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7 PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES Unaudited Interim Consolidated Financial Statements March 31, 2012 and June 30, 2011

8 PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in Thousands, Except Par Value and Number of Shares) UNAUDITED MARCH 31, 2012 AUDITED JUNE 30, 2011 ASSETS Current Assets Cash and cash equivalents (Note 4) P=480,011 P=386,654 Receivables - net (Note 5) 515, ,060 Inventories - net (Note 6) 254, ,593 Real estate held for sale and development (Note 7) 396, ,851 Amounts owed by related parties - net (Note 16) 2,190 2,209 Available-for-sale (AFS) investments - net (Note 9) 482, ,203 Other current assets - net (Note 8) 204, ,898 Total Current Assets 2,336,116 2,349,468 Noncurrent Assets Investments in associates - net (Note 11) 530, ,931 Leasehold rights net 15,397 22,092 Held-to-maturity (HTM) investments (Note 10) 2,000 2,000 Investment properties - net (Note 13) 652, ,508 Property, plant and equipment - net (Note 12) 630, ,103 Deferred income tax assets 51,493 56,824 Other noncurrent assets (Note 14) 149, ,041 Total Noncurrent Assets 2,032,736 2,079,499 TOTAL ASSETS P=4,368,852 P=4,428,967 LIABILITIES AND EQUITY Current Liabilities Accounts payable and accrued expenses (Note 15) P=1,252,303 P=1,393,014 Rental and other deposits 211, ,921 Amounts owed to related parties (Note 16) 2,762 2,954 Total Current Liabilities 1,466,366 1,601,889 Noncurrent Liabilities Retirement benefit obligation 44,309 68,077 Deferred income tax liabilities 184, ,115 Subscriptions payable (Note 11) 528, ,470 Total Noncurrent Liabilities 757, ,662 Total Liabilities 2,224,128 2,389,551 (Forward)

9 - 2 - UNAUDITED MARCH 31, 2012 AUDITED JUNE 30, 2011 Equity Attributable to Equity Holders of the Parent Capital stock - P=1 par value Authorized - 2,400,000,000 shares Issued and subscribed - 2,367,149,383 shares (net of subscriptions receivable of P=300,792) P=2,066,357 P=2,066,352 Additional paid-in capital 829, ,904 Revaluation increment on property, plant and equipment 188, ,170 Revaluation reserve on investment properties 215, ,709 Unrealized valuation gain on AFS investments (Note 9) 83,156 52,432 Deficit (1,325,726) (1,387,823) 2,057,570 1,964,744 Non-Controlling Interests 87,154 74,672 Total Equity 2,144,724 2,039,416 TOTAL LIABILITIES AND EQUITY P=4,368,852 P=4,428,967 See accompanying Notes to Consolidated Financial Statements.

10 PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Earnings Per Share) QUARTER ENDED MARCH 31 NINE MONTHS ENDED MARCH REVENUES Merchandise sales net P=126,767 P=165,216 P=378,402 P=460,909 Rental 112, , , ,131 Insurance premiums and commissions 52,619 55, , , , , , ,036 COST AND EXPENSES Operating expenses (Note 18) 81,462 89, , ,096 Cost of goods sold and services 132, , , ,418 Rental and utilities 69,714 60, , ,203 Insurance underwriting deductions 24,287 33,091 89,340 91, , , ,107 1,005,570 OTHER INCOME (CHARGES) Interest and others net 5,963 4,652 19,960 10,738 Gain (loss) on sale of assets 3,661 (660) 90, ,526 Recovery of allowance for impairment loss on receivables - 31,386-31,386 Foreign exchange gains (losses) - net 12 - (72) (8) Dividend income ,414 Others net 7,990 3,325 23,207 17,946 17,950 38, , , , , , ,568 INCOME BEFORE INCOME TAX 1,831 28,159 82, ,468 PROVISION FOR INCOME TAX 1,750 3,748 11,266 18,006 NET INCOME P=81 P=24,411 P=71,309 P=257,462 ATTRIBUTABLE TO: Equity holders of the company (P=6,173) P=20,909 P=62,098 P=251,110 Non-Controlling interest 6,254 3,502 9,211 6,352 P=81 P=24,411 P=71,309 P=257,462 Basic, for income for the period attributable to ordinary equity holders of the parent (P=0.003) P=0.009 P=0.030 P=0.109 See accompanying Notes to Consolidated Financial Statements.

11 PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Thousands) QUARTER ENDED MARCH 31 NINE MONTHS ENDED MARCH NET INCOME FOR THE PERIOD P=81 P=24,411 P=71,309 P=257,462 Other comprehensive income (loss) : Changes in fair value of available for sale investments in equity securities 60,494 (29,039) 30,725 (133,880) TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE PERIOD P=60,575 (P=4,628) P=102,034 P=123,582 Total comprehensive income (loss) attributable to: Equity holders of the company P=45,222 (P=7,922) P=85,189 P=114,683 Non-Controlling interests 15,353 3,294 16,844 8,899 P=60,575 (P=4,628) P=102,034 P=123,582 See accompanying Notes to Consolidated Financial Statements.

12 PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE PERIOD ENDED MARCH 31, 2012 AND 2011 (Amounts in Thousands) Capital Stock Additional Paid In Capital Revaluation Increment in Property and Equipment Revaluation Reserve on Investment Properties at Deemed Cost Unrealized Valuation Gain (Loss) on AFS Investment Deficit Non- Controlling Interest Total Balances at June P=2,066,352 P=829,904 P=193,299 P=225,799 P=186,132 (P=1,669,725) P=66,855 P=1,898,616 Net income for the period 251,110 6, ,461 Other comprehensive income (loss) for the period: Unrealized valuation gain(loss) on AFS investments (133,880) - 1,029 (132,851) Balances at March 31, 2011 P=2,066,352 P=829,904 P=193,299 P=225,799 P=52,253 (P=1,418,615) P=74,235 P=2,023,227 Balances at June 30, 2011 P= 2,066,352 P= 829,904 P= 188,170 P= 215,709 P= 52,432 (P= 1,387,824) P= 74,671 P= 2,039,414 Full payment of subscription Net income for the period 62,098 9,211 71,309 Other comprehensive income for the period: Unrealized valuation gain on AFS investments 30,725 3,271 33,996 Balances at March 31, 2012 P=2,066,357 P=829,904 P=188,170 P=215,709 P=83,157 (P=1,325,726) P=87,154 P=2,144,724

13 PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Nine Months Ended March CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=82,575 P=275,467 Adjustments for: Net unrealized foreign exchange losses 72 8 Depreciation and amortization 59,871 59,406 Provisions for (reversal of) impairment losses on: Other current assets (input vat) Receivables (5,401) - Amounts owed by related parties - 1,423 Inventory (773) 5,329 Gain on sale of assets (90,096) (223,526) Dividend income (716) (14,414) Interest expense and bank charges 113 1,547 Interest income (20,073) (12,285) Operating income before working capital changes 25,617 92,976 Decrease (increase) in: Receivables 154,049 (14,812) Inventories 33,915 (65,215) Real estate held for sale and development (68) (2,504) Other current assets (25,734) 994 Increase (decrease) in: Accounts payable and accrued expenses (176,924) (155,554) Rental deposits and advances 5,379 6,737 Net cash flows from (used in) operations 16,233 (137,379) Interest received 20,073 12,285 Net cash flows from (used in) operating activities 36,306 (125,094) CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in: Other noncurrent assets 5,342 24,195 Held to maturity investments - (13,715) Amounts owed by related parties 19 (1,412) Dividends received ,414 Proceeds from sale of assets ,828 Proceeds from sale of AFS investments 118, ,481 Acquisitions of: Property, plant and equipment (5,817) (27,139) Investment property (18,703) (0) AFS investments (43,578) 10,794 Net cash flows from investing activities P=57,046 P=271,447 (Forward)

14 - 2 - Nine Months Ended March CASH FLOWS FROM FINANCING ACTIVITIES Collection of capital stock subscriptions P=5 P=- Decrease in amounts owed to related parties 1 (10) Net cash used in financing activities 6 (10) NET INCREASE IN CASH AND CASH EQUIVALENTS 93, ,343 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 386, ,323 CASH AND CASH EQUIVALENTS AT END OF THE PERIOD (Note 4) P=480,011 P=281,666 See accompanying Notes to Consolidated Financial Statements.

15 - 1 - PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information and Status of Operations Prime Orion Philippines, Inc. (POPI; the Parent Company) was incorporated and registered with the Philippine Securities and Exchange Commission (SEC) on May 19, The Parent Company s registered office address is 20th Floor LKG Tower, 6801 Ayala Avenue, Makati City. The Parent Company s primary purpose is to acquire by purchase, exchange, assign, donate or otherwise, and to hold, own and use, for investment or otherwise and to sell, assign, transfer, exchange, lease, let, develop, mortgage, pledge, traffic, deal in and with, and otherwise operate, enjoy and dispose of any and all properties of every kind and description and wherever situated, as and to the extent permitted by law, including but not limited to, buildings, tenements, warehouses, factories, edifices and structures and other improvements, and bonds, debentures, promissory notes, shares of capital stock, or other securities and obligations, created, negotiated or issued by any corporation, association, or other entity, domestic or foreign. Prime Orion Philippines, Inc. and Subsidiaries, collectively referred to as the Group, have principal business interests in real estate and property development, financial services and manufacturing and distribution. The accompanying unaudited consolidated financial statements of the Group were approved and authorized for issue by the Audit Committee and the Board of Directors on May 15, Basis of Preparation, Statement of Compliance and Summary of Significant Accounting Policies Basis of Preparation The unaudited consolidated financial statements have been prepared on a historical cost basis, except for AFS investments that are carried at fair values. The consolidated financial statements are presented in Philippine peso, which is the Group s functional and presentation currency and all values are rounded to the nearest thousand (P=000), except when otherwise indicated. Statement of Compliance The unaudited consolidated financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). 1

16 - 2 - Basis of Consolidation The unaudited consolidated financial statements include the accounts of the Parent Company and its subsidiaries as of March 31, 2012 and June 30, 2011: Effective Percentage Nature of Business of Ownership Real Estate, Property Development and Others: Orion Land, Inc. (OLI) and Subsidiaries: March June Real Estate and Investment Holding Company OLI Tutuban Properties, Inc. (TPI) and Subsidiaries: TPI Real Estate, Mall Operations BAN Marketing, Inc. * Other Business Activities TPI Holdings Corporation (TPIHC) Investment Holding Company Orion Property Development, Inc. (OPDI) and Subsidiary: OPDI Real Estate Development Orion Beverage, Inc. (OBI) * Manufacturing Luck Hock Venture Holdings, Inc. Other Business Activities Manufacturing and Distribution: Orion I Holdings Philippines, Inc. (OIHPI) and Subsidiaries: OIHPI Financial Holding Company Lepanto Ceramics, Inc. (LCI) Manufacture of Ceramic Floor and Wall Tiles OYL Holdings, Inc. Financial Holding Company Financial Services and Others: OE Holdings, Inc. (OEHI) and Subsidiaries: OEHI Wholesale and Trading Orion Maxis Inc. Marketing and Administrative Services ZHI Holdings, Inc. (ZHI) Financial Holding Company FLT Prime Insurance Corporation (FPIC) Non-Life Insurance Company Orion Solutions, Inc. (OSI) Management Information Technology Consultancy Services * Inactive All of the above companies are based in the Philippines. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All significant intercompany transactions and balances between and among the Group, including intercompany profits and unrealized profits, have been eliminated in the consolidation. 2

17 - 3 - Non-controlling interest represent interests in certain subsidiaries not held by the Group. The equity, net income and other comprehensive income attributable to non-controlling interests are shown separately in the consolidated statements of financial position, consolidated statements of income and consolidated statements of comprehensive income, respectively. Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations which were adopted as at July 1, New Interpretation Philippine Interpretation International Financial Reporting Interpretations Committee (IFRIC) 19, Extinguishing Financial Liabilities with Equity Instruments, effective for annual periods beginning on or after July 1, 2010 Amendments and Improvements to Standards Amendments to PFRS 2, Group Cash-settled Share-based Payment Transactions, effective for annual periods beginning on or after January 1, 2010 Amendment to PAS 32, Financial Instruments: Presentation, Classification of Rights Issues, effective for annual periods beginning on or after February 1, 2010 Improvements to PFRSs in 2009 Improvements to PFRSs in 2010 The new, revised, amended and improved standards and/or interpretations that have been adopted are deemed to have no impact on the financial position or performance of the Group. Standards or interpretations or amendments to standards that have been adopted and that are deemed to have an impact on the financial statements or performance of the Group are described below: Improvements to PFRSs in 2009 The omnibus amendments to PFRSs issued in 2009 were issued primarily with a view of removing inconsistencies and clarifying wording. The adoption of the following amendments resulted in changes to accounting policies but did not have any significant impact on the financial position or performance of the Group. PAS 7, Cash Flows Statements, explicitly states that only expenditure that results in recognized asset can be classified as a cash flow from investing activities. PAS 39, Financial Instruments: Recognition and Measurement, clarifies the following: that the prepayment option is considered closely related to the host contract when the exercise price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract. 3

18 - 4 - that the scope exemption for contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future period applies only to binding forward contracts, and not derivative contracts where further actions by either party are still to be taken. that gains or losses on cash flow hedges of a forecast transaction that subsequently results in a recognition of a financial instrument or on cash flow hedges of recognized financial instruments should be reclassified in the period that the hedged forecast cash flows affect the statement of comprehensive income. Future Changes in Accounting Policies The Group did not early adopt the following standards, amendments, improvements and Philippine interpretations: Effective beginning July 1, 2011: Amendments to PAS 24, Related Party Disclosures, was amended in response to concerns that the previous disclosure requirements and the definition of a related party were too complex and difficult to apply in practice, especially in environments where government control is pervasive. The amended standard addresses these concerns by providing a partial exemption for government-related entities and by providing by simplifying the definition of a related party and removing inconsistencies. The amended standard is effective for annual periods beginning on or after January 1, 2011, with earlier application permitted. Amendments to PFRS 7, Financial Instruments: Disclosures - Transfers of Financial Assets, effective for annual reporting periods beginning on or after July 1, The amendments will allow users of financial statements to improve their understanding of transfer transactions of financial assets (for example, securitization), including understanding the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. Amendment to Philippine Interpretation IFRIC 14, Prepayments of a Minimum Funding Requirement, which is itself an interpretation of PAS 19, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, applies in the limited circumstances when an entity is subject to minimum funding requirements and makes an early payment of contributions to cover those requirements. The amendment permits such an entity to treat the benefit of such an early payment as an asset and is effective for annual periods beginning on or after January 1, 2011, with early adoption permitted. Improvements to PFRSs in 2010 The omnibus amendments to PFRS issued in 2010 were issued primarily with a view of removing inconsistencies and clarifying wording. The amendments are effective for annual periods beginning on or after January 1, 2011, except when otherwise stated. PFRS 7, Financial Instruments: Disclosures, emphasizes the interaction between quantitative and qualitative disclosures and the nature and extent of risks associated with financial instruments. The amendment will be applied retrospectively. 4

19 - 5 - PAS 1, Presentation of Financial Statements, clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. The amendment will be applied retrospectively. Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, clarifies that when the fair value of award credits is measured based on the value of the awards for which they could be redeemed, the amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be taken into account. The amendment will be applied retrospectively. Effective beginning July 1, 2012: Amendment to PAS 12, Income Taxes - Deferred Tax: Recovery of Underlying Assets, effective for annual periods beginning on or after January 1, The amendment provides a practical solution to the problem of assessing whether recovery of an asset will be through use or sale. It introduces a presumption that recovery of the carrying amount of an asset will, normally, be through sale. Effective beginning July 1, 2013: PFRS 9, Financial Instruments: Classification and Measurement, introduces new requirements on the classification and measurement of financial assets. It uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many different rules in PAS 39, Financial Instruments: Recognition and Measurement. The approach in the new standard is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in PAS 39. The standard s effective period for mandatory adoption is on January 1, Earlier application is permitted for financial statements beginning on or after January 1, 2010 in the Philippines. The Group does not expect any significant impact in the financial statements when it adopts the above standards, amendments, improvements and Philippine interpretations. The revised and additional disclosures provided by the standards, amendments, improvements and interpretations will be included in the financial statements when these are adopted in 2012 to 2014, when applicable. Summary of Significant Accounting Policies Financial Instruments - Initial Recognition Financial assets and liabilities within the scope of PAS 39 are classified as financial assets and liabilities at fair value through profit or loss (FVPL), loans and receivables, HTM investments, AFS investments and other financial liabilities. The Group determines the classification of its financial assets and liabilities at initial recognition. Management determines the classification of its financial instruments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every end of the reporting period. All financial instruments are recognized initially at fair value plus, in the case of investments not at FVPL, directly attributable transaction costs. 5

20 - 6 - Purchases or sales of financial instruments that require delivery of assets within a time frame established by regulation or convention in the marketplace (regular way trades) are recognized on the trade date (i.e., the date that the Group commits to purchase or sell the asset). The Group s financial instruments are in the nature of loans and receivables, AFS investments, HTM investments and other financial liabilities as at March 31, 2012 and June 30, Financial Instruments - Subsequent Measurement The subsequent measurement of financial instruments depends on their classification as follows: Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or costs that are an integral part of the EIR. The EIR amortization is included in interest income in the consolidated statements of income. The losses arising from impairment are recognized in the consolidated statements of income. Loans and receivables are included in current assets if maturity is within twelve (12) months from the end of the reporting period. Otherwise, these are classified as noncurrent assets. The Group s loans and receivables include cash and cash equivalents, receivables and amounts owed by related parties (see Notes 4, 5, and 16). HTM Investments Quoted non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as HTM when the Group has the positive intention and ability to hold to maturity. Where the Group sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS investments and the Group will be precluded from using the HTM investments account for the current period and for the next two succeeding periods from tainting date. After initial measurement, HTM investments are measured at amortized cost using the EIR method. Amortized cost is calculated taking into account any discount or premium on or acquisition and for that are integral parts of the EIR rate. Gains and losses are recognized in the consolidated statements of income when the investments are derecognized or impaired, as well as through the amortization process. As at March 31, 2012 and June 30, 2011, the Group s HTM investments include investments in debt securities (see Note 10). AFS Investments AFS investments are those which are designated as such or do not qualify to be classified or designated as at FVPL, HTM investments or loans and receivables. Financial assets may be designated at initial recognition as AFS if they are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. AFS investments are included in current assets if it is expected to be realized or disposed of within twelve (12) months from the end of the reporting period. Otherwise, these are classified as noncurrent assets. 6

21 - 7 - AFS investments are measured at fair value. The unrealized gains and losses arising from the fair valuation of AFS investments are excluded from consolidated statements of income and are reported as Unrealized valuation gains (losses) on AFS investments in the statement of changes in equity. Unquoted AFS investments, where there is no reliable basis of their fair values, are measured at cost less impairment loss. When the security is disposed of, the cumulative gain or loss previously recognized in equity is recognized in the consolidated statements of income. Where the Group holds more than one investment in the same security, these are deemed to be disposed of on a first-in first-out basis. Interest earned on holding AFS investments are reported as interest income using the EIR. Dividends earned on holding AFS investments are recognized in the comprehensive statements of income under when the right of payment has been established. The losses arising from impairment of such investments are recognized in the consolidated statements of income. The Group s listed and nonlisted equity securities and quoted and unquoted debt securities are classified under this category (see Note 9). Other Financial Liabilities After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Amortized cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognized in the consolidated statements of income when the liabilities are derecognized as well as through the amortization process. The Group s other financial liabilities include accounts payable and accrued expenses, amounts owed to related parties and rental deposits and advances (see Notes 15 and 16). Determination of Fair Value of Financial Instruments The fair value of financial instruments that are actively traded in organized financial markets is determined by reference to the quoted market prices (bid price for long positions and ask price for short positions) at the close of business at the end of the reporting period, without any reduction for transaction costs. When current bid and ask 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. For all other financial instruments not listed in an active market, fair value is determined using valuation technique. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, option pricing models and other relevant valuation model. Day 1 Difference Where the transaction price in a non-active market is different to the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 difference) in the consolidated statements of income unless it qualifies for recognition as some other type of asset or liability. In cases where the data used is not observable, the difference between the transaction price and model value is only recognized in the consolidated statements of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the Day 1 difference amount. 7

22 - 8 - Offsetting of Financial Instruments Financial assets and financial liabilities are only offset and the net amount reported in the consolidated statement of financial position when there is a legally enforceable right to set off the recognized amounts and the Group intends to either settle on a net basis, or to realize the asset and the liability simultaneously. Impairment of Financial Assets The Group assesses at each end of the reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial Assets Carried at Amortized Cost For financial assets carried at amortized cost, the Group first assesses individually 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 the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial assets original EIR. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in profit or loss. Loans and receivables, together with the associated allowance, are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. AFS Investments For AFS investments, the Group assesses at each end of the reporting period whether there is objective evidence of impairment. In case of equity investments classified as AFS investments, this would include a significant or prolonged decline in the fair value of the investments below its cost. Significant is to be evaluated against the original cost of the investment or prolonged against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the 8

23 - 9 - cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized as other comprehensive income in the consolidated statements of comprehensive income - is removed from equity and recognized in the consolidated statement of income. Impairment losses on AFS investments are not reversed through profit or loss while increases in fair value after impairment are recognized directly in other comprehensive income in equity. In the case of debt instruments classified as AFS investments, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. The interest income is recorded in the consolidated statement of income. If, in subsequent year, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in the statement of income, the impairment loss is reversed through the consolidated statements of income. Derecognition of Financial Instruments Financial Assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when: the rights to receive cash flows from the asset have expired; the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or the Group has transferred its rights to receive cash flows from the asset and either: (a) has transferred substantially all the risks and rewards of the asset; or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Financial Liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statements of income. 9

24 Inventories Inventories are valued at the lower of cost and net realizable value (NRV). Costs incurred in bringing each product to its present location are accounted for as follows: Raw materials, factory supplies and spare parts - purchase cost on a moving-average method; Finished goods and work in progress - direct materials, labor, and proportion of manufacturing overhead based on normal operating capacity. The NRV is the selling price in the ordinary course of business, less costs of marketing and distribution. Investments in Associates Investments in shares of stock in which the Group has an effective interest of at least 20% or where it has, at least, ability to exercise significant influence over the investee s operating and financial policies are accounted for under the equity method of accounting. Under the equity method, the investments are carried in the consolidated statement of financial position at cost adjusted for the equity in consolidated statements of income and changes in the investee s equity account since the date of acquisition. Dividends received are treated as a reduction in the carrying value of the investments. The reporting dates of the associates and the Group are identical and the associates accounting policies conform to those used by the Group for like transactions and events in similar circumstances. The associate is accounted for under equity method from the date the Group obtains significant influence. In the Parent Company s separate financial statements, investments in associates are accounted for at cost less impairment losses. The effective percentages of ownership in investments in associates as at March 31, 2012 and June 30, 2011 are as follows: Effective Percentage of Ownership Cyber Bay Corporation (Cyber Bay) and Subsidiary: Cyber Bay Central Bay Reclamation and Development Corporation (Central Bay) BIB Aurora Insurance Brokers, Inc. (BAIBI) Real Estate Held for Sale and Development Real estate held for sale and development is carried at the lower of cost and NRV. NRV is the selling price in the ordinary course of business less the costs of completion, marketing and distribution. Cost includes acquisition cost of the land plus development and improvement costs. Borrowing costs incurred on loans obtained to finance the improvements and developments of real estate held for sale and development are capitalized while development is in progress. 10

25 Leasehold Rights Leasehold rights are stated at cost and are amortized on a straight line basis over the remaining term of the lease from the start of commercial operations. Investment Properties The Group s investment properties include properties utilized in its mall operations, held for rentals or for capital appreciation. Investment properties are stated at cost less accumulated depreciation and any accumulated impairment losses. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Leasehold improvements under investment properties (including buildings and structures) on the leased land are carried at cost less accumulated depreciation and any impairment in value. An investment property is derecognized either when it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the consolidated statements of income in the period of retirement or disposal. Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale. Leasehold improvements and investment properties are amortized on a straight-line basis over the estimated useful lives or the term of the lease, whichever is shorter. The lease contract on a land where the investment property is located is for twenty five (25) years, which is also the amortization period of the investment property. In December 2009, the lease contract on a land where the Group s primary investment property (see Note 13) is located, was renewed. As a result of the lease renewal, and the review of the estimated useful life and amortization period of the said investment property, management came to a conclusion that there has been a significant change in the expected pattern of economic benefits from the said property of the Group. As a result, in 2010, the Group prospectively revised the remaining amortization period of this property from an average of twenty five (25) years (which is the shorter of the lease term and the estimated useful life) to thirty five (35) years. These changes have been accounted for as a change in accounting estimates. The change in the remaining amortization period of the said investment property has decreased the depreciation expense by P=108.0 million in The Group transfers directly to deficit the realized portion of the revaluation reserve on investment properties at deemed cost. Accordingly, an amount corresponding to the difference between the depreciation based on the revalued carrying amount (deemed cost) of the properties and depreciation based on the properties original cost is transferred annually from revaluation reserve on investment properties account at deemed cost to deficit account in the consolidated statement of financial position. The amount transferred is net of the related deferred income tax liability. 11

26 Property, Plant and Equipment Property, plant and equipment are carried at cost less accumulated depreciation and amortization and any impairment in value, except for land and building, together with their improvements, which are stated at appraised values as determined by an independent firm of appraisers. The excess of appraised value over the acquisition costs of the properties is shown as Revaluation increment on property, plant and equipment under the equity section of the consolidated statement of financial position and in the consolidated statement of changes in equity. An amount corresponding to the difference between the depreciation and amortization based on the revalued carrying amount of the properties and depreciation and amortization based on the original cost is transferred annually from Revaluation increment in property, plant and equipment to Deficit account in the consolidated statement of financial position. The amount transferred is net of the related deferred income tax liability. The initial cost of property, plant and equipment consists of its purchase price, including import duties, taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are normally charged to operations in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and any impairment in value are removed from the accounts and any resulting gain or loss is credited to or charged against current operations. Depreciation and amortization is calculated on a straight-line basis over the estimated useful lives of the assets as follows: Years Land improvements 30 Buildings and improvements 30 Leasehold improvements 3-5 Machinery and equipment 5-10 Transportation equipment 5 Furniture, fixtures and equipment 3-5 Leasehold improvements are amortized on a straight-line basis over their estimated useful lives or the term of the lease, whichever is shorter. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of income in the year the asset is derecognized. The residual values, useful lives and depreciation method are reviewed and adjusted if appropriate, at each end of the reporting period. 12

27 Fully depreciated assets are retained in the accounts until these are no longer in use. When assets are sold or retired, the cost and the related accumulated depreciation and amortization and any impairment in value are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated statements of income. Impairment of Nonfinancial Assets The Group assesses at each end of the reporting period whether there is an indication that a nonfinancial asset may be impaired when events or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists or when annual impairment testing for a nonfinancial asset is required, the Group makes an estimate of the nonfinancial asset s recoverable amount. A nonfinancial asset s estimated recoverable amount is the higher of the nonfinancial asset s or cash-generating unit s fair value less costs to sell and its value in use and is determined for an individual nonfinancial asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying values exceed the estimated recoverable amounts, the assets are considered impaired and are written down to their estimated recoverable amounts. 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. Impairment losses of continuing operations are recognized in the consolidated statements of income in those expense categories consistent with the function of the impaired asset. An assessment is made at each end of the reporting period as to 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. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the nonfinancial asset s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the nonfinancial asset is increased to its estimated recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the nonfinancial asset in prior years. Such reversal is recognized in the consolidated statements of income unless the nonfinancial asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. The following specific recognition criteria must also be met before revenue is recognized: Merchandise sale Revenue from sale of merchandise is recognized upon passage of title which coincides with the delivery of the goods. Rental Lease is recognized as income over the terms of the lease of mall spaces on a straight-line basis. Real estate sales Revenue from sale of real estate is recognized on an accrual basis in accordance with the terms and conditions of the sales contract. Insurance premiums and commissions Premiums from insurance contracts are recognized as revenue over the period of the contracts using the 24th method. The portion of the premiums written that relates to the unexpired periods 13

28 of the policies at end of the reporting period is accounted for as Reserve for unearned premiums included in the Accounts payable and accrued expenses account in the consolidated statement of financial position. The related insurance premiums ceded that pertain to the unexpired periods at the end of the reporting period are accounted for as Deferred reinsurance premiums shown as part of Other noncurrent assets in the consolidated statement of financial position. The net changes in these accounts between ends of the reporting periods are charged or credited to income for the year. Interest Revenue is recognized as the interest accrues (using the EIR method that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset). Dividend Income Dividend income is recognized when the Group s right to receive the payment is established. Amounts Owed by and to Related Parties Related party relationship exists when one party has the ability to control, directly or indirectly through one or more intermediaries, the other party or exercise significant influence over the other party in making financial and operating decisions. Such relationship also exists between and/or among entities, which are under common control with the reporting enterprises and its key management personnel, directors or its stockholders. In considering each related party relationship, attention is directed to the substance of the relationship, and not merely the legal form. Claims The liabilities for unpaid claim costs (including incurred but not reported losses) and claim adjustment expenses relating to insurance contracts are accrued when insured events occur. The liabilities for unpaid claims are based on the estimated ultimate cost of settling the claims. The method of determining such estimates and establishing reserves is continually reviewed and updated. Changes in estimates of claim costs resulting from the continuous review process and differences between estimates and payments for claims are recognized as income or expense for the period in which the estimates are changed or payments are made. Estimated recoveries on settled and unsettled claims are evaluated in terms of the estimated realizable values of the salvaged recoverables and deducted from the liability for unpaid claims. The unpaid claim costs are accounted as Claims Payable under Accounts payable and accrued expenses account in the consolidated statement of financial position. Income Taxes Current Income Tax Current income 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 income tax rates and income tax laws used to compute the amount are those that are enacted or substantively enacted as at the end of the reporting period. Current income tax relating to items recognized directly in equity is recognized in equity and not in the profit or loss in the consolidated statements of income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. 14