chemicals has been steadily increasing in C.I.F value terms from 2008 to However, importation of manufactured fertilizer decreased in 2008 to 2009 but increased back in There is no available data yet for C.I.F. is an International Commercial Term (Incoterm) used in maritime transport referring to cost, insurance and freight, wherein the seller agrees to pay for the cost and freight to bring the goods 131

132 to the point of destination. In addition, the seller must procure and pay for the insurance of the said goods. Agricultural Imports: Quantity and Value by Commodity Group, Year and Quantity/Value Quantity C.I.F. Value Quantity C.I.F. Value Quantity C.I.F. Value Crude Fertilizer 182,047,835 27,839, ,691,437 43,347, ,175,771 53,091,184 FERTILIZER MANUFACTURED 1,350,787, ,459,985 1,252,277, ,806,903 1,488,112, ,923,539 AGRICULTURAL CHEMICALS 270,546, ,346, ,122, ,345, ,361, ,051,066 TOTAL 7,684,736,4 6,079,795,1 7,399,794,7 AGRICULTURAL IMPORTS.. Data not available 2010-Preliminary data; All Quantities are in kilograms, except for: LIVE ANIMALS are in heads; ABACA in Bale (125 kilograms); Agricultural Machineries in pieces Latest update:quantity :00 C.I.F. Value :00 Source:Bureau of Agricultural Statistics, and source of basic data-national Statistics Office Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: Unit:Quantity: in kilograms, no. of heads, bale and pieces C.I.F. Value: in USD Export of agricultural products from 2008 to 2010 had varying trends. Crude fertilizer export has been steadily decreasing from 2008 to On the other hand, export of Agricultural chemicals and manufactured fertilizer has been steadily increasing in F.O.B value terms from 2008 to There is no available data yet for F.O.B. value refers to the Incoterm meaning free on board, wherein the seller will the one to load the goods on board the ship nominated by the buyer. The seller likewise must clear the goods for export. The buyer, on the other hand must instruct the seller regarding the details of the vessel and the port where the goods are to be loaded. This does not include air transport. Agricultural Exports: Quantity and Value of by Commodity Group, Year and Quantity/Value Quantity F.O.B. Value Quantity F.O.B. Value Quantity F.O.B. Value Crude Fertilizer 1,106, , , , , ,005 FERTILIZER MANUFACTURED 213,460,147 55,814, ,962,378 92,500, ,532, ,319,927 AGRICULTURAL CHEMICALS 3,626,576 10,525,777 3,452,817 10,595,168 7,013,819 13,821,179 TOTAL AGRICULTURAL EXPORTS. 3,889,303,019. 3,135,749,268. 4,101,085,273.. Data not available 2010-Preliminary data All Quantities are in kilograms except for LIVE ANIMALS are in heads ABACA in Bale (125 kilograms) Agricultural Machineries in pieces Latest update:quantity: :00 F.O.B. Value: :00 Source:Bureau of Agricultural Statistics, and source of basic data-national Statistics Office Contact:Ermina V. Tepora 132

133 Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: Unit:Quantity: kilograms, no. of heads, bale and pieces F.O.B. Value: in USD SWINE & POULTRY As of October 1, 2011, the country s swine inventory was 12.1 million heads. This was 3.6% lower than October 1, 2010 s inventory of 12.6 million heads. Stocks in backyard farms (raisers with not more than 20 heads) went down by 6.16% while those in commercial farms increased by 1.86% against 2010 levels. About 66% of the swine population was raised in backyard farms of which there are between 200 and 300 located across the Philippines. Swine Inventory by Farm Type, Philippines as of Oct 1, Total Backyard Commercial Total 13,768,188 12,627,496 12,174,385 Backyard 9,751,055 8,578,793 8,050,490 Commercial 4,017,133 4,048,703 4,123,895.. Data not available Latest update: :00 Source: Bureau of Agricultural Statistics Contact: Nenita T. Yanson Bureau of Agricultural Statistics 1184 Ben-Lor Bldg., Quezon Avenue, Quezon City Tel: Fax: poultry@bas.gov.ph Unit: heads The hog industry recorded a 1.11% growth in Production increased from metric tons in 2010 to 1, metric tons in There is no existing data available yet for full year 2011 production. 133

134 Volume of Swine Production, Philippines However, based on January to June 2009 to 2011 figures. Hog production has been steadily increasing from 2009 to Hog Production Semester to Hog Semester Data not available Latest update: :00 Source:Bureau of Agricultural Statistics Contact:Nenita T. Yanson Bureau of Agricultural Statistics 1184 Ben-Lor Bldg., Quezon Avenue Quezon City Tel: Fax: poultry@bas.gov.ph The country s total chicken population as of January 1, 2010 was million birds, or merely 0.17% higher than last year s headcount of million birds. Broiler inventory dropped by 8.36% in 2010, while layer population posted an increase of 13.72%. Native chicken inventory was higher by 2.05%. Chicken Inventory by Classification, Philippines as of January 1, P 134

135 In 2010, total chicken production grew by 4.02%. The growth in chicken output was attributed to the increase in broiler production which contributed around 69% to the total chicken production. Chicken egg production went up by 5.12%. This increment came from commercial farms which contributed around 84.0% of the total egg output. Growth Rates in Volume of Production, Philippines Gross value of chicken and chicken egg production in 2010 at current prices grew by 4.39% and 7.16%, respectively. These gains were attributed to the increases in output and farm prices during the year. At constant prices, chicken and chicken egg production contributed around 14.33% to the annual gross output of agriculture in 2010 (PPA January December 2010). There is no available data yet for full year 2011 production. On the other hand, based on a Jan to Jun 2009 to 2011, comparison, chicken and chicken egg production as been increasing. Chicken and Chicken Eggs Production (Semester to 2011) Semester 1 Chicken Chicken Eggs Data not available Latest update: :00 Source:Bureau of Agricultural Statistics Contact:Nenita T. Yanson Bureau of Agricultural Statistics 135

136 1184 Ben-Lor Bldg., Quezon Avenue Quezon City Tel: Fax: Unit:thousand metric tons I. Domestic Supply and Consumption There is an increasing trend in the production of Hog and Poultry from 2008 to 2011 based on the data gathered from the Bureau of Agricultural Statistics. This is due to the increasing demand of the said commodities Livestock and Poultry: Volume of Production by Animal Type, Period and Year Hog Quarter Quarter Quarter Quarter Annual 1, , , Chicken Quarter Quarter Quarter Quarter Annual 1, , , Data not available Latest update: :00 Source:Bureau of Agricultural Statistics Contact:Nenita T. Yanson Bureau of Agricultural Statistics 1184 Ben-Lor Bldg., Quezon Avenue Quezon City Tel: Fax: poultry@bas.gov.ph Unit:thousand metric tons II. Demand The table below represents the supply and utilization of pork from 2007 to There is no data available yet for 2010 and 2011 from the Bureau of Agricultural Statistics. Livestock: Supply and Utilization Accounts by Commodity, Year and Item UT Total Carcass SU SU SU Gross UT Carcass Per UT Exports UT Processing Net Food Production Imports Supply Capita kg/yr Disposable Pork ,616,715 52,384 1,669, ,401 1,335, ,605,807 83,014 1,688, ,270 1,345, ,628,839 87,284 1,716, ,546 1,371, SU - Supply UT - Utilization b/ - Less than 1 metric ton Latest update: :00 136

137 Source: Bureau of Agricultural Statistics, and source of basic data: National Statistics Agricultural Accounts and Statistical Indicators Division Ben-lor Bldg., 1184 Quezon Avenue, Quezon City Unit: metric tons The table below shows the shortage of supply of poultry (dressed chicken) from 2007 to Importation is needed to augment the discrepancy of supply during those years. There is no data available yet for Dressed Chicken SU Production SU Imports SU Gross Supply UT Exports UT Total Net Food Disposable UT Per Capita kg/yr UT Per Capita gm/day ,395 38, ,731 3, , ,324 43, ,082 3, , ,294 61, ,738 4, , ,023 98, ,027 5, , SU - Supply UT - Utilization. - Category not applicable.. - Data not available b/ - Less than 1 metric ton Latest update: :00 Source:Bureau of Agricultural Statistics, and source of basic data - National Statistics Office Contact:Ana M. Eusebio Agricultural Accounts and Statistical Indicators Division Bureau of Agricultural Statistics Ben-lor Bldg., 1184 Quezon Avenue, Quezon City Tel Fax aasid@bas.gov.ph Unit:metric tons III. PRICES On the average, all market levels posted price increases in 2010 compared with the 2009 data. Annual average farm gate price per kilogram of live hogs was up by 6.12 %. Annual average wholesale price per kilogram increased by 3.69 %, while annual average retail price per kilogram of pork in Metro Manila went up by 4.85 %. There is no available data yet for Annual Average Prices by Market Level,

138 Farm gate prices of Hogs and Chicken have been steadily increasing from 2007 to These increments can be attributed to inflation, increasing oil prices, and continuous increase in the cost of raw materials for feeds and feed ingredients, among others. There is no available data yet for Agricultural Commodities: Farmgate Prices by Commodity and Year Hogs Upgraded for Slaughter Chicken Broiler, other breed (backyard) Chicken Broiler, other breed (commercial) Data not available... Data not yet available 2010 Final Latest update: :23 Source:Bureau of Agricultural Statistics Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: Unit:pesos per kilogram (or as indicated) * - pesos per piece Parallel to the increase in farm gate prices is, of course, the increase in the retail prices since the farm gate prices command the retail prices of both swine and poultry in the commercial trade. There is no data available yet for 2011 in the Bureau of Agricultural Statistics. Agricultural Commodities: Retail Prices by Commodity and Year Pork Lean Meat Pork Meat with bones Pork Pata (front) Chicken Fully Dressed (broiler) Chicken Broiler (live) Data not available... Data not yet available April and May preliminary Latest update: :00 Source:Bureau of Agricultural Statistics Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: amsad@bas.gov.ph Unit:pesos per kilogram (or as indicated) *- pesos per piece III. Foreign Trade Importation of food and live animals decreased from 2008 to 2009 but increased back in 2010 to C.I.F Value levels higher than There is no available data yet for

139 Agricultural Imports: Quantity and Value by Commodity Group, Year and Quantity/Value Quantity C.I.F. Value Quantity C.I.F. Value Quantity C.I.F. Value FOOD AND LIVE ANIMALS 7,867,793,610 5,874,212,801 9,203,153,855 4,783,907,028 8,921,779,045 5,955,596,9 58..Live Animals 507,766 13,071, ,421 14,824, ,713 17,091,532..Meat and Meat Preparations 258,163, ,685, ,900, ,389, ,772, ,711,880..Dairy Products and Bird's Eggs 262,373, ,626, ,680, ,763, ,562, ,876,816.. Data not available 2010-Preliminary data; All Quantities are in kilograms, except for: LIVE ANIMALS are in heads; ABACA in Bale (125 kilograms); Agricultural Machineries in pieces Latest update:quantity: :00 C.I.F. Value: :00 Source:Bureau of Agricultural Statistics, and source of basic data-national Statistics Office Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: Unit:Quantity: in kilograms, no. of heads, bale and pieces C.I.F. Value: in USD Live animal exports and Dairy Products and Bird s eggs exports have decreased in quantity from 2008 to However, exports of these products increased in Live animal exports have been increasing consistently from 2008 to There is no 2011 data available from the Bureau of Agricultural Statistics. Agricultural Exports: Quantity and Value of by Commodity Group, Year and Quantity/Value F.O.B. Value Quantity F.O.B. Value Quantity F.O.B. Value Quantity FOOD AND LIVE ANIMALS Live Animals Meat and Meat Preparations Dairy Products and Bird's Eggs Data not available 2010-Preliminary data All Quantities are in kilograms except for LIVE ANIMALS are in heads ABACA in Bale (125 kilograms) Agricultural Machineries in pieces Latest update:quantity: :00 F.O.B. Value: :00 Source:Bureau of Agricultural Statistics, and source of basic data-national Statistics Office Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: Unit:Quantity: kilograms, no. of heads, bale and pieces 139

140 F.O.B. Value: in USD CORN The January-June 2011 corn production is forecast at 3.30 million metric tons ( MT ). This is 36.8% above the 2010 level of 2.42 million MT. Area harvested may expand by 14.3%, from 967 thousand hectares in 2010 to 1.10 million hectares this year. Yield is, likewise, expected to improve by 19.7%. Corn Production, Philippines January June 2011 Forecast and Estimates IV. Domestic Supply and Consumption There is a gradual increase in corn production from 2007 to 2009, with a significant decrease in This could be attributed to several disastrous typhoons which hit the country in There is no 2011 data available yet from the Bureau of Agricultural Statistics Figures may come in April 2012 assuming that the latest update for 2010 was April 25, Corn: Volume of Production by Cereal Type, Period and Year Annual PHILIPPINES White Corn 2,527,633 2,254,567 2,316,434 2,169,102 Yellow Corn 4,209,307 4,673,658 4,717,599 4,207,693 Corn 6,736,940 6,928,225 7,034,033 6,376, data revised as of April 25,2011 Latest update: :00 Source:Bureau of Agricultural Statistics Contact:Minda C. Mangabat Bureau of Agricultural Statistics 1184 Ben-Lor Bldg., Quezon Avenue, Quezon City, Philippines Tel.: Fax: csd@bas.gov.ph Unit:metric tons 140

141 V. Demand The country continues to import corn to prevent the undersupply of the commodity in the event of natural disasters which cause considerable damage to agricultural crops, since corn is one of the basic ingredients for livestock and poultry feeds. As you can see from the UT Exports and SU Imports column, we have been importing every year from 2007 to 2010 but have exported less than 2 thousand metric tons during that same period. There is no data available yet for Corn SU Beginning Stocks SU Production SU Imports SU Gross Supply UT Exports UT Seeds c/ c/ 50 UT Feeds and Waste UT Processing UT Ending Stocks UT Total Net Food Disposable 141 UT Per Capita kg/yr UT Per Capita gm/day SU - Supply UT - Utilization c/ - Less than 1 thousand metric ton Latest update: :00 Source:Bureau of Agricultural Statistics, and source of basic data - National Statistics Office Contact:Ana M. Eusebio Agricultural Accounts and Statistical Indicators Division Bureau of Agricultural Statistics Ben-lor Bldg., 1184 Quezon Avenue, Quezon City Tel Fax aasid@bas.gov.ph Unit:thousand metric tons VI. Prices All except Green corn, White experienced increase in prices from 2009 to Prices were nearly constant for all commodities from 2008 to 2009 except Green Corn Yellow which experienced a significant decrease. There is no data available yet for Agricultural Commodities: Farmgate Prices by Commodity and Year Corngrain [Maize] Yellow, matured Corngrain [Maize] White, matured Green Corn (Maize, green), White Green Corn (Maize, green), Yellow Data not available... Data not yet available 2010 Final Latest update: :23 Source:Bureau of Agricultural Statistics Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue

142 Quezon City, Philippines Tel: Fax: Unit:pesos per kilogram (or as indicated) * - pesos per piece Wholesale of both white and yellow corn grains and corn grits have surprisingly increased from 2007 to 2009 but decreased in 2010 (except for Corngrain Yellow). There is no data available yet for Agricultural Commodities: Wholesale Prices by Commodity and Year Corngrain Yellow Corngrain White Corngrits Yellow Corngrits White Data not available... Data not yet available 2010 Preliminary Commodity..Corngrain White includes glutinuous Latest update: :00 Source:Bureau of Agricultural Statistics Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: amsad@bas.gov.ph Unit:pesos per kilogram (or as indicated), *- pesos per piece There was an increase across the board for the retail prices of all commodities below from 2007 to Retail prices in 2010 retreated from 2009 figures but were still above 2008 retail prices. There is still no data available for Agricultural Commodities: Retail Prices by Commodity and Year Corngrain Yellow Corngrain White Corngrits Yellow Corngrits White Data not available... Data not yet available April and May preliminary Latest update: :00 Source:Bureau of Agricultural Statistics Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: amsad@bas.gov.ph Unit:pesos per kilogram (or as indicated) *- pesos per piece VII. Production Data Corn production had an upward trend from 2007 to 2009, and a very significant decrease in volume in There is still no data available for full year

143 2010 data revised as of April 25,2011 Latest update: :00 Source:Bureau of Agricultural Statistics Contact:Minda C. Mangabat Bureau of Agricultural Statistics 1184 Ben-Lor Bldg., Quezon Avenue, Quezon City, Philippines Tel.: Fax: Unit:metric tons Corn: Volume of Production Per Year Corn 6,736,940 6,928,225 7,034,033 6,376,796 As for the area harvested per year, there is not much difference from the year 2007 to 2009, with a moderately significant decrease by There is still no data available for Corn: Area Harvested by Year Corn 2,648,317 2,661,021 2,683,890 2,499,040 Latest update: :00 Source:Bureau of Agricultural Statistics Contact:Minda C. Mangabat Bureau of Agricultural Statistics 1184 Ben-Lor Bldg., Quezon Avenue, Quezon City, Philippines Tel.: Fax: csd@bas.gov.ph Unit:Hectares FEEDS The Philippines currently has about 700 businesses involved in its animal feed industry. The industry is relatively fragmented with 10 of the businesses operating about 60% of the industry's total capacity. Today, there are as many animal feed brands as there are producers. According to the Association of Philippines Feed Millers, industry sales are about USD2.1 billion per annum. Some key points to note about the industry are as follows: It is composed of commercial millers, which comprise about 37% of businesses, home-mixers (43%) and integrated producers (20%). 74% of the operations are on the main island of Luzon, 14% in Mindanao and 12% in the Visayas. The commercial millers and integrated producers produce about 56% of the feed that is available in the Philippines. Home-mixers produce the balance of supply. The largest companies involved in the industry are San Miguel Corporation (25% of production capacity), Cargill Philippines (14%), Swift Foods (13%), General Milling Corporation (12%), Vitarich (11%), Universal Robina, Sun Jin Philippines, Foremost Farms, Tyson Agri-Ventures and Grain Handlers. San Miguel is the Philippines largest corporation and has animal feed operations all over the country. 143

144 The Philippine feed milling industry depends almost entirely on the growth or success of livestock and poultry production. Similarly, the productivity and profitability of livestock and poultry are also dependent on the production efficiency and advanced technology of the feed milling industry, as reflected in its capability to produce high quality feeds at reasonable and stabilized prices. In order to achieve certain efficiencies and effect some production costs savings, feed millers have bonded into associations. At the forefront of these associations is the Philippine Association of Feedmillers, Inc. (PAFMI). While the demand for mixed feeds is highly dispersed all over the country, the concentration of firms in Metro Manila resulted in unfavorable effects on marketing and distribution costs, as well as procurement costs of ingredients. The paramount problems of the feeds industry are its heavy dependence on imports and its chronic shortages of reasonably-priced local feed ingredients. The industry has remained dependent not only on imported inputs but also on imported equipment and machineries. The country's lingering economic crisis, as manifested in the high inflation rate amidst low income in almost all sectors of the economy, and the consequently depressed markets and declining trend in consumption pattern, have contributed to the decreasing production of livestock and animal feeds. However, the government has instituted sound policies to assure adequate feed supplies and reliable quality of raw materials and finished feeds at reasonable prices affordable to livestock and poultry raisers. The recent innovations by the government to encourage compliance with existing animal feed laws are the following: Accreditation of private laboratories to increase chemical analysis capabilities for faster results; Awards and recognition for consistent compliance with rules and regulations; Conduct of dialogues, public hearings, congress, workshops to increase level of awareness, improve feedback mechanism and encourage private sector participation in policy formulation; Linkages with local and international government and non-government organizations for information networking; Deputation of provincial and regional control officers for animal feed and veterinary drugs and products. I. Domestic Supply and Consumption The Philippines produces around 6 million tons of agricultural products and related waste products that are used in local animal feed. The Chart below provides an overview of what is used in the Philippines. Animal Feed Ingredients in the Philippines 6 Million Tons 144

145 II. Demand Demand for animal feed is currently around 8 million tons per annum. Demand fluctuates with a range of different factors: Disease outbreaks, which periodically break out in the smallholder area of the pig industry. (Note: According to the Department of Agriculture, the Philippines continues to be H5N1 free so there are no restrictions on its ability to export chicken meat); The price of key feed ingredients, with the highest price sensitivity occurring for soybean meal (which represents about 50% of manufactured animal feed consumption by weight) and coconut oil; and Periodic typhoon and major tropical storm damage. The structure of demand is reported as follows: Poultry feeds 55% Pig feed - 33%; and Aquaculture and other feeds 12% III. Foreign Trade Importation for Feeding stuff for animals has steadily decreased in C.I.F. value terms from 2008 to There is no data available yet for Agricultural Imports: Quantity and Value by Commodity Group, Year and Quantity/Value Feeding Stuff for Animals (excluding Unmilled Cereals) Quantity C.I.F. Value Quantity C.I.F. Value Quantity C.I.F. Value 1,621,136, ,609,506 1,916,716, ,386,125 1,596,970, ,320,348.. Data not available 2010-Preliminary data; All Quantities are in kilograms, except for: LIVE ANIMALS are in heads; ABACA in Bale (125 kilograms); Agricultural Machineries in pieces Latest update: Quantity :00 C.I.F. Value :00 Source:Bureau of Agricultural Statistics, and source of basic data-national Statistics Office Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: Unit:Quantity: in kilograms, no. of heads, bale and pieces C.I.F. Value: in USD Exportation for Feeding stuff for animals have decreased in F.O.B. value terms from 2008 to 2009 but increased significantly in 2010 and is much higher than 2008 figures.. There is no data available yet for

146 Agricultural Exports: Quantity and Value of by Commodity Group, Year and Quantity/Value F.O.B. F.O.B. Value Quantity Value Quantity F.O.B. Value Quantity..Feeding Stuff for Animals (excluding Unmilled Cereals) 453,400,327 66,140, ,249,282 50,908, ,365,431 85,129,457.. Data not available 2010-Preliminary data All Quantities are in kilograms except for LIVE ANIMALS are in heads ABACA in Bale (125 kilograms) Agricultural Machineries in pieces Latest update:quantity: :00 F.O.B. Value: :00 Source:Bureau of Agricultural Statistics, and source of basic data-national Statistics Office Contact:Ermina V. Tepora Bureau of Agricultural Statistics 1184 Ben-lor Bldg., Quezon Avenue Quezon City, Philippines Tel: Fax: Unit:Quantity: kilograms, no. of heads, bale and pieces F.O.B. Value: in USD 146

147 PLANS AND PROGRAMS CURRENT OPERATIONS Distribution: The Company currently distributes the following types of products: 1. Animal feeds - The Company has an exclusive distribution agreement with San Miguel Foods Inc.'s BMEG. The areas covered are the whole of Nueva Ecija, almost all of Bulacan, a third of Pampanga, and a third of Pangasinan. The feeds distribution business accounted for about 52% of the Company's total sales for Fertilizers - The Company distributes almost all brands of fertilizers in the market. The two top grossing are the Swire and Viking brands. The Company distributes fertlizers in Central Luzon mainly in Bulacan, Pampanga, and Nueva Ecija. The Company closely monitors its fertilizer business because of the relatively volatile prices of fertilizers. The fertilizer distribution business accounted for about 24% of total sales in Agro-chemicals - The Company distributes almost all brands of agro-chemicals in the market. The biggest contributors to the Company are the products from Syngenta Philippines with whom the Company has an exclusive distributorship agreement similar to that with BMEG. The Syngenta agreement covers the entire Central Luzon composed of the provinces of Bulacan, Pampanga, Tarlac, Nueva Ecija, Zambales, and Bataan. The Company's distribution area of agro-chemicals is the widest among all of the product lines. Sales are mainly centered on Central Luzon but also reaches Isabela, Pangasinan, Baguio and Banaue in Northern Luzon as well as Mindoro, Quezon and Bicol in Southern Luzon. The Agro-chemical distribution business accounted for about 22% of total sales in Seeds, others - This segment business accounted for about 1% of total sales in PLANS FOR 2012 TO 2014 Distribution 1. Animal feeds - The Company will prioritize the strengthening of its existing areas of distribution. For areas outside its distribution the Company will focus on the strategy of penetration by establishing a new chain of Calata Corporation Retail Stores. 2. Fertilizers - The Company plans to be aggressive in the fertilizer business. The Company will closely monitor the price movement of fertilizers in the market and if we deem that the conditions are favorable, we will invest heavily in the business. 3. Agro-chemicals - The Company plans to be more aggressive in the agro-chemical industry compared to last year. Last year the El Nino phenomenon affected the sales of the Company in this segment. The Company plans to take advantage of more supplier deals to take advantage of incentives and lower prices. 4. Seeds, others - The Company plans to increase this business thru sales under its Calata Corporation Retail Store Chain. 147

148 Retailing The Company plans to increase revenue and presence by entering into the business of retailing its distribution products thru the establishment of a new chain of Calata Corporation Retail Stores under a newly created and wholly-owned subsidiary as soon as the Company secures the necessary approvals from the SEC and PSE in relation to its capital fund raising activity. The Company shall source its inventory of B-Meg Feeds from existing B-Meg distributors in the locality where its retail stores are established. All other distribution products shall be ordered from the Company s existing major suppliers as previously described. All retail stores shall be leased premises and negotiations on the terms of the lease as soon as the proceeds from the offering are realized. The Company foresees the following advantages in the putting up of the retail stores: 1. The Company's margins shall increase since the sales are direct to the consumers. 2. The Company shall have a more stable customer base than the distribution business since customers in the distribution are resellers and have an option to buy from other distributors. Whereas, the retail customers are already the end users and once they are satisfied with our service will be a more loyal customer base. The Company plans to successfully fund at least 100 retail stores in 2012 and further strengthen the operations thru more aggressive and innovative marketing strategies like the improvement of the loyalty rewards program and other incentive schemes. Provided hereunder is an itemized breakdown of the estimated costs per outlet: PARTICULARS COST (PhP) SITE DEVELOPMENT AND BUILDING STRUCTURE Construction Expense Paint 5, Lights 5, LDR 2, Electrical 2, Wallfan 1, Padlocks 2, Cabinets 70, Roll ups 10, Building Reconstruction Façade 60, Signage 50, Other Repair 10, Labor Expense Payroll 20, Other Expense 5, , EQUIPMENT, CLEANING MATERIALS AND OFFICE SUPPLIES Equipment PC-Based USB Biometric Device 5, Computer Set (CPU, monitor, keyboard, mouse, mouse pad & 13, AVR) Epson LX-300 Printer 7, Globe Tatoo Internet Kit (Prepaid) SmartBro Internet Kit (Prepaid)

149 PARTICULARS COST (PhP) Sun Broadband Internet Kit (Prepaid) Vault 2, Web Cam 15, Push cart Scoop Weighing Scale Big 10, Weighing Scale Small 1, Cleaning Materials Office Supplies 3, , INVENTORY Chemicals 702, Fertilizers 194, Feeds 67, Others 57, ,022, TOTAL COST PER OUTLET 1,328, TOTAL COST OF 100 OUTLETS Multiplied by ,895, The Company intends to complete the establishment of its Calata Corporation Retail Stores in The Company shall only start on intensive inventory building and repair of leased sites only when the funds needed are actually received by the Company considering that the establishment of these stores shall come from the proceeds of the initial public offering. Currently, bulk of the work being done is the finalization of the prospective locations as well as the commencement of negotiations for the terms of the lease with the prospective lessors. Provided hereunder is a table of the planned nationwide distribution of the outlets: Regions Provinces No. of Stores Cordillera Administrative Region Baguio 2 Ilocos Region Ilocos Norte Ilocos Sur 5 La Union 6 Pangasinan 9 Batanes 3 5 Cagayan Valley Central Luzon Cagayan 6 Isabela 6 Nueva Vizcaya 5 Aurora 5 Bataan 6 149

150 Bulacan 8 Nueva Ecija Pampanga 7 8 Tarlac 7 Batangas 3 CALABARZON Cavite 2 Laguna 2 Bicol Region Total stores to be established Albay 2 Sorsogon Farms: The Farming Operations of the Company will not be funded in whole or in part by the proceeds from the intended Initial Public Offering. Nevertheless, for the purpose of fully describing all the current operations of the Company, it is worthy to note that the Company is currently constructing several large scale farms with an estimated total project cost of P500M. The funding for this undertaking shall be sourced from internally generated funds of the Company and such other bank credit facilities as may be approved. To date, the Company is still in the process of applying for bank credit facilities to augment the funding for this project. The following are the projects under construction: 1. Magnolia Broiler Breeder Farm - Total project cost is P105.46M. The project will produce eggs intended to be chicks to be grown as broilers and then sold by Magnolia to fast foods and supermarkets under the Magnolia brand name. The project will produce a total of 9.36M eggs a year. 2. Monterey Hog Breeder Farm - Total project cost is P110.60M.The project will produce piglets to be grown in hog growing farms. The project will have a total of 1,100 Sows producing the piglets. An estimated 26,460 piglets will be produced per year. 3. Magnolia Broiler Growing Farm - Total project cost is P278M. The project will have a capacity to grow 450,000 broiler heads at 8 growing cycles a year or a total of 3.60M broiler heads per year. 4. Monterey Hog Growing Farm - Total project cost is P53.00M. The project will have the capacity to grow 3,000 hogs at 3 cycles per year or a total of 9,000 hogs per year. ENVIRONMENTAL COMPLIANCE CERTIFICATES PROJECT NAME LOCATION STATUS DATE OF ISSUANCE Monterey Hog Bgy. Ula, Tugbok Approved November 8, 2011 Growing Farm District, Davao City Bgy. Kinawe, Libona, Approved December 16, 2011 Isabela Magnolia Broiler Bgy. Matina, Tugbok Approved November 8,

151 Growing Farm Monterey Hog Breeder Farm Magnolia Broiler Breeder Farm District, Davao Bgy. Nangka, Libona, Bukidnon Bgy. Naganacan, Sta. Maria, Isabela Bgy. Fuyo, Ilagan, Isabela Approved November 28, 2011 Approved October 13, 2011 Approved August 3, 2011 Cost and effects of compliance with environmental laws There is no material cost incurred in securing the Environmental Compliance Certificate (ECC) from the Department of Natural Resources (DENR). Compliance with the requirements of the DENR enables the Company to proceed with its projects subject to certain conditions and restrictions provided in said ECC. DEVELOPMENTAL ACTIVITIES PROJECT NAME Monterey Hog Breeder Monterey Hog Growing Magnolia Broiler Breeder Magnolia Broiler Growing LOCATION/S TOTAL PRODUCTION TOTAL PROJECT COST STATUS (%) AMOUNT ALREADY SPENT Bgy. Naganacan, Sta Sows; 110,562,338 40% 31,699,500 Maria, Isabela 26,460 piglets Bgy. Ula, Tugbok District, 3,000 Hogs 52,710,419 5% 7,818,240 Davao City Bgy. Fuyo, Ilagan, Isabela ,482,293 20% 12,167,125 Eggs; Breeders Bgy. Kinawe, Libona, 150,000 Birds 90,090,609 5% 4,506,100 Bukidnon Bgy. Matina, Tugbok 150,000 Birds 96,584,509 5% 11,000,000 District, Davao Bgy. Nangka, libona, 150,000 Birds 91,681,509 2% 4,097,000 Bukidnon INSURANCE The Company has sufficient insurance coverage that is required by Philippine regulations for real and personal property. Subject to the customary deductibles and exclusions, the Company s insurance policy include coverage for, among other things, buildings, improvements, machinery and equipment, furniture, fixture, fittings and motor vehicles against damage from fire and natural perils, machinery breakdown, third-party liability to the public and construction works. Currently, the Company has an office and warehouse insurance on the following: Description Policy # Expiration Insurance Agency Date Calata Main Office F /21/12 The Mercantile Insurance Co., Inc. Warehouse (Bulacan) FI-REG-KL /30/12 PhilCharter Insurance 151

152 CHECKS AND BALANCES FOR FLOW OF FUNDS AND RELATED PARTY TRANSACTIONS Controls for Evaluation and Approval of Credit Applications: The Company has a credit and collection department that is separate and independent from the sales department. The Company instituted this separate department even though the normal practice in its industry is that the sales people are also the ones who collect the receivables. The independent credit and collection department is tasked with the evaluation of credit applications. The Company has a set of documentary requirements like business registration papers, application forms, proof of identification, bank account details, personal and business references, etc. After the completion of the documentary requirements as evaluated by the credit and collection department, a credit investigation of the applicant is initiated. The applicant s bank dealings and records are investigated as authorized by the applicant, the business and personal references are contacted and the feedback recorded. A field credit investigator is also dispatched to do a neighborhood check of the applicant as neighbors are interviewed as to the background and reputation of the applicant. Feedbacks are recorded. The credit and collection manager summarizes the documentary requirements and feedback reports from references and neighborhood checking. It is then preliminarily evaluated if it will be endorsed for approval by the CFO. If the preliminary evaluation is negative, it is indicated on the report as such. After the preliminary evaluation by the credit and collection manager, it is then presented to the CFO, if for approval or not. The CFO goes through the documents and the credit investigation reports and decides if the credit application is approved or not. The CFO also decides based on the report and the customer s request the amount of credit limit to be given to the customer. If it is approved, the customer name, address and approved credit limit is entered by the I.T. Dept in the accounting system. Monitoring of Credit Customers: The Company divides the customers by area and assigns customers to a specific collection monitoring team. The Company maintains several collection teams with the objective that each team be able to fully monitor each customer. The team is composed of office employees based in the office and field collectors. The office collection staff monitors the customers account thru the Company s accounting system. All payment details by the customer are given to the staff by the cashier for proper recording in the books. Every time a customer exceeds his/her approved credit limit. The sales department cannot enter the sales order and cannot prepare an invoice. They prepare a credit extension form and given to the collection office staff. The collection staff checks the customers records and endorses it for approval or disapproval to the operations manager or the CFO. Cash/Check Collection Process: Each credit collection team sets a regular collection schedule for each customer, taking into account the locations of each customer relative to each other. The field collector goes to the customer according to the schedule. A receipt with 2 carbon copies is issued to the customer for every payment. The collector remits the payments along with the copies of the receipts issued to the cashier. The cashier prepares a collection report for the day indicating receipt numbers and

153 collector name. An auditor checks the collection report and verifies it with the carbon copy of the receipt, recounts the cash and check, and checks the booklet of receipts of the collectors to ensure that the carbon copies have no irregularities. The auditor along with the cashier deposits the collections with the bank. The collection report prepared by the cashier along with the copies of the receipts is given to the collection staff assigned to each customer for proper posting into each respective customers records. Sound and Independent Internal Audit Control: In order to strictly monitor the finances of the Company, including the proceeds of the Initial Public Offering (IPO), the Audit Committee which has been duly constituted in accordance with Article 3(K)(i) of the Company s Manual on Corporate Governance which provides: The Audit Committee shall consist of at least three (3) directors, who shall preferably have accounting and finance backgrounds, one of whom shall be an independent director and another with audit experience. The chair of the Audit Committee should be an independent director. shall meet on a monthly basis in order to discuss updates on the use of proceeds on said IPO as well as other important audit and finance concerns. Consistent with the functions and objectives of the Audit Committee, an audit manual shall be constituted to serve as the Company s guide to perform industry best practices to protect not only the interest of its existing stockholders but also that of the investing public. Immediately upon listing with the Philippine Stock Exchange (PSE), the Company shall establish a policy which has for its objective the imposition of stricter standards in the approval of advances to related parties, such as but not limited to: (a) providing a PHP 50 Million limit on the amount of advance to be granted; (b) charging of interest which is equal to or greater than existing industry practice and such other terms and conditions with the aim of protecting not only the interest of its existing stockholders but also that of the investing public. As a stronger measure of checks and balances, the Company shall constitute a special internal audit team which shall have the function of verifying and assuring that best internal audit practices are observed. Said team shall report directly to the Audit Committee. The Audit Committee is currently comprised of Baltazar Endriga, George A. Nava, Jaime C. Laya and Benison Paul B. De Torres. George A. Nava is the Chairman of the Committee. The Company will endeavor to engage competent and qualified professionals as part of its management team at all times.

154 MATERIAL CONTRACTS The Company s principal contracts generally consist of Distributorship Agreements with its top suppliers.save for the contracts mentioned below, the Company is not a party to any other contract of material importance and outside the usual course of business, and the Directors do not know of any such contract involving the Company. Complementary Feeds Distributorship Agreement with San Miguel Foods, Inc. In a letter dated 01 April 2010 sent by San Miguel Foods, Inc. to the Company with the subject: Renewal of Distributorship Agreement for 2010, the Complementary Feeds Distributorship Agreement between San Miguel Foods, Inc. and the Company effective on 01 January 2009 and expiring on 31 December 2009 was extended for 1 year from 01 January 2010 to 31 December 2010, covering hog feeds and poultry feed enumerated in Attachment A of said Letter. Further, the letter dated 01 April 2010 provides that the said Agreement shall be deemed automatically renewed upon the expiry of its contract term for the like period(s) under the same terms and conditions, except as may be otherwise agreed by the parties in writing, unless the Company (San Miguel Foods, Inc.) notifies the contractor (Calata) in writing of its intent to terminate the Agreement within 60 days prior to the end of the contract term. Last January 6, 2012, San Miguel Foods, Inc. issued a certification which validated the effectivity of the said agreement. Distributorship Agreement with Sinochem Crop Protection (Phil.) Inc. Sinochem Crop Protection (Phil.) Inc. ( Sinochem ), represented by Mr. Ramil L. Bonifacio, and the Company, represented by Mr. Eusebio Calata, entered into a non-exclusive distributorship agreement dated 01 October 2008 for the distribution of Sinochem s high quality herbicides by the Company. The Distributorship Agreement is for a term of 15 months beginning on 01 October 2008 and ending on 31 December 2009, renewable automatically for successive terms of 12 months each and subject to early termination by written notice sent by either party to the other not less than 30 days prior to termination date. Last January 5, 2012, Sinochem issued a certification which validated the effectivity of the said agreement. Distributorship Agreement with Monsanto Philippines, Inc. On 15 April 2010, Monsanto Philippines, Inc. ( Monsanto ), represented by Mr. Edgar Juan C. Surtida III, and Calata (then Planters Choice), represented by Mr. Joseph Calata, entered into a non-exclusive distributorship agreement for the purchase and sale of DEKALB Brand Corn Seeds by Planters Choice. The said Distributorship Agreement is for a period of 1 year from 15 April 2010, subject to automatic renewals for periods of 1 year each. The Distributorship Agreement may be terminated at any time, with or without cause, upon delivery of a written notice of termination to the other party. Last January 5, 2012, Monsanto issued a certification which validated the effectivity of the said agreement. Agreement with Syngenta Philippines, Inc. Syngenta Philippines, Inc. ( Syngenta ), represented by Mr. Jose Ramon L. Valmayor, and Calata entered into an Agreement for the sale of Syngenta s crop protection products (excluding Syngenta s seed products) in the provinces of Bulacan, Pampanga, Bataan, Aurora and Nueva Ecija. The Agreement is only valid until the end of However, the Company is in the process of renewing the effectivity of said Agreement. 152

155 Loan Agreement between the Company and Avestha Holdings Corporation Calata, as lender, and Avestha, as borrower, entered into a Loan Agreement in 2011 (exact date not indicated). Under the said Agreement, Calata shall lend Avestha PhP120,000,000.00, for a term of 3 years. The principal amount shall be due in 2 years. The interest on the principal balance of the loan, at the rate of 6% per annum,will be payable every end of the month. A grace period on the interest payment for one year was agreed upon by the parties. As collateral of the loan, Avestha shall provide certain real properties valued at a total amount of PhP166,549, The Loan Agreement further states that Avestha shall not have the right to transfer its rights or obligations under the Agreement without the prior written consent of the Calata. Moreover, the Loan Agreement includes an acceleration clause, which gives Calata the option, upon written notice to Avestha, to make all the obligations of Avestha under the same agreement due and payable, upon occurrence of default. The agreement provides that default occurs when Avestha fails to pay when due any installment or principal or interest, or any fees or charges. Memoranda of Agreement (For Poultry Contract Growing Agreement) San Miguel Foods, Inc., represented by Mr. Dewey Tan, and Calata entered into 3 undated and unnotarized Memoranda of Agreement for the supply and operation of poultry contract growing farms in various locations. Under the Memoranda of Agreement, the parties agree to enter into a growing agreement subject to Calata s obligation to construct 5 Single Decker Poultry Farms with a total farm capacity of 150,000 birds in each of the following locations with the following completion dates and required start of commercial operations: Location Completion Date Start of Commercial Operations Nangka, Libona, Bukidnon August 2012 September 2012 Kinawe, Libona, Bukidnon May 2012 June 2012 Matina Blao, Calinan, Davao July 2012 August 2012 Under each Memorandum of Agreement, any delay in the completion of the farms which would result in delay in the commercial operations thereof will result in a penalty of PhP10, for every day of delay but not exceeding 5% of the total contract amount equivalent to PhP525, Under all of the Memoranda of Agreement, the farms shall be for the exclusive use of San Miguel Foods, Inc. Memorandum of Agreement (For Hog Nursery Breeding Agreement) San Miguel Foods, Inc., represented by Dr. Leo A. Obviar and Mr. Dewey T. Tan, and Calata, represented by Mr. Joseph H. Calata, entered into an undated and unnotarized Memorandum of Agreement for the supply and operation of a hog nursery farm. Under this Memorandum of Agreement, the parties agree to enter into a nursery agreement subject to the obligation of Calata to construct a CCS Hog Nursery Farm located at Brgy. Naganacan, Sta. Maria, Isabela, with a total farm capacity of 4,400 heads. The construction of the said farm must be completed on or before June 2012, or such other date as agreed upon in writing by the parties. The farm is supposed to start commercial operations no later than July Any delay in the completion of the farm which would result in delay in the commercial operations thereof will result in a penalty of PhP369, for every month of delay but not exceeding PhP739, The Memorandum of Agreement provides that the farms shall be for the exclusive use of San Miguel Foods, Inc. Memorandum of Agreement (For Hog Contract Breeding Agreement) San Miguel Foods, Inc., represented by Mr. Dewey Tan, and Calata, represented by Mr. Joseph Calata, entered into an undated and unnotarized Memorandum of Agreement for the supply and operation of a hog breeding farm. Under this Memorandum of Agreement, the parties agree to 153

156 enter into a growing agreement subject to Calata s obligation to construct a CCS Hog Breeding Farm in Brgy. Naganacan, Sta. Maria, Isabela, with a total farm capacity of 1,100 heads. The construction of the said farm must be completed before March 2012, or such other date as agreed upon in writing by the parties. The farm is supposed to start commercial operations no later than January Any delay in the completion of the farm which would result in delay in the commercial operations thereof will result in a penalty of PhP108, for every month of delay but not exceeding PhP217, The Memorandum of Agreement provides that the farms shall be for the exclusive use of San Miguel Foods, Inc. Memorandum of Agreement (For Hog Contract Growing Agreement) San Miguel Foods, Inc., represented by Dr. Leo A. Obviar and Mr. Dewey T. Tan, and Calata Corporation, entered into an undated and unnotarized Memorandum of Agreement for the supply and operation of a hog growing farm. Under this Memorandum of Agreement, the parties agreed to enter into a growing agreement subject to the obligation of Calata to construct a CCS Hog Growing Farm located at Ula, Tugbok, Davao City, with a total farm capacity of 3,780 heads. The construction of the said farm must be completed on or before October 2012, or such other date as agreed upon in writing by the parties. The farm is supposed to start commercial operations no later than November Any delay in the completion of the farm which would result in delay in the commercial operations thereof will result in a penalty of PhP252, for every month of delay but not exceeding PhP504, The Memorandum of Agreement provides that the farms shall be for the exclusive use of San Miguel Foods, Inc. Distributorship Agreement with Gastin Corporation Gastin Corporation is an authorized exclusive distributor of Yara Fertilizers, which includes the whole area of Central Luzon. On 15 August 2011, Calata entered into an Exclusive Distributorship Agreement with Gastin. The Exclusive Distributorship Agreement appoints Calata as the sole and exclusive distributor of Yara Fertilizer in the whole area of Luzon. It obligates Calata to engage in a full-scale information campaign to promote the purchase of Yara Fertilizers to all its clientele retailers and to the public at large. Credit Line Agreement with Metrobank Calata has a PhP70,000, credit line with Metrobank. Drawings from the said credit line is secured by the following: (1) a real estate mortgage over CCT Nos and ; (2) continuing surety of the spouses Eusebio and Isabel Calata, Joseph Calata and Melvin Calata; (3) improvements over CCT Nos and , subject to fire insurance coverage coursed through PCIC and endorsed in favor of Metrobank; and (4) assignment of Credit Line Insurance of Isabel Calata coursed through Philam Life and endorsed in favor of Metrobank. Facility Agreement with BDO Calata has a facility agreement with BDO which was executed on 22 September Based on the said agreement, Calata has a credit line of PhP50,000,000.00, a discounting line of PhP100,000,000.00, an inventory financing/ trust receipt line of PhP100,000, and a bills purchase line of PhP5,000, Notably, there are certain negative covenants or acts which Calata undertakes not to do unless with the consent of BDO. Some of these negative covenants include the undertaking not to make or permit any material change in the character of its business or capital stock; not permit any material change in ownership or control of its business or its capital stock; under certain conditions not to declare or pay dividends to its stockholders; or make advances to any of its directors or stockholders. 154

157 Moreover, the facility agreement provides for events of default which, among others includes the failure to perform. In case of default, the facility agreement provides that the loan shall be terminated and the loan and all interest accrued and unpaid thereon shall be immediately due and payable. Revolving Promissory Notes Line ( RPNL ) and Domestic Bills Purchase Line ( DBPL ) with BPI Pursuant to the General Loan Agreement Calata has a RPNL with BPI in the amount of PhP80,500, which expires on 31 August Various real estates owned by the Isabel and Eusebio Calata, Avestha Holding Corporation and Andres Lipana were used as security and as well as a continuing suretyship executed by Isabel and Eusebio Calata, Joseph Calata, Melvin Calata, Avestha Holding Corporation and Andres Lipana in favor of Calata. Amounts can be drawn via 360-day promissory notes. Calata has an RPNL in the amount of PhP52,000, which expires on 31 August 2012.Various real estates under the name of Andres Lipana and San Miguel Archangel Land Development Corp. were used as security and as well as a continuing suretyship executed by Isabel and Eusebio Calata, Joseph Calata Melvin Calata, Avestha, Andres Lipana and San Miguel Archangel Land Development Corp. in favor of Calata. Amounts can be drawn via 360-day promissory notes. Calata also has an RPNL in the amount of PhP60,000, which expires on 31 August Customer s post-dated checks and a continuing suretyship executed by Isabel and Eusebio Calata, Joseph Calata and Melvin Calata in favor of Calata served as security. Amounts can be drawn via 90-day promissory notes. Calata has an RPNL in the amount of PhP3,000, which expires on 31 August Various lands owned by Isabel and Eusebio Calata were used as security. Amounts can be drawn via 360-day promissory notes. Finally, Calata has a Domestic Bills Purchase Line in the amount of PhP40,000, which expires on 31 August A continuing suretyship was executed by the Spouses Calata, Joseph Calata Melvin Calata in favor of Calata as security. The foregoing lines with BPI were issued pursuant to the General Loan Agreement dated 08 December 2005 between BPI and the Spouses Calata for themselves and as representatives of Planter s Choice Agro Products, Inc. (now Calata Corporation). The said ageement provides for certain acts by Calata which will require prior written consent from BPI such as (1) materially changing the ownership structure and management of the company; (2) merger or consolidation; sale or lease of assets not in the ordinary course of business; and (3) making loans or advances. 155

158 SUPPLY AND DISTRIBUTION AGREEMENTS In general, all supply and distribution agreements are renewed on a yearly basis. Renewal may be express or implied. Except for its exclusive distribution agreement with San Miguel Foods, Inc. (Feeds), Syngenta Philippines, Inc. (Agro Chemicals) and Monsanto Philippines, Inc. (Seeds), the Company does not usually have duly executed distribution agreements with the rest of its suppliers of agro chemicals, fertilizers and seeds. Furthermore, based on industry practice, actual exclusive distribution agreements are not issued on a yearly basis. In the case of non-exclusive distribution agreements no formal agreement is executed except for some. Instead, certifications are issued to attest that the Company is a distributor of the pertinent supplier products indicating therein exclusivity or non-exclusivity. However, for other non-exclusive suppliers, certifications are not even given since supply of the products continues for so long as the Company places an order. Nevertheless, to substitute the absence of supply and distribution agreements, the Company strictly enforces proper documentation of transactions with suppliers. The Company religiously fills up Purchase Orders which upon acknowledgment by the supplier, a Sales Invoice is issued. Hence, the Purchase Order and the Sales Invoice signifies the contract / agreement between the Company and the supplier. 156

159 MANAGEMENT S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION The following management's discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the Company's audited and unaudited financial statements, including the related notes, contained in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company cautions investors that its business and financial performance is subject to substantive risks and uncertainties. The Company's actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set out in "Risk Factors." In evaluating the Company's business, investors should carefully consider all of the information contained in "Risk Factors." Overview The Company has been posting significant increases in its revenues consistent since The revenues increased from PhP200 Million in 2003 to PhP2.00 Billion in 2011 or an increase of PhP1.80 Billion or 1,000%. The Company is in the agriculture sector which in management s view is one of the most stable industries and with a lot of opportunities for growth. The Company has been recording significant revenue growths and has not been negatively affected by the economic crisis that hit the global economy hard in In fact the Company recorded the biggest jump in its revenues in 2008 when the global economic crisis was at its strongest. The Company recorded PhP1.61 Billion in revenues in 2008 against PhP1.08 Billion in 2007 or an increase of PhP530 Million or an increase of 33%. RESULTS OF OPERATIONS Audited results for the fiscal year ended December 31, 2011 compared to Audited results for the fiscal year ended December 31, 2010 The year 2011 saw the highest recorded revenues and net income in the Company s history. The Revenues amounted to P2.00 Billion in 2011 from P1.80 Billion in 2010 or an increase of P Million or 11%. The net income amounted to P Million in 2011 from P33.84 Million in 2010 or an increase of P66.34 Million or 196%. The increase in sales is mainly attributed to increased market penetration primarily through the affiliate AGRI retail store chain which allowed to Company to sell in markets not previously accessible. The fertilizer business also had a bigger contribution this year compared to the previous years as the Company saw favorable price movements in fertilizer products. The increase in net income is aside from the increased revenues, mainly due to the increase in the Company s margins. The Company s gross profit amounted to P Million and P Million in 2011 and 2010 respectively, or an increase of P84.66 Million or 59%. The Company s operating expenses decreased, for 2011 it amounted to P63.30 Million from P67.33 Million in The decrease amounted to P4.53 Million or 7%. The decrease is mainly due to the Company s austerity measures which has resulted in decreasing expenses for the past several years. 157

160 The Company recorded finance income amounting to P3.83 Million in This is the interest from the loans receivable of the Company. The Company s finance cost no significant movement. Material Changes to the Company s Audited Income Statement as of Fiscal Year ended December 31, 2011 compared to the Audited Income Statement as of Fiscal Year ended December 31, 2010 (increase/decrease of 5% or more) Sales amounted to P2.00 Billion in 2011 from P1.80 Billion in 2010 or an increase of P Million or 11%. The increase is primarily due to increased market penetration mainly due to the affiliate AGRI retail store chain which allowed the Company to access markets that were not accessible to it before. Cost of sales increased by P Million or 7%. It amounted to P1.77 Billion in 2011 and P1.66 Billion in The increase in this account is due to the increase in sales. Gross Profit increased by P84.66 Million or 59%. It amounted to P Million in 2011 and P Million in The increase is mainly due to the Company s availment of cash discounts and the best possible volume deals. Operating expenses decreased by P4.53 Million or 7%. It amounted to P63.30 Million from P67.33 Million in This is due to the Company s implementation of austerity measures. Finance income increased by P3.83 Million. It amounted to P3.83 Million in This is the interest from the Company s loans receivable. Audited results for the fiscal year ended December 31, 2010 compared to Audited results for the fiscal year ended December 31, 2009 The year 2010 was another record breaking year for the Company in terms of net income with PhP33.84 Million recorded in 2010 from PhP7.50 Million in 2009 or an increase of PhP26.34 Million or 350%. The huge jump in net income was achieved through the successful policies implemented by the Company intended to increase its margins. This included price increases, and the availment of the lowest possible costs from suppliers through cash discounts and volume deals. To counteract the expected negative impact these measures will bring, the Company intensified its existing marketing programs putting particular emphasis on those programs targeting end users (pull strategies). The pull strategies were focused on the price increases immediate impact on the dealers, whose natural tendency is to resist and possibly adversely affect our sales. The programs focus on end users will make the end users buy products from dealers that the dealers should have bought from us. The Sales of the Company was relatively unchanged amounting to PhP1.80 Billion and PhP1.81 Billion in 2010 and 2009 respectively or a decrease of only PhP10 Million or 0.5%. Operating expenses amounted to PhP88.02 Million in 2010 and 2009 respectively, or a decrease amounting to PhP20.19 Million or 23%. The decrease was in line with the Company s austerity measures implemented in Finance cost increased with recorded amounts of PhP26.73 Million and PhP20.90 Million in 2010 and 2009 respectively, an increase of PhP5.82 Million or 27.85%. The increase is primarily due to the increased availment of loans to fund early payments to suppliers to take advantage of cash discounts. 158

161 Material Changes to the Company s Audited Income Statement as of Fiscal Year ended December 31, 2010 compared to the Audited Income Statement as of Fiscal Year ended December 31, 2009 (increase/decrease of 5% or more) The Company s recorded Gross Profit amounted to PhP Million and PhP Million in 2010 and 2009 respectively, or an increase amounting to PhP23.24 Million or 20%. The increase was primarily due to the price increases implemented the Company and the negotiation of the lowest possible costs from suppliers. Operating expenses amounted to PhP88.02 Million in 2010 and 2009 respectively, or a decrease amounting to PhP20.19 Million or 23%. The decrease was in line with the Company s austerity measures implemented in Finance cost increased with recorded amounts of PhP26.73 Million and hpp20.90 Million in 2010 and 2009 respectively, an increase of PhP5.82 Million or 27.85%. The increase is primarily due to the increased availment of loans to fund early payments to suppliers to take advantage of cash discounts. Audited results for the fiscal year ended December 31, 2009 compared to Audited results for the fiscal year ended December 31, 2008 The year 2009 saw a big increase of 64% in net income from the previous year. The net income reported amounted to PhP7.50 Million and PhP4.56 Million for 2009 and 2008 respectively. The increase is primarily due to the 12% increase in sales. There was a significant increase in revenues in The revenues recorded amounted to PhP1.81 Billion and PhP1.61 Billion in 2009 and 2008 respectively, an increase of PhP200 Million or 12%. The increase in sales is primarily due to the new feeds distribution in Nueva Ecija which started in the second half of Thus, the said Nueva Ecija distribution contributed a full years worth of sales for the year 2009, while it was able to contribute only a half year worth of sales for Operating expenses increased but this is expected because of the new operations in Nueva Ecija. The operating expenses amounted to PhP88.02 Million and PhP74.24 Million in 2009 and 2008 respectively, an increase of PhP13.78 Million or 18%. The increase was mainly because of the above mentioned new feeds distribution in Nueva Ecija which operated for one whole year in 2009 as against only half year in Material Changes to the Company s Audited Income Statement as of Fiscal year ended December 31, 2009 compared to Audited Income Statement as of Fiscal year ended December 31, 2008 (increase/decrease of 5% or more) Sales increased with recorded amounts of PhP1.81 Billion and PhP1.61 Billion in 2009 and 2008 respectively or an increase of PhP Million. The increase in sales was primarily due to the new feeds distribution in Nueva Ecija which started in the second half of Thus, the said Nueva Ecija distribution contributed a full years worth of sales for the year 2009, while it was able to contribute only a half year worth of sales for Cost of sales amounted to PhP1.69 Billion and PhP1.51 Billion in 2009 and 2008 or an increase of PhP180 Million or 12%. As a percentage of sales, the cost of sales is 93% in 2009 and 94% in Operating expenses amounted to PhP88.02 Million and PhP74.24 Million in 2009 and 2008 respectively, an increase of PhP13.78 Million or 18%. The operating expenses increased mainly because of the above mentioned new feeds distribution in Nueva Ecija which operated for one whole year in 2009 as against only half year in

162 Finance cost amounted to PhP20.90 Million and PhP17.23 Million in 2009 and 2008 respectively, or an increase of PhP3.67 Million or 21%. The increase in this account is mainly due to the increased working capital requirements of the new feeds distribution business in Nueva Ecija which is partly funded thru the availment of additional loans. FINANCIAL POSITION Audited financial position as of December 31, 2011 compared to December 31, 2010 including discussion on Material Changes to the Company s Audited Balance Sheet as of Fiscal year ended December 31, 2011 compared to Audited Balance Sheet as of Fiscal year ended December 31, 2010 (increase/decrease of 5% or more) Total assets increased by P Million or 59%. Recorded amounts were P1.05 Billion and P Million as of year end 2011 and 2010 respectively. The increase in assets is primarily due to the Company s income from operations and the infusion of P Million additional capital by stockholders during the year. The infused capital shall be used for general corporate purposes and expansion of the business such as but not limited to contract growing and breeding of hogs and poultry. These aforementioned projects, however, is not the target for the use of proceeds of the Company s application for listing and initial public offering of its shares to the public. Total liabilities had no significant movement, it only decreased by P6.54 Million or 1%. There was no significant movement because the reduction in the amounts of trade payables and short term loans were offset by the increase in amounts owed to stockholders and the increased provision for income tax. Cash increased by P Million or 972%. It amounted to P Million in 2011 up from P19.11 Million in This is primarily due to the additional cash invested by the stockholders. Trade receivables decreased by P88.36 Million or 26%. It amounted to P Million in 2011 down from P Million in The decrease is mainly due to the normalization of our terms, the 2010 balance is high because we extended terms to our dealers to encourage them to book their orders. We did this in 2010 because of the effects of the El Nino phenomenon on our sales. In year end 2011, we no longer offered the extended terms. The advances to related parties increased by P31.62 Million or 91%. It amounted to P66.50 Million in 2011 up from P34.87 Million in This is due to the expansion of operations of affiliates which necessitated the increase in funds needed for investment and operations. Inventories decreased by P44.41 Million or 20%. It amounted to P Million in 2011 down from P Million in This is mainly due to the favorable weather and market conditions for our products in Our products were fast moving especially in the year-end which is our peak season. This contrasts to the situation in 2010 when the El Nino phenomenon affected the sales of our products which resulted in higher than anticipated levels of inventory in year-end Loans receivable amounted to P Million in 2011, there was no amount recorded in This account represents the amount loaned to Avestha Holding Corporation, which is an affiliate of the Company. The loan is intended as an advance for the planned purchase of the Company of Avestha s properties. The loan is provided with a market rate of interest set at 6%, so as to compensate the Company for the loan until the purchase of the properties is finalized. Investment properties amounted to P Million in 2011, there was no amount recorded in These are the properties purchased by the Company, which are being used as collateral by the Company for loans. 160

163 Property and equipment increased by P47.55 Million or 189%. It amounted to P72.77 Million in 2011 up from P25.22 Million in The increase represents amounts spent for the Company s construction of Hog and Broiler farms. Trade payables decreased by P34.66 Million or 20%. It amounted to P Million in 2011 down from P Million in The decrease is mainly due to the fact that the Company takes advantage of cash discounts as much as possible. Loans payable decreased by P77.00 Million or 16%. The decrease is mainly due to the increased cash infusion from stockholders and also from cash internally generated from operations which has allowed the Company to lower its debt levels, while at the same time having enough funds for current operations and also pursue its expansion programs in Hog and Broiler farms. To clarify, the intended target expansion program for part of the additional cash infusion is the Hog and Broiler Farms. On the other hand, the expansion program relating to the establishment of a chain of Calata Retail Stores will be funded by the net proceeds of the Initial Public Offering. Advances from related parties amounted to P52.46 Million in 2011, there was no amount recorded in This represents the amount loaned from stockholders which is intended to offset the amounts advanced by the Company to its affiliates with the intention that the Company s funds are intact for its own operations and expansion programs. Dividends payable amounted to P25.00 Million, there was no amount recorded in This is the accrual of the dividend declared by the Company s board of directors from the Company s unrestricted retained earnings. Capital stock increased by P Million or 32,310%. The increase is due to the additional investment in the Company from the stockholders. As previously explained said capital infusion was useful in decreasing the loans payable by 16% and partially funding the Hog and Broiler Farm construction. Debt to equity decreased from in 2010 to 0.98 in 2011 or a decrease of or 27,579%. The increase is mainly due to the increase in stockholders equity from P1.73 Million in 2010 to P Million in The increase in stockholders equity came from the additional investment infused by stockholders amounting to P Million which increased the paid up capital stock to P Million from only P1.00 Million the year before. The stockholders equity also increased due to the increase in retained earnings brought about by the net income earned by the Company during the year which amounted to P Million after taxes. The increase in retained earnings from the net income was partially offset by the declaration of dividend in 2011 amounting to P2.00 Million. Material Changes to the Company s Audited Balance Sheet as of Fiscal year ended December 31, 2010 compared to Audited Balance Sheet as of Fiscal year ended December 31, 2009 (increase/decrease of 5% or more) Trade and other receivables increased by 17%. Trade and other receivables amounted to PhP Million and PhP Milion as of 2010 and 2009 respectively or an increase of PhP51.83 Million or 17%. Inventories decreased by 17%. Inventory amounted to PhP Million and PhP Million as of 2010 and 2009 respectively, or a decrease of PhP44.90 Million or 17%. Property and equipment increased by 1,200%. Property and equipment amounted to PhP25.22 Million and PhP1.94 Million as of 2010 and 2009 respectively or an increase of PhP23.28 Million or 1200%. 161

164 Advances to related parties increased by PhP31.50 Million or 934%. Advances to related parties amounted to PhP34.87 Million and PhP3.37 Million as of 2010 and 2009 respectively. Trade and other payables decreased by PhP66.96 Million or 28%. The amounts recorded are PhP Million and PhP Million as of 2010 and 2009 respectively. Short-term loans increased by PhP Million or 37%. The amounts recorded are PhP Million and PhP Million as of 2010 and 2009 respectively. Debt to equity ratio increased from in 2009 to in 2010 or an increase of 1,083%. The increase is mainly due to the decrease in stockholders equity from P13.89 Million in 2009 to P0.73 Million in 2010 or a decrease of P13.16 Million or 1,803%. The decrease in stockholders is due to declaration of dividends in 2010 amounting to P47.00 Million. Material Changes to the Company s Audited Balance Sheet as of Fiscal year ended December 31, 2009 compared to Audited Balance Sheet as of Fiscal year ended December 31, 2008 (increase/decrease of 5% or more) Cash on hand and in banks increased by PhP4.06 Million or 25%. The amounts recorded are PhP20.21 Million and PhP16.15 Million as of 2009 and 2008 respectively. Trade and other receivables increased by PhP23.33 Million or 8%. The amounts recorded are PhP Million and PhP Million as of 2009 and 2008 respectively. Inventory increased by PhP8.05 Million or 3%. The amounts recorded are PhP Million and PhP Million as of 2009 and 2008 respectively. Property and equipment increased by PhP0.68 Million or 54%. The amounts recorded are PhP1.94 Million and PhP1.26 Million as of 2009 and 2008 respectively. Trade and other payables increased by PhP14.60 Million or 7%. The amounts recorded are PhP Million and PhP Million as of 2009 and 2008 respectively. Short-term loans increased by PhP17.36 Million or 5%. The amounts recorded are PhP Million and PhP Million as of 2009 and 2008 respectively. Debt to equity decreased from in 2008 to in 2009 or a decrease of or 91%. The decrease is mainly due to the increase in stockholders equity in The increase is from the retained earnings which increased from P6.40 Million in 2008 to P13.89 Million in 2009 or an increase of P7.49 Million or 117%. The increase in retained earnings in 2009 is from the net income from operations amounting to P7.50 Million. Discussion and Representation on both Interim and Year End Audited Financial Statements There are no known trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in increasing or decreasing the Company s liquidity in any material way. The Company does not anticipate having any cash flow or liquidity problems within the next twelve (12) months. The Company is not in default or breach of any note, loan, lease or other indebtedness or financing arrangement requiring it to make payments. No significant amount of the Company s trade payables have not been paid within the stated trade terms. 162

165 The Company does not foresee any event that will trigger direct or contingent financial obligation that is material to it, including any default or acceleration of an obligation. There are no material commitments for capital expenditures, events or uncertainties that have had or that are reasonably expected to have a material impact on the continuing operations of the Company. There are no known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations. No significant elements of income or loss had arisen from the Company scontinuing operations. There are no other material changes in the Company financial position (5%) or more and condition that will warrant a more detailed discussion. Further, there are no material events and uncertainties known to management that would impact or change reported financial information and condition of the Company. There were no seasonal aspects that had a material effect on the financial condition or results of operations of the Company. LIQUIDITY AND CAPITAL RESOURCES In the years 2008, 2009, 2010 and 2011 the Company s primary source of liquidity was proceeds from sales and bank financing activities. Net cash from operating and financing activities were sufficient to cover the Company s working capital and capital expenditure requirements in the years 2008, 2009, 2010 and The Company has credit lines with several of the top banks of the Philippines which gives it financial flexibility in its operations. The Company s cash position has been steadily increasing since From only PhP7.03 Million in December 31, 2008 to PhP Million in Dec. 31, 2011, an increase of PhP Million or 2,800%. The increase is primarily due to earnings from the Company s operations and the additional capital infusion from stockholders in The net proceeds from the Primary Offer, determined by deducting from the gross proceeds, the total issue management, underwriting and selling fees, listing fees, taxes and other related fees and expenses, will be used to establish Calata Corporation retail outlets nationwide and for general working capital requirements. The following table sets forth information from the Company s pro forma statements of cash flows for the periods indicated: Cash Flows Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2009 Dec. 31, 2008 Net cash provided by 302,478,444 (73,335,053) 8,414,870 (94,813,174) (used in) operating activities Net cash provided by (335,961,664) (29,032,075) (816,542) (524,874) (used in) investing activities Net cash provided by 219,165, ,262,787 (3,542,629) 110,817,251 (used in) financing activities Beginning Cash 19,106,061 20,210,402 16,154, ,

166 Ending Cash 204,788,818 19,106,061 20,210,402 16,154,703 Indebtedness The Company has no long-term loans. All of the Company s bank financing are short term loans with average terms of 90 to 120 days. The Company s loan balance as of Dec. 31, 2011 is P Million. 18 To date, the Company has never been in default in making principal and interest payments. KEY PERFORMANCE INDICATORS The Company top five (5) key performance indicators are listed below: For the year ended Dec. 31, 2011 Dec. 31, 2010 Dec. 31, 2009 Dec. 31, 2008 Audited Audited Audited Audited Current Ratio Debt to Equity Ratio Earnings per Share Earnings before Interest and Taxes 4 169,794,248 75,015,214 31,566,350 24,257,924 Return on Equity 5 50% 407% 67% 86% 1 Current Assets / Current Liabilities 2 Bank Loans/Stockholders Equity 3 Net Income/Outstanding Shares 4 Net Income plus Interest Expenses and Provision for Income Tax 5 Net Income / Average Stockholders Equity These key indicators were chosen to provide Management with a measure of the Company s financial strength (i.e., Current Ratio, Debt to Equity Ratio, and Earnings before Interest and Taxes) and the Company s ability to maximize the value of its stockholders investment in the Company (i.e., Return on Equity, Earnings per Share). Current ratio shows the liquidity of the Company by measuring how much current assets it has over its current liabilities. The Debt to Equity Ratio indicates how much debt the Company has incurred for each amount of equity in the Company. A higher ratio means that the Company is more aggressive in its use of capital. Earnings per share shows how much the Company is earning for each share that is currently issued and outstanding. Earnings before interest and taxes indicates how much income the Company is generating from its entire operations before interest charges and taxes are deducted. Return on Equity shows how much profits the Company is making for each amount of equity invested in the Company. Likewise, these ratios are used to gauge the performance of the Company in the industry in which it operates. 18 The above loan balance came from existing and renewed Credit Line Agreements with Metro Bank, Allied Banking Corporation, Banco De Oro, Bank of the Philippine Islands, Planters Bank, copies of which have already been submitted to the Exchange. 164

167 ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are setout below. These policies have been consistently applied to the period and year presented, unless otherwise stated. Basis of preparation Basis of measurement The accompanying financial statements have been prepared under the historical cost convention. Statement of compliance The accompanying financial statements have been prepared in accordance with Philippine Financial Reporting Standards (PFRS) as issued by the Financial Reporting Standards Council (FRSC), and adopted by SEC. PFRS consists of the following: a. PFRS - corresponds to International Financial Reporting Standards; b. Philippine Accounting Standards (PAS) - corresponds to International Accounting Standards; and c. Philippine Interpretations Committee Interpretations (PIC) - correspond to interpretations of International Financial Reporting Interpretations Committee (IFRIC). Use of judgments and estimates The preparation of financial statements in compliance with adopted PFRS requires the use of certain critical accounting estimates. It also requires Company s management to exercise judgment in applying the Company's accounting policies. The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in Note 3. Functional and presentation currency The accompanying financial statements are prepared in Philippine Peso (PhP), the Company s functional and presentation currency. All values are rounded to the nearest peso, unless otherwise indicated. Standards, interpretations and amendments to published standards effective beginning January 1, 2011 and onwards New, revised, and amendments to published standards effective in 2011 The Company has adopted the following new, revised and amended standards and interpretations that have been issued and are effective as of January 1, Except as otherwise indicated, adoption of these new standards and interpretations did not have significant impact on the Company s financial statements. PAS 24 Related Party Disclosures (Amendment): The amended standard is effective for annual periods beginning on or after January 1, It clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government related entities. The Company does not expect any impact on its financial position or performance. 165

168 PIC Interpretations 14 Prepayments of a minimum funding requirement (Amendment): The amendment to IFRIC 14 is effective for annual periods beginning on or after January 1, 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is deemed to have no impact on the financial statements of the Company. PFRS 2 Share-based Payment (Revised): The IASB issued an amendment to IFRS 2 that clarified the scope and the accounting for group cash-settled share-based payment transactions. The Company adopted this amendment as of January 1, 2010 and did not have an impact on the financial position or performance of the Company. PFRS 3 Business Combinations (Revised) and PAS 27 Consolidated and Separate Financial Statements (Amended): PFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs and future reported results. The Company adopted this revision and amendment as of January 1, 2010 and did not have an impact on the financial position or performance of the Company. PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by PFRS 3 (Revised) and PAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after January 1, The change in accounting policy was applied prospectively and did not have an impact on the financial position or performance of the Company. PAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items: The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The Company adopted this amendment as of January 1, 2010 and did not have an impact on the financial position or performance of the Company as the Company has not entered into any such hedges. PIC Interpretation 17 Distribution of Non-cash Assets to Owners: This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. The Company adopted this amendment as of January 1, 2010 and did not have an impact on the financial position or performance of the Company. Improvements to PFRS An omnibus of amendments was issued to existing standards, primarily with a view to remove inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Company. Issued in May

169 PFRS 5 Non-current Assets Held for Sale and Discontinued Operations: Clarifies that when a subsidiary is classified as held for sale, all its assets and liabilities are classified as held for sale, even when the entity remains a non-controlling interest after the sale transaction. The amendment is applied prospectively and has no impact on the financial position nor financial performance of the Company. Issued in April 2009 PFRS 5 Non-current Assets Held for Sale and Discontinued Operations: Clarifies that the disclosures required in respect of non-current assets and disposal groups classified as held for sale or discontinued operations are only those set out in PFRS 5. The disclosure requirements of other PFRS only apply if specifically required for such non-current assets or discontinued operations. The amendment has no impact on the financial position nor financial performance of the Company. PFRS 8 Operating Segments: Clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker. The amendment is applied prospectively and has no impact on the financial position nor financial performance of the Company. PAS 7 Statement of Cash Flows: States that only expenditure that results in recognizing an asset can be classified as a cash flow from investing activities. This amendment will impact among others, the presentation in the statement of cash flows of the contingent consideration on the business combination completed in 2010 upon cash settlement. The amendment has no impact on the statements of cash flows of the Company. PAS 36 Impairment of Assets: The amendment clarifies that the largest unit permitted for allocating goodwill, acquired in a business combination, is the operating segment as defined in PFRS 8 before aggregation for reporting purposes. The amendment has no impact on the financial position nor financial performance of the Company. Other amendments resulting from Improvements to PFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Company: Issued in April 2009 PFRS 2 Share-based Payment; PAS 1 Presentation of Financial Statements; PAS 17 Leases; PAS 34 Interim Financial Reporting; PAS 38 Intangible Assets; PAS 39 Financial Instruments: Recognition and Measurement; PIC Interpretations 9 Reassessment of Embedded Derivatives; and, PIC Interpretations 16 Hedge of a Net Investment in a Foreign Operation. Issued in May 2010 An omnibus of amendments was issued to existing PFRS standards. The amendments have not been adopted as they become effective for annual periods on or after either July 1, 2010 or January 1, The amendments listed below, are considered to have a reasonable possible impact on the Company: PFRS 3 Business Combinations; PFRS 7 Financial Instruments: Disclosures; PAS 1 Presentation of Financial Statements; 167

170 PAS 27 Consolidated and Separate Financial Statements; and, PIC Interpretation 13 Customer Loyalty Programmes. The Company, however, expects no impact from the adoption of the amendments on its financial position or performance. New standards, interpretations and amendments not yet effective Standards, interpretations and amendments issued but not yet effective up to the date of issuance of the Company s financial statements are listed below. The Company intends to adopt these standards when they become effective. Issued in October 2011 PFRS 9 Financial Instruments: Classification and Measurement: PFRS 9 as issued reflects the first phase of the work on the replacement of PAS 39 and applies to classification and measurement of financial assets as defined in PAS 39. The standard is effective for annual periods beginning on or after January 1, In subsequent phases, it will address classification and measurement of financial liabilities, hedge accounting and derecognition. The completion of this project is expected in early The adoption of the first phase of PFRS 9 will have an effect on the classification and measurement of the Company s financial assets. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. PFRS 10 Consolidated Financial Statements: This standard was developed to eliminate perceived conflict on concept of consolidation between IAS 27, Consolidated and Separate Financial Statements (amended in 2008) and SIC-12, Consolidation Special Purpose Entities. IAS 27 (amended in 2008) requires consolidation of entities based on control, whereas SIC-12 mandates consolidation of entities based on risks and rewards. It provides a new definition of control based on three elements: power over the investee, exposure or rights to variable returns from involvement with the investee, ability to use power over the investee to affect the amount of investor s return. The new standard is applicable to annual periods beginning on or after January 1, Earlier application is permitted. PFRS 11 Joint Arrangements: This standard requires an entity to account joint arrangement based on its rights and obligations arising from the arrangement rather than based on the structure of the arrangement as required by IAS 31, Interests in Joint Ventures. The new standard has removed the option to account jointly-controlled entities using either proportionate consolidation or equity method. The new standard is applicable to annual periods beginning on or after January 1, Earlier application is permitted. PFRS 12 Disclosures of interests in Other Entities: This standard prescribes all of the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. The new standard is applicable to annual periods beginning on or after January 1, Earlier application is permitted. PFRS 13 Fair Value Measurement: This standard was developed to eliminate inconsistencies of fair value measurements dispersed in various existing IFRSs. It clarifies 168

171 the definition of fair value, provides a single framework for measuring fair value and enhances fair value disclosures. The new standard is applicable to annual periods beginning on or after January 1, Earlier application is permitted. PFRS 1 Severe Hyperinflation and Removal of Fixed Date of First-time Adopters: The first amendment replaces references to a fixed date of January 1, 2004 with the date of transition to IFRSs, thus eliminating the need for companies adopting IFRSs for the first time to restate derecognition transactions that occurred before the date of transition to IFRSs. The second amendment provides guidance on how an entity should resume presenting financial statements in accordance with IFRSs after a period when the entity was unable to comply with IFRSs because its functional currency was subject to severe hyperinflation. The amendments are effective July 1, Earlier application is permitted. PRFS 2 Group Cash-settled Share based Payment Transactions (Amendment): The amendments respond to request to clarify how an individual subsidiary in a group should account for some share-based payment arrangements in its own financial statements. In these arrangements, the subsidiary receives goods or services from employees or suppliers but its parent or another entity in the group must pay those suppliers. The amendments clarify: 1. The scope of PFRS 2. An entity that receives goods or services in a share-based payment arrangement must account for those goods or services no matter which entity in the group settles the transaction, and regardless of whether the transaction is equity-settled or cash-settled. 2. The interaction of PFRS 2 and other standards. In PFRS 2, a group has the same meaning as in PAS 27, Consolidated and Separate Financial Statements, that is, it includes only a parent and its subsidiaries. The amendments to PFRS 2 also incorporate guidance previously included in Philippine IFRIC 8, scope of PFRS 2, and Philippine IFRIC 11, PFRS 2-Group and Treasury Share Transactions. As a result, Philippine IFRIC 8 and Philippine IFRIC 11 have been withdrawn. Entities shall apply the amendments to all share-based payments within the scope of PFRS 2 for annual periods beginning on or after January 1, Earlier application is permitted. Amendments to PAS 1 Presentation of Items of Other Comprehensive Income: The presentation of Items of Other Comprehensive Income (Amendments to PAS 1) amended paragraphs 7, 10, 82, 85-87, 90, 91, 94, 100 and 115, added paragraphs IN 17-IN 19, 10A, 81A, 81B, 82A and 139J and deleted paragraphs 12, 81, 83 and 84. Entities shall apply those amendments for annual periods beginning on or after July 1, Earlier application is permitted. PAS 12 Deferred Tax: Recovery of Underlying Assets: This standard requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40, Investment Property. The amendment provides a practical solution to the problem by introducing a presumption that recovery of the carrying amount will, normally be through sale. 169

172 As a result of the amendments, SIC-21 Income Taxes- Recovery of Revalued Non- Depreciable Assets would no longer apply to investment properties carried at fair value. The amendments also incorporate into IAs 12 the remaining guidance previously contained in SIC-21, which was accordingly withdrawn. The amendments are effective January 1, Earlier application is permitted. PAS 19 Employee Benefits (amended): Significant changes to this standard include: removal of corridor approach in recognizing actual gains and losses, presentation of remeasurements on defined benefit plans in other comprehensive income and improved disclosure requirements. The amended standard is applied retrospectively with limited exceptions. Entities shall apply the amended PAS 19 for annual periods beginning on or after January 1, Earlier application is permitted. PAS 27 Separate Financial Statements (amended): This completes the consolidation project. The standard was amended to contain requirements relating only to separate financial statements. The amended standard is applicable to annual periods beginning on or after January 1, Earlier application is permitted. PAS 28 Investments in Associates and Joint Ventures (amended): The new standard on joint arrangements is applied to determine the type of joint arrangement in which an entity is involved. With this, IAS 28 was amended to incorporate accounting requirements for joint ventures. Once an entity has determined that it has an interest in a joint venture, it accounts for the investment using the equity method in accordance with IAS 28 (amended in 2011). The amended standard is applicable to annual periods beginning on or after January 1, Earlier application is permitted. PFRS Practice Statement on Management Commentary: This Practice Statement is not a PFRS but it provides a broad, non-binding framework for the presentation of management commentary that relates to financial statements that have been prepared in accordance with PFRSs. Entities applying PFRSs are not required to comply with the Practice Statement will not prevent an entity s financial statements from complying with PFRSs, if they otherwise do so. For listed companies and other issuers of securities to the public that are mandated to provide a management s discussion and analysis in their annual reports, this Practice Statement may be used as guidance for matters that are provided under SRC Rule 17. The Practice Statement is applicable to management commentary presented prospectively starting on June 29, Financial instruments Initial recognition Financial assets and financial liabilities are recognized in the statements of financial position when the Company becomes a party to the contractual provisions of the instrument. In the case of a regular way purchase or sale of financial assets, recognition is done at trade date, which is the date on which the Company commits to purchase or sell the asset. 170

173 Financial instruments are recognized initially at fair value plus transaction costs except for financial instruments measured at fair value through profit or loss (FVPL). Classification of financial instruments The Company classifies its financial assets as financial assets at FVPL, held-to-maturity (HTM) financial assets, loans and receivables or available for sale (AFS) financial assets. The Company s financial assets as of September 30, 2011 and December 31, 2010 comprise of loans and receivables. Financial liabilities, on the other hand, are classified as either financial liabilities at FVPL or other financial liabilities. The Company s financial liabilities as of September 30, 2011 and December 31, 2010 comprise of trade and other payables and short term loans. Management determines the classification of its financial assets and liabilities at initial recognition and, where allowed and appropriate, re-evaluates such designation at every financial reporting date. Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented in gross amounts in the statement of financial position. Determination of fair value The fair value of financial instruments traded in active markets is based on their quoted market price or dealer price quotation (bid price for long positions and ask price for short positions). When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. If the financial instruments are not listed in an active market, the fair value is determined using appropriate valuation techniques which include recent arm s length market transactions, net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models. Derecognition of financial instruments A financial asset or, where applicable, a part of a financial asset or part of a group of similar financial assets is derecognized when: a) the rights to receive cash flows from the asset have expired; b) the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or c) the Company has transferred its rights to receive cash flows from the asset and either has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company s continuing involvement in the asset. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. 171

174 When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of comprehensive income. Financial assets Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are initially recognized at fair value plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortized cost using the effective interest rate (EIR) method, less provision for impairment. Amortization is determined using the EIR method. Gains and losses are recognized in statement of comprehensive income when the loans and receivables are derecognized or impaired, as well as through amortization process. They are included in the current assets, except for maturities greater than 12 months after the financial position date which are classified as non-current assets. Financial assets at FVPL This category comprises only in-the-money derivatives which are carried in the statement of financial position at fair value with changes in fair value recognized in the statement of comprehensive income in the other operating income line item. AFS investments AFS investments include equity and debt securities. Equity investments classified as AFS are those, which are neither classified as held for trading nor designated at FVPL. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response in the market conditions. After initial measurement, AFS investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive income in the available-for-sale reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income, or determined to be impaired, at which time the cumulative loss is reclassified to the statement of income in finance costs and removed from the AFS reserve. The Company evaluated its AFS assets whether the ability and intention to sell them in the near term is still appropriate. When the Company is unable to trade these financial assets due to inactive markets and management s intention to do so significantly changes in the foreseeable future, the Company may elect to reclassify these assets for the foreseeable future or until maturity. Reclassification to the held-to-maturity category is permitted only when the entity has the ability and intention to hold the financial asset accordingly. For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortized cost and the expected cash flows is also amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the statement of income. The Company does not have any asset under this category. 172

175 HTM investments HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Company s management has the positive intention and ability to hold to maturity. After initial measurement, these investments are measured at amortized cost using the EIR method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. Gains and losses are derecognized or impaired through the amortization process. The Company does not have any assets under this category. Financial liabilities Financial liabilities at FVPL Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL. Financial liabilities are classified as held for trading if they are acquired for the purpose for selling the near term. This category includes derivative financial instruments entered into by the Company that are not designated as hedging instrument in hedge relationship as defined by PAS 39. Separate embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains or losses on liabilities held for trading are recognized in profit or loss. The Company has not designated any financial liabilities upon initial recognition as FVPL. Other financial liabilities Other financial liabilities include the following items: Bank borrowings and the Company's perpetual preference shares, if any, are initially recognized at fair value net of any transaction costs directly attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortized cost using the EIR method, which ensures that any interest expense over the period of repayment is at a constant rate on the balance of the liability carried in the statement of financial position. Interest expense in this context includes initial transaction costs and premium payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Trade payables and other short-term monetary liabilities, which are initially recognized at fair value and subsequently carried at amortized cost using the EIR method. IFRS 7 fair value measurement hierarchy PFRS 7 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement (see note 3). The fair value hierarchy has the following levels: (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); (b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and (c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3). The level in the fair value hierarchy within which the financial asset or financial liability is 173

176 categorized is determined on the basis of the lowest level input that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the three levels. Impairment of financial assets Assessment of impairment The Company assesses at each financial reporting date whether a financial asset or group of financial assets is impaired. It assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. The determination of impairment losses for financial assets is inherently subjective because it requires material estimates, including the amount and timing of expected recoverable future cash flows. These estimates may change significantly from time to time, depending on available information. Evidence of impairment Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan or advance by the Company on terms that the Company would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the Company, or economic conditions that correlate with defaults in the Company. Impairment on assets carried at amortized cost If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses) discounted at the financial asset s original EIR (i.e., the EIR computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of loss shall be recognized in Other income (expenses) in the statement of comprehensive income. Impairment on assets carried at cost If there is objective evidence of an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or of a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Reversal of impairment loss If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is 174

177 recognized in Other income in the statement of comprehensive income, to the extent that the carrying value of the asset does not exceed its cost or amortized cost at the reversal date. Inventories Inventories are stated at the lower of cost or net realizable value (NRV). Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Cost of warehouse merchandise is determined using the first-in, first-out method. NRV is the selling price in the ordinary course of business, less the estimated cost of marketing and distribution. Investment properties Investment properties pertain to land held to earn rental or for capital appreciation, which are both measured at cost, including transaction costs, less accumulated depreciation and accumulated impairment loss. Investment properties are derecognized when they have either been disposed or when the investment properties are permanently withdrawn from use and no future benefit is expected from its disposal. Any gain or loss on the retirement or disposal of investment properties is recognized in its disposal. Any gain or loss on the retirement or disposal of investment properties is recognized in the statement of comprehensive income in the year of retirement or disposal. Expenditures incurred after the investment properties have been put into operations, such as repairs and maintenance costs, are charged to operations in the year the costs are incurred. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in profit or loss. Property and equipment Items of property and equipment are initially recognized at cost, net of accumulated depreciation and impairment losses, if any. It includes the purchase price and directly attributable costs and the estimated present value of any future unavoidable costs of dismantling and removing items. The corresponding liability is recognized within provisions. Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation is provided on all other items of property and equipment using the straight-line method over their expected useful economic lives, as follows: Office equipment Transportation equipment 5 years 5 years The estimated useful lives and depreciation method are reviewed periodically to ensure that the periods and method of depreciation are consistent with the expected pattern of economic benefits from items of property and equipment. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and any impairment in value are removed from the accounts and any resulting gain or loss is recognized in the statement of comprehensive income. 175

178 Impairment of non-financial assets The carrying amounts of the Company s non-financial assets such as property and equipment are reviewed at each financial reporting date to determine whether there is any indication of impairment or an impairment loss previously recognized no longer exists or may have decreased. If any such indication exists, the Company makes a formal estimate of the asset s recoverable amount. The recoverable amount is the higher of an asset or its cash generating unit s (CGU) fair value less costs to sell and its value in use. The fair value less costs to sell is the amount obtainable from the sale of the asset in an arm s length transaction. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash flows independent of those from other assets, the recoverable amount is determined for the CGU to which the asset belongs. Whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount and an impairment loss is recognized in the statement of comprehensive income. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized. Reversals of impairment are recognized in the statement of comprehensive income. Equity Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. Revenue Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue from sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer. Pension benefits Pension cost is determined using the projected unit credit method. This method reflects the services rendered by the employees up to the date of valuation and incorporates assumptions concerning employees projected salaries. Actuarial valuations are conducted with sufficient regularity, with option to accelerate when significant changes to underlying assumptions occur. Pension expense includes current service cost, interest cost, recognized actuarial gains and losses, the effect of any curtailment or settlements and amortization of transitional liability at the date of adoption of PAS 19. The defined benefit liability / defined benefit asset recognized in the statement of financial position is the present value of the defined benefit obligation at the financial reporting date less the fair value of plan assets, together with adjustments for unrecognized actuarial gains or losses and past service costs. The defined benefit obligation is calculated by an actuary using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of government bonds that are 176

179 denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related retirement liabilities. Cumulative unrecognized actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are spread to income over the expected average remaining working lives of employees. Past-service costs are recognized immediately in income, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this instance, the past-service costs are amortized on a straight-line basis over the vesting period. Leases Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the statement of comprehensive income on a straight-line basis over the lease term. The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: a. There is a change in contractual terms, other than a renewal or extension of the arrangement; or b. A renewal option is exercised or extension is granted, unless the term of the renewal or extension was initially included in the lease term; or c. There is a change in the determination of whether fulfilment is dependent on a specified asset; or d. There is a substantial change to the asset. Where a re-assessment is made, lease accounting shall commence or cease from the date when the change in circumstance gave rise to the re-assessment for scenarios a, c or d above, and the date of renewal or extension for scenario b. Borrowing costs Borrowing costs are recognized as expense in the year in which these costs are incurred. Income taxes Provision for income tax expense represents the sum of the current tax and deferred tax expenses. Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the financial reporting date. Deferred tax 177

180 Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability in the statements of financial position differs from its tax base, except for differences arising on: the initial recognition of goodwill; the initial recognition of an asset or liability in a transaction which is not a business combination at the time of the transaction affects neither accounting nor taxable profit; and investments in subsidiaries and jointly controlled entities where the Company is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future. Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which the temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at each financial reporting date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utilized. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and they relate to income taxes levied by the same taxing authority and the Company intends to settle its current tax assets and liabilities on a net basis. Provisions Provisions are recognized when: (a) the Company has a present obligation (legal or constructive) as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as finance cost. When the Company expects a provision or loss to be reimbursed, the reimbursement is recognized as a separate asset only when the reimbursement is virtually certain and its amount is estimable. The expense relating to any provision is presented in the statement of comprehensive income, net of any reimbursement. Related parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. The key management personnel of the Company and post employment benefit plans for the benefit of the Company s employees are also considered to be related parties. Events after the reporting date Post year-end events up to the date of the auditors report that provide additional information about the Company s position at financial reporting date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the financial statements when material. 178

181 Earnings per share (EPS) The Company computes its basic earnings per share by dividing profit or loss for the year attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the period. SIGNIFICANT ACCOUNTING ESTIMATES, ASSUMPTIONS AND JUDGMENTS The preparation of the financial statements in conformity with PFRS requires the Company s management to make estimates, assumptions and judgments that affect the amounts reported in the financial statements. The estimates and associated assumptions are based on historical experiences and other various factors that are believed to be reasonable under the circumstances including expectations of related future events, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates, assumptions and judgments are reviewed and evaluated on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. Determination of functional currency Based on the economic substance of the underlying circumstances relevant to the Company, the functional currency is determined to be the Philippine Peso. It is the currency that mainly influences the Company s operations. Classification of financial instruments The Company classifies a financial instrument, or its component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual agreement and the guidelines set by PAS 39 on the definitions of a financial asset, a financial liability or equity. In addition, the Company also determines and evaluates its intention and ability to keep the investments until its maturity date. The substance of a financial instrument, rather than its legal form, and the management s intention and ability to hold the financial instrument to maturity generally governs its classification in the statements of financial position. Determination of fair value of financial instruments The Company carries certain financial assets at fair value, which requires extensive use of accounting estimates and judgment. While significant components of fair value measurement were determined using verifiable objective evidence, the amount of changes in fair value would differ if the Company utilized different valuation methodologies and assumptions. Impairment of loan and trade and other receivables The Company reviews its loans and receivables at each reporting date to assess whether a provision for impairment should be recognized in its statements of comprehensive income or loans and receivables balance should be written off. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors 179

182 and actual results may differ, resulting in future changes to the allowance. Moreover, management evaluates the presence of objective evidence of impairment which includes observable data that comes to the attention of the Company about loss events such as but not limited to significant financial difficulty of the counterparty, a breach of contract, such as a default or delinquency in interest or principal payments, probability that the borrower will enter bankruptcy or other financial re-organization. Estimation of useful lives of property and equipment The Company reviews annually the estimated useful lives of property and equipment based on the period over which the assets are expected to be available for use. It is possible that future results of operations could be materially affected by changes in these estimates. A reduction in the estimated useful lives of property and equipment would increase recorded depreciation expense and decrease the related asset accounts. Impairment of non-financial assets The Company assesses at each financial position date whether there is an indication that the carrying amount of all non-financial assets may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset s recoverable amount. At the financial position date, the Company assesses whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. Estimation of retirement benefits The determination of the obligation and retirement benefits is dependent on management s assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 20 and include, among others, discount rates per annum and salary increase rates. Actual results that differ from the Company s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While the Company believes that the assumptions are reasonable and appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect the retirement obligations. The details of the Company s pension are provided in Note 20. Realizability of deferred tax assets Management reviews the carrying amount of deferred tax assets at each reporting date. The carrying amount of deferred tax assets is reduced to the extent that it is no longer probable that sufficient taxable profit will be available against which the related tax assets can be utilized. Management believes that sufficient taxable profit will be generated to allow all or part of the deferred tax assets to be utilized. 180

183 PROPERTIES REAL PROPERTIES The Company is currently leasing the following real properties as storage warehouses for its distribution products: DESCRIPTION ADDRESS AREA Main Office Banga 1 st, Plaridel, Bulacan 924 sqm Warehouse (Bulacan) Banga 1 st, Plaridel, Bulacan 5471 sqm N.E. South Warehouse San Antonio, San Leonardo, Nueva Ecija 500 sqm. N.E. North Warehouse Sto. Domingo, Nueva Ecija 300 sqm. Pangasinan Warehouse Carriedo, Tayug, Pangasinan 1,300 sqm. Pampanga Warehouse Lagundi, Mexico,Pampanga 406 sqm. Details of the Lease Agreements Except for the Main Office which is used for administrative purposes, the Lease Agreements principally provide for the use of the specified premises as storage of the Company s distribution products. Unless, otherwise agreed upon by the parties, all lease agreements are renewed annually upon the mutual consent of both parties and upon similar terms and conditions except for minimal increases in the lease payments on leased premises located in N.E. North Warehouse, Pampanga Warehouse and Pangasinan. The Company is leasing the Main Office, Bulacan Warehouse and N.E. South Warehouse free of rent. The Main Office and Bulacan Warehouse is owned by Avestha Holding Corporation, an affiliate, the stockholders of which are also stockholders in the Company while the N.E. South warehouse is owned by a businesswoman who has very close ties with the Calata family. Meanwhile, operating leases were entered into by the Company with the warehouse owners of N.E. North Warehouse, Pampanga Warehouse and Pangasinan Warehouse whereby the Company is paying an agreed monthly rental for the use of said warehouses. The rent expense charged to operations for the years ended December 31, 2011, 2010 and 2009 amounted to P1,206,440, P1,229,050 and P1,152,023, respectively. The Company has likewise acquired real properties, for its hog and broiler growing and breeding projects as follows: PROJECT NAME LOCATION AREA TCT NO. (sq m) Monterey Hog Growing Farm Bgy. Ula, Tugbok District, Davao City 30,114 TCT No ,780 TCT No ,281 TCT No Magnolia Broiler Growing Farm Bgy. Kinawe, Libona, Bukidnon Bgy. Matina, Tugbok District, Davao ,000 T ,000 T ,000 T

184 Monterey Hog Breeder Farm Magnolia Broiler Breeder Farm Bgy. Nangka, Libona, Bukidnon Bgy. Naganacan, Sta. Maria, Isabela Bgy. Fuyo, Ilagan, Isabela 30,977 T ,989 TCT No ,865 TCT No ,345 TCT No The Company has no definite plans regarding acquisition of real properties within the next twelve months. Nevertheless, should it decide to do so, the Company shall comply with the pertinent disclosure rules as provided by law and as may be warranted under the circumstances. TRANSPORTATION EQUIPMENT As reported in its Audited Financial Statements as of 31 December 2011, the Company owns transportation equipment worth Twenty Three Million Seven Hundred Forty Five Thousand Six Hundred Thirty Pesos (P23,745,630). This is composed of one hundred twelve (112) vehicles. These transportation vehicles are used by the Company for the official use of its farm aid technicians, sales personnel, delivery personnel and other employees for the purpose of carrying out the business of the Company. INTELLECTUAL PROPERTIES Application for Registration of Trade Mark The Company has applied for the registration of the trade mark Calata Corporation and Logo. The application has been filed with the Intellectual Property Office (IPO) last March 18, On November 17, 2011, the Company received a Notice of Allowance from the IPO with advise that its publication pursuant to Section of RA 8293 has been approved. The description of the mark is as follows: The mark consists of two wave-like lines of different length. The upper wave-like line is the longest of the two lines and is colored blue, while the lower wave-like line is colored red. Below the said waved-like lines is the word CALATA, which are all capitalized. Underneath the aforesaid word is the word CORPORATION, which are all capitalized but of smaller font size. The mark shall extend to the following: chemicals used in agriculture (pesticides, fertilizer), agricultural implements, machineries and equipment, agricultural grains, seeds, foodstuffs for animals and accessories, and for business management. Considering however that the said application is still pending, the Company is in no position to disclose the principal terms and expiration dates of said mark. 182

185 LEGAL PROCEEDINGS As of the date of this Prospectus, to the best of the Company s knowledge, there is no material pending legal proceedings to which the Company, its directors, shareholders, related parties or any of its affiliates is a party or of which any of their property is subject. 183

186 SECURITY OWNERSHIP OF CERTAIN RECORD AND BENEFICIAL SHAREHOLDERS Security Ownership of Record and Beneficial Owners: Listed below are the persons known to the Company to be directly or indirectly the record or beneficial owner of more than five percent (5%) of the Company s voting securities as of December 31, 2011: Title of Class Name, Address of Record Owner & Relationship with the Company Name of Beneficial Owner and Relationship with the Record Owner Citizenship No. of Shares %age Common Joseph H. Calata Joseph H. Calata Filipino 217,699, Common Daniel C. Go Daniel C. Go Filipino 21,500, Common Herbert P. Lipana Herbert P. Lipana Filipino 20,000, TOTAL 259,199, As of December 31, 2011, the Company s directors and key officers owned % of the Company s issued and outstanding shares of common stock, as follows: Title of Class Common Common Common Common Name, Address of Record Owner and Relationship with the Company Joseph H. Calata Banga 1st, Plaridel, Bulacan Chairman / Ceo / President Benison Paul B. De Torres San Roque, San Rafael, Bulacan Director / Cfo / Treasurer Baltazar N. Endriga 12 Edades St. Corinthian Garden Subdivision, Quezon City Director Jose A. Zaide 51 Laguna Bay, South Bay Gardens, Paranaque City Name of Beneficial Owner and Relationship with the Record Owner Joseph H. Calata Joseph H. Calata Joseph H. Calata Joseph H. Calata Citizenship No. of Shares Percentage Filipino 217,699, Filipino 1 nil Filipino 1 nil Filipino 1 nil Common Director Jaime C. Laya 1000 United Nations Ave., cor. Marcelino St., Ermita, Manila Joseph H. Calata Filipino 1 nil 184

187 Director Common Harvey S. Keh Joseph H. Filipino 1 nil Royal View Mansions Lt. Artiaga Street, San Juan, Metro Manila Independent Director Calata Common George A. Nava Joseph H. Filipino 1 nil Caprina Street, La Residencia De Sta. Rosa, Sta. Rosa City, Laguna Independent Director Calata Common Jose Marie E. Fabella N/A Filipino N/A N/A Corporate Secretary TOTAL 217,700, % Voting Trust Holders of 5% or More There is no voting trust arrangement executed among the holders of five percent (5%) or more of the issued and outstanding shares of common stock of the Company. Change in Control For information on Changes in Control, see the section Description of Shares on page 32 of this Prospectus. 185

188 INTEREST OF EXPERTS AND INDEPENDENT COUNSEL The financial statements of the Company were audited by BDO ALBA ROMEO and Co. for the fiscal years ended December 31, 2011, 2010 and Said external auditor has no shareholdings in the Company, or any right, whether legally enforceable or not, to nominate persons or to subscribe to securities of the Company, in accordance with the professional standards on independence set by the Board of Accountancy and the Professional Regulation Commission. The validity of the Offer Shares and other matters concerning the Offer were passed upon for the Company by De Vera and Associates, independent legal and tax counsel of the Company, The independent legal counsel and tax counsel have no shareholdings or any interest, direct or indirect, in the Company, or any right, whether legally enforceable or not to nominate persons or to subscribe to the securities of the Company in accordance with the standards on independence required in the Code of Professional Responsibility and as prescribed by the Supreme Court of the Philippines. The named external auditors and the independent and legal and tax counsel have not acted and will not as promoter, underwriter, voting trustee, officer or employee of the Company. INDEPENDENT PUBLIC ACCOUNTANTS The financial statements of the Company were audited by BDO ALBA ROMEO and Co. for the fiscal years ended December 31, 2011, 2010 and Said external auditors have no shareholdings in the Company, or any right, whether legally enforceable or not, to nominate persons or to subscribe to the securities of the Company, in accordance with the professional standard on independence set by the Board of Accountancy and the Professional Regulation Commission. EXTERNAL AUDIT FEES AND SERVICES The following table sets out the aggregate fees billed for each of the last 3 fiscal years for professional services rendered by the Company s external auditors: Audit Fee Php1,800, Php550, Php550, Other Fees 1 270, , , TOTAL Php2,070, Php632, Php632, Other fees refer to out of pocket expenses such as transportation costs Apart from the foregoing, no other services were rendered or fees billed by the Company s auditors as of the fiscal years ended December 31, 2009, 2010 and CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS The name of the handling partner for the external audit is: Partner-in-charge: Michael D. Roxas 186

189 For the fiscal years ended December 31, 2009, the Company s external auditor was Yanagiya Perez-Raya, CPA. However, considering that the Company shall secure a secondary license for the sale of its securities to the public through the conduct of an Initial Public Offering, pursuant to the requirements of the Securities Regulation Code and its Implementing Rules and Regulations, an External Auditor with Class A accreditation from the Securities and Exchange Commission was required. Thus, the Company engaged the services of BDO Alba Romeo and Associates as its external auditor to conduct the audit for the fiscal years ended December 31, 2011, 2010 and The Company has not had any disagreements with its internal auditor and former independent accountant on any matter of accounting principles or practices, financial statement of disclosure or auditing scope or procedure. 187

190 REGULATORY & ENVIRONMENTAL MATTERS Various government agencies in the Philippines regulate the different aspects of the Company s business. Business entities engaged in Retail Trade are governed by RA Section 5 of RA 8762 restricts the Retail Trade business to Filipinos where the paid-up capital of the enterprise is less than the Peso equivalent of US$2,500, Otherwise, that is, where the paid-up capital of the enterprise is US$2,500, or more, the enterprise may be wholly owned by foreigners, with the condition however that the investments for establishing a store shall be the Peso equivalent of at least US$830, Similarly, under Section 5 of PD 194, foreign equity participation shall be allowed in entities engaged in the culture, production, milling, processing, trading excepting retailing, of rice and corn and acquiring, by barter, purchase or otherwise, rice and corn and the by-products thereof, provided that at least 60% of such foreign equity participation shall be transferred to Filipino citizens over a period to be established by the National Grains Authority. The distribution of veterinary medicines, agrochemicals, fertilizers, pesticides, feeds, and seeds is likewise regulated by different agencies under the Department of Agriculture. With respect to veterinary medicines, the Food and Drug Authority ( FDA ) requires prior authorization for the importation, sale, offering for sale, distribution, or transfer of any health product. Registration of the veterinary medicines with the FDA is also required. Likewise, under Presidential Decree No. 1144, registration with the Fertilizer and Pesticides Authority ( FPA ) is mandatory before pesticides, fertilizers or other agricultural chemicals are, among others, sold or offered for sale. Hence, a handler of fertilizers, pesticides and other agricultural chemicals must also obtain a license from the FPA before it may distribute fertilizers. Moreover, Presidential Decree No requires the registration of pesticides, fertilizers or other agricultural chemicals before the same are imported, manufactured, formulated, stored, distributed, sold or offered for sale, transported, delivered for transportation or used. As regards feeds, under Section 4 of the Livestock and Poultry Feeds Act, as amended, any person, partnership, firm, corporation or association desiring to engage in the manufacture, importation, sale or distribution of feeds or feeding stuffs shall first be registered with the Bureau of Animal Industry ( BAI ). The feeds or feeding stuffs in the form of complete mixture, concentrate, supplement, or ingredient must also be registered with BAI prior to manufacture, importation, advertisement, sale or offer for sale or holding in possession for sale. With respect to seeds, a permit must be secured from the Bureau of Plant Industry for the transportation of seeds. The businesses of hog breeding, growing and raising and poultry growing are also regulated by the BAI. Under RA 8485, registration with the BAI is required before any person can establish, maintain and operate a farm for raising livestock and poultry. In case the farm owner will also provide services of transporting the animals for clients, said owner must secure the following from the BAI: 1) Livestock, Poultry and its By-products Handlers License and 2) Livestock Transport Carrier Accreditation. In addition to the foregoing, to prevent the spread of foot and mouth disease with respect to hogs, all livestock shipment must have accompanying Original Copies of the following: Livestock Handler s License, Veterinary Health Certificate, BAI FMD-free Farm Accreditation Certificate, Authority to Ship, and Shipping Permit. 188

191 As regards poultry growing, farms with 20,000 broilers and 5,000 layers and above, and breeder farms of any volume shall be registered with the BAI. All farms with a minimum stocking density of at least 40,000 broilers or 30,000 layers or 2,000 breeders shall be required to have an attending veterinarian. Further, all inter-provincial shipments of eggs and day-old chicks, pullets and chickens from commercial/backyard poultry farm must be covered by a valid shipping permit issued by the BAI, Office of the Regional Veterinary Quarantine or Office of the Provincial Veterinarian. The farm of origin must first be accredited by the Animal Health Division of BAI/ Office of the Regional Veterinary Quarantine Office/ Office of the Provincial Veterinarian before shipments are allowed. The Consumer Act of the Philippines, the provisions of which are principally enforced by the Department of Trade and Industry, seeks to protect consumers against hazards to health and safety and against deceptive, unfair and unconscionable sales acts and practices; and provide information and education to facilitate sound choice and the proper exercise of rights by the consumer. This law imposes rules to regulate such matters as (i) consumer product and safety; (ii) the production, sale, distribution and advertisement of food, drugs, cosmetics and devices as well as substances hazardous to the consumer s health and safety; (iii) fair, honest, consumer transactions and consumer protection against deceptive, unfair and unconscionable sales acts or practices; (iv) practices relative to the use of weights and measures; (v) consumer product and service warranties; (vi) compulsory labeling, and fair packaging; (vii) liabilities for defective products and services; (viii) consumer protection against misleading advertisements and fraudulent sales promotion practices; and (ix) consumer credit transactions. Under the SRC, the SEC has jurisdiction and supervision over all corporations, partnerships or associations that are grantees of primary franchises, license to do business or other secondary licenses. As the government agency regulating the Philippine securities market, the SEC issues regulations on the registration and regulation of securities exchanges, the securities market, securities trading, the licensing of securities brokers and dealers and reportorial requirements for publicly listed companies and the proper application of SRC provisions, as well as the Corporation Code, and certain other statutes. GOVERNMENT APPROVALS AND PERMITS The table below lists the Company s regulatory permits: GOVERNMENT AGENCY DESCRIPTION EXPIRY DATE Fertilizer and Pesticide Authority License No to operate as Area Distributor of Agricultural Pesticides Fertilizer and Pesticide Authority License No. 013 to operate as Area Distributor of Fertilizer Bureau of Animal Industry Registration No. D Feed Establishment Registration Certificate Registration No. D Feed Establishment Registration Certificate Registration No. D-11- May 16, 2012 May 16, 2012 July 26, 2012 December 31, 2011 December 31,

192 Fertilizer and Pesticide Authority 606- Feed Establishment Registration Certificate Warehouse of Fertilizer and agricultural pesticides May 16, 2012 In addition to the above-mentioned permits, the Company has secured all permits material to its operations. These permits include the ECC, Mayor s Permit, Certificate of Registration with the Bureau of Internal Revenue, Registration with the Social Security System, Philippine Health Insurance Corporation and the Home Mutual Development Fund. Effect on existing or probable governmental regulations on the business Existing or prospective legislation on government regulation to business enterprises benefit both the business and its customers. Certificates issued by the appropriate government agencies (Bureau of Animal Industry, Fertilizer and Pesticide Authority) signify an imprimatur from government that the business in whose favor the certificates were issued has complied with all necessary requirements to safeguard the buying public without compromising the interest of the business. Likewise, this certification, among others, becomes a source of credibility to customers, hence, can be used as a yardstick for an acceptable prospect for business transactions. While the Company has exclusive distributorship agreement with its major suppliers, it remains confident that in the highly unlikely event that it is unable to retain its exclusive distribution agreements, its proven credibility and success in the distribution business will be able to create for it alternative business opportunities. Environmental permits The Implementing Rules and Regulations for the Philippine Environmental Impact Statement System provides that an Environmental Compliance Clearance ( ECC ) and an Environmental Impact Statement ( EIS ) is required for poultry farms that have a capacity of greater than 100,000 birds. On the other hand, the said Implementing Rules require an ECC and an Initial Environmental Examination ( IEE ) for hog farms that have a capacity of less than 5,000 and greater than 500 heads. Based on the foregoing, Calata s poultry and hog operations therefore require the submission of an ECC. Calata is required to prepare and submit an EIS as an application for an ECC for its poultry operation and an IEE Report likewise as an application for an ECC for its hog operations. 190

193 RELATED PARTY TRANSACTIONS Related party transactions are made under the normal course of business. Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions and the parties are subject to common control or common significant influence. Such relationships also exist between and/or among entities which are under common control with the reporting enterprise, or between and/or among the reporting enterprises and their key management personnel, directors or its stockholders. Related parties are corporate entities that are owned and controlled by the same owner of the Company, and neither a subsidiary or associate of the Company. The details of the related parties are summarized as follows: Name of the related party Relationship Name of Common Stockholders Nature of Operations Calata Builders, Inc. Common Stockholders Joseph H. Calata (70%) Melvin H. Calata (10%) Jennibel H. Calata (10%) Cherry Lou M. Dela Cruz (5%) Carmelita H. Mariano (5%) TOTAL 100% A corporation established in the Philippines which ventures as a subcontractor and into the realty business. Calata Farms, Inc. Common Stockholders Joseph H. Calata (70%) Melvin H. Calata (10%) Jennibel H. Calata (10%) Cherry Lou M. Dela Cruz (5%) Carmelita H. Mariano (5%) TOTAL 100% A corporation which offers high efficiency poultry growing using climatecontrolled system. Avestha Holding Corporation Agri Phil Corporation Common Stockholders Common Stockholders Common Stockholders Joseph H. Calata (0.9%) Melvin H. Calata (0.9%) Jennibel H. Calata (0.9%) Non Calata Stockholders Eusebio C. Calata (48.6%) Isabel H. Calata (48.6%) TOTAL 100% Joseph H. Calata (80%) Melvin H. Calata (5%) Jennibel H. Calata (5%) Cherry Lou M. Dela Cruz (5%) Carmelita H. Mariano (5%) TOTAL 100% A duly organized holding company A corporation established to engage in import/export, buying, selling, distributing, marketing at wholesale Gasti n Corpo ration Com mon Stoc khold ers Joseph H. Calata (79.9%) Melvin H. Calata (0.003%) Jennibel H. Calata (0.003%) Carmelita H. Mariano (0.003%) Non Calata Stockholder Eduardo L. Santos (20%) TOTAL 100% Distribution of Agricultural Products 191

194 Significant transactions with related parties as of 31 December 2011 are the following: a) Cash advances were made to related parties, excluding stockholders, to support their operating capital requirements. These loans are repayable once the related parties have sufficient cash flows to support their respective operations. Cash advances from stockholders are used to support the operating capital requirements of the Company. Cash advances to stockholders represent advances made in carrying out the day-to-day opearations of the Company and are subject to liquidation upon utilization. The advances to (from) related parties are non-interest bearing, unsecured and have no fixed repayment terms. As of December 31, 2011 and 2010, the outstanding balances of advances to (from) related parties follow: Agri Phil Corporation January 1 P- P- Cash advances to 55,455,249 - December 31 55,455,249 - Calata Farms January 1 33,173,159 - Cash advances to (collections from) (33,173,159) 33,173,159 December 31-33,173,159 Calata Builders January 1 1,525,347 - Cash advances to 6,200,000 1,525,347 December 31 7,725,347 1,525,347 Stockholders January 1 174,325 3,372,096 Cash advances to 3,306,148 43,802,229 Cash advances from (165,457) - Dividends distribution through offsetting - (47,000,000) (Note 15) December 31 3,315, ,325 Total advances to related parties P66,495,612 P34,872, Stockholders January 1 P- P- Cash advances received 67,869,405 - Cash advances paid (15,407,951) - Total advances from related parties P52,461,454 P- b) An operating lease agreement was executed between the Company and Avestha whereby the latter granted the former with the rent free use of office premises and various warehouses located in Bulacan. c) A loan agreement was executed between the Company and Avestha Holdings Corporation whereby the former granted the latter a loan amounting to P120,000,000 for a term of three (3) years subject to interest at the rate of six percent (6%) per annum payable on the balance at the end of every month. 192

195 d) During the year, the Company disposed fully-depreciated property and equipment to a related party that resulted to a gain on disposal amounting to P1,914,123. e) The short term compensation of key management personnel amounted to P3,822,460, P2,786,913 and P2,514,680 for the years ended December 31, 2011, 2010 and 2009 respectively. There are no long term compensation of key management personnel for the years ended December 31, 2011, 2010 and 2009, respectively. f) For the years ended December 31, 2011 and 2010, the Company has not recorded any impairment of receivable relating to the amounts owned by the related parties. The assessment is undertaken through examining the financial position of the related parties and the market in which they operate. g) In 2010, Calata Farms, Inc. had an advance from Calata Corporation in the amount of P33,173, with the intention to use it for its farming operations. However, this plan did not push through as the previous plan to put all new farming operations in Calata was recalled. Instead, the farming operations were done under Calata Corporation. Hence, in 2011, Calata Farms, Inc. did not proceed with its commercial farming operations and opted to fully pay off said advance from Calata Corporation. h) It was agreed among the family members that Agri Phil willl no longer expand its retail business once Calata Corporation starts to construct its Calata retail stores. i) Gastin Corporation is an authorized exclusive distributor of Yara Fertilizers, which includes the whole area of Central Luzon. On 15 August 2011, Calata entered into an Exclusive Distributorship Agreement with Gastin. The Exclusive Distributorship Agreement appoints Calata as the sole and exclusive distributor of Yara Fertilizer in the whole area of Luzon. It obligates Calata to engage in a full-scale information campaign to promote the purchase of Yara Fertilizers to all its clientele retailers and to the public at large. The agreement states that performance quotas, discount rates and the price of the fertilizers shall be discussed and adjusted on a periodical basis as may be evaluated by the parties. 193

196 PHILIPPINE STOCK MARKET The information presented in this section has been extracted from publicly available documents which have not been prepared or independently verified by the Company or the Issue Manager or any of their respective affiliates or advisors in connection with sale of the Offer Shares. BRIEF HISTORY The Philippines initially had two stock exchanges, the Manila Stock Exchange, which was organized in 1927, and the Makati Stock Exchange, which began operations in Each exchange was self-regulating, governed by its respective Board of Governors elected annually by its members. Several steps initiated by Government and undertaken over the last few years have resulted in the unification of the two bourses into the PSE. The PSE was incorporated in 1992 by officers of both the Makati and the Manila Stock Exchanges. In March 1994, the licenses of the two exchanges were revoked. While the PSE maintains two trading floors, one in Makati City and the other in Pasig City, these floors are linked by an automated trading system which integrates all bids and ask quotations from the bourses. In June 1998, the Philippine SEC granted the PSE a Self-Regulatory Organization ( SRO ) status, allowing it to impose rules as well as implement penalties on erring trading participants and listed companies. On August 8, 2001, PSE completed its demutualization, converting from a non-stock member-governed institution into a stock corporation in compliance with the requirements of the Securities Regulation Code. The PSE has an authorized capital stock of PhP36.8 million, of which PhP15.3 million is subscribed and fully paid-up. Each of the 184 member-brokers was granted 50,000 shares of the new PSE at a par value of PhP1.00 per share. In addition, a trading right evidenced by a "Trading Participant Certificate" was immediately conferred on each member broker allowing the use of the PSE's trading facilities. As a result of the demutualization, the composition of the PSE Board of Governors was changed, requiring the inclusion of seven brokers and eight non-brokers, one of whom is the President. On December 15, 2003, the PSE listed its shares by way of introduction at its own bourse as part of a series of reforms aimed at strengthening the Philippine securities industry. The PSE Management deliberates on all applications for listing and, if the listing application is endorsed by the Management, forwards the application to the PSE board of directors for approval. Classified into financial, industrial, holding firms, property, services, mining and oil sectors, companies are listed either on the Exchange s First Board, Second Board or the newly created Small and Medium Enterprises Board. Each index represents the numerical average of the prices of component stocks. The PSE has as an index, referred to as the PSEi, which as at the date hereof reflects the price movements of 30 selected stocks listed on the PSE, based on traded prices of stocks from the various sectors. The PSE shifted from full market capitalization to free float market capitalization effective April 3, 2006 simultaneous with the migration to the free float index and the renaming of the PHISIX to PSEi. With the increasing calls for good corporate governance, PSE has adopted an online daily disclosure system to improve the transparency of listed companies and to protect the investing public. 194

197 SELECTED STOCK EXCHANGE DATA The table below sets forth movements in the composite index from 2004 to 2011, and shows the number of listed companies, market capitalization, and value of shares traded for the same period: Year Composite Index at Closing Number of Listed Companies Aggregate Market Capitalization (in PhP billions) Combined Value of Turnover (in PhP billions) , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , TRADING The PSE is a double auction market. Buyers and sellers are each represented by stock brokers. To trade, bids or ask prices are posted on the PSE s electronic trading system. A buy (or sell) order that matches the lowest asked (or highest bid) price is automatically executed. Buy and sell orders received by one broker at the same price are crossed at the PSE at the indicated price. Transactions are generally invoiced through a confirmation slip sent to customers on the trade date (or the following trading date). Payment of purchases of listed securities must be made by the buyer on or before the third trading day (the settlement date) after the trade. For Small- Denominated Treasury Bonds, settlement is on the day the trade was made. Trading on the PSE starts at 9: 00 am,breaks from 12: 00 pm to 1: 30 pm, and ends at 3: 00 pm with a 10-minute extension during which transactions may be conducted, provided that they are executed at the last traded price and are only for the purpose of completing unfinished orders. Trading days are Monday to Friday, except legal and special holidays. Minimum trading lots range from 10 to 5,000,000 shares depending on the price range and nature of the security traded. Odd-sized lots are traded by brokers on a board specifically designed for odd-lot trading. 195

198 To maintain stability in the stock market, daily price swings are monitored and regulated. Under current PSE regulations, when the price of a listed security moves up by 50.0% or down by 50.0% in one day (based on the previous closing price or last posted bid price, whichever is higher), the price of that security is automatically frozen by the PSE, unless there is an official statement from the relevant company or a government agency justifying such price fluctuation, in which case the affected security can still be traded but only at the frozen price. If the issuer fails to submit such explanation, a trading halt is imposed by the PSE on the listed security the following day. Resumption of trading will be allowed only when the disclosure of the issuer is disseminated, subject again to the trading band. SETTLEMENT The Securities Clearing Corporation of the Philippines (SCCP) is a wholly-owned subsidiary of the Philippine Stock Exchange, Inc., and was organized primarily as a clearance and settlement agency for SCCP-eligible trades executed through the facilities of the PSE. It is responsible for (a) synchronizing the settlement of funds and the transfer of securities through Delivery versus Payment (DVP) clearing and settlement of transactions of Clearing Members, who are also Trading Participants of the Exchange; (b) guaranteeing the settlement of trades in the event of a Trading Participant s default through the implementation of its Fails Management System and administration of the Clearing and Trade Guaranty Fund (CTGF), and; (c) performance of Risk Management and Monitoring to ensure final and irrevocable settlement. SCCP settles PSE trades on a 3-day rolling settlement environment, which means that settlement of trades takes place three (3) days after transaction date (T+3). The deadline for settlement of trades is 12:00 noon of T+3. Securities sold should be in scripless form and lodged under PDTC s book entry system. Each Trading Participant maintains a Cash Settlement Account with one of the two existing Settlement Banks of SCCP which are Banco De Oro Unibank, Inc. and Rizal Commercial Banking Corporation. Payment for securities bought should be in good, cleared funds and should be final and irrevocable. Settlement is presently on a broker level. SCCP implemented its new clearing and settlement system called Central Clearing and Central Settlement (CCCS) last May 29, CCCS employs multilateral netting whereby the system automatically offsets buy and sell transactions on a per issue and a per flag basis to arrive at a net receipt or a net delivery security position for each Clearing Member. All cash debits and credits are also netted into a single net cash position for each Clearing Member. Novation of the original PSE trade contracts occurs, and SCCP stands between the original trading parties and becomes the Central Counterparty to each PSE-Eligible trade cleared through it. SCRIPLESS TRADING In 1995, the Philippine Depository & Trust Corporation (formerly the Philippine Central Depository, Inc.), was organized to establish a central depository in the Philippines and introduce scripless or book-entry trading in the Philippines. On December 16, 1996, the PDTC was granted a provisional license by the Philippine SEC to act as a central securities depository. All listed securities at the PSE have been converted into book-entry settlement in the PDTC. The depository service of the PDTC provides the infrastructure for lodgment (deposit) and upliftment (withdrawal) of securities, pledge of securities, securities lending and borrowing and corporate actions including shareholders meetings, dividend declarations and rights offerings. The PDTC also provides depository and settlement services for non-pse trades of listed equity securities. For transactions on the PSE, the security element of the trade will be settled through the bookentry system, while the cash element will be settled through the current settlement banks, Rizal Commercial Banking Corporation and Banco De Oro Unibank, Inc. 196

199 In order to benefit from the book-entry system, securities must be immobilized into the PDTC system through a process called lodgment. Lodgment is the process by which shareholders transfer legal title (but not beneficial title) over their shares of stock in favor of PCD Nominee Corporation ( PCD Nominee ), a corporation wholly owned by the PDTC whose sole purpose is to act as nominee and legal title holder of all shares of stock lodged into the PDTC. Immobilization is the process by which the warrant or share certificates of lodging holders are canceled by the transfer agent and a new warrant or stock certificate covering all the warrants or shares lodged is issued in the name of PCD Nominee, or any other entity authorized by the SEC, without any jumbo or mother certificate in compliance with the requirements of Section 43 of the Securities Regulation Code ( SRC ). This trust arrangement between the participants and PDTC through PCD Nominee is established by and explained in the PDTC Rules and Operating Procedures approved by the Philippine SEC. No consideration is paid for the transfer of legal title to PCD Nominee. Once lodged, transfers of beneficial title of the securities are accomplished via book-entry settlement. Under the current PDTC system, only participants (e.g. brokers and custodians) will be recognized by the PDTC as the beneficial owners of the lodged equity securities. Thus, each beneficial owner of shares through his participant, will be the beneficial owner to the extent of the number of shares held by such participant in the records of the PCD Nominee. All lodgments, trades and uplifts on these shares will have to be coursed through a participant. Ownership and transfers of beneficial interests in the shares will be reflected, with respect to the participant s aggregate holdings, in the PDTC system, and with respect to each beneficial owner s holdings, in the records of the participants. Beneficial owners are thus advised that in order to exercise their rights as beneficial owners of the lodged shares, they must rely on their participant-brokers and/or participant-custodians. Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade through a participant. The participant can execute PSE trades and non-pse trades of lodged equity securities through the PDTC system. All matched transactions in the PSE trading system will be fed through the Securities Clearing Corporation of the Philippines (SCCP), and into the PDTC system. Once it is determined on the settlement date (trading date plus three trading days) that there are adequate securities in the securities settlement account of the participantseller and adequate cleared funds in the settlement bank account of the participant-buyer, the PSE trades are automatically settled in the SCCP Central Clearing and Central Settlement System ( CCCS ), in accordance with the SCCP and PDTC Rules and Operating Procedures. Once settled, the beneficial ownership of the securities is transferred from the participant-seller to the participant-buyer without the physical transfer of stock certificates covering the traded securities. If a stockholder wishes to withdraw his stockholdings from the PDTC System, the PDTC has a procedure of upliftment under which PCD Nominee will transfer back to the stockholder the legal title to the shares lodged by surrendering the PCD Nominee certificate to a transfer agent which then issues a new stock certificate in the name of the shareholder and a report for the balance of the lodged shares. The expenses for upliftment are for the account of the uplifting shareholder. The difference between the depositary and the registry would be on the recording of ownership of the shares in the issuing corporations books. In the depository set-up, shares are simply immobilized, wherein customers certificates are canceled and a new certificate is issued in the name of PCD Nominee Corp. Transfers among/between broker and/or custodian accounts, as the case may be, will only be made within the book-entry system of PDTC. However, as far as the issuing corporation is concerned, the underlying certificates are in the nominee s name. In the registry set-up, settlement and recording of ownership of traded securities will already be directly made in the corresponding issuing company s transfer agents books or system. Likewise, recording will already be at the beneficiary level (whether it be a client or a registered custodian holding securities for its clients), thereby removing from the broker its current de facto custodianship role. 197

200 AMENDED RULE ON LODGMENT OF SECURITIES On June 24, 2009, the PSE apprised all listed companies and market participants through Memorandum No that commencing on July 1, 2009, as a condition for the listing and trading of the securities of an applicant company, the applicant company shall electronically lodge its registered securities with the PDTC or any other entity duly authorized by the SEC, without any jumbo or mother certificate in compliance with the requirements of Section 43 of the Securities Regulation Code. In compliance with the foregoing requirement, actual listing and trading of securities on the scheduled listing date shall take effect only after submission by the applicant company of the documentary requirements stated in the amended rule on Lodgment of Securities of the Exchange. Pursuant to such amendment, the PDTC issued an implementing procedure in support thereof to wit: For new companies to be listed at the PSE as of July 1, 2009, the usual procedure will be observed but the Transfer Agent on the companies shall no longer issue a certificate to PCD Nominee Corp but shall issue a Registry Confirmation Advice, which shall be the basis for the PDTC to credit the holdings of the Depository Participants on listing date. On the other hand, for existing listed companies, the PDTC shall wait for the advice of the Transfer Agents that it is ready to accept surrender of PCNC jumbo certificates and upon such advice the PDTC shall surrender all PCNC jumbo certificates to the Transfer Agents for cancellation. The Transfer Agents shall issue a Registry Confirmation Advice to PCNC evidencing the total number of shares registered in the name of PCNC in the Issuer s registry as of confirmation date. 198

201 PHILIPPINE FOREIGN INVESTMENT, FOREIGN OWNERSHIP AND EXCHANGE CONTROLS REGISTRATION OF FOREIGN INVESTMENTS AND EXCHANGE CONTROLS Under current BSP regulations, a foreign investment in listed Philippine securities (such as the Common Shares) must be registered with the BSP if the foreign exchange needed to service the repatriation of capital and the remittance of dividends, profits and earnings which accrue thereon will be sourced from the banking system. If the foreign exchange required for servicing such capital repatriation or dividends, profits, and earnings remittance will be sourced outside the banking system, registration with the BSP is not required. The application for registration must be filed by a stockbroker/dealer or an underwriter directly with the BSP or with a custodian bank designated by the investor. A custodian bank may be any commercial bank or offshore banking unit in the Philippines appointed by the investor to register the investment, hold shares for the investor, and represent the investor in all necessary actions in connection with his investments in the Philippines. Applications for registration must be accompanied by: (i) a purchase invoice, or subscription agreement and/or proof of listing in the PSE; and (ii) a credit advice or bank certification showing the amount of foreign currency inwardly remitted and converted to Pesos through a commercial bank; and (iii) in certain instances, transfer instructions from the stockholder and/or dealer, as the case may be. Upon submission of the required documents, a Bangko Sentral Registration Document ( BSRD ) will be issued by the BSP or the investor s custodian bank. Proceeds of divestments, or dividends of registered investments are repatriable or remittable immediately in full through the Philippine commercial banking system, net of applicable tax, without need of BSP approval. Remittance is allowed upon presentation of the BSRD, at the exchange rate applicable on the date of actual remittance. Pending repatriation or reinvestment, divestment proceeds, as well as dividends of registered investments, may be lodged temporarily in interest-bearing deposit accounts. Interest earned thereon, net of taxes, is also remittable in full. Remittance of divestment proceeds of dividends of registered investments may be reinvested in the Philippines if the investments are registered with the BSP or the investor s custodian bank. The foregoing is subject to the power of the BSP, with the approval of the President of the Philippines, to restrict the availability of foreign exchange during an exchange crisis, when an exchange crisis is imminent or in times of national emergency. The registration with the BSP of all foreign investments in the Offer Shares shall be the responsibility of the foreign investor. RESTRICTION ON FOREIGN OWNERSHIP As previously stated, the net proceeds of the offering shall be used by the Company to establish a chain of retail stores, the operations of which shall be under a created subsidiary. Under the Republic Act , companies engaged in retail trade are subject to nationality restrictions. Unless capitalization and other requirements are complied with an entity engaged in retail trade must be one hundred percent (100%) Filipino-owned. For purposes of determining the nationality of a corporation which in turn is owned in part by another corporation, the grandfather 19 AN ACT LIBERALIZING THE RETAIL TRADE BUSINESS, REPEALING FOR THE PURPOSE REPUBLIC ACT NO. 1180, AS AMENDED, AND FOR OTHER PURPOSES 199

202 rule shall be used when the economic activity in question is one of those strictly limited by law to Filipino citizens, such as retail trading. 20 As provided in its latest Amended Articles of Incorporation, the Company is further authorized to own land and operate slaughter houses, which may be considered a public utility. Under the Constitution, both these activities are restricted to Filipinos or corporation at least 60% of its capital are owned by Filipinos. Moreover, there is a limitation of forty percent (40%) in foreign equity participation for enterprises engaged in the rice and corn industry. While full foreign ownership is allowed at the outset, the foreign investors shall divest a minimum of sixty percent (60%) of their equity to Filipino citizens within the 30-year period from the start of the enterprise s operations. The primary purpose of Calata authorizes it to engage in the business of cultivating, planting, growing, producing, buying, preserving, processing, packing, canning, enveloping, storing, commercially distributing, marketing, exporting, and selling at wholesale or retail food and agricultural products including all kinds of goods, commodities, wares and merchandise of every kind and description whether natural or artificial as may be permitted by law. Food and agricultural products may include rice, corn and its by-products. Recognizing that capital infusion from foreign investors can likewise account for a substantial contribution to the growth and expansion of the Company, the Company shall take the necessary legal steps in order to accommodate foreign equity within its ownership structure within the limits and conditions allowed by law. 20 SEC-OGC Opinion No dated 28 November

203 PHILIPPINE TAXATION The following is a general description of certain Philippine tax aspects of the investment in the Company. This discussion is based upon laws, regulations, rulings, income tax conventions (treaties), administrative practices and judicial decisions in effect at the date of this Prospectus. Subsequent legislative, judicial or administrative changes or interpretations may be retroactive and could affect the tax consequences to the prospective investor. The tax treatment of a prospective investor may vary depending on such investor s particular situation and certain investors may be subject to special rules not discussed below. This summary does not purport to address all tax aspects that may be important to an investor. This general description does not purport to be a comprehensive description of the Philippine tax aspects of the investments in shares and no information is provided regarding the tax aspects of acquiring, owning, holding or disposing the shares under applicable tax laws of other applicable jurisdictions and the specific tax consequence in light of particular situations of acquiring, owning, holding and disposing the shares in such other jurisdictions. EACH PROSPECTIVE HOLDER SHOULD CONSULT WITH HIS OWN TAX ADVISER AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF PURCHASING, OWNING AND DISPOSING OF THE OFFER SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND NATIONAL TAX LAWS. Corporate Income Tax In general, a tax of thirty-five percent (35%) is imposed upon the taxable net income of a domestic corporation from all sources (within and outside the Philippines). However, effective January 1, 2009, the corporate income tax rate was reduced to thirty percent (30%) pursuant to Republic Act Gross interest income from Philippine currency bank deposits and yield from deposit substitutes, trust fund and similar arrangements as well as royalties from sources within the Philippines are however subject to a final withholding tax of twenty per cent of the gross amount of such income. Tax on Dividends Under current law, cash and property dividends received from a domestic corporation by individual stockholders who are either citizens or residents of the Philippines are subject to tax of ten per cent. Cash and property dividends received by domestic corporations or resident foreign corporations are not subject to tax. Cash and property dividends received from a domestic corporation by a non-resident foreign corporation not engaged in trade or business in the Philippines are generally subject to tax at the rate of thirty-five percent (35%).. However, please note that effective January 1, 2009, the tax rate was reduced to thirty percent (30%) pursuant to Republic Act Subject to applicable preferential tax rates under treaties in force between the Philippines and the country of domicile of such non-resident foreign corporation, cash and/or property dividends received from a domestic corporation by a non-resident corporation are subject to final withholding tax at the rate of fifteen percent (15%); provided that the country in which the nonresident foreign corporation is domiciled (i) imposes no taxes on foreign sourced dividends or (ii) allows a credit against the tax due from the non-resident foreign corporation taxes deemed to have been paid in the Philippines equivalent to the difference between the regular income tax on corporations and the fifteen percent (15%) tax on dividends. 201

204 Documentary Stamp Tax The original issue of shares is subject to documentary stamp tax of Php1.00 for each Php200.00, or a fractional part thereof, of the par value of the shares issued. The transfer of shares is subject to a documentary stamp tax of Php0.75 for each Php200.00, or a fractional part thereof of the par value of the shares transferred. However, the sale, barter or exchange of shares of stock listed and traded through the local stock exchange shall not be subject to documentary stamp tax for a period of five (5) years from the effectivity of Republic Act No dated February 17, Please note that the said exemption expired on March 20, However, on June 30, 2009, President Gloria Macapal-Arroyo signed Republic Act 9648, which permanently exempts the sale, barter or exchange of shares of stock listed and traded through the local stock exchange from the documentary stamp tax and was made retroactive to March 20, SALE, EXCHANGE OR DISPOSITION OF SHARES Capital Gains Tax, if sale was made outside the PSE Net capital gains realized by a resident or non-resident other than a dealer in securities during each taxable year from the sale, exchange or disposition of shares of stock outside the facilities of the PSE, unless an applicable treaty exempts such gains from tax or provides for preferential rates, are subject to tax as follows: five percent (5%) on gains not exceeding PhP100, and ten percent (10%) on gains over PhP100, An application for tax treaty relief must be filed (and approved) by the Philippine tax authorities in order to obtain an exemption under a tax treaty. A sale or other disposition of shares of stock through the facilities of the PSE by a resident or a non-resident holder, other than a dealer in securities, is subject to a stock transaction tax at the rate of one half percent (0.5%) of the gross selling price or gross value in money of the shares of stock sold or otherwise disposed, unless an applicable treaty exempts such sale from said tax. This tax is required to be collected by and paid to the Philippine Government by the selling stockbroker on behalf of his client. The stock transaction tax is classified as a percentage tax in lieu of a capital gains tax. Under certain tax treaties, the exemptions from capital gains tax discussed herein may not be applicable to the stock transaction tax. Value Added Tax In addition, a VAT of twelve percent (12%) is imposed on the commission earned by the PSEregistered broker, and is generally passed on to the client. ESTATE AND GIFT TAXES Shares issued by a corporation organized under Philippine laws are deemed to have a Philippine situs, and any transfer thereof by way of donation or succession, even if made by a non-resident decedent or donor outside the Philippines, is subject to Philippine estate and donor s tax. The transfer of shares of stock upon the death of an individual holder to his heirs by way of succession, whether such holder was a citizen of the Philippines or an alien, regardless of residence, is subject to Philippine taxes at progressive rates ranging from five percent (5%) to twenty percent (20%), if the net estate is over PhP200, On the other hand, individual and corporate holders, whether or not citizens or residents of the Philippines, who transfer shares of stock by way of gift or donation are liable to pay Philippine donors tax on such transfer of shares ranging from two percent (2%) to fifteen percent (15%) of the net gifts during the year exceeding PhP100, The rate of tax with respect to net gifts made to a stranger (i.e., one who is not a brother, sister, spouse, ancestor, lineal descendant or relative by consanguinity within the fourth degree of relationship) is a flat rate of thirty percent (30%). 202

205 Estate and donors taxes, however, shall not be collected in respect of intangible personal property, such as shares of stock: (a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. TAXATION OUTSIDE THE PHILIPPINES Shares of stock in a domestic corporation are considered under Philippine law as situated in the Philippines and the gain derived from their sale is entirely from Philippine sources; hence, such gain is subject to Philippine income tax and the transfer of such shares by gift (donation) or succession is subject to the donors or estate taxes stated above. The tax treatment of a non-resident holder of shares of stock in jurisdictions outside the Philippines may vary depending on the tax laws applicable to such holder by reason of domicile or business activities and such holder s particular situation. This Prospectus does not discuss the tax considerations on non-resident holders of shares of stock under laws other than those of the Philippines. 203

206 RESPONSIBILITY OF DIRECTORS AND OFFICERS OF THE COMPANY AND ISSUE MANAGER AND UNDERWRITER Unless otherwise stated, all information contained in this Prospectus has been supplied by the Company. The Company, through its Board, having made all reasonable inquiries, accepts full responsibility for the information contained in this Prospectus and confirms that this Prospectus contains all information with regard to the Company, its business and operations and the Offer Shares, which as of the date of this Prospectus are material in the context of the Offer; that, to the best of its knowledge and belief as of the date hereof, the information contained in this Prospectus are true and correct and are not misleading in any material respect; that the opinions and intentions expressed herein are honestly held; and, that there are no other facts, the omission of which makes this Prospectus, as a whole or in part, misleading in any material respect. The delivery of this Prospectus shall not, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. The Issue Manager and Underwriter, warrants that it has exercised the level of due diligence required under existing regulations in ascertaining that all material information contained in this Prospectus is true. Except for its failure to exercise the required due diligence, the Issue Manager and Underwriter assume no responsibility for any breach of the representation of the Company. 204

207 EXPENSES OTHER THAN UNDERWRITING, DISCOUNTS AND COMMISSIONS Tax on Initial Public Offering PhP10,803, Documentary Stamp Tax 180, Philippine SEC filing and legal research fees Registration statement filing fee Legal research fee PSE listing and processing fees 726, , Listing fee Processing fee 2,700, , Estimated professional fees 4,000, Estimated out-of-pocket and other expenses including printing 1,100, and engraving costs TOTAL PhP19,574,

208 INVESTOR RELATIONS INFORMATION This program was introduced purposely to address and attend to investors inquiries about the Company and its future plans for its stockholders. Atty. Jose Marie E. Fabella, the Company s Corporate Secretary and Mr. Benison Paul B. De Torres, the Company s Chief Finance Officer were appointed as Corporate Information Officer (CIO) and Alternate Corporate Information Officer (ACIO), respectively. They share the responsibility of being head of the investors relations unit of the Company. They will oversee the timely and accurate submission of periodic reports and statements required to be filed on a regular basis with the SEC and the PSE as well as current reports on material event that have occurred and are required to be disclosed to the SEC and/or the PSE within a given period from the time of their occurrence. The reports required to be filed with the SEC include, among others, the following: Annual Report (SEC Form 17-A) within 105 days after the end of the fiscal year; Quarterly Report (SEC Form 17-Q) within 45 days after the end of the first three (3) fiscal quarters of each fiscal year; Proxy Statement or Information Statement (SEC Form 20-IS) at least 15 business days prior to the scheduled date of the annual stockholders meeting; and Current Reports (SEC Form 17-C) within five (5) days after the occurrence of the event required to be reported. As a general rule, listed companies are required to furnish the PSE copies of all reports submitted to the SEC. The periodic reports required to be filed with the PSE, which are referred to as Structured Continuing Disclosures, include, among others, the following: Annual Report (SEC Form 17-A) within 105 days after the end of the fiscal year; Quarterly Report (SEC Form 17-Q) within 45 days after the end of the first three (3) fiscal quarters of each fiscal year; Report on the Top 100 Stockholders within 15 days after the end of each quarter; and Board Lot Report within five (5) trading days after the end of each month. Listed companies are required to update the investing public with any material fact that occurs which would reasonably be expected to affect investors decision in relation to trading of its securities. Such reports, which are referred to as Unstructured Continuing Disclosures, are required to be disclosed to the PSE within 10 minutes from receipt of the information or occurrence of the event. The Company can be reached for inquiries through its telephone number (044) ) and fax number (044)

209 FINANCIAL STATEMENTS (Attached) 207

210 CALATA CORPORATION (formerly Planters Choice Agro Products, Inc.) FINANCIAL STATEMENTS DECEMBER 31, 2011 and 2010

211 INDEPENDENT AUDITORS REPORT The Stockholders and the Board of Directors Calata Corporation (formerly Planters Choice Agro Products, Inc.) McArthur Highway, Banga 1 st Plaridel, Bulacan Report on the Financial Statements We have audited the accompanying financial statements of Calata Corporation (formerly Planters Choice Agro Products, Inc.), which comprise the statements of financial position as of December 31, 2011 and 2010, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for each of the three years in the period ended December 31, 2011, and a summary of significant accounting policies and other explanatory information. 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, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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