Consolidated. Statements of. Income and Comprehensive Income. Consolidated. Statements of. Changes in Equity. Consolidated Statements of Cash Flows

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2 CONTENTS Responsibility Financial Highlights President s Report Statement of Management s for Financial Statements Independent Auditor s Report Consolidated Statements of Financial Position Consolidated Statements of Income and Comprehensive Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements IBC Board of Directors Committees Directory Our Cover The cover presents the iconic flames of Republic Glass Holdings Corporation, designed to give meaning to the title Igniting Tomorrow s Success. The concept further showcases the corporation s trailblazing moves for the country s economic progress.

3 FINANCIAL HIGHLIGHTS ( Years Ended December 31 ) (Amounts in Thousands, Except for Per Common Share) 2015 REVENUES 53,471 82,908 42,434 NET INCOME (LOSS) 22,224 53,527 (27,515) TOTAL ASSETS 1,711,242 1,740,847 1,758,836 TOTAL LIABILITIES 125, , ,427 STOCKHOLDERS' EQUITY 1,585,838 1,612,880 1,638,409 PER COMMON SHARE Earnings (loss) (0.04) Book Value Cash Dividends Current Ratio ANNUAL REPORT 1

4 PRESIDENT S REPORT The Philippine economy continued its impressive and sustained growth for 2017, with GDP climbing 6.7%, just slightly below the election powered 6.9% results seen in Inflation for 2017 appeared to be well contained, the Peso/US$ rate was fairly stable, BPO income and OFW remittances remained buoyant and the stock market reached unprecedented levels. Most analysts believe 2018 will exhibit similar growth patterns and much of this optimism is fueled by the government s ambitious infrastructure plans, to be funded partly by the passage of the Tax Reform Package recently enacted by Congress and signed into law by the President. Together with Official Development Assistance and possible Public Private Partnerships, we expect this massive infrastructure push to create millions of jobs. All these factors should push the economy further forward. Despite these positive and recent developments, finding attractive investments that suit our risk criteria remain elusive. We have stepped up efforts to locate opportunities but are keenly aware that competitive pressures in an open economy have forced the real rate of return on many projects to dwindle. We have held firm with our required standards and not rushed into investments we are not comfortable with, opting to approach with care and conservatism. Our advantage remains that we are able to move and act quickly and decisively when that time comes. RGHC is ready but prices need to be sensible, perhaps when interest rates begin to rise and the ready availability of cheap capital disappears. 2 REPUBLIC GLASS HOLDINGS CORPORATION

5 Our advantage remains that we are able to move and act quickly and decisively when that time comes. For 2017, I would like to highlight the following: 1. RGHC continued to ensure strict observance with the latest corporate governance regulations, in the process reorganizing our Board Committees. We merged the Nomination and Compensation Committees to form the Governance, Nomination and Compensation Committee, chaired by an independent director in the person of Mr. Celso P. Vivas. Mr. Vivas joined RGHC last year and is a former partner at SGV & Co. and an authority on corporate governance who has written books on the subject matter. He replaced the late Victor C. Macalincag, who sat on the RGHC board for 10 years before his untimely passing last year. We also expanded the functions of the Audit Committee to include Risk Management, whose Chair is Ms. Corazon S. de la Paz- Bernardo, the former head of Price Waterhouse in the Philippines. We also expect to hire a Risk Officer reporting directly to the Audit and Risk Management Committee to further strengthen our controls and review processes. To stay relevant and in keeping with the spirit and thrust of the corporate governance mandate, management and the board will be presenting to shareholders during the annual stockholders meeting proposals to amend certain provisions in the present Articles of Incorporation and By Laws. Copies of these will be forwarded to stockholders on record before the AGM as required by law. 2. We appointed Marsel Lincoln A. Meneses as our new Corporate Secretary last October to replace his late father, who served as counsel and Corporate Secretary for over 2 decades. 3. We remain confident with our investment in Science Park of the Philippines, Inc. (SPPI). RGHC acquired an additional 3% more in 2016 and will look to further increase our stake should the opportunity arise. The outlook for SPPI remains solid, with a dearth of quality industrial estates available for foreign locators. Notwithstanding the continued delay in the approval of its DAR conversion and PEZA registration for large tracts of its latest industrial estate project under development located in Malvar, Batangas, we expect handsome payoffs in the not too distant future. We believe this is a temporary setback and are optimistic we can obtain the necessary permits in RGHC paid a 7.5 centavo cash dividend in 2017, lower than the 15 centavos delivered to shareholders in Despite this, RGHC has been generous in its payouts, handing out in excess of 2.2 billion in cash dividends since the year This decline was due to the absence of any dividend income from SPPI. RGHC is debt free, with substantial cash available for investments. We are partly shielded from a possible depreciation of the PESO through sizeable $ holdings invested in a quality investment portfolio held by our 100% owned foreign subsidiary, Hollington Management Limited (HML). HML remitted $450,000 in 2017 to RGHC in the form of cash dividends. 5. We managed to keep administrative costs at levels very close to However, we expect expenses will start creeping up as regulatory pressure for increased transparency, more timely and accurate disclosure requirements and irreversible trends for improved corporate governance will translate into higher overhead. We remain committed to meeting and exceeding standards required of a listed firm by the general public, PSE, SEC and the accounting profession. Your company posted a minor profit of Pesos million for We hope to improve on this performance in In closing, I wish to thank my colleagues at the Board level who have worked hard to ensure your company will survive for the long haul, our employees whose loyalty and dedication I am proud of, and to all our stakeholders whose opinion, feedback and support I always value. GERONIMO F. VELASCO, JR. President 2017 ANNUAL REPORT 3

6 Statement of Management s Responsibility for Financial Statements The management of Republic Glass Holdings Corporation and Subsidiaries (the Group) is responsible for the preparation and fair presentation of the consolidated financial statements including the schedules attached therein, for the years ended December 31, 2017 and 2016, in accordance with Philippine Financial Reporting Standard and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group s ability to continue as a going concern, disclosings as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate the Group or to cease operations, or has no realistic altenative but to do so. The Board of Directors is reponsible for overseeing the Group s financial reporting process. The Board of Directors reviews and approves the financial statements including the schedules attached therein, and submits the same to the stockholders. SyCip Gorres Velayo & Co., the independent auditors appointed by the stockholders, has audited the consolidated financial statements of the Group in accordance with Philippine Standards on Auditing, and its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such audit. BIENVENIDO A. TAN, JR. Chairman of the Board GERONIMO F. VELASCO, JR. Chief Executive Officer FLORENCE WONG Chief Financial Officer Signed this 6th day of March 2018 SUBSCRIBED AND SWORN to before me this 27th day of March 2018 at Makati City, affiants exhibiting to me their respective Identification Certificates. Name Community Tax Certificate No. / Passport No. Place of Issue Date of Issue Bienvenido A. Tan, Jr. P A DFA, Manila 24 October 2017 Geronimo F. Velasco, Jr Makati City 26 February 2018 Florence Wong Makati City 26 January 2018 Doc. No. 500; Page No. 101; Book No. 63; Series of ATTY. JOSHUA P. LAPUZ Notary Public City of Makati Until December 31, 2019 Appointment No. M-82-( ) PTR No Jan. 3, 2018 / Makati IBP Lifetime No Roll No MCLE Compliance No. V G/F Fedman Bldg., 199 Salcedo St. Legaspi Village, Makati City 4 REPUBLIC GLASS HOLDINGS CORPORATION

7 Independent Auditor s Report The Board of Directors and Stockholders Republic Glass Holdings Corporation 6th Floor, Republic Glass Building 196 Salcedo Street, Legaspi Village Makati City Opinion We have audited the consolidated financial statements of Republic Glass Holdings and its subsidiaries (collectively referred to as the Company ), which comprise the consolidated statements of financial position as at December 31, 2017 and 2016, and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2017, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2017 and 2016, and its consolidated financial performance and its consolidated cash flows for each of the three years in the period ended December 31, 2017 in accordance with Philippine Financial Reporting Standards (PFRSs). Basis for Opinion We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance withthese requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor s Responsibilities for the Audit of the Consolidated Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements ANNUAL REPORT 5

8 Valuation of Unquoted Equity Securities The Company s investment in Available-for-sale (AFS) equity investments include an investment in unquoted shares of stock amounting to P369.1 million, comprising 21.57% of total assets as at December 31, 2017, which is carried at cost. Philippine Accounting Standards (PAS) 39, Financial Instruments: Recognition and Measurement, provides that investments in shares of stock that do not have a quoted price in an active market and whose fair value cannot be reliably measured shall be measured at cost, less impairment. This matter is significant to our audit because the determination of whether fair value can be reliably measured requires significant judgment by management. The Company s disclosures about AFS equity investments are included in Notes 3 and 10 to the consolidated financial statements. Audit Response We obtained the basis of management s judgment on whether the fair value can be reliably measured. We gained an understanding of the investee company, its group structure, its principal activities, its sources of cash flows, the composition of its underlying net assets, and the Company s involvement in the investee company. We considered the Company s access to relevant market and financial information that will enable the Company to perform an equity valuation within a reasonable range of variability. Other Information Management is responsible for the other information. The other information comprises the SEC Form 17-A for the year ended December 31, 2017, but does not include the consolidated financial statements and our auditor s report thereon, which we obtained prior to the date of this auditor s report, and the SEC Form 20-IS (Definitive Information Statement) and the Annual Report for the year ended December 31, 2017, which are expected to be made available to us after that date. Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audits of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with PFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company s financial reporting process. Auditor s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. 6 REPUBLIC GLASS HOLDINGS CORPORATION

9 As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor s report is Christine G. Vallejo. SYCIP GORRES VELAYO & CO. Christine G. Vallejo Partner CPA Certificate No SEC Accreditation No AR-1 (Group A), March 2, 2017, valid until March 1, 2020 Tax Identification No BIR Accreditation No , January 31, 2017, valid until January 30, 2020 PTR No , January 9, 2018, Makati City March 6, ANNUAL REPORT 7

10 REPUBLIC GLASS HOLDINGS CORPORATION AND SUBSIDIARIES Consolidated Statements of Financial Position (Amounts in Thousands) ASSETS December 31 Current Assets Cash and cash equivalents (Notes 4 and 21) P758,873 P739,674 Short-term investments (Notes 5 and 21) 74,183 85,005 Financial assets at fair value through profit or loss (Notes 6, 21 and 22) 446, ,818 Receivables (Notes 7 and 21) 10,071 9,483 Other current assets (Note 8) 3,329 2,246 Total Current Assets 1,292,926 1,321,226 Noncurrent Assets Available-for-sale financial assets (Notes 10, 21 and 22) 405, ,400 Investment properties (Notes 11 and 22) 1,825 1,825 Property and equipment (Note 12) 9,053 9,244 Deferred tax assets - net (Note 20) 2,106 2,152 Total Noncurrent Assets 418, ,621 P1,711,242 P1,740,847 LIABILITIES AND EQUITY Current Liabilities Accounts payable and other current liabilities (Notes 13 and 21) P2,412 P4,022 Dividends payable (Notes 14 and 21) 35,268 36,660 Customers deposits (Note 21) Income tax payable Total Current Liabilities 38,209 41,015 Noncurrent Liabilities Accrued retirement costs (Note 18) 1,274 3,659 Deferred tax liability (Note 20) 85,921 83,293 Total Noncurrent Liabilities 87,195 86,952 Total Liabilities 125, ,967 Equity Capital stock (Note 14) 738, ,314 Additional paid-in capital 9,103 9,103 Cumulative translation adjustments of a foreign subsidiary 43,432 41,564 Cumulative unrealized gain on valuation of available-for-sale financial assets (Note 10) 1,172 2,240 Retained earnings (Note 14): Appropriated 308, ,954 Unappropriated 578, ,615 Treasury stocks (Note 14) (93,910) (93,910) Total Equity 1,585,838 1,612,880 P1,711,242 P1,740,847 See accompanying Notes to Consolidated Financial Statements. 8 REPUBLIC GLASS HOLDINGS CORPORATION

11 REPUBLIC GLASS HOLDINGS CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (Amounts in Thousands, Except Earnings Per Share) Years Ended December REVENUE Interest income (Notes 4, 5, 6 and 15) P39,713 P40,375 P41,613 Investment income (Notes 6, 9, 10 and 15) 13,758 42, Rental income (Note 11) ,471 82,908 42,434 GENERAL AND ADMINISTRATIVE EXPENSES (Note 8) (24,853) (25,876) (40,577) BANK CHARGES (1,332) (929) (1,307) FOREIGN EXCHANGE GAIN - Net 696 3,370 2,529 GAIN ON SALE OF INVESTMENT PROPERTIES (Note 11) 7, OTHER INCOME INCOME BEFORE INCOME TAX 28,342 67,781 3,877 PROVISION FOR INCOME TAX (Note 20) Current (3,900) (5,108) (3,662) Deferred (2,218) (9,146) (27,730) (6,118) (14,254) (31,392) NET INCOME (LOSS) P22,224 P53,527 (P27,515) Basic/Diluted Earnings (Loss) Per Share (Note 24) P0.03 P0.08 (P0.04) See accompanying Notes to Consolidated Financial Statements. Consolidated Statements of Comprehensive Income (Amounts in Thousands) Years Ended December NET INCOME (LOSS) P22,224 P53,527 (P27,515) OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income to be reclassified to profit or loss in subsequent periods: Change in cumulative translation adjustments of a foreign subsidiary 1,868 22,241 20,844 Unrealized gain (loss) on valuation of available-for-sale financial assets (Note 10) (1,068) Realized loss on sale of available-for-sale financial assets reclassified to profit or loss (Notes 10 and 15) 1, ,358 22,421 Other comprehensive income not to be reclassified to profit or loss in subsequent periods: Remeasurement gains on defined benefits plan (Notes 14 and 18) 1,521 1,209 2,322 Income tax effect (456) (363) (697) 1, ,625 1,865 23,204 24,046 TOTAL COMPREHENSIVE INCOME (LOSS) P24,089 P76,731 (P3,469) See accompanying Notes to Consolidated Financial Statements ANNUAL REPORT 9

12 REPUBLIC GLASS HOLDINGS CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Equity FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015 (Amounts in Thousands, Except Cash Dividends Per Share) Cumulative Translation Capital Stock Additional Paid-in Adjustments of a Foreign (Note 14) Capital Subsidiary Balance at December 31, 2016 P738,314 P9,103 P41,564 Net income for the year Other comprehensive income (loss) (Notes 14 and 18) 1,868 Cash dividends - P0.075 per share (Note 14) Balance at December 31, 2017 P738,314 P9,103 P43,432 Balance at December 31, 2015 P738,314 P9,103 P19,323 Net income for the year Other comprehensive income (Notes 14 and 18) 22,241 Reversal of appropriation (Note 14) Cash dividends - P0.15 per share (Note 14) Balance at December 31, 2016 P738,314 P9,103 P41,564 Balance at December 31, 2014 P738,314 P9,103 (P1,521) Net loss for the year Other comprehensive income (Notes 14 and 18) 20,844 Cash dividends - P0.15 per share (Note 14) Balance at December 31, 2015 P738,314 P9,103 P19,323 See accompanying Notes to Consolidated Financial Statements. 10 REPUBLIC GLASS HOLDINGS CORPORATION

13 Cumulative Unrealized Gain (Loss) on Valuation of Available-for- Sale Financial Assets Retained Earnings Treasury Stocks Total (Note 10) Appropriated Unappropriated (Note 14) Equity P2,240 P308,954 P606,615 (P93,910) P1,612,880 22,224 22,224 (1,068) 1,065 1,865 (51,131) (51,131) P1,172 P308,954 P578,773 (P93,910) P1,585,838 P2,123 P400,000 P563,456 (P93,910) P1,638,409 53,527 53, ,204 (91,046) 91,046 (102,260) (102,260) P2,240 P308,954 P606,615 (P93,910) P1,612,880 P546 P400,000 P691,606 (P93,910) P1,744,138 (27,515) (27,515) 1,577 1,625 24,046 (102,260) (102,260) P2,123 P400,000 P563,456 (P93,910) P1,638, ANNUAL REPORT 11

14 REPUBLIC GLASS HOLDINGS CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Amounts in Thousands) Years Ended December CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P28,342 P67,781 P3,877 Adjustments to reconcile income before income tax to net cash flows: Interest income (39,713) (40,375) (41,613) Investment income (Note 15) (13,758) (42,474) (746) Depreciation (Notes 11, 12 and 16) 2,774 2,666 3,291 Bank charges 1, ,307 Movement in accrued retirement costs (Note 18) (864) (456) (1,601) Unrealized foreign exchange gain - net (696) (3,370) (2,529) Gain on sale of investment properties (Note 11) (7,762) (753) Working capital adjustments: Decrease (increase) in: Financial assets at fair value through profit or loss 38,348 (102,703) 14,238 Receivables 30 (2) 2,746 Other current assets (1,083) (648) (397) Decrease in accounts payable and other current liabilities (1,610) (613) (3,164) Net cash generated from (used in) operations 13,102 (127,027) (25,344) Interest received 39,251 39,049 47,727 Receipt of income from investment 13,602 35, Income taxes paid (3,704) (5,083) (3,896) Net cash flows from (used in) operating activities 62,251 (57,123) 19,233 CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in short-term investments 10,822 (1,210) 29,229 Acquisitions of: Property and equipment (Note 12) (2,583) (157) (796) Available-for-sale financial assets (Note 10) (91,046) (34,000) Proceeds from: Sale of investment properties (Note 11) 7, Investment subject to a repurchase agreement (Note 9) 186,175 Redemption of available-for-sale financial assets (Note 10) 50,078 Net cash flows from (used in) investing activities 8,239 (84,613) 231,583 CASH FLOWS FROM FINANCING ACTIVITIES Payments of: Dividends (P52,523) (P100,531) (P100,442) Bank charges (1,332) (929) (1,307) Net cash used in financing activities (53,855) (101,460) (101,749) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,635 (243,196) 149,067 EFFECTS OF FOREIGN EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 2,564 25,607 23,371 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 739, , ,825 CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4) P758,873 P739,674 P957,263 See accompanying Notes to Consolidated Financial Statements. 12 REPUBLIC GLASS HOLDINGS CORPORATION

15 REPUBLIC GLASS HOLDINGS CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Amounts in Thousands, Except Par Value and Earnings Per Share) 1. CORPORATE INFORMATION Republic Glass Holdings Corporation (the Parent Company) is a publicly-listed holding entity involved in purchasing, leasing, selling securities of every kind and business. On October 29, 2004, the Philippine Securities and Exchange Commission (SEC) approved the Parent Company s application for the extension of its corporate term, which expired on August 23, 2006, for another 50 years. The registered office address of the Parent Company and its subsidiaries (collectively referred to as the Company ) is 6th Floor, Republic Glass Building, 196 Salcedo Street, Legaspi Village, Makati City. The Parent Company is 67.69% and 67.52%-owned by Gervel, Inc. (Gervel) as at December 31, 2017 and 2016, respectively. Gervel is the ultimate parent company which is also incorporated in the Philippines. The consolidated financial statements were approved and authorized for issue by the Board of Directors (BOD) on March 6, BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The consolidated financial statements have been prepared in accordance with Philippine Financial Reporting Standards (PFRSs). The consolidated financial statements have been prepared on a historical cost basis, except for available-for-sale (AFS) financial assets and financial assets at fair value through profit or loss (FVPL) which have been measured at fair value. The consolidated financial statements are presented in Philippine Peso, which is the Parent Company s functional and presentation currency. All values are rounded to the nearest thousands, except when otherwise indicated. The Parent Company also files separate financial statements with the SEC and the consolidated financial statements may be obtained at the Company s registered office address (see Note 1). Basis of Consolidation The consolidated financial statements comprise the financial statements of the Parent Company and its wholly owned subsidiaries as at December 31, 2017 and for each of the three years in the period ended December 31, The consolidated subsidiaries (collectively referred to as Subsidiaries ) include the following: Subsidiaries Principal Activities Place of Incorporation Percentage of Ownership RGC Investment Corporation (RIC) Investing Philippines 100 Hollington Management Limited (HML) Investing British Virgin Island 100 RGC Marine Transport Corporation (RMTC)* Shipping Philippines 100 *Ceased commercial operations in Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if and only if the Company has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement(s) with the other vote holders of the investee Rights arising from other contractual arrangements The Company s voting rights and potential voting rights The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Company gains control until the date the Company ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Company and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Company s accounting policies. The financial statements of the subsidiaries are prepared in the same reporting period as the Parent Company, using consistent accounting policies. All intra-company assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Company are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Company loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity while any resulting gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value. Changes in Accounting Policies The accounting policies adopted are consistent with those of the previous financial year, except for the following amended standards which became effective on January 1, Adoption of these pronouncements did not have any significant impact on the Company s financial position or performance unless otherwise indicated. Amendments to PFRS 12, Disclosure of Interests in Other Entities, Clarification of the Scope of the Standard (Part of Annual Improvements to PFRSs Cycle) The amendments clarify that the disclosure requirements in PFRS 12, other than those relating to summarized financial information, apply to an entity s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) that is classified (or included in a disposal group that is classified) as held for sale. Adoption of these amendments did not have any impact on the Company s consolidated financial statements. Amendments to PAS 7, Statement of Cash Flows, Disclosure Initiative The amendments require entities to provide disclosure of changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). The Company has provided the required information in Note 23 to the consolidated financial statements. As allowed under the transition provisions of the standard, the Company did not present comparative information for the years ended December 31, 2016 and Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses The amendments clarify that an entity needs to consider whether tax law restricts the sources of taxable profits against which it may make deductions upon the reversal of the deductible temporary difference related to unrealized losses. Furthermore, the amendments provide guidance on how an entity should determine future taxable profits and explain the circumstances in which taxable profit may include the recovery of some assets for more than their carrying amount. The application has no effect on the Company s financial position and performance as the Company has no deductible temporary differences or assets that are in the scope of the amendments. Standards Issued but not yet Effective Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Company does not expect future adoption of the said pronouncements to have a significant impact on its financial statements. The Company intends to adopt the following pronouncements when they become effective. Effective beginning on or after January 1, 2018 Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based Payment Transactions The amendments to PFRS 2 address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and the accounting where a modification to the terms and conditions of a sharebased payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and if other criteria are met. Early application of the amendments is permitted. The Company is currently assessing the potential effect of the amendments on its consolidated financial statements. Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with PFRS 4 The amendments address concerns arising from implementing PFRS 9, the new financial instruments standard before implementing the new insurance contracts standard. The amendments introduce two options for entities issuing insurance contracts: a temporary exemption from applying PFRS 9 and an overlay approach. The temporary exemption is first applied for reporting periods beginning on or after January 1, An entity may elect the overlay approach when it first applies PFRS 9 and apply that approach retrospectively to financial assets designated on transition to PFRS 9. The entity restates comparative information reflecting the overlay approach if, and only if, the entity restates comparative information when applying PFRS 9. The amendments are not applicable to the Company since none of the entities have activities that are predominantly connected with insurance or issue insurance contracts. PFRS 15, Revenue from Contracts with Customers PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts with customers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in PFRS 15 provide a more structured approach to measuring and recognizing revenue ANNUAL REPORT 13

16 The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under PFRSs. Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after January 1, Early adoption is permitted. The Company plans to adopt the new standard and is still assessing its potential impact. In addition, as the presentation and disclosure requirements in PFRS 15 are more detailed than under current PFRSs, the Company is currently assessing what necessary changes it needs to make on its current systems, internal controls, policies and procedures to enable the Company to collect and disclose the required information. The recognition and measurement requirements in PFRS 15 also apply to gains or losses on disposal of nonfinancial assets (such as items of property and equipment and intangible assets), when that disposal is not in the ordinary course of business. However, on transition, the effect of these changes is not expected to be material for the Company. PFRS 9, Financial Instruments PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, Financial Instruments: Recognition and Measurement, and all previous versions of PFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. Retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The adoption of PFRS 9 will have an effect on the classification and measurement of the Company s financial assets and impairment methodology for financial assets, but will have no impact on the classification and measurement of the Company s financial liabilities. The Company is currently assessing the impact of adopting this standard. Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual Improvements to PFRSs Cycle) The amendments clarify that an entity that is a venture capital organization, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss. They also clarify that if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate s or joint venture s interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at the later of the date on which (a) the investment entity associate or joint venture is initially recognized; (b) the associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture first becomes a parent. The amendments should be applied retrospectively, with earlier application permitted. Amendments to PAS 40, Investment Property, Transfers of Investment Property The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management s intentions for the use of a property does not provide evidence of a change in use. The amendments should be applied prospectively to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. Retrospective application is only permitted if this is possible without the use of hindsight. Since the Company s current practice is in line with the clarifications issued, the Company does not expect any effect on its consolidated financial statements upon adoption of these amendments. Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance Consideration The interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognizes the nonmonetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine a date of the transactions for each payment or receipt of advance consideration. Entities may apply the amendments on a fully retrospective basis. Alternatively, an entity may apply the interpretation prospectively to all assets, expenses and income in its scope that are initially recognized on or after the beginning of the reporting period in which the entity first applies the interpretation or the beginning of a prior reporting period presented as comparative information in the financial statements of the reporting period in which the entity first applies the interpretation. Since the Company s current practice is in line with the clarifications issued, the Company does not expect any effect on its consolidated financial statements upon adoption of this interpretation. Effective beginning on or after January 1, 2019 PFRS 16, Leases PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under PAS 17, Leases. The standard includes two recognition exemptions for lessees leases of low-value assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under PFRS 16 is substantially unchanged from today s accounting under PAS 17. Lessors will continue to classify all leases using the same classification principle as in PAS 17 and distinguish between two types of leases: operating and finance leases. PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17. Early application is permitted, but not before an entity applies PFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard s transition provisions permit certain reliefs. The Company is currently assessing the impact of adopting PFRS 16. Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures The amendments to PAS 28 clarify that entities should account for long-term interests in an associate or joint venture to which the equity method is not applied using PFRS 9. An entity shall apply these amendments for annual reporting periods beginning on or after January 1, Earlier application is permitted. Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside the scope of PAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The interpretation specifically addresses the following: Whether an entity considers uncertain tax treatments separately The assumptions an entity makes about the examination of tax treatments by taxation authorities How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates How an entity considers changes in facts and circumstances An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The Company is currently assessing the impact of adopting this interpretation. Deferred effectivity Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture. The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves a business as defined in PFRS 3, Business Combinations. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognized only to the extent of unrelated investors interests in the associate or joint venture. Current versus Noncurrent Classification The Company presents assets and liabilities in the consolidated statement of financial position based on current/noncurrent classification. An asset is current when: It is expected to be realized or intended to be sold or consumed in the normal operating cycle It is held primarily for the purpose of trading It is expected to be realized within twelve months after the reporting period, or It is cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as noncurrent. A liability is current when: It is expected to be settled in the normal operating cycle It is held primarily for the purpose of trading It is due to be settled within twelve months after the reporting period, or There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period The Company classifies all other liabilities as noncurrent. Deferred tax assets and liabilities are classified as noncurrent assets and liabilities. Financial Instruments - Initial Recognition and Subsequent Measurement A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. a. Financial Assets Initial Recognition and Measurement. Financial assets are classified, at initial recognition, as FVPL, loans and receivables, held-to-maturity investments (HTM), AFS financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial assets are recognized initially at fair value plus, in the case of financial assets not recorded at FVPL, transaction costs that are attributable to the acquisition of the financial asset. Purchases or sales of financial assets that require delivery of assets with in a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset. The Company s financial assets include cash and cash equivalents, short-term investments, and receivables which are classified as loans and receivables, financial assets at FVPL, and AFS financial assets. The Company has no HTM investments. Subsequent Measurement. For purposes of subsequent measurement, financial assets are classified in the following categories: 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 14 REPUBLIC GLASS HOLDINGS CORPORATION

17 effective interest rate method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in interest income in the consolidated statement of comprehensive income. The losses arising from impairment are recognized in the consolidated statement of comprehensive income in interest expense for loans and in costs of services or general and administrative expenses for receivables. This category includes the Company s cash and cash equivalents, short-term investments, and receivables. Financial Assets at FVPL. Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition at FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments as defined by PAS 39. Financial assets at FVPL are carried in the consolidated statement of financial position at fair value with changes in fair value recognized in profit or loss. Mark-to-market gain (loss) on financial assets at fair value through profit or loss is included as part of Investment Income. Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Re-assessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the FVPL. This category includes the Company s investments in corporate and government bonds, treasury notes and other quoted equity securities. AFS Financial Asset. AFS financial asset include equity investments and debt securities. Equity investments classified as AFS are those that are neither classified as held for trading nor designated at FVPL. Debt securities in this category are those that are intended to be held for an indefinite period of time and that may be sold in response to needs for liquidity or in response to changes in the market conditions. After initial measurement, AFS financial assets are subsequently measured at fair value with unrealized gains or losses recognized in OCI and credited in the AFS reserve until the investment is derecognized, at which time the cumulative gain or loss is recognized in other operating income. AFS equity investments whose fair value cannot be reliably measured are measured at cost less any impairment. If a reliable measure of fair value subsequently becomes available, the asset is remeasured at fair value, and the corresponding gain or loss is recognized in OCI (provided it is not impaired). If a reliable measure ceases to be available, the AFS equity investment is thereafter measured at cost, which is deemed to be the fair value carrying amount on that date. Any gain or loss previously recognized in OCI shall remain in equity until the asset has been sold, otherwise disposed of or impaired, at which time it is reclassified to profit or loss. The Company evaluates whether the ability and intention to sell its AFS financial assets in the near term is still appropriate. When, in rare circumstances, the Company is unable to trade these financial assets due to inactive markets, the Company may elect to reclassify these financial assets if the management has the ability and intention to hold the assets for foreseeable future or until maturity. For a financial asset reclassified from the AFS category, the fair value carrying amount at the date of reclassification becomes its new amortized cost and any previous gain or loss on the asset that has been recognized in equity is amortized to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortized cost and the maturity amount is also amortized over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the consolidated statement of income. This category includes the Company s investments in quoted and unquoted equity securities. Derecognition. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e. removed from the consolidated statement of financial position) when: The Company s rights to receive cash flows from the asset have expired, or The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company 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 or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Impairment of Financial Assets. The Company assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that has occurred since the initial recognition of the asset (an incurred 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 observable data indicating 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 Company first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company 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. The amount of any impairment loss identified 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 asset s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognized in profit or loss. Interest income (recorded as interest income in the consolidated statement of comprehensive income) continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans, together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account in the consolidated statement of income. If a write-off is later recovered, the recovery is credited to interest expense in the consolidated statement of comprehensive income. AFS Financial Asset. For AFS financial investments, the Company assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as AFS, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Significant is evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. When there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of income - is removed from OCI and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognized in OCI. In the case of debt instruments classified as AFS, the 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 the consolidated statement of income. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income. b. Financial Liabilities Initial Recognition and Measurement. Financial liabilities are classified, at initial recognition, as financial liabilities at FVPL, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs. The Company s financial liabilities include accounts payable and other current liabilities, customers deposits and dividends payable which are classified as loans and borrowings. The Company has no financial liabilities at FVPL or derivative liabilities designated as hedging instruments. Subsequent Measurement. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included as interest expense in the consolidated statement of income. Derecognition. A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires. 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 the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated statement of income. c. Offsetting of Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously. The Company assess that it has a currently enforceable right to offset if the right is not contingent on a future event, and is legally enforceable in the normal course of business, event of default, and event of insolvency or bankruptcy of the Company and all of the counterparties. Fair Value Measurement The Company measures financial assets at FVPL and AFS financial assets at fair value at each reporting date. Also, fair values of investment properties measured at cost and financial instruments measured at amortized cost are disclosed. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability 2017 ANNUAL REPORT 15

18 The principal or the most advantageous market must be accessible to the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value. Short-term Investments Short-term investments include highly liquid investments that are readily convertible to known amounts of cash with original maturities of more than three months but not more than one year from dates of acquisition and are subject to an insignificant risk of change in value. Investment Properties Investment properties consist of parcels of land and other real estate properties which are being held by the Company for capital appreciation or for rental. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties, except land, are measured at cost less accumulated depreciation and impairment loss. Land is carried at cost less any impairment in value. Depreciation is computed using the straight-line method over the following estimated useful lives: Land improvements Buildings and improvements 5-10 years 10 years The useful lives and method of depreciation are reviewed periodically to ensure that periods and method of depreciation are consistent with the expected pattern of economic benefits from items of the investment. Investment properties are derecognized when either these have been disposed of or when the investment properties are permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of investment properties, which is measured as the difference between the sales proceeds and the carrying value of the investment property, are recognized in profit or loss in the year of retirement or disposal. Transfers are made to investment properties when, and only when, there is change in use evidenced by ending of owner-occupation, or commencement of an operating lease to another party. Transfers are made from investment properties when, and only when, there is change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sell. For a transfer from investment properties to owner-occupied property or inventories, the deemed cost of property for subsequent accounting is its carrying value at the date of change in use. If the properties occupied by the Company as owner-occupied properties become investment properties, the Company accounts for such property in accordance with the policy stated under property and equipment up to the date of change in use. Property and Equipment Property and equipment is stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and amortization and any accumulated impairment in value. Such cost includes the cost of replacing part of such property and equipment when that cost is incurred if the recognition criteria are met. When each major repair and maintenance is performed, its cost is recognized in the carrying amount of the property and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in the consolidated statement of income. Depreciation is computed using the straight-line method over the following estimated useful lives: Building and improvements Transportation equipment Furniture, fixtures and equipment 5-40 years 4-10 years 2-10 years The assets residual values, useful lives and depreciation and amortization method are reviewed, and adjusted if appropriate, at each financial year-end. An item of property 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 statement of comprehensive income in the year the asset is derecognized. Fully depreciated property and equipment are retained in the accounts until they are no longer in use. Impairment of Nonfinancial Assets The Company assesses at each reporting date whether there is an indication that an asset 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. An asset s recoverable amount is the higher of an asset s or cash-generating units (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 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 assessment of the time value of money and the risks specific to the asset. In determining the fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies, or other available fair value indicators. The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company s CGUs to which the individual assets are allocated. For longer periods, a long-term growth rate is calculated and applied to project future cash flows. Impairment losses are recognized in profit or loss in the expense category consistent with the function of the impaired asset. An assessment is made at each reporting date 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 asset s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss, unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Employee Benefits Defined Benefit Plan. The net defined benefit liability is the aggregate of the present value of the defined benefit obligation at the end of the reporting date reduced by the fair value of plan assets, adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method. Defined benefit costs comprise the following: Service cost Net interest on the net defined benefit liability or asset Remeasurements of net defined benefit liability or asset Service costs which include current service costs, past service costs and gains or losses on nonroutine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuary. Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income profit or loss. Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in the consolidated statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods. Employee Leave Entitlement. Employee entitlements to annual leave are recognized as a liability when they are accrued to the employees. The undiscounted liability for leave expected to be settled wholly before twelve months after the end of the annual reporting period is recognized for services rendered by employees up to the end of the reporting period. Equity Capital stock is measured at par value for all shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as deductions from proceeds, net of tax. Any difference between the par value of shares issued and the consideration received are recognized in additional paid-in capital. Retained earnings represent the accumulated earnings, net of dividends declared. OCI comprises items of income and expense, including reclassification adjustments that are not recognized in profit or loss as required or permitted by other PFRSs. Treasury stocks are the Parent Company s own equity instruments that are reacquired or held by a subsidiary which are carried at cost and are deducted from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of the Parent s own equity instruments. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of revenue can be reliably measured. Revenue is measured at the fair value of the consideration received excluding discounts, rebates and value-added tax (VAT) or duty. The Company assesses its revenue against specific criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized: Interest Income. Revenue from cash in banks, time deposits, bonds and placements are recognized as the income accrues, taking into account the effective yield on the assets. Dividend Income. Revenue is recognized when the Company s right to receive the payment is established. Dividend from investment subject to a repurchase agreement is also presented as part of Investment Income account. 16 REPUBLIC GLASS HOLDINGS CORPORATION

19 Rental Income. Revenue from investment properties is accounted for on a straight-line basis over the lease term. Costs and Expenses Costs and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decrease in equity, other than those relating to distributions to equity participants. General and administrative expenses, interest expense and other expenses are recognized in profit or loss in the period these are incurred. Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at the inception date or whether the fulfillment of the arrangement is dependent on the use of a specific asset or arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement. Company as a Lessor. Leases where the Company retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Operating lease receipts from lessees are recognized as income in profit or loss on a straight-line basis over the lease term. Company as a Lessee. 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 expense in profit or loss on a straight line basis over the lease term. Taxes Current Tax. Current income tax assets and liabilities for the current period 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 reporting date where the Company operates and generates taxable income. Current income tax relating to items recognized directly in equity is recognized in equity and not in profit or loss. 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. Deferred Tax. Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences, except: When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss. In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognized for all deductible temporary differences, the carry forward benefits of unused tax credits from excess minimum corporate income tax (MCIT) over regular corporate income tax and any unused net operating loss carryover (NOLCO). Deferred tax assets are recognized to the extent that it is probable that taxable income will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized, except: When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss. In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable income will be available against which the temporary differences can be utilized. The carrying amount of deferred tax assets is reviewed at each 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. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity. Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Value Added Tax (VAT). Revenues, expenses and assets are recognized net of the amount of VAT, if applicable. When VAT from sales of goods and/or services (output VAT) exceeds VAT passed on from purchases of goods or services (input VAT), the excess is recognized as payable under Accounts payable and other current liabilities in the consolidated statements of financial position. When VAT passed on from purchases of goods or services (input VAT) exceeds VAT from sales of goods and/or services (output VAT), the excess is recognized as an asset under Other current assets in the consolidated statements of financial position to the extent of the recoverable amount. Foreign Currency-denominated Transactions and Translations The Company s consolidated financial statements are presented in Philippine peso, which is also the Parent Company s functional currency. For each entity, the Company determines the functional currency and items included in the consolidated financial statements of each entity are measured using that functional currency. Transactions and Balances. Transactions in foreign currencies are initially recorded by the Company s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognized in profit or loss with the exception of monetary items that are designated as part of the hedge of the Company s net investment of a foreign operation. These are recognized in OCI until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in OCI. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in OCI or profit or loss are also recognized in OCI or profit or loss, respectively). Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. Foreign Operations. On consolidation, the assets and liabilities of foreign operations are translated into Philippine pesos at the rate of exchange prevailing at the reporting date and the statement of income are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognized in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in profit or loss. The functional currency of HML, a subsidiary, is the United States (US) Dollar. As of the reporting date, assets and liabilities of HML are restated into the functional and presentation currency of the Parent Company (the Philippine Peso) using the closing exchange rate at the reporting date and items in the statement of comprehensive income are translated at weighted average exchange rates for each month of the year. The exchange rate differences arising on the translation are reported as other comprehensive income (OCI) in the consolidated statement of comprehensive income and taken directly as a separate component of equity as Cumulative translation adjustments of a foreign subsidiary. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign entity is recognized in the consolidated statement of income. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is recognized in the profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provisions due to the passage of time is recognized as interest expense. Contingencies Contingent liabilities are not recognized in the consolidated financial statements but these are disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but these are disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable. Events after the Reporting Period Post year-end events that provide additional information about the Company s financial position at the reporting period (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material. Earnings per Share (EPS) - Basic/Diluted Basic EPS is computed by dividing net income for the year by the weighted average number of issued and outstanding shares of stock during the year (adjusted for any stock dividends). Diluted earnings per share is computed by dividing net income for the year by the weighted average number of issued and outstanding common shares during the year plus the weighted average number of common shares that would be issued on conversion of all the dilutive potential common shares into common shares. The calculation of diluted earnings per share does not assume conversion, exercise, or other issue of potential common shares that would have an anti-dilutive effect on earnings per share. Where the Company does not have any potential common shares or other instruments that may entitle the holder to common shares, diluted EPS is the same as basic EPS. The Company has no outstanding potential dilutive common shares. Segment Reporting The operating businesses are organized and managed separately based on the sources of revenues; i.e., from core business and support business, and from revenue earned within the Philippines and foreign countries, with each segment representing a strategic business unit that offers different products. Segment Assets and Liabilities. Segment assets include all operating assets used by a segment and consist principally of cash equivalents, investments in financial instruments, investment properties, net of allowances and provision for decline in value. Segment liabilities include all operating liabilities and consist principally of accounts payable and other current liabilities. Inter-segment Transactions. Segment revenue, segment expenses and segment performance may include transfers among business segments. The transfers, if any, are accounted for at agreed prices, normally at cost-plus basis. Such transfers, if any, are eliminated. 3. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect certain reported amounts and disclosures. In preparing the consolidated financial statements, management has made its best judgments, estimates and assumptions of certain amounts, giving due consideration to materiality. The judgments, estimates and assumptions used in the consolidated financial statements are based upon management s evaluation of relevant facts and circumstances as of the reporting date. Actual results could differ from those estimates, and such estimates will be adjusted accordingly ANNUAL REPORT 17

20 Judgments In the process of applying the Company s accounting policies, management has made the following judgments which have the most significant effect on the amounts recognized in the consolidated financial statements: Assessment of Impairment of AFS Financial Assets - Determination of Significant and Prolonged Decline in Fair Value. The Company determines that an AFS financial asset is impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant and prolonged requires judgment. The Company determines that a decline in fair value greater than 20% of cost is considered to be a significant decline and a decline for a period of more than twelve months is considered to be a prolonged decline. In making this judgment, the Company evaluates, among other factors, the normal volatility in price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance. The carrying value of AFS financial assets amounted to P405.3 million and P406.4 million as at December 31, 2017 and 2016, respectively (see Note 10). Valuation of Unquoted Equity Securities. The Company has an investment in unquoted AFS equity investments amounting to P369.1 million as at December 31, 2017 and 2016 (see Note 10). PAS 39, Financial Instruments: Recognition and Measurement, provides that investments in shares of stock that do not have a quoted price in an active market and whose fair value cannot be reliably measured shall be measured at cost, less impairment. PAS 39 further provides that the fair value of unquoted equity instruments is reliably measurable if (a) the variability in the range of reasonable fair value measurements is not significant; or (b) the probabilities of the various estimates within the range can be reasonably assessed and used when measuring fair value. The investee company, Science Park of the Philippines, Inc. (SPPI), is a group of private companies involved in developing and operating industrial parks. SPPI has 5 direct subsidiaries, 1 indirect subsidiary, and 1 associate, all of which are private operating entities. The Company s main sources of cash flows are real estate sales, rental income, management and marketing fees, and other park charges. The industrial parks comprise of completed projects and projects which are currently under various stages of development. Management has assessed that the investment in SPPI should be carried at cost as permitted by PAS 39, due to limited access to relevant market and financial information that will enable the Company to perform an equity valuation within a reasonable range of variability. Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Determination of Retirement Costs. The costs of defined benefit pension plans as well as the present value of the pension obligations are determined using actuarial valuations. The actuarial valuation involves making various assumptions. These include the determination of the discount rates, future salary increases, mortality rates and future pension increases. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, defined benefit obligations are highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting period. As at December 31, 2017 and 2016, accrued retirement costs amounted to P1.3 million and P3.7 million, respectively. Further details are provided in Note 18. In determining the appropriate discount rate, management considers the interest rates of government bonds that are denominated in the currency in which the benefits will be paid, with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables for the specific country and is modified accordingly with estimates of mortality improvements. Future salary increases and pension increases are based on expected future inflation rates for the specific country. Assessing Realizability of Deferred Tax Assets. The Company reviews the carrying amounts at each financial reporting date and reduces deferred tax assets to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. The Company s assessment on the recognition of deferred tax assets on deductible temporary differences is based on forecasted taxable profit of the subsequent financial reporting periods. The forecast is based on past results and future expectations on revenues and expenses. The Company has deferred tax assets amounting to P2.2 million and P3.0 million as at December 31, 2017 and 2016, respectively. Unrecognized deferred tax assets from NOLCO, MCIT and allowance for doubtful accounts amounted to P4.3 million and P4.4 million as at December 31, 2017 and 2016, respectively (see Note 20). 4. CASH AND CASH EQUIVALENTS Cash on hand and in banks P72,224 P37,366 Cash equivalents 686, ,308 Cash in banks earn interest at the prevailing bank deposit rates. P758,873 P739,674 The Company s cash equivalents represent short-term placements and special deposit accounts in reputable banks as at December 31, 2017 and These cash equivalents earn interest at market rates ranging from 1.0% to 3.5 % in 2017, 1.75% to 4.0% in 2016, and 1.175% to 4.0% in Interest income earned amounted to P16.3 million in 2017, P16.6 million in 2016 and P17.8 million in 2015 (see Note 15). 5. SHORT-TERM INVESTMENTS The Company has short-term investments in various banks amounting to P74.2 million and P85.0 million as at December 31, 2017 and 2016, respectively. These short-term investments earn interest with annual rates ranging from 2.125% to 3.5% in 2017, 1.75% to 4.0% in 2016, and 1.75% to 4.0% in Interest income earned amounted to P1.6 million in 2017, P1.8 million in 2016 and P0.5 million in 2015 (see Note 15). 6. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Corporate bonds P425,358 P448,750 Government bonds and treasury notes 11,003 25,930 Quoted equity securities 10,109 10,138 Corporate bonds pertain to fixed income securities. P446,470 P484,818 Mark-to-market gain on financial assets at FVPL amounted to P11.1 million in 2017 and P6.5 million in 2016 and loss amounted to P5.8 million in 2015 (see Note 15). Interest income earned amounted to P21.8 million in 2017, P22.0 million in 2016 and P23.3 million in 2015 (see Note 15). Dividend income earned amounted to P2.7 million in 2017, P2.4 million in 2016 and P3.9 million in 2015 (see Note 15). 7. RECEIVABLES Accrued interest income from dollar and pesodenominated bonds and placements (see Notes 4, 5 and 6) P9,297 P8,679 Receivables from third parties 2,951 2,500 Deposits 1,522 1,542 Receivable from officers and employees (see Note 19) Others ,839 13,251 Less allowance for doubtful accounts on other receivables 3,768 3,768 P10,071 P9,483 Accrued income from dollar and peso-denominated bonds and placements pertains to interest earned by not yet received. Receivables from third parties and others are noninterest-bearing receivables to third parties. Deposits mainly consist of a bond in compliance with the Company s application for extension of time to develop a parcel of land it owns, and deposits on rental and utilities. The above receivables, except those provided with allowance, are expected to be collected within the next financial year. The Company recognizes provision for doubtful accounts based on the results of the specific/ individual and collective assessment of its credit exposure. There is no additional provision for doubtful accounts during the year. The allowance for doubtful accounts of P3.8 million pertains to receivable from third parties, miscellaneous deposits and other receivables as at December 31, 2017 and OTHER CURRENT ASSETS Input VAT P3,123 P2,095 Prepayments and others ,433 2,350 Less allowance for probable losses on input VAT and prepayments P3,329 P2,246 Input VAT will be utilized through application against the Company s output VAT. Prepayments consist of advances to suppliers, prepaid rent, and prepaid insurance. 9. INVESTMENT SUBJECT TO A REPURCHASE AGREEMENT On February 26, 2008, under a Deed of Sale of Shares of Stock with Repurchase, the Company acquired unquoted corporate shares of stock of Stradcom Corporation (SC) from Stradcom International Holdings, Inc. (SIHI), a company incorporated in the Philippines, for a consideration amounting to P219.9 million for an ownership interest of 8%. The transaction included a repurchase agreement wherein the shares acquired will be repurchased by SIHI. In February 2015, SIHI repurchased the shares of stock from the Company. On the same year, the Company also received and recognized investment income amounting to P3.7 million (see Note 15). 10. AVAILABLE-FOR-SALE FINANCIAL ASSETS Investments in corporate shares of stocks and golf shares: Unquoted P369,135 P369,135 Quoted 36,197 37,265 P405,332 P406,400 Investments in unquoted shares of stock represent unlisted corporate shares in SPPI, a company incorporated in the Philippines. These are carried at cost less any accumulated impairment losses, as their fair values cannot be reliably measured. In November 2016, the Company acquired from another investor additional 18.8 million common shares of SPPI. The total consideration paid was P91.0 million (see Note 14). In 2016, the Company received dividend income from SPPI amounting to P33.5 million (see Note 15). 18 REPUBLIC GLASS HOLDINGS CORPORATION

21 Movements in AFS financial assets are as follows: Acquisition cost: Balance at beginning of year P404,160 P313,114 Additions 91,046 Balance at end of year 404, ,160 Cumulative unrealized gain on valuation: Balance at beginning of year 2,240 2,123 Increase (decrease) in market value (1,068) 117 Balance at end of year 1,172 2,240 Carrying value P405,332 P406,400 The changes in the fair value of AFS financial assets are recognized under Cumulative unrealized gain on valuation of available-for-sale financial assets shown as part of equity in the consolidated statements of financial position. 11. INVESTMENT PROPERTIES As of December 31, 2017 and 2016, the Company has land amounting to P1.8 million and building improvements amounting to P0.8 million with accumulated depreciation of the same amount. In 2016, the Company sold land and improvements to a local company for a total consideration of P7.8 million. Rental income and expenses incurred in 2017, 2016, and 2015 are as follows: 2015 Rental income P P59 P75 Direct expenses that generated rental income (49) (139) P P10 (P64) The last appraisal of the investment properties was made in February Based on the last appraisal, the fair value of investment properties amounted to P1.9 million as at December 31, 2017 and In 2017 and 2016, management assessed that there is no significant change on the fair value of investment properties from the last appraisal date (see Note 22). 12. PROPERTY AND EQUIPMENT Cost Building and Improvements 2017 Transportation Fixtures and Furniture, Equipment Equipment Total Balance as at beginning of year P41,208 P3,670 P2,364 P47,242 Additions 2,583 2,583 Balance at end of year 43,791 3,670 2,364 49,825 Accumulated depreciation Balance at beginning of year 32,730 3,290 1,978 37,998 Depreciation (see Note 16) 2, ,774 Balance at end of year 35,010 3,575 2,187 40,772 Net book value P8,781 P95 P177 P9,053 Cost Building and Improvements 2016 Transportation Furniture, Fixtures and Equipment Equipment Total Balance as at beginning of year P41,208 P3,670 P2,207 P47,085 Additions Balance at end of year 41,208 3,670 2,364 47,242 Accumulated depreciation Balance at beginning of year 30,665 2,944 1,723 35,332 Depreciation (see Note 16) 2, ,666 Balance at end of year 32,730 3,290 1,978 37,998 Net book value P8,478 P380 P386 P9,244 Fully depreciated property and equipment consisting of building improvements and various furniture, fixtures and equipment, with cost of P4.9 million and P4.8 million as at December 31, 2017 and 2016, respectively, are still being used by the Company. 13. ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES Accounts payable P1,212 P1,288 Statutory liabilities 1,200 2,734 Accounts payable are noninterest-bearing and are currently demandable. P2,412 P4,022 Statutory liabilities comprise of withholding tax payable, fringe benefits payable, output VAT payable, and payables to other government agencies. 14. EQUITY Capital and Treasury Stock Number of Shares Authorized Number of Shares Issued and Outstanding Cost Common stock - P1 par value 1,500, ,314 P738,314 Less treasury stocks: Parent Company s reacquired shares 54,629 85,333 Parent Company shares held by a subsidiary 1,620 8,577 56,249 93,910 1,500, ,065 P644,404 The total number of shareholders is 1,215 and 1,225 as at December 31, 2017 and 2016, respectively. The Company s issuance of stock happened only upon its initial public offering last July 17, 1959 with authorized number of shares equal to 80,000,000 shares being offered at P0.1 per share. Parent Company Shares Held by a Subsidiary As at December 31, 2017 and 2016, RIC (a wholly owned subsidiary) holds 1,620 common shares of the Parent Company issued shares. This is presented as part of Treasury stocks in the consolidated statements of financial position and consolidated statements of changes in equity. Retained Earnings a. Restriction The balances of the retained earnings account include the accumulated net earnings of subsidiaries amounting to P244.0 million and P241.3 million as at December 31, 2017 and 2016, respectively. This amount is also not available for dividend distribution. Retained earnings are further restricted for the payment of dividends to the extent of the cost of the shares held in treasury. b. Remeasurement gain (loss) Retained earnings also include remeasurement gains (losses) on defined benefit plans recognized immediately in the consolidated statement of financial position as part of retained earnings through OCI (see Note 18). Details of the remeasurement follow: Remeasurement loss, beginning of the year (P287) (P1,133) Remeasurement gain in OCI closed to retained earnings - net of tax 1, Remeasurement gain (loss), end of the year P778 (P287) c. Appropriation In December 2013, the BOD of the Company appropriated P400.0 million of its retained earnings available for dividend distribution for planned acquisition of certain equity investments and financial instruments contemplated to be realized within a period of four years until In November 2016, the Company purchased P18.8 million shares in a private industrial estate development company for P91.0 million (see Note 10). Accordingly, in December 2016, a partial reversal of appropriated retained earnings of the same amount was approved by the BOD. As at December 31, 2017, the Company has not been unable to conclude yet the purchase of the major portion of the earlier planned equity investment pending completion of certain requirements by the investee company. Accordingly, the board approved a further retention of the remaining appropriated balance for another year (2018). d. Dividend Declaration The Company declared dividends as follows: Year Date of Declaration Date of Record Date of Payment Amount per share Amount 2017 October 19 November 6 November 29 P0.075 P51, November 3 November 18 December , October 27 November 12 December ,260 Dividends payable amounted to P35.3 million and P36.7 million as at December 31, 2017 and 2016, respectively. 15. INTEREST AND INVESTMENT INCOME Interest Income 2015 Financial assets at fair value through profit or loss (see Note 6) P21,781 P22,018 P23,269 Cash and cash equivalents (see Note 4) 16,296 16,557 17,813 Short-term investments (see Note 5) 1,636 1, P39,713 P40,375 P41,613 Investment Income 2015 Mark-to-market gain (loss) on financial assets at fair value through profit or loss (see Note 6) P11,053 P6,535 (P5,799) Dividend received on: Quoted equity securities (see Note 6) 2,705 2,396 3,915 Unquoted equity shares (see Note 10) 33,543 Investment subject to a repurchase agreement (see Note 9) 3,656 Loss on redemption of AFS financial asset (1,026) P13,758 P42,474 P ANNUAL REPORT 19

22 16. GENERAL AND ADMINISTRATIVE EXPENSES 2015 Personnel costs (see Notes 17 and 18) P13,467 P14,419 P19,593 Depreciation (see Note 12) 2,774 2,666 3,291 Professional fees 2,560 1,645 1,276 Rent and utilities 2,241 1,894 1,569 Directors fees 1,103 1,569 6,715 Dues and subscription Stockholders expense Taxes and licenses ,075 Repairs and maintenance Transportation and travel Materials and supplies Provision for probable losses on: Input VAT (see Note 8) 18 8 Doubtful accounts 2,709 Others ,885 P24,853 P25,876 P40, PERSONNEL COSTS 2015 Salaries and wages P11,622 P12,610 P17,629 Retirement costs (see Note 18) 1,136 1,214 1,400 Employee benefits and others P13,467 P14,419 P19, ACCRUED RETIREMENT COSTS The Company has a funded, noncontributory defined benefit retirement plan covering all of its regular and full time employees. The plan provides for a lump sum benefit payment upon retirement. Contributions and costs are determined in accordance with the actuarial study made for the plan. The latest actuarial valuation report is December 31, Under the existing regulatory framework, Republic Act 7641, Retirement Pay Law, requires a provision for retirement pay to qualified private sector employees in the absence of any retirement plan in the entity, provided however that the employee s retirement benefits under any collective bargaining and other agreements shall not be less than those provided under the law. The law does not require minimum funding of the plan. Changes in the retirement cost follows: 2017 January 1, 2017 Net benefit cost in consolidated statement of comprehensive income Current service cost Net interest cost Benefits paid Actuarial gain on defined benefit obligation Remeasurements in other comprehensive income Remeasurement gain on plan asset Contributions December 31, Subtotal by employer 2017 Subtotal Present value of defined benefit obligation P22,489 P997 P855 P1,852 P (P1,377) P (P1,377) P P22,964 Fair value of plan assets (18,830) (716) (716) (144) (144) (2,000) (21,690) Net pension liability P3,659 P997 P139 P1,136 P (P1,377) (P144) (P1,521) (P2,000) P1, Remeasurements in other comprehensive income Net benefit cost in consolidated statement of comprehensive income January 1, 2016 Current service cost Net interest cost Benefits paid Actuarial gain on defined benefit obligation Remeasurement gain on plan asset Contributions by employer December 31, 2016 Subtotal Subtotal Present value of defined benefit obligation P21,646 P1,001 P866 P1,867 P (P1,024) P (P1,024) P P22,489 Fair value of plan assets (16,322) (653) (653) (185) (185) (1,670) (18,830) Net pension liability P5,324 P1,001 P213 P1,214 P (P1,024) (P185) (P1,209) (P1,670) P3, Remeasurements in other comprehensive income Net benefit cost in consolidated statement of comprehensive income January 1, 2015 Current service cost Net interest cost Benefits paid Actuarial gain on defined benefit obligation Remeasurement gain on plan asset Contributions by employer December 31, 2015 Subtotal Subtotal Present value of defined benefit obligation P22,384 P1,077 P783 P1,860 (P674) (P1,924) P (P1,924) P P21,646 Fair value of plan assets (13,138) (460) (460) 674 (398) (398) (3,000) (16,322) Net pension liability P9,246 P1,077 P323 P1,400 P (P1,924) (P398) (P2,322) (P3,000) P5, REPUBLIC GLASS HOLDINGS CORPORATION

23 The major categories of plan assets of the Company as a percentage of the fair value of total plan assets are as follows: 2015 Assets reported under fair value in profit and loss 60.7% 59.3% 63.2% AFS financial assets 18.4% 21.2% 24.5% Cash and interest receivables 20.9% 19.5% 12.3% 100.0% 100.0% 100.0% The overall investment and funding policy and strategy of the Company s plan assets is guided by the objective of achieving an investment return which, together with contributions, ensures that there will be sufficient asset to pay pension benefits as they fall due while also mitigating the various risk of the plan. The Parent Company maintains and manages the plan assets of the Company. The Company expects to contribute P1.2 million to the defined benefit pension plan in The average duration of the defined benefit obligation at the end of the reporting period is 3.5 years in 2017, 4.4 years in 2016 and 5.3 years in The carrying values and fair values of the plan assets are as follows: Cash in banks: Savings deposits: Banco De Oro (BDO) P4,368 P3,384 Security Bank Corporation (SBC) Interest receivable AFS financial assets: San Miguel Purefoods - Preferred shares Series 2 3,000 3,000 Globe Telecom Perpetual Shares Series A 1,000 1,000 Financial instruments at FVPL: AUB - Unsecured subordinate notes due ,000 3,000 SBC - Long-Term Negotiable Certificates 2,000 2,000 SMC Global Power Holdings Series A Bond 2,000 BDO - Long-term negotiable certificates 1,200 1,200 JG Summit Holdings Inc. 7 year Fixed Rate Bond 1,200 1,200 PLDT 7 year Fixed Rate Bond 1,110 1,110 San Miguel Brewery, Inc. Series G Bond 1,000 1,000 San Miguel Corporation Series 2 - Preferred Shares SBC - Unsecured subordinate notes due P21,690 P18,830 The cost of defined benefit pension plans is determined using actuarial valuations. The actuarial valuation involves making various assumptions. The principal assumptions used in determining pension benefit obligations for the defined benefit plans are shown below: Discount rate 4.2% 3.8% Rate of increase in compensation 7.0% 7.0% Turn-over rate 3.9% 3.9% Post retirement mortality for pensioners at % 3.6% The discount rate is derived by discounting all expected benefit payments using various rates that correspond to the timing of benefits payments, after which, a single discount rate is computed considering the aggregate amount of all discounted values. The sensitivity analysis below has been determined based on reasonably possible changes of each significant assumption on the defined benefit obligation as of the end of the reporting period, assuming if all other assumptions were held constant Increase (decrease) Present Value of obligations Impact Discount rate +1% P22,533 (P431) -1% 23, Rate of increase in compensation +1% 23, % 22,541 (423) 2016 Increase (decrease) Present Value of obligations Impact Discount rate +1% P21,865 (P624) -1% 23, Rate of increase in compensation +1% 23, % 21,877 (612) Shown below is the maturity analysis of the undiscounted benefit payments: Less than 1 year P7,700 P687 More than 1 year to 5 years 17,655 25,929 More than 5 years to 10 years More than 10 years 1,672 1, RELATED PARTY TRANSACTIONS Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. This includes: (a) enterprises owning, directly or indirectly through one or more intermediaries, control, or are controlled by, or under common control with, the Company; (b) associates; and (c) individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the Company and close members of the family of any such individual. In considering each possible related entity relationship, attention is directed to the substance of the relationship, and not merely the legal form. The Company has the following significant transactions with its related parties and the related outstanding balances as at December 31, 2017 and 2016: Category Stockholder Metropolitan Management Corporation Year Amount/ Volume of Outstanding Transactions Balance Rent 2017 P1.32 P Receivables from officers and employees (see Note 7) Terms and Conditions Due and Annual lease demandable agreement Due and demandable Compensation and benefits of key management personnel of the Company follows: Salaries and wages P10,436 P11,273 Retirement costs 1,023 1,101 Employee benefits and others P11,679 P12, INCOME TAX Current Income Tax The Parent Company and its subsidiaries provision for current income tax is computed based on the regular corporate income tax (RCIT) and minimum corporate income tax (MCIT). The provision for current income tax follows: 2015 Final tax on interest income P3,107 P3,191 P3,025 MCIT 560 RCIT 233 1, P3,900 P5,108 P3,662 The reconciliation of income computed at statutory income tax rate of 30% to provision for income tax shown in the consolidated statements of income is as follows: 2015 Income computed at statutory income tax rate P8,503 P20,334 P1,163 Income tax effects of: Undistributed profits 9,729 14,706 39,687 Dividend income (812) (10,781) (1,109) Interest income subjected to final tax - net (8,194) (8,290) (8,690) Fair value adjustments (3,316) (1,767) 1,740 Nondeductible expenses P196 P471 P738 Nontaxable income (193) Dividend income treated as investment income in accordance with PAS 39 (1,097) Movement of unrecognized deferred tax assets and others (41) 294 (2,355) Effects of: Electing optional standard deduction (783) Change in tax rate 1,237 Expiration of NOLCO P6,118 P14,254 P31,392 Deferred Tax The Company s deferred tax assets (liabilities) which were recognized in the consolidated statements of financial position are as follows: 2015 Deferred tax assets: Unamortized past service cost P1,833 P1,871 P1,999 Accrued retirement 382 1,098 1,597 Unrealized foreign exchange gain (109) (817) 2,106 2,152 3,596 Deferred tax liabilities: Investment in HML 85,584 82,678 74,282 Unrealized foreign exchange gain ,921 83,293 75,228 Net deferred tax liabilities (P83,815) (P81,141) (P71,632) Deferred tax assets on the following temporary differences were not recognized since management believes that it is not probable that sufficient taxable income will be available to all or part of the deferred tax asset will be utilized. NOLCO P4,915 P6,897 Allowance for doubtful accounts 3,744 3,768 MCIT 1,715 1,155 P10,374 P11, ANNUAL REPORT 21

24 The deferred tax assets and liabilities as at December 31, 2017 and 2016 were measured using the appropriate corporate income tax rate on the years these are expected to be reversed or settled. In 2017 and 2016, the Company availed of the itemized method of computing for current income tax, and computed deferred income tax using the 30% tax rate. As of December 31, 2017, the Company has available NOLCO and MCIT that can be claimed as deduction from the future taxable income and income tax due, respectively. Details of NOLCO and MCIT follow: Date Incurred Expiration Date NOLCO MCIT December 31, 2014 December 31, 2017 P175 P December 31, 2015 December 31, , December 31, 2016 December 31, December 31, 2017 December 31, ,090 1,715 Less expired 175 P4,915 P1,715 Republic Act (RA) No or the Tax Reform for Acceleration and Inclusion Act (TRAIN) was signed into law on December 19, 2017 and took effect January 1, 2018, making the new tax law enacted as of the reporting date. Although the TRAIN changes existing tax law and includes several provisions that will generally affect businesses on a prospective basis, the Company assessed that the same will not have any significant impact on the financial statement balances as of the financial reporting date. 21. FINANCIAL INSTRUMENTS Financial Risk Management Objectives and Policies The Company s principal financial assets comprise of cash and cash equivalents, short-term investments, financial assets at FVPL, and AFS financial assets. The main purpose of these financial assets is to earn income for the Company s funds and to finance the Company s operations. The Company s other financial instruments are receivables, accounts payable and other current liabilities, and customers deposits which arise directly from its operations. The main risks arising from the Company s financial instruments are market risk (equity price risk and foreign currency risk), credit risk and liquidity risk. The BOD reviews and approves the policies for managing each of these risks which are summarized below. Market Risk. Market risk is the risk that the fair value of future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rate, equity prices and foreign exchange rates. a. Equity Price Risk. Equity price risk is the risk that the fair values of investments in equity securities decrease as a result of changes in the levels of equity indices and the value of individual shares. The Company manages equity price risk through diversification and placing limits on individual and total equity investments. The Company s BOD reviews and approves all equity investment decisions. The effect on income before income tax (as a result of a change in fair value of equity instruments classified as financial assets at FVPL) due to a reasonably possible change in equity indices, with all other variables held constant, is as follows: Increase (Decrease) in Percentage Effect on Income Before Income Tax Increase (Decrease) in Percentage Effect on Income Before Income Tax Increase 0.29% P % P207 Decrease (0.29%) (102) (0.56%) (207) The effect on equity (as a result of a change in fair value of equity instruments classified as AFS financial assets) due to a reasonably possible change in equity indices, with all other variables held constant, is as follows: Increase Decrease in Percentage Effect on Equity Increase Decrease in Percentage Effect on Equity Increase 0.77% P % P101 Decrease (0.77%) (280) (0.1%) (101) b. Foreign Currency Risk. Foreign currency risk arises from the possibility that future cash flows of financial instruments will fluctuate because of changes in foreign currency exchange rates. The Company s exposure to foreign currency risk relates primarily to certain foreign currency-denominated cash and cash equivalents and financial assets at FVPL. To manage future currency risk, the Company considers the trend in the movement of foreign currencies in acquiring foreign currency-denominated investments. The Company s foreign currency-denominated financial assets and liability are as follows: Original Currency In Philippine Peso Original Currency In Philippine Peso Assets In US dollar: Cash and cash equivalents $1,714 P85,599 $621 P30,887 Accrued income 75 3, ,944 Financial assets at FVPL 7, ,362 8, ,699 Short-term investments 139 6, ,157 9, ,667 $9, ,687 In Russian Ruble - Financial assets at FVPL RUB Foreign Currencydenominated Assets P488,667 P493,788 The following exchange rates were used by the Company in translating the foreign currencydenominated monetary assets and liability into peso amounts: US dollar P49.93 P49.72 Russian Ruble N/A 0.83 The following tables show the impact on the Company s income before income tax of a reasonably possible change in foreign currency exchange rates, due to change in the fair value of its net monetary assets, with all other variables held constant. There is no other impact on the Company s equity other than those already affecting the profit or loss. Effect on Income Before Increase/ Income Tax Decrease Effect on Income Before Income Tax Increase/ Decrease US dollar 2% P9,773 2% P9,874-2% (9,773) -2% (9,874) Russian ruble 6% 6-6% (6) Increase in exchange rate means stronger foreign currency against the Philippine peso. The change in foreign currency exchange rate is based on the Company s best estimate of expected change considering historical trends and experiences. The following table shows the impact on the Company s equity of a reasonably possible change in foreign currency exchange rates, due to change in the fair value of its investments in HML, with all other variables held constant. Increase/ Decrease Effect on Equity Increase/ Decrease Effect on Equity US dollar 2% P9,106 2% P8,912-2% (9,106) -2% (8,912) The change in foreign currency exchange rate is based on the Company s best estimate of expected change considering historical trends and experiences. Credit Risk. Credit risk arises when a customer or counterparty fails to discharge an obligation and cause the Company to incur a financial loss. The Company trades only with recognized, creditworthy third parties. It is the Company s policy that the BOD approves major transactions with third par ties. In addition, receivable balances are monitored on an ongoing basis with the result that the Company s exposure to bad debts is not significant. With respect to credit risk arising from the other financial assets of the Company, which comprise cash and cash equivalents, short-term investments, financial assets at FVPL, and AFS financial assets, the Company s exposure to credit risk arises from default of the counterparty, with maximum exposure equal to the carrying amount of these instruments. The Company manages these financial assets by transacting only with recognized third parties. Since the Company transacts only with recognized third parties, there is no requirement for collateral. There are no significant concentrations of credit risk. The table below shows the maximum exposure to credit risk for the Company s financial assets: Financial assets at FVPL P446,470 P484,818 Loans and receivables: Cash and cash equivalents* 758, ,669 Short-term investments 74,183 85,005 Receivables: Accrued interest income from investments 9,297 8,679 Receivable from third parties 2,951 2,500 Deposits 1,522 1,542 Receivable from officers and employees Other receivables 404 AFS financial assets 405, ,400 Total credit risk exposure P1,698,676 P1,729,143 *Excluding cash on hand. The aging analyses of the Company s financial assets are as follows: 2017 Neither Past Due Past Due but not Impaired nor Impaired <30 Days >120 Days Subtotal Individually Impaired Total Financial assets at FVPL P446,470 P P P P P446,470 Loans and receivables: Cash and cash equivalents* 758, ,852 Short-term investments 74,183 74,183 Receivables: Accrued interest income from investments 9,297 9,297 Receivable from third parties 451 2,500 2,951 Deposits ,268 1,522 Receivable from officers and employees AFS financial assets 405, ,332 P1,694,898 P P10 P10 P3,768 P1,698,676 *Excluding cash on hand. 22 REPUBLIC GLASS HOLDINGS CORPORATION

25 Neither Past Due nor Impaired 2016 Past Due but not Impaired < Days >120 Days Subtotal Individually Impaired Financial assets at FVPL P484,818 P P P P P484,818 Loans and receivables: Cash and cash equivalents* 739, ,669 Short-term investments 85,005 85,005 Receivables: Accrued interest income from investments 8,679 8,679 Receivable from third parties 2,500 2,500 Deposits ,268 1,542 Receivable from officers and employees Other receivables AFS financial assets 406, ,400 *Excluding cash on hand. Total P1,725,365 P P10 P10 P3,768 P1,729,143 The tables below show the credit quality of the Company s financial assets and impaired assets: Financial assets at FVPL: High Grade Medium Grade 2017 Low Grade Impaired Total Corporate bonds P425,358 P P P P425,358 Government bonds and treasury notes 11,003 11,003 Other equity securities 10,109 10,109 Loans and receivables: Cash and cash equivalents* 758, ,852 Short-term investments 74,183 74,183 Receivables: Accrued interest income from investments 9,297 9,297 Receivable from third parties 451 2,500 2,951 Deposits ,268 1,522 Receivable from officers and employees AFS financial assets: Quoted shares 36,197 36,197 Unquoted shares 369, ,135 * Excluding cash on hand. P1,694,898 P P10 P3,768 P1,698, High Grade Medium Grade Low Grade Impaired Total Financial assets at FVPL: Corporate bonds P448,750 P P P P448,750 Government bonds and treasury notes 25,930 25,930 Other equity securities 10,138 10,138 Loans and receivables: Cash and cash equivalents* 739, ,669 Short-term investments 85,005 85,005 Receivables: Accrued income from investments 8,679 8,679 Receivable from third parties 2,500 2,500 Deposits ,268 1,542 Receivable from employees Others AFS financial assets: Quoted shares 37,265 37,265 Unquoted shares 369, ,135 P1,725,365 P P10 P3,768 P1,729,143 The Company classifies financial assets as follows: a. High grade - settlements are obtained from reputable counterparties following the terms of the contracts without much collection effort. b. Medium grade - some follow-ups are performed to obtain settlement from the counterparty. c. Low grade - accounts which have probability of being impaired based on historical trend. Cash and cash equivalents, short-term investments and financial assets at FVPL are considered high grade as management transacts only with reputable banks and recognized third parties. Liquidity Risk. Liquidity risk arises from the possibility that adverse changes 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 seeks to manage its liquidity profile to be able to service its operations and to finance capital requirements. The Company maintains a level of cash and cash equivalents deemed sufficient to finance operations. As part of its liquidity risk management, the Company regularly evaluates its projected and actual cash flows. The Company likewise regularly evaluates other financing instruments and arrangements to broaden the Company s range of financing sources. The table below analyzes the maturity profile of the Company s financial assets and financial liabilities based on contractual undiscounted payments in order to provide a complete view of its contractual commitments and liquidity: Due and Demandable 1 90 Days Days Days More Than 1 Year Total Financial Assets: Cash and cash equivalents* P72,203 P687,645 P P P P759,848 Short-term investments* 74,960 74,960 Financial assets at FVPL 446, ,470 Receivables 10,071 3,768 13,839 AFS financial asset 405, , , ,605 3,768 1,700,449 Financial Liabilities: Accounts payable and other current liabilities** 1,212 1,212 Dividends payable 35,268 35,268 Customer deposits ,541 36,541 Excess of Financial Assets Over Liabilities P897,535 P762,605 P P P3,768 P1,663,908 * Includes future interest. ** Excludes statutory liabilities. Due and Demandable 1 90 Days Days Days More Than 1 Year Total Financial Assets: Cash and cash equivalents* P37,361 P707,927 P P P P745,288 Short-term investments* 85,402 85,402 Financial assets at FVPL* 489, ,843 Receivables 9,483 3,768 13,251 AFS financial asset 406, , , ,329 3,768 1,740,184 Financial Liabilities: Accounts payable and other current liabilities** 1,288 1,288 Dividends payable 36,660 36,660 Customer deposits ,009 38,009 Excess of Financial Assets Over Liabilities P905,078 P793,329 P P P3,768 P1,702,175 * Includes future interest. ** Excludes statutory liabilities. The Company s AFS financial assets are used for liquidity when the need arises. Capital Management The Company considers its issued capital stock and retained earnings as its capital. Capital stock P738,314 P738,314 Additional paid-in capital 9,103 9,103 Treasury stocks* (93,910) (93,910) Retained earnings 887, ,569 * Includes Parent Company shares held by a subsidiary. P1,541,234 P1,569,076 The primary objective of the Company s capital management is to safeguard the Company s ability to continue as a going concern, so that it can continue to provide returns to stockholders and benefits to other stakeholders. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions. In order to maintain or adjust the capital structure, the Company may adjust its investment portfolio. The Company does not have externally imposed capital requirements. The Company s current ratios and debt-to-equity ratios as at December 31, 2017 and 2016 are as follows: a. Current Ratio Current assets P1,292,926 P1,321,226 Current liabilities 38,209 41, : :1 For AFS financial assets, the Company s exposure to credit risks arises from default of the counterparty. High grade AFS financial assets are with investees whose assets have steady prices. Low grade AFS financial assets are with investees whose assets have decreasing prices ANNUAL REPORT 23

26 b. Debt-to-Equity Ratio Total liabilities P125,404 P127,967 Total equity 1,585,838 1,612, :1 0.08:1 23. CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES January 1, 2017 Dividends declared December 31, 2017 Cash flows Dividends payable (Notes 14 and 21) P36,660 P51,131 P52,523 P35, FAIR VALUE MEASUREMENTS Financial Instruments. The carrying value of the Company s financial assets and liabilities approximate their fair values as at December 31, 2017 and 2016 due to the short-term nature of these financial instruments, except for the following: Assets measured at fair value: Carrying Value Carrying Fair Value Value Fair Value Financial assets at FVPL (see Note 6) Corporate bonds and treasury notes P425,358 P425,358 P448,750 P448,750 Government bonds 11,003 11,003 25,930 25,930 Other quoted equity shares 10,109 10,109 10,138 10,138 AFS financial assets (see Note 10) Quoted equity shares 36,197 36,197 37,265 37,265 P482,667 P482,667 P522,083 P522,083 Financial Assets at FVPL and AFS Financial Assets. The fair values were determined by reference to quoted prices as of reporting dates. For unquoted equity securities for which no reliable basis for fair value measurement is available, these are carried at cost, net of impairment. Cash and Cash Equivalents, Short-term Investments, Receivables, Accounts Payable and Other Current Liabilities and Dividends Payable. The carrying values approximate fair values due to the relatively short-term maturity of these financial instruments. Investment Properties. The fair value of investment properties follow: Carrying Fair Carrying Value Value Value Fair Value Investment properties P1,825 P1,888 P1,825 P1,888 The fair value was based on the last appraisal of the investment properties made in February In 2017 and 2016, management assessed that there is no significant change in the fair value of investments from the last appraisal date. The valuation technique used and key inputs to valuation on investment properties are: Valuation technique Significant unobservable inputs Range (weighted average) Land Sales Comparison Approach Discount rate 0% (20%) Price per square meter P500 P4,000 The Sales Comparison Approach is a comparative approach that considers the sales of similar or substitute properties and related market data and establishes a value estimate by processes involving comparison. Listings and offerings may also be considered under this approach. Fair Value Hierarchy The following table provides the fair value hierarchy of the Company s assets and liabilities which are measured at fair value or for which the fair value is required to be disclosed: 2017 Fair Value Measurement Using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Assets measured at fair value: Financial assets at FVPL (see Note 6): Corporate bonds and treasury notes P425,358 P P P425,358 Government bonds 11,003 11,003 Other quoted equity securities 10,109 10,109 AFS financial assets (see Note 10) Quoted equity shares 36,197 36,197 Investment properties (see Note 11) 1,888 1,888 P446,470 P36,197 P1,888 P484, Fair Value Measurement Using Quoted prices in active markets (Level 1) Significant observable inputs (Level 2) Significant unobservable inputs (Level 3) Total Assets measured at fair value: Financial assets at FVPL (see Note 6): Corporate bonds and treasury notes P448,750 P P P448,750 Government bonds 25,930 25,930 Other quoted equity securities 10,138 10,138 AFS financial assets (see Note 10) Quoted equity shares 37,265 37,265 Investment properties (see Note 11) 1,888 1,888 P522,083 P P1,888 P523,971 In 2017, the Company transfers quoted equity shares under AFS financial assets from Level 1 to Level BASIC/DILUTED EARNINGS (LOSS) PER SHARE 2015 Net income (loss) P22,224 P53,527 (P27,515) Weighted average number of shares issued and outstanding (see Note 14) 682, , ,065 Basic/diluted earnings per share P0.03 P0.08 (P0.04) Weighted average number of shares issued and outstanding is derived by multiplying the number of shares outstanding at the beginning of the year, adjusted by the number of shares bought back or issued during the year, with a time-weighting factor. The time-weighting factor is the number of days that the specific shares are outstanding as a proportion to the total number of days in the year. There were no dilutive financial instruments in 2017, 2016 and 2015; hence, diluted EPS is the same as basic EPS. 25. SEGMENT REPORTING For management purposes, the Company is organized based on its sources of revenue, and considers core business and support business as operating segments for monitoring and evaluating performance. Core business relates to the Company s investment activities, which involve purchasing and trading financial assets and investing in other securities. Support business relates to the Company s sale and lease of investment properties. No operating segments have been aggregated to form the above reportable operating segments. Segment performance is evaluated based on profit or loss which is measured same with income or loss in the consolidated financial statements. Income taxes are managed on a Company-wide basis and are not allocated to individual operating segments. No inter-segment transactions occurred in 2017, 2016 and Segment Results 2017 Core Business Support Business Consolidated Interest income P39,713 P P39,713 Investment income 13,758 13,758 Rental income Total revenue 53,471 53,471 General and administrative expenses, excluding depreciation (22,079) (22,079) Foreign exchange gain - net Bank charges (1,332) (1,332) Operating income 30,756 30,756 Other income Segment results 31,116 31,116 Corporate expenses: Depreciation (2,774) Provision for income tax (6,118) P31,116 P P22,224 Core Business 2016 Support Business Consolidated Interest income P40,375 P P40,375 Investment income 42,474 42,474 Gain on sale of investment properties 7,762 7,762 Rental income Total revenue 82,849 7,821 90,670 General and administrative expenses, excluding depreciation (23,161) (49) (23,210) Foreign exchange gain net 3,370 3,370 Bank charges (929) (929) Operating income 62,129 7,772 69,901 Other income Segment results 62,675 7,772 70,447 Corporate expenses: Depreciation (2,666) Provision for income tax (14,254) P62,675 P7,772 P53, REPUBLIC GLASS HOLDINGS CORPORATION

27 Core Business 2015 Support Business Consolidated Interest income P41,613 P P41,613 Investment income Gain on sale of investment properties Rental income Total revenue 42, ,187 General and administrative expenses, excluding depreciation (37,147) (139) (37,286) Foreign exchange gain - net 2,529 2,529 Bank charges (1,307) (1,307) Operating income 6, ,123 Other income Segment results 6, ,168 Corporate expenses: Depreciation (3,291) Provision for income tax (31,392) P6,479 P689 (P27,515) Segment results do not include certain corporate expenses and depreciation on property and equipment operated by the Parent Company. Segment Statements of Financial Position Segment operating assets: Core Business 2017 Support Business Consolidated Cash equivalents P686,649 P P686,649 Short-term investments 74,183 74,183 Financial assets at FVPL 446, ,470 Receivables 10,071 10,071 Other current assets AFS financial assets 405, ,332 Investment properties 1,825 1,825 Total assets 1,622,705 2,133 1,624,838 Reconciling items - corporate assets Cash on hand and in banks 72,224 Other current assets 3,021 Property and equipment 9,053 Deferred tax assets 2,106 P1,622,705 P2,133 P1,711,242 Segment operating liabilities: Accounts payable and other current liabilities P2,412 P P2,412 Dividends payable 35,268 35,268 Customers deposits Total liabilities 37, ,741 Reconciling items - corporate liabilities Income tax payable 468 Accrued retirement costs 1,274 Deferred tax liability 85,921 P37,680 P61 P125,404 Additions to property and equipment P P P2,583 Segment operating assets: Core Business 2016 Support Business Consolidated Cash equivalents P702,308 P P702,308 Short-term investments 85,005 85,005 Financial assets at FVPL 484, ,818 Receivables 9, ,483 Other current assets AFS financial assets 406, ,400 Investment properties 1,825 1,825 Total assets 1,687,634 2,458 1,690,092 Reconciling items - corporate assets Cash on hand and in banks 37,366 Other current assets 1,993 Property and equipment 9,244 Deferred tax assets 2,152 P1,687,634 P2,458 P1,740,847 Core Business 2016 Support Business Consolidated Segment operating liabilities: Accounts payable and other current liabilities P4,022 P P4,022 Dividends payable 36,660 36,660 Customers deposits Total liabilities 40, ,743 Reconciling items - corporate liabilities Income tax payable 272 Accrued retirement costs 3,659 Deferred tax liability 83,293 P40,682 P61 P127,967 Additions to property and equipment P P P157 Segment operating assets: Core Business 2015 Support Business Consolidated Cash equivalents P858,957 P P858,957 Short-term investments 83,795 83,795 Financial assets at FVPL 375, ,580 Receivables 7, ,155 Other current assets AFS financial assets 315, ,237 Investment properties 1,863 1,863 Total assets 1,641,335 2,482 1,643,817 Reconciling items - corporate assets Cash on hand and in banks 98,306 Other current assets 1,364 Property and equipment 11,753 Deferred tax assets 3,596 P1,641,335 P2,482 P1,758,836 Segment operating liabilities: Accounts payable and other current liabilities P4,637 P P4,637 Dividends payable 34,930 34,930 Customers deposits Total liabilities 39, ,628 Reconciling items - corporate liabilities Income tax payable 247 Accrued retirement costs 5,324 Deferred tax liability 75,228 P39,567 P61 P120,427 Additions to property and equipment P P P796 Segment assets do not include cash on hand and in banks, input VAT and tax credits, property and equipment occupied by the Parent Company and deferred tax assets. Segment liabilities do not include income tax payable and accrued retirement costs. Such assets and liabilities are managed on a Company-wide basis and are not allocated to individual operating segments. Geographic Information External revenues: 2015 Local - Philippines P21,542 P62,934 P25,812 Foreign 31,929 27,736 17,375 Segment revenue 53,471 90,670 43,187 Gain presented as revenue items in the consolidated statements of income: Gain on sale of investment properties (7,762) (753) Revenue per consolidated statements of income P53,471 P82,908 P42,434 Additions to property and equipment P2,583 P157 P ANNUAL REPORT 25

28 GERONIMO F. VELASCO, JR. Vice Chairman & President MA. PAZ V. LAPERAL Board Member Treasurer & Assistant Corporate Secretary CELSO P. VIVAS Board Member Independent Director BIENVENIDO A. TAN, JR. Chairman of the Board JOSE MIGUEL F. VELASCO Board Member 26 REPUBLIC GLASS HOLDINGS CORPORATION

29 ADELINE S. LIM Board Member LIZANNE C. UYCHACO Board Member MARSEL LINCOLN A. MENESES Corporate Secretary RENATO R. ERMITA Board Member CORAZON S. DE LA PAZ-BERNARDO Board Member Independent Director 2017 ANNUAL REPORT 27

30 CELSO P. VIVAS Chairman CORAZON S. DE LA PAZ-BERNARDO Member ADELINE S. LIM Member GOVERNANCE, NOMINATION AND COMPENSATION COMMITTEE CORAZON S. DE LA PAZ-BERNARDO Chairman BIENVENIDO A. TAN, JR. Member CELSO P. VIVAS Member AUDIT AND RISK MANAGEMENT COMMITTEE 28 GERONIMO F. VELASCO, JR Member REPUBLIC GLASS HOLDINGS, CORPORATION INC.