VMC 2015 Annual Report - Victorias Milling Company

COVER SHEET

P W - 3 6 4S.E.C. Registration Number

V I C T O R I A S M I L L I N G C O M P A N Y , I N C .

(Company’s Full Name)

V I C T O R I A S C I T Y ,

N E G R O S O C C I D E N T A L

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

EVA A. VICENCIO-RODRIGUEZ (034) 399-3588Contact Person Company Telephone

Number

0 8 3 1 SEC Form 17-AFirst Tuesday of

February

Month Day FORM TYPEFiscal Year Annual Meeting

Secondary License Type, If Applicable

Dept. Requiring this Doc. Amended Articles Number/Section

Total amount of Borrowings

Total No. of Stockholders Domestic Foreign------------------------------------------------------------------------------------------------------------------------------------------------------------

To be accomplished by SEC Personnel concerned

File Number LCU

Document I.D. Cashier

S T A M P S

Remarks = pls. use black ink for scanning purposes

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

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

OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended: August 31, 2015

2. SEC Identification Number: PW-364 3. BIR Tax Identification No.: 000-270-220-000

4. Exact name of Issuer as specified in its charter: VICTORIAS MILLING COMPANY, INC.

5. Plant site: Victorias City, Negros Occidental 6. (SEC Use Only)

7. VMC Compound, J.J. Ossorio St., Brgy. XVI, Victorias City, 6119Negros OccidentalAddress of office Postal Code

8. (034) 399-33-78; (034) 399-35-88Issuer's telephone number, including area code

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

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

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

(a) Common Stock (Par Value of P1.00 per share)

Authorized Capital Stock 2,913,250,850 sharesSubscribed and Paid-up 2,913,250,850 sharesAmount of Debt Outstanding as of August 31, 2015: ----------

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

Yes [ X ] No [ ]

If yes, state the name of such stock exchange and the classes of securities listed therein:

12. Check whether the issuer:

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

Province, Country or other jurisdiction ofincorporation or organization

Industry Classification Code:

202007

Philippine Stock Exchange,Inc.

- Common Stocks

2

Yes [ X ] No [ ]

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

Yes [ X ] No [ ]

13. Aggregate market value of the voting stock held by non-affiliates: P11,116,914,943.40(at P1.00 par value)

APPLICABLE ONLY TO ISSUERS INVOLVED ININSOLVENCY/SUSPENSION OF PAYMENTS PROCEEDINGS

DURING THE PRECEDING FIVE YEARS:

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

Yes [ X ] No [ ]

DOCUMENTS INCORPORATED BY REFERENCE

15. Briefly describe the documents incorporated by reference and identify the part of the SEC Form 17-Ainto which the document is incorporated:

2014-2015 Consolidated Financial Statements(Incorporated as reference for Item 7 of SEC Form 17- A)

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TABLE OF CONTENTS

PART I - BUSINESS AND GENERAL INFORMATIONPage

Item 1. Business 4Item 2. Property 12Item 3. Legal Proceedings 13Item 4. Submission of Matters to a Vote of Security Holders 13

PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Issuer’s Common Equity and RelatedStockholder Matters

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Item 6. Management's Discussion and Analysis or Plan ofOperation.

14

Item 7. Financial Statements 24Item 8. Changes in and Disagreements With Accountants on

Accounting and Financial Disclosure24

PART III - CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer 25Item 10. Executive Compensation 28Item 11. Security Ownership of Certain Beneficial Owners and

Management29

Item 12. Certain Relationships and Related Transactions 29

PART IV – CORPORATE GOVERNANCEItem 13. Corporate Governance 30

PART V- EXHIBITS AND SCHEDULES

(a) Exhibits and Schedules(b) Reports on SEC Form 17-C

3030

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PART I- BUSINESS AND GENERAL INFORMATION

ITEM 1 - BUSINESS

DESCRIPTION OF BUSINESS

Victorias Milling Company, Inc. (VMC) is a domestic corporation located in Victorias City, NegrosOccidental. VMC was incorporated on May 7, 1919. The Conmpany is engaged in integrated raw andrefined sugar manufacturing. It also operates engineering services and has the following subsidiaries:

DATE OFREGISTRATION % Ownership Brief Description of Business

Victorias Foods Corporation(VFC)

February 24, 1993 100% produces and sells canned sardines, hotbangus, mackerel, luncheon meat, lechonpaksiw, ham, bacon and other meat products

Canetown DevelopmentCorporation (CDC)

February 9, 1979 88% develops and sells real estate properties;develops, operates and sells memorial lots

Victorias Golf and CountryClub, Inc. (VGCCI)

May 5, 1994 81% operates a golf club

Victorias Agricultural LandCorporation (VALCO)

June 30, 1987 100% acquires and owns agricultural lands andproperties

BUSINESS DEVELOPMENT

The years that had passed saw VMC further improving its efficiency, product quality and services.The unprecedented expansion programs undertaken by the Company resulted in higher milling efficiencyrates for the past crop years and to date. For years now, the Company has embarked on a number ofmeasures in order to prepare itself for the effects of reduction in sugar tariffs from thirty five percent toalmost zero, pursuant to the ASEAN Free Trade Agreement.

CURRENT STATUS OF REHABILITATION PROGRAM

On 04 July 1997, VMC filed with the Securities and Exchange Commission (SEC) a Petition for theDeclaration of Suspension of Payments, for the Approval of a Rehabilitation Plan, and the appointment of aManagement Committee.

Pursuant to the approved Rehabilitation Plan, VMC and the creditor banks executed a DebtRestructuring Agreement (DRA) on 29 April 2002.

VMC plunged into several strategic initiatives to attain financial health, sustain its operations andpay off its debts. Thus in 2013, more than five years ahead of schedule, the Company was able to pay all itsremaining balance of the restructured loan as well as the interests accruing thereon.

VMC likewise converted its convertible notes in accordance with the conversion periods as statedin the Debt Restructuring Agreement. In 2014, VMC also redeemed the remaining notes held by originalnoteholders and by Aug 31, 2015, VMC reported P404Million principal value of convertible notes awaitingconversion.

RISKS

The risks of the corporation can be classified into four general categories: (i) Operational risks; (ii)financial risks; (iii) regulatory risks, (iv) strategic risks, and (v) hazard risks.

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Operational Risk

One of the major elements in the operational risks of the corporation is its raw materials supplychain. VMC currently gets its cane supply from district and non-district planters.

Financial Risk

The Company’s financial instruments comprise of cash and cash equivalents, trade and othercurrent receivables, advances to and from subsidiaries, other noncurrent assets, trade and other currentpayables as well as long-term debts. The main purpose of these financial instruments is to raise financesfor the Company’s operations.

To manage its credit risks, the Company trades only with recognized and creditworthy thirdparties. It is the Company’s policy that all customers who wish to trade on credit terms are subject tocredit verification procedures. In addition, receivable balances are monitored on an ongoing basis.

Regulatory risk

The Company is subject to laws and regulations in the Philippines in which it operates.

The Company has established policies and procedures in compliance with local and other laws.Management performs regular reviews to identify compliance risks and to ensure that the systems inplace are adequate to manage those risks.

One key element is its compliance with environmental regulatory requirements. VMC is underrehabilitation and has been having financial constraints to invest on anti-pollution devices. To datehowever, VMC has installed eight (8) scrubbers on its smoke stacks and expects to be fully compliantsoon with the air emission standards of the DENR.

Another imminent risk is the gradual tariff reduction on imported sugar which will go down toonly 5%. This exposes the sugar industry as a whole to global competition that if not prepared for, willdrastically change the financial viability of the corporation, in particular.

Strategic Risk

Competition and industry changes form part of strategic risks to which VMC is exposed to. Thesugar industry has been threatened by the ethanol industry, which also uses sugarcane as raw material.Fortunately, the ethanol business has yet to stabilize as a new industry under threats from world oilprices. Change in customer demand is something that VMC should also be concerned of to ensure that itsproduct specifications suit the dynamics of its customers.

VMC is also fully exposed to the risks of the extreme weather conditions. The recent typhoonYolanda is expected to cause damage to cane crops and thereby reduce tonnage. Since its business isagriculturally-based, weather is a very critical factor for a successful crop year. Low farm inputs fromplanters will translate to low production that will trigger stiff cane competition among sugar millers inthe region and will affect the price following supply and demand forces.

The numerous legal cases are likewise a source of risk for the Corporation. Claims filed againstthe Corporation are currently under suspension, with VMC being under corporate rehabilitation. Thepotential impact of these cases on the corporation once the suspension is lifted is continually beingassessed.

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GOVERNMENT LICENSES REQUIRED

The following are the permits/licenses secured by the Corporation with the differentgovernment agencies/entities, which are needed in its operations:

NAME OF LICENSE DESCRIPTION DATE SECURED EXPIRY DATE01. CERTIFICATE OF

ELECTRICALINSPECTION

Electrical inspection certificate EEDL No.VI-01-2012 issued by DOLE for the VMCSugar Factory.

December 04, 2014 December 04, 2015

02. PERMIT TOOPERATEVARIOUS STEAMTURBINE

Permit to Operate DLST No. VI-03-2012.Permit to operate our GE, Siemens,Kawasaki, and Shin Nippon TurbineGenerator.


03. PERMIT TOOPERATEINTERNALCOMBUSTIONENGINE

Permit to Operate DLST No. VI-01-2012.Permit to operate our CATERPILLARDiesel Engine Generator.


04. CERTIFICATE OFREGISTRATION

Certificate of Registration issued by theDepartment of Energy (DOE).Certificate of registration shall serve asthe basis of entitlement to incentives ofVMCI under R.A. No. 9513, otherwiseknown as the Renewable Energy Act of2008, subject to performance of itsobligations under the Contract andcompliance with the provisions of theAct, its Implementing Rules andRegulations (IRR) and applicable DOEdirectives, circulars, and other issuanceswhich may be promulgated from time totime by the DOE in pursuance of itspower under the Act.

May 18, 2011 May 18, 2036

05. MILLINGLICENSE

To operate a sugar mill and to have thecentrifugal sugar stored in its millsite/subsidiary warehouses.The withdrawal of sugar from the millsite/subsidiary warehouses should be inaccordance with SRA Sugar Order No. 8dated 23 July 1992 and related rules andregulations issued by this office.

August 10, 2015 August 10, 2016

06. REFININGLICENSE

To operate a sugar refinery and to havethe refined sugar manufactured stored inits warehouse.Non-observance or violation of any SRArules and regulations, sugar order,circular letter, memorandum, etc.,pertinent to the manufacture andwithdrawal of refined sugar,understatement of production, non-quedanning of refined sugar or non-payment of monitoring fees shall be acause for the suspension orcancellation/revocation of the license.

August 10, 2015 August 10, 2016

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07. SUGAR TRADERCERTIFICATE OFREGISTRATION

Authority to withdraw purchased sugarfrom the warehouse of any sugar millrefinery.VMC should submit a continuousmonthly report of its trading activitiesand for failure to submit the same shallbe subject to par.7, SRA Sugar Order No.2 dated 16 July 1987.

September 7, 2015 August 31, 2016

08. MOLASSESTRADERCERTICATE OFREGISTRATION

Authority to withdraw molasses fromthe storage tanks of any sugar mill orrefinery.VMC should submit a continuousmonthly report of its trading activitiesand for failure to submit the same shallbe subject to par.7, SRA Sugar Order No.2 dated 16 July 1987.

September 4, 2015 August 31, 2016

09. FDAREGISTRATION

Registration subject to biennial audit andrenewal.

January 25, 2015

10. ISOCERTIFICATION

Certification subject to annualsurveillance and three year renewalaudit.

November 25, 2012 November 24, 2015

11. HALALCERTIFICATION

Certification subject to annual renewal(Raw Sugar & Refined)


12. GMP Certification subject to annualsurveillance/inspection audit.

June 13, 2013 April 24, 2015

13. PDEA LICENSE Permit to use controlled chemicals forRefinery and Manapla Distillery Plant.

Hydrochloric Acid - for use in therejuvenation of IER in refined sugarprocess

Sulphuric Acid - for use in thefermentation of molasses by yeastculture in Manapla Distillery


14. PERMIT TOOPERATEVARIOUSBOILER STEAM

Pursuant to Article 165, Chapter II, BookIV of the Labor Code of the Philippines(LCP), as amended and its implementingrules and regulations. Rule 1160 of theOccupational Safety and Health (OSHS),as amended. DL# -VII-107

July 24, 2015 July 24, 2016

15. PERMIT TOOPERATEVARIOUSBOILER STEAM

Pursuant to Article 165, Chapter II, BookIV of the Labor Code of the Philippines(LCP), as amended and its implementingrules and regulations. Rule 1160 of theOccupational Safety and Health (OSHS),as amended. DL# -VII-117

September 11, 2015July 10,2015July 10,2015July 14, 2015July 14, 2015July 21, 2015July 24, 2015

September 11, 2016July 10, 2016July 10, 2016July 14, 2016July 14, 2016July 21, 2016July 24, 2016

16. PERMIT TOOPERATE STEAMBOILER(VMC MANAPLADISTILLERYPLANT)

Pursuant to Article 165, Chapter II, BookIV of the Labor Code of the Philippines(LCP), as amended and its implementingrules and regulations. Rule 1160 of theOccupational Safety and Health (OSHS),as amended. Pressure not to exceed 100

August 29, 2014 August 29, 2015

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psig. DL#-VI-01-201317. PERMIT TO

OPERATEVARIOUSPRESSUREVESSEL

Pursuant to Article 165, Chapter II, BookIV of the Labor Code of the Philippines(LCP), as amended and its implementingrules and regulations. Rule 1160 of theOccupational Safety and Health (OSHS),as amended. Pressure not to exceed 25psig. DL#-VII-1-82

August 20-21, 2015 August 21, 2016

18.ENVIRONMENTAL

COMPLIANCECERTIFICATE

Certify that VMCI is grantedEnvironmental Compliance Certificate(ECC) for the consolidation of four (4)ECC's and inclusion of six (6) existingproduction wells and four (4) monitoringwells of the Sugar Mill and RefineryPlant Project subject only to theconditions and restrictions set-out in thiscertificate.

November 6, 2012 No expiry date

19. REGISTEREDMARKS

Registered Mark Nos. 4-2008-500038 and4-2008-500039-for sugar, refined sugar in class 30.

Registered Mark No. 4-2008-012796-for meat, fish, poultry and game;preserved, dried and cooked fruits andvegetables; preserves and pickles; edibleoils and fats, squid in Class 29-for sugar, vinegar, salt, pepper,mustard, sauces, spices in Class 30

Registered mark No. 4-2007-500803- in Class 29 and Class 30

Registered Mark No. 4-2010-501552-for meat, fish, poultry and game;preserved, dried and cooked fruits andvegetables; preserves and pickles; edibleoils and fats, squid in Class 29-for sugar, vinegar, salt, pepper,mustard, sauces, spices in Class 30

September 22, 2008

May 25, 2009

October 23, 2009

June 2, 2011

September 22, 2018

May 25, 2019

October 23, 2019

June 2, 2021

20. BUSINESSPERMITS

For various products and services suchas Raw and Refined Sugar, Molasses,Distillery Clinic and Pharmacy.May be revoked or cancelled on groundof public health, sanitation, safety,welfare, misrepresentation of the natureof the permit applied for or for cause asprovided for by law.

March 25, 2015 December 31, 2015

21. FIRE SAFETYINSPECTIONCERTIFICATE

Certificate of Safety and Protection ofVMC's Business Establishment.May be revoked or cancelled on groundof public health, sanitation, safety,welfare, misrepresentation of the natureof the permit applied for or for cause asprovided for by law.

February 23, 2015 February 23, 2016

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22. CERTIFICATE OFBUSINESS NAMEREGISTRATION

Registration of Business Name ofVictorias Milling Co., Inc. issued by theDepartment of Trade and Industry.Subject to continuing compliance withAct 3883 as amended by Act 4147 andR.A. No. 863, and in compliance with theapplicable rules and regulationsprescribed by the Department of Tradeand Industry.

September 10, 2008 September 10, 2013

23. LICENSE TOOPERATE

License to Operate as a FoodManufacturer of Sugar issued by theDepartment of Health Bureau of Foodand DrugsPursuant to Section 4 (e) Chapter III ofRepublic Act No. 3720, otherwise knownas the Foods, Drugs and Devices andCosmetics Act.

May 25, 2015 April 24, 2020

24. CERTIFICATE OFELIGIBILITY

Certificate of Eligibility issued by theDepartment of AgricultureCertifies that VMC is an agricultureenterprise company engaged inSugarcane Milling and therefore eligiblefor tariff-exempt importation ofagricultural inputs, machinery andequipment listed under Annex "B" asprovided in Executive Order No. 376 toimplement Section 1 of Republic Act No.9281, "Reinstating the Effectivity of TaxIncentives for Section 109 of R.A. 8435 -the Agriculture and FisheriesModernization Act of 1997.

October 9, 2015 December 31, 2015

25. BIR IMPORTERCLEARANCECERTIFICATE

Certificate of Accreditation as Importerissued by the Bureau of Internal RevenueThis is the first stage of accreditationprocess which certifies that VMC is anaccredited importer in accordance withRMO No. 10-2014 and can import andtransact business with the Bureau ofCustom.

March 12, 2015 September 11, 2017

26. CERTIFICATE OFREGISTRATION

Certificate of Registration issued by theBureau of Customs (BOC)Certifies that VMC is duly registeredwith BOC subject to compliance to CMOsubsequent issuance governing ClientRegistration Application Processing,non-repudiation of any declaration filedthrough the Value Added ServiceProviders (VASPs) and recognition ofTWM system information duly certifiedby its Administrator as valid and/orcorrect.

September 22, 2015 September 21, 2016

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27. NATIONALWATERRESOURCESBOARD (NWRB)PERMIT

Permit to use water from various watersources pursuant to Resolution No. 74-4of the National Water Resources Council,promulgated by authority of thePresidential Decree No. 424 dated March28, 1974.

May 2012 Conditional permituntil September 18,2013

28. ENERGYREGULATORYCOMMISSIONCERTIFICATE OFCOMPLIANCE

VMC is entitled to all the rights andprivileges subject Section 38 of RepublicAct No. 9136 (RA 9136).

January 21, 2014 January 21, 2019

All obligations of VMC pertinent to the abovementioned licenses and permits are religiouslyfollowed by the Corporation.

CANE SUPPLY

This Crop Year 2014-2015, VMC was able to mill 3,361,887.37 tons of cane equivalent to7,024,173.74 lkg sugar, the highest production record ever attained in the history of the Company. Thissurplus production is credited to good factory performance in terms of efficiency, favorable weathercondition resulting in better farm productivity, and the generous support of VMC’s planters andplanters’associations, that brought in more canes to VMC.

SEGMENTATION OF CANE SOURCES

Planters in nearby areas (0-50 kms.) were able to deliver 51% of the overall cane supply this year,amounting to 1,718,208 tons.

The volume of canes contributed by medium distance (50-100 kms.) increased by 5 percent orfrom last year’s 20% to 25% this year. Tonnage milled this year reached 845,221 tons, while last year,delivery was only 633,671 tons. The increase in volume contribution was due to newly affiliated mediumdistance cane suppliers/planters.

Delivery from far distance (100 kms. and beyond) likewise improved by 5 percent or from 19%last year to 24% this year. Actual cane volume delivered was 798,458 tons against last year’s 595,287 tons.

VMC’s share of the market this year significantly increased by 3.19 percent or from 23.73% lastyear to 26.92% this year. The province’s tonnage this year, reached 12,487,501 tons.

SALE OF SUGAR AND BY-PRODUCTS

The Corporation’s major source of cash is sales of raw sugar mill share, tolling fees from refineryoperations, and sales of by-products like molasses. The major buyers of VMC’s sugar products (sugar &molasses) are the sugar traders.

Raw sugar mill share refers to the Corporation’s share (30.5%) of raw sugar produced from canessupplied by the planters. The Corporation conducts a weekly sugar and molasses bidding in Bacolod City.Single price auction for both mill’s and planters’ shares of the sugar is practiced by VMC, that is, thehighest bid price will cover all sugar sold during the day. For Crop Year 2014-2015, VMC raw sugar volumewas at 2,013,672.46Lkg., with an average price of P1,476.48, totaling to P2.9B sales.

Refined Sugar is also called “white sugar” while the raw sugar is commonly called as “brownsugar.” Raw sugar goes through a process of refining and the result is the refined sugar. VMC producestwo different types of refined sugar – premium and standard. These varieties differ mainly in color,moisture content, ash content, and final use. The premium type, for example, is mainly for industrial userssuch as beverage manufacturers. The standard type is both for industrial and household consumption.

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Molasses is the by-product of both raw sugar and refined sugar operations. The amount ofmolasses received by the Company at its raw sugar operations follows the same production sharingformula of raw sugar, i.e. to VMC and the balance, to planters. The major buyers of VMC’s molasses areAsian Alcohol, Distilleria de Bago, International Pharmaceutical Inc. and Balayan Distillers. For Crop Year2014-2015, VMC’s Molasses volume totaled 42,172.53 with an average price of P7,119.98.

VMC’s Breakdown of Revenues

Victorias Milling Company, Inc.Breakdown of Revenues

CY 2014-2015 & CY 2013-2014

Revenue from sale of goods: Separate ConsolidatedParticular 2014-2015 * 2013-2014 2014-2015 * 2013-2014

Raw sugar sales 2,937,520,000 3,157,293,000 2,935,674,000 3,157,293,000

Alcohol 342,432,000 212,058,000 342,432,000 212,058,000

Molasses 258,667,000 185,025,000 258,667,000 185,025,000

Refined sugar sales 140,959,000 - 140,959,000 -

Others - - 44,184,000 42,930,000

Total Sale of Goods 3,679,578,000 3,554,376,000 3,721,916,000 3,597,306,000

Revenue from rendering ofservices: Separate ConsolidatedParticular 2014-2015 * 2013-2014 2014-2015 * 2013-2014

Tolling fees 1,269,866,000 1,399,690,000 1,269,539,000 1,399,690,000

Others - - 6,735,000 12,818,000

Total Rendering of Services 1,269,866,000 1,399,690,000 1,276,274,000 1,412,508,000

Grand Total 4,949,444,000 4,954,066,000 4,998,190,000 5,009,814,000

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Aging of Accounts Receivable

As of August 31, 2015, below is the aging of accounts receivables for trade and other receivables:

VICTORIAS MILLING COMPANY, INC. AND SUBSIDIARIESCONSOLIDATED RECEIVABLE - AGING

CROP YEAR 2014-2015

Account Current0-30

Days31-60Days

61-90Days

Over 90Days Past Due Total

CONSOLIDATEDRECEIVABLE -AGING 95,508,794 5,408,403 6,131,220 17,165,350 11,922,390 20,574,091 156,710,248

EFFECTS OF EXISTING ENVIRONMENTAL LAWS & REGULATIONS AND THE COSTS ANDEFFECTS OF COMPLIANCE WITH THE SAID ENVIRONMENTAL LAWS & REGULATIONS

Aware of its corporate social responsibility to protect the environment, VMC had successfullyinstalled its anti-pollution control equipment notwithstanding its dismal financial situation due to its beingunder Corporate Rehabilitation. VMC had already spent more than Two Hundred Million Pesos(P200,000,000) for its Anti-Pollution Control Equipment (APCE), plus Ten Million Pesos (P10,000,000) fortheir yearly maintenance.

Thus, while it is paramount for VMC to religiously undertake its rehabilitation endeavors bydedicating the biggest bulk of its resources to rehabilitation-related expense, it also acknowledges theimportance of a healthy environment in the community.

VMC MANPOWER

As of August 31, 2015, VMC has five (5) executive officers, with 2,565 workers.

ITEM 2 – PROPERTY

The VMC main office, mill operations, and related facilities constitute the “heart” of theCorporation where the industrial complex in producing sugar and the residential community co-exist in arelatively harmonious environment. The total landholdings of the Corporation is 6,587,127 square meters.The main plant is situated in a 3,354,734 square meters of land within Victorias City. The Corporationlandholdings include a 3,002,741 square meters land in Manapla, Negros Occidental, 815,915 square metersin Cadiz City, 1,000 square meters in Bacolod City, 159 square meters in Talisay City, 4,089 square meters inIloilo and 13,013 square meters property in Antipolo, Rizal.

However, practically all of the land holdings, including some plant and equipment of theCorporation, are under a Mortgage Trust Indenture (MTI) with a fair market value of almost P2.0 billion, ascollateral to VMC loans in the past.

The following are the major operational machineries and equipment owned by VMC and locatedwithin its compound in Victorias City, Negros Occidental: a) A & C Mills; b) Various Boilers; c) BoilingHouse Equipment; d) Refinery; e) Powerhouse; f) Other engineering equipment and machineries; g)Manapla Distillery Plant.

These properties were mortgaged to VMC’s creditor banks. They are fully owned by VMC.

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The following are the VMC Subsidiaries’ respective principal properties, machineries andequipment:

1) VICTORIAS GOLF & COUNTRY CLUB, INC. (VGCCI) - Clubhouse, 18-hole Golf Course, OfficeRoom, Locker & Shower Room, Canteen & Kitchen, Pavilion, Basement, Green Mowers 22”, Five GangFairway Mower, Golf Carts.

2) VICTORIAS FOODS CORPORATION (VFC) - Cold Storage 2 compressor 9 cooling PL-EVAP withmotor, Eviscerating and Packaging Table, Fish Washing System, Primary Exhausters, Can VacuumSeaming Machine, Retort Machine, Chillers, Steam Generator, Food Processing Plant, Deepwell WaterSupply System, Bodega/Packaging House, Canteen/Shop/Oil Bodega, Fish Meal Building, SlaughterHouse.

3) CANETOWN DEVELOPMENT CORPORATION (CDC) - Subdivision lots in Manapla and Victorias,Landholdings in Victorias and Manapla, Memorial Garden, Agricultural Land, VMC Engineering ComplexLand Area, Water Pumping Stations and Distribution System.

4) VICTORIAS AGRICULTURAL LAND CORPORATION (VALCO) - Agricultural Lands with a total of31.25 hectares (Bacayan Area), Built up areas with total of 9.18 hectares, Industrial Tree Plantation(Hacienda Florencia Area).

Other VMC Properties:

1. 202.02 hectares of cane field located in Manapla and Cadiz City, Negros Occidental.

2. 113.5015 hectares of cane field located in Victorias City, Negros Occidental.

3. A parcel of land located at Bacolod City, Negros Occidental covered by TCT No. 183131 (Lot No.26-B) and TCT No. 183132 (Lot No. 26-A).

4. 3.537 hectares of land located in Manapla, Negros Occidental which is being utilized by VMC for itsdistillery.

5. A part of a parcel of land located at Brgy. XVIII, Hda. Florencia, VMC Compound, Victorias City,Negros Occidental covered by TCT No. RT-105-75.

ITEM 3 – LEGAL PROCEEDINGS

Cases filed for and against VMC are being handled by the Company’s In-house and ExternalCounsels.

The External Counsels are Hilado Hagad & Hilado Law Offices, Villanueva Gabionza & De SantosLaw Office, , Hechanova Bugay & Vilchez, Quiason Makalintal Barot Torres Ibarra & Sison, Zambrano &Gruba Law Offices, Manuel Lao Ong & Linus G. Abaquin Law Firm, Torres & Sy Law Offices and PuyatJacinto & Santos Law Firm, Puno & Puno Law Offices, Roxas De Los Reyes Laurel Rosario & Leagogo LawOffices, Adarlo Caoile & Associates Law Offices, and Paner Hosaka & Ypil Attorneys-At-Law, Atty. LinusG. Abaquin, Sabig, Sacramento Law Office, Yulo Villarin & Barcelona Law Offices, Atty. Edmundo F.Manlapao, Jr., Valencia Ciocon Dabao Valencia Dionela Pandan Rubica Garcia Law Office, Montoro,Malunes, & Mampang Law Office.

ITEM 4 – SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

Except for the matters taken up during the Annual Stockholders’ Meeting, there was no othermatter submitted to a vote of security holders during the period covered by this report.

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PART II – OPERATION AND FINANCIAL INFORMATION

ITEM 5 – MARKET FOR ISSUER’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Trading of VMC’s shares with the Philippine Stock Exchange (PSE) resumed on May 21, 2012pursuant to the Order of the Securities and Exchange Commission (SEC) dated March 2, 2012, lifting theOrder of Suspension of Trading of the shares of VMC.

The number of stockholders on record and common shares outstanding as of August 31, 2015 stoodat 5,334 and 2,640,164,352, respectively.

VMC has neither declared cash nor stock dividend for the three most recent crop years.

Top 20 Stockholders as of August 31, 2015

Name Citizenship No. of Shares Percentage (%)

1 PCD Nominee Corporation Filipino/Other Alien 1,257,703,731 47.64%2. Premier Network International Limited Foreign (BVI) 695,470,059 26.34%3. LT Group, Inc. Filipino 414,660,863 15.71%4. Narra Capital Investment Corporation Filipino 68,201,941 2.58%5. FEBTC TA #401-00012 Filipino 27,360,373 1.04%6. AB Capital & Invst. Corp. Trust & Invst Div. Filipino 11,712,681 0.44%7. North Negros Marketing Co., Inc. Filipino 10,173,459 0.39%8. Bank of the Philippine Islands Filipino 5,658,157 0.21%9. Liberty Trading/Navigation Co. Filipino 4,772,380 0.18%10. ALRAC, Inc. Filipino 4,654,944 0.18%11. FEBTC TA #401-00008 Filipino 4,159,990 0.16%12. Victorias Insurance Factors Corporation Filipino 3,456,975 0.13%13. Asset pool A (SPV-AMC), Inc. Filipino 3,313,417 0.13%14. Makati Supermarket Corporation Filipino 3,146,973 0.12%15. FEBTC A/C #341-00094 Filipino 2,876,448 0.11%16. Senoron, Nelson W. Filipino 2,330,910 0.09%17. Reicon Agricultural Enterprises, Inc. Filipino 2,127,326 0.08%18. Victorias Agri Land Corp. Filipino 1,930,843 0.07%19. First E-Bank Corporation Filipino 1,812,345 0.07%20. Everett Steamship Corporation Filipino 1,607,845 0.06%

ITEM 6 – MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF ACTION

Management’s Discussion and Analysis of Financial Condition and Results of Operations as of August31, 2015 with 3-year (Crop years 2012-2013 to 2014-2015) Summary Report

VICTORIAS MILLING COMPANY INC. AND SUBSIDIARIES (“the Group”)

The following management Discussion and Analysis should be read in connection with thesubmitted Audited Consolidated Financial Statements for the year ended August 31, 2015, 2014 and 2013.

I. Review of Factory Operations

The total canes hauled for year ended August 31, 2015 increased by 7% percent or 221,272 tons to atotal of 3,361,887 tons as more canes from farther districts were brought to the sugar central for milling. Onthe contrary, previous year ended August 31, 2014 decreased slightly by 2% or 67,974 tons to a total of3,140,615 tons as the slight increase of canes from non-district were not enough to offset the 8% drop fromdistrict covered area against year ended August 31, 2013.

On the other hand, raw sugar recovery for year ended August 31, 2015 decreased by 4.6%, from2.19 50-kilogram bags to this season’s 2.09 50-kilogram bags per ton cane milled. The lower recovery rate isdue to the lower quality of canes milled. With more canes, raw sugar output for the period increased by2.4% or 161,892 50-kilogram bags, from 6,862,282 to 7,024,174 50-kilogram bags. Moreover for 2015, we

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implemented cane and quedan purchases to augment traditional cane availability. Consequently, our mill’sshare from the raw sugar produced likewise increased by 49,988 50-kilogram bags, to a total of 2,142,912 50-kilogram bags. On the contrary, raw sugar recovery for year ended August 31, 2014 remained flat at 2.1950-kilogram bags per ton cane milled for 2 seasons. The stagnant recovery rate is due to non-improvementof canes’ quality milled for the aforementioned seasons. However, the lower tons cane milled of 67,974 tons,resulted raw sugar output for the period to decrease by 2.3% or 159,537 50-kilogram bags, from 7,021,819 to6,862,282 50-kilogram bags. Consequently, our mill’s share from the raw sugar produced likewisedecreased by 48,867 50-kilogram bags, to a total of 2,092,924 50-kilogram bags.

For year ended August 31, 2015, the higher tonnage pulled upward the molasses output to 134,130metric tons, higher by 17.2% or 19,675 metric tons from year ended August 31, 2014. However, for yearended August 31, 2014, the slight 2% decrease on tons cane milled, molasses output ended with 114,454metric tons, lower by 1.4% or 1,645 metric tons from year ended August 31, 2013

The year ended August 31, 2015 mill’s share in the production of molasses increased by 6,402metric tons, an 18.6% higher from 34,507 metric tons of the previous year. Current year molassesproduction ended 40,910 metric tons. For year ended August 31, 2014, the mill’s share in the production ofmolasses slightly decreased by 386 metric tons, which is 1.1% lower from 34,893 metric tons of year endedAugust 31, 2013.

At the Refinery, total gross sugar manufactured was 5,888,202 50-kilogram bags while refinery finalmolasses was 10,981 metric tons for year ended August 31, 2015. For year ended August 31, 2014, totalgross sugar manufactured was 6.546,515 50-kilogram bags with corresponding refinery final molasses of11,871 metric tons. Comparatively, year ended August 31, 2015’s tolling production is 10.0% better thanprevious year or an equivalent of 658,313 50-kilogram bags. The year ended August 31, 2014 likewiseshowed the same upward trend with 3.4% increase or an equivalent of 215,704 50-kilogram bags in tollingproduction vs. the previous year.

II. Results of Operations

Revenues

Amounts Php Thousands 2015 2014 2013Parent Revenue 4,947,326 4,954,066 4,375,783Raw sugar revenue 2,935,673 3,157,293 2,746,646Tol l ing revenues 1,269,594 1,399,690 1,366,154Refined sugar revenue 140,959 - -Molasses revenue 258,667 185,025 205,834Alcohol revenue 342,433 212,058 57,149Subs idiaries Revenue 50,864 55,748 38,607Tota l Revenue 4,998,190 5,009,814 4,414,390

The Parent company’s revenue accounted for 99% of the Group’s consolidated revenue for theyear-to-date (YTD) August 31.

It includes sales from raw sugar, refining service, direct sale of refined sugar and molasses &distillery operations which remained flat in the YTD August 31, 2015 compared to same period in 2014.

Revenues from raw sugar decreased by 7% for the year compared to 2014 due primarily to decreasein volume sold by 10%, cushioned by 3% increase in price.

Tolling fees from refining services also decreased by 9% for the year compared to 2014 due mainlyto decrease of volume by 10%, cushioned by 1% increase in price.

Refined sugar revenue represents direct sales of 74K lkg at an average price of P1,904. Molasses revenue increased by 40% due to increase in volume sold and selling price by 13% and

23%, respectively.

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Revenues from distillery operations increased by 61% due to increase in volume and selling priceby 53% and 5%, respectively.

For YTD August 31, 2014 as compared to same period of 2013, revenue grew by 13% driven as follows.

Revenues from raw sugar increased by 15% for the year compared to 2013 due primarily to increasein volume sold by 16%.

Tolling fees from refining services also increased by 2% for the year compared to 2013 due mainlyto increase of volume by 3%, cushioned by 1% decreased in tolling fee rate.

Molasses revenue decreased by 10% due to decrease in volume sold, net of increase in selling priceby 13% and 3%, respectively.

Revenues from distillery operations significantly increased by 271% due to increase in volume soldof 625%, cushioned by decreased in selling price by 49%.

Cost of Goods Sold and Services

Year ended August 31, 2015’s Consolidated cost of goods sold and services increased by 2% or P58 millionand ended to P3.0 billion for the year as compared to 2014. For year ended August 31, 2014, Consolidatedcost of goods sold and services increased by 5% or P153 million and ended at P2.9 billion. The followingtable summarizes the breakdown of the Group’s cost of sales as of August 31, 2015, 2014 and 2013.

Amounts Php Thousands 2015 2014 2013Cost of hauling 942,511 808,259 913,179Repairs and maintenance 672,363 524,986 659,105Materials and supplies 450,517 424,528 335,243Depreciation 275,483 257,075 263,549Professional fees and contracted services 164,650 238,868 312,696Direct labor 155,433 84,082 13,540Fuel 177,286 182,812 173,213Raw sugar purchased 56,366 330 2,233Light and water 74,213 73,957 63,464Input tax allocable to exempt sales 81,966 81,520 60,508Taxes and licenses 38,134 48,718 50,476Write-down (recovery)of inventory to NRV 6,484 -20,529 20,529Insurance 4,780 5,257 5,091Rental 4,222 7,622 2,379Others 17,523 14,536 5,712Total cost of goods manufactured 3,121,931 2,732,021 2,880,917Inventories, beginning of year 225,909 412,756 331,749Inventories, end of year -336,763 -225,909 (412,756)

Cost of Goods Sold and Services 3,011,077 2,918,868 2,799,910

Comparative YTD August 31, 2015 and 2014

The increase in cost of hauling was caused by aggressive drive to increase total canes hauled asmore canes from farther district were brought to the sugar central for milling.

Annualized impact of direct labor increased in 2015 driven by investments on human resource inline with the Group’s thrust to improve organizational productivity competitiveness. This resultedto major reclassification of labor charges from contracted services to direct labor and recognition ofsalaries and benefits.

As a percent of revenues, cost of sales as of August 31, 2015 is slightly higher by 1% as compared to2014.

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The increase in volume of raw sugar and alcohol sold drove the increase in manufacturingexpenses such as materials and supplies, fuel and light and water.

Direct labor increased in 2014 driven by investments on human resource in line with the Group’sthrust to improve organizational productivity competitiveness. This resulted to majorreclassification of labor charges from contracted services to direct labor and recognition of salariesand benefits.

As a percent of revenues, cost of sales as of August 31, 2014 is lower by 4% as compared to 2013.

Operating Expenses

YTD ended August 31, 2015 Consolidated operating expenses decreased by 34% or P282 millionand ended at P544 million for the year as compared to same period of 2014. For YTD ended August 31,2014 Consolidated operating expenses decreased by 21% or P218 million and ended at P826 million for theyear as compared to the same period the year before. The following table summarizes the breakdown ofthe Group’s operating expenses as of August 31, 2015, 2014 and 2013.

Amount Php Thousands

Selling expense

Selling expense 2015 2014 2013

Freight and handling 80,425 84,281 109,384Taxes and licenses 18,935 13,065 13,128Rental 11,604 12,639 14,414Materials and supplies 9,083 2,738 4,274Depreciation 7,191 7,001 2,837Salaries and employee benefits 7,302 4,935 2,482Repairs and maintenance 2,707 2,772 4,063Others 8,285 8,471 8,580Total Selling expenses 145,532 135,902 159,162

General and administrative expenses

2015 2014 2013Professional fees and contracted services 131,925 136,592 114,587Salaries and employee benefits 60,704 30,144 17,964Repairs and maintenance 53,364 5,311 4,560Travel and transportation 41,355 29,913 22,861Taxes and licenses 18,699 21,299 16,000Representation and entertainment 16,934 7,965 6,914Depreciation (Note 11) 17,579 11,729 9,320Retirement benefit 6,557 3,895 6,734Impairment losses on:

Receivable 183 197 –Materials and supplies – – 1,665Property, plant and equipment – 33 136,648

Supplies 26,208 3,357 2,610Insurance 1,629 2,935 3,705Rental 2,184 1,528 840Retrenchment cost – 10,100 –Others 18,710 15,468 12,588Total General & administrative expenses 396,031 280,466 356,996

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The increase in repairs and maintenance was due to cost center realignment of related accountspreviously charged to Cost and now with Operating expenses.

Salaries and employees benefits increased in 2015 driven by investments on human resource inline with the Group’s thrust to improve organizational productivity and competitiveness.

As a percent of revenues, operating expenses as of August 31, 2015 is higher by 3% comparedto same period in 2014.


Operating expenses’ decreases mainly from impairment losses and additional provision madefor sugar claims booked in the previous CY.

Salaries and employees benefits increased in 2014 driven by investments on human resource inline with the Group’s thrust to improve organizational productivity and competitiveness.

As a percent of revenues, operating expenses as of August 31, 2014 is lower by 4% compared tosame period in 2013.

Operating Income

Taking into account the factors discussed above, operating income for the year ended August 31,2015 and 2014 is lower by 12% or P195 million to P1.4 billion and higher by 49% or 542 million to P1.6billion, respectively, as compared to same period the year before.

Other Income

Other income for the year ended August 31, 2015 and 2014 is higher by 13% or P17 million to P142million and lower by 82% or 577 million to P125 million, respectively, as compared to same period the yearbefore.

This account consists of:2015 2014 2013

Other income P=171,360 P=145,837 P=712,285

Other expense (29,293) (20,454) (9,498)

P=142,067 P=125,383 P=702,787

Other income consists of the following:

2015 2014 2013

Charges to traders P=101,567 P=114,838 P=82,234

Interest income (Note 5) 24,915 11,041 38,546

Reversal of remeasurement ofliability 22,858 – –

Rental income (Note 12) 12,671 13,256 14,879

Foreign exchange gain-net 6,181 – 8,024

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Gain on sale of property, plant andequipment 33 624 268

Gain on extinguishment of liability – 67 280,143

Fair value gain on investmentproperty – – 267,230

Others 3,135 6,011 20,961

P=171,360 P=145,837 P=712,285

Other expense consists of the following:

2015 2014 2013Loss on revaluation ofinvestment

properties P=27,631 P=− P=−Others 1,662 20,454 9,498

P=29,293 P=20,454 P=9,498

Income Taxes

Amount PhP Thousands

2015 2014 2013

Recognized in profit and loss

Current P539,737 P305,586 P407,897

Deferred ( 77,224) (169,995) (77,265)

P462,513 P135,591 P330,632

The Group’s provision for income tax for the year ended August 31, 2015 is at the highestcompared to the same period in 2014 and 2013 as taxable income was significantly increased by reductionin cost and finance charges.

Net Income

Consolidated net income for the year ended August 31, 2015 was P1.083 billion, that is, P219million or 25% higher than last year’s net income of P864 million. Net income margin (net income as apercentage of revenue) increased from 17% of 2014 to 22% for 2015 mainly due to reduction in cost andfinance charges.

Also, consolidated net income for the year ended August 31, 2014 of P864 million is P256 million or 42%higher than 2013’s net income of P608 million. Net income margin (net income as a percentage of revenue)increased from 14% of 2013 to 17% for 2014 as gain from volume driven revenue and appraisal increase ofinvestment properties were cushioned by operational cost and expenses.

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Financial Condition

Amount Php Thousands

August 31 September 1,

2015

2014(As restated -

Notes 3 and 31)

2013(As restated -

Notes 3 and 31)

ASSETSCurrent AssetsCash and cash equivalents P=1,758,331 P=823,611 P=863,822Trade and other current receivables 136,137 120,594 446,129Available-for-sale financial assets 502,787 216,320 −Inventories 348,737 244,038 410,001Other current assets 80,692 399,189 54,736

Total Current Assets 2,826,684 1,803,752 1,774,688Noncurrent AssetsProperty, plant and equipment 4,041,862 4,219,925 3,921,981Investment properties 1,041,221 1,331,185 1,445,386Other noncurrent assets 411,852 49,959 67,291

Total Noncurrent Assets 5,494,935 5,601,069 5,434,658P=8,321,619 P=7,404,821 P=7,209,346

LIABILITIES AND EQUITYCurrent LiabilitiesTrade and other payables P=542,706 P=733,264 P=351,134Income tax payable 111,295 58,876 69,668

Total Current Liabilities 654,001 792,140 420,802Noncurrent LiabilitiesProvisions 1,418,876 1,377,568 841,941Long-term debts - net of current portion − − 2,544,633Retirement liability 19,177 13,618 10,730Deferred tax liabilities - 356,281 372,667 568,165Other noncurrent liabilities 6,000 6,000 6,000

Total Noncurrent Liabilities 1,800,334 1,769,853 3,971,469Total Liabilities 2,454,335 2,561,993 4,392,271

EquityCapital stock 2,640,393 2,367,535 2,297,485Convertible notes awaiting conversion 404,668 677,526 203,093Interest on convertible notes awaiting conversion 330,420 550,906 135,803Additional paid-in capital 512,750 292,264 244,621Other comprehensive income 383,894 175,285 133,429Retained earnings (Deficit) 1,578,804 762,957 (197,817)Conversion feature on convertible notes − − 472Treasury stock (11) (11) (11)

5,850,918 4,826,462 2,817,075Non-controlling interest 16,366 16,366 −

Total Equity 5,867,284 4,842,828 2,817,075P=8,321,619 P=7,404,821 P=7,209,346

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The Group’s consolidated total assets or total liabilities and equity as of August 31, 2015 amounted to P8.3billion, an increase by 12% from P7.4 billion at end of August 31, 2014. The following explains thesignificant movements:

The Group’s cash and cash equivalents balance increased by P934 million or 113% to P1.8billion due primarily to reduced operational cost and finance cost.

The increase in inventories by P105 million or 43% to P349 million is chiefly driven by thedecrease in volume sold for both raw and tolled sugar.

Trade and other current liabilities decreased by P191 million or 26% to P543 millionlargely due to release of check for the redemption of convertible notes. See Note 14 of theaccompanying Audited Consolidated Financial Statements for more information.

Income tax payable increased by P51 million or 86% to P110 million. Taxable income wassignificantly increased by reduction in cost and finance charges.

Provisions increased by P41 million or 3% to P1.4 billion to cover probable liability on variouslegal claims. See Note 15 of the accompanying Audited Consolidated Financial Statements formore information.

The increase in Capital stock by 12% or P273 million to P2.6 billion refers to actual conversionof certain convertible notes. See Note 17b of the accompanying Audited ConsolidatedFinancial Statements for more information.

Convertible notes awaiting conversion decreased by P493 million or 40% to P735 million due totransfer/sale of certain convertible notes by primary/original note holders. As such, thesetransactions were booked as equity in accordance with the DRA. See Note 17c of theaccompanying Audited Consolidated Financial Statements for more information.


The Group’s consolidated total assets or total liabilities and equity as of August 31, 2014 amounted to P7.4billion, an increase of 3% from P7.2 billion at end of August 31, 2013. The following explains the significantmovements:

The cash and cash equivalents balance decreased by P40 million or 5% to P824 million as majorbulk of cash provided by operating activities were utilized in payment for long-term debt andfinance cost

Receivables declined by P325 million or 73% to P121 million mainly due to credit customerssettling their accounts on the off-seasons of 2014.

The decrease in inventories by P166 million or 40% to P244 million is chiefly driven by theincrease in volume of raw sugar sold.

Trade and other current liabilities increased by P382 million or 109% to P733 millionlargely due to set up of liability for check payable to a CN holder and recognition of accruedexpenses.

Income tax payable decreased by P11 million or 15% to P59 million. Taxable income wassignificantly reduced by payment of interest of convertible notes.

Provisions increased by P536 million or 64% to P1.4 billion to cover probable liability onvarious legal claims.

The redemption of convertible notes wiped out the remaining balance of Long-term Debts as ofAugust 31, 2014.

The increase in Retirement benefit obligation by P3 million mainly refers to re-measurementlosses on defined benefit plan with reference to the actuarial valuation made as of August 31,2014.

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Net deferred tax liabilities decreased by P195 million or 34% to P373 million, due to theincrease of recognized deferred tax asset on additional provision for various legal claims andaccrued expenses.

The increase in Capital stock by 3% or P70 million to P2.4 billion refers to actual conversion ofcertain convertible notes.

Convertible notes awaiting conversion increased by P889 million or 72% to P1.2 billion due totransfer/sale of certain convertible notes by primary/original note holders.

Additional paid in capital likewise increased by P47 million or 19% to P292 million due torecognition as equity of accrued interest on convertible notes which were converted to commonshares.

The increase in Revaluation increment on property, plant and equipment by P301 million refersto recognition of revaluation adjustments.

Retained earnings turned positive to P763 million from deficit of P198 million, with the netincome for the year ended August 31, 2014 of P937 million.

Liquidity and Capital Resources

Net cash provided by operating activities as of August 31, 2015 was P1.3 billion, 42% or P956 million lowercompared to the net cash provided by operating activities of the same period in 2014 amounting to P2.3billion which was mainly contributed by the decrease in trade and other current payables.

Net cash used in investing activities was P406 million as of August 31, 2015 which pertains to UITFinvestments and capital expenditures spending for factory machinery upgrades

Net cash used in financing activities amounted to almost nil as of August 31, 2015 due to absence ofpayment of long-term debts and finance cost accessory.

Generally, there is a net increase in cash and cash equivalents by P934 million as of August 31, 2015.

Net cash provided by operating activities as of August 31, 2014 was P2.3 billion, 176% or P1.4 billion highercompared to the net cash provided by operating activities of the same period in 2013 amounting to P817million which was mainly contributed by stronger operating results and increase in trade and other currentreceivable.

Net cash used in investing activities was P527 million as of August 31, 2014 which pertains to capitalexpenditures spending for factory machinery upgrades and redemption of UITF.

Net cash used in financing activities amounted to P1.8 billion as of August 31, 2014 due to redemption ofconvertible notes and payments of the related accrued interest.

Net movement of cash and cash equivalents is almost break-even at a decreased of P40 million as of August31, 2014.

III. Discussion of the Company’s Top Five (5) Key Financial Performance Indicators

In line with the Group’s strategic and operational goals to improve its present level in the sugarcaneindustry in terms of production volume, efficiency and product quality, the financial performance is mainlydetermined by the following criteria:

Revenue

Revenue is the measure of all sales made by the Group from its normal business activities. It is used as anindication of earnings quality.

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Revenue (in Php and Bi l l ion) 4.998 B 5.010 B 4.414 B% Growth (Decl ine) vs . LY -0.2% 13% -5%

As of August 312015 2014 2013

EBITDA

EBITDA is the Group’s net income with interest, taxes, depreciation, and amortization added backto it, and is used to analyze current operational profitability without the effects of financing and accountingdecisions.

As of August 312015 2014 2013

EBITDA (in Php andBillion) 1.246 B 0.724 B 0.663 B% Growth (Decline) vs. LY 72% 9% -25%

Net Income Margin

Net Income Margin is the measure of how efficient the Group is at converting revenue into actual profits. Itis calculated by finding the earnings after interest and tax as a percentage of total revenues.

Net Income (in Php and Bi l l ion) 1.084 B 0.864 B 0.608 B% Growth (Decl ine) vs . LY 5% 3% 13%

As of August 312015 2014 2013

Return on Assets (ROA)

ROA is a profitability ratio that measures the net income produced by total assets during a period. Thisratio shows how well the Group can convert its investments in assets into profits.

Return on Assets 13% 12% 8%Net Income (in Php and Bi l l ion) 1.084 B 0.864 B 0.608 BTota l Assets (in Php in Bi l l ion) 8.322 B 7.405 B 7.209 B

As of August 312015 2014 2013

Basic Earnings per share (EPS)

Basic EPS is used as a barometer to gauge the Group’s profitability per unit of shareholder ownership. It iscalculated by dividing net income earned in a given reporting period by the weighted average numberof shares outstanding during the same term.

Earnings per Share (in Php) 0.42 0.40 0.332015 2014 2013

As of August 31

IV. Discussion and Analysis of Material Events and Uncertainties

1. There were no events or commitments that will result to material liquidity problem to theGroup.

2. There were no material off-balance sheet transactions, arrangements or obligations entered toduring the period.

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3. All of the Group’s income arose from its continuing operations.4. The sugar processing operations of the Group have milling and off-milling seasons. The

seasonality however, has no material effect on the financial condition or results of operation.

ITEM 7 – FINANCIAL STATEMENTS

(Please see attached duly signed Corporation’s Consolidated Financial Statements as of August 31,2015, together with the notarized Statement of Management’s Responsibility, which was prepared bySyCip Gorres Velayo & Co. (SGV & Co.), the Corporation’s external auditor for crop year 2014-2015, asExhibit “A“.

ITEM 8 – CHANGES IN & DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE

There has been no disagreement with the external auditor on accounting, financial concerns, anddisclosures in the Financial Statements, which is attached hereto as Exhibit “A”.

INFORMATION ON INDEPENDENT ACCOUNTANT

For Crop Year 2014-2015, the services of the accounting firm SyCip Gorres Velayo & Co. (SGV &Co.), with office address at 6760 Ayala Avenue, Makati City 1226 Metro Manila, Philippines, was engagedto be the Corporation’s External Auditors, in compliance with the Corporation’s Code of CorporateGovernance that provides that the Corporation’s External Auditor shall be rotated or the handling partnershall be changed every five (5) years or earlier.

EXTERNAL AUDIT FEES

Audit and Audit-Related Fees

The aggregate fees billed for each of the last two (2) fiscal years for professional services renderedby the external auditor for the audit of the Corporation’s annual financial statements or services that arenormally provided by the external auditor in connection with statutory and regulatory filings orengagement for those fiscal years were:

CY 13-14 – P1,481,200– plus VAT and out of pocket expensesCY 14-15 – P1,100,000 - plus VAT and out of pocket expenses

Tax Fees

There has been no fee billed for the last two (2) fiscal years for professional services rendered by theexternal auditor for tax accounting, compliance, advice, planning and any other form of tax services.

Audit Committee’s Approval Policies and Procedures for the Above Services

The Audit Committee’s approval policies and procedures for the above services are as follows:

1. The Audit committee invites bidders for the external audit engagement for preliminary evaluation.2. The Committee then presents to the bidders, the corporate profiles of the companies to be covered

by the audit.3. The Committee likewise presents its expectations on the deadline for the completion of the Audit

and filing of the audited financial statements.4. The bidders are required to make its corporate profiles, list of experiences, and proposed audit

engagement fee.5. The Committee evaluates the proposals and makes a choice.

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6. The choice is endorsed to the Board for approval and announcement during the Stockholder’smeeting.

PART III – CONTROL AND COMPENSATION INFORMATION

ITEM 9 – DIRECTORS AND EXECUTIVE OFFICERS OF THE ISSUER

VMC BOARD OF DIRECTORS

During VMC’s Annual Stockholder’s Meeting held on February 3, 2015, the following were elected asmembers of the VMC Board of Directors to serve as such from February 3, 2015 and until their successorsshall have been duly elected and qualified:

1. Wilson T. Young, 59 years old, Filipino, is current Chairman of the Board of Victorias MillingCompany, Inc. and director of BK Titans, Inc., Perf Restaurants, Inc. (franchisee of Burger Kingin the Philippines). He is also a member of the Board of Trustees of the University of the Eastand Vice-Chairman of the University of the East Ramon Magsaysay Memorial Medical Center,Inc., member of the International Board of Advisers of the Philippine School of Prosthetics andOrthotics, as well as member of the Board of the following foundations: Mithing PangarapFoundation, Inc., Norfil Foundation, Inc., and the National Defense College of the PhilippinesEducational and Development Foundation, Inc. He also serves as member of the Board ofAdmissions of the National Defense College of the Philippines and Chairman of Total CreditCooperative. He was formerly an instructor of Taxation and Accounting at AssumptionCollege, San Lorenzo Makati and Financial Accounting at the Ateneo de Manila-Loyola. ACertified Public Accountant and holds a Masters Degree in National Security Administration,he is likewise a Director and/or Officer of various family-owned and controlled corporationsand was a former Director and Officer of certain companies of LT Group, Inc.

2. Anna Rosario V. Paner, 44, Filipino, is Vice Chairman of the Board and VMC's ManagingDirector. Atty. Paner is also the Chief-Executive Officer and Chair of the Legal andNominations Committee. She has been a private law practitioner since 1996 and is one of thefounding partners of Paner Hosaka & Ypil Attorneys-at-Law. She currently chairs the followingVMC subsidiaries: Victorias Foods Corporation (VFC), Victorias Agricultural Land Corporation(VALCO), and Canetown Development Corporation (CDC). She is also a Director andPresident of Victorias Golf & Country Club, Inc. (VGCCI). For the past five (5) years, she hasbeen connected with Philippine Opportunities for Growth, Income (SPV-AMC), Inc., TechboxInternational Inc. and Nota Bene as their director.

3. Eduardo V. Concepcion, 62, is currently the President and Chief Operating Officer of VMC. Hegraduated with Honors at the De la Salle University with a degree of Bachelor of Science inChemical Engineering. He is a licensed Chemical Engineer and took his Master in BusinessAdministration (without thesis) at University of San Agustin-Iloilo. He has served CentralAzucarera de La Carlota, Inc. as Vice President/Resident Manager. Morever, he has renderedservice to Ma-ao Sugar Central and Passi (Iloilo) Sugar Central, Inc. He has been working withthe sugar industry for more than 39 years.

4. William Y. Chua, 51, Filipino, is the President of Agro Bulk Marine Corporation, Wilch RealtyCorporation and MC Metroplex Holding Corp. He is also the Vice President of Oro AlladoCommodities, Inc., Negros Ship-owners Association and Federation of Sugar Traders of thePhils.

5. Manuel V. Pangilinan, 69, Filipino. He was elected to the Board of Directors on February 3,2015 and is a member of the Audit Committee. Mr. Pangilinan founded the First Pacific in 1981and served as the Managing Director until 1999. He was appointed Executive Chairman untilJune 2003, when he was named as CEO and Managing Director. Within the First Pacific Group,

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he holds the positions of President Commissioner of P.T. Indo Food Sukses Makmur Tbk, thelargest food company in Indonesia.

Mr. Pangilinan is the Chairman of the Philippine Long Distance Telephone Company (PLDT)and the Manila Electric Company (Meralco). He is also the Chairman of SmartCommunications Incorporated, PLDT Communications and Energy Ventures Inc. (formerlyPiltel), Beacon Electric Asset Holdings Inc., Metro Pacific Investments Corporation, LandcoPacific Corporation, Medical Doctors Inc., Colinas Verdes Corporation (operating the MakatiMedical Center and Cardinal Santos Medical Center) Davao Doctors Inc., Riverside MedicalCenter Inc., Our Lady of Lourdes Hospital, Asian Hospital, Inc., Maynilad Water ServicesCorporation (Maynilad), Mediaquest Inc., Associated Broadcasting Corporation (TV5), PhilexMining Corporation and Manila Tollways Corporation.

6. Lucio K. Tan, Jr., age 49, He has been a Director of Victorias Milling Company, Inc., since June6, 2014. He was awarded Master Degree under Executive Master of Business andAdministration Program (EMBA) jointly by Kellog School of Management of NorthwesternUniversity in the United States and Hong Kong University of Science and Technology as wellas holding a BS in civil engineering from University of California, Davis. He serves as anExecutive Vice President of Fortune Tobacco Corporation and Foremost Farms Inc. Mr. Tanserves as the Chief Executive Officer of Tanduay Distillers Inc. He has been Officer-In-Chargeof Eton Properties Philippines Inc. since February 21, 2013. Mr. Tan has been a Director EtonProperties Philippines, Inc. since June 18, 2007; LT Group, Inc since February 21, 2003;Philippine National Bank since September 28, 2007 and has been Non-Executive Director ofMacroasia Corp., since August 1997. He serves as a Director of Allied Savings Bank. He hasbeen an Executive Director at Dynamic Holdings Limited since November 10, 1997. He hasbeen Non-Executive Director at PAL Holdings, Inc. (formerly Baguio Gold Holdings Corp.)July 26, 2006. He serves as a Director at Tanduay Brands International Inc. and TanduayDistillers, Inc. Mr. Tan served as a Director and Member of the Board of Advisors of PhilippineAirlines Inc.

7. Michael G. Tan, 49, Filipino, is presently the Chief Operating Officer of Asia Brewery, Inc. andthe President and Chief Operating Officer of LT Group, Inc. (formerly Tanduay Holdings Inc.).For the past five (5) years, he served as a director of the following corporations: AbacusDistribution Systems Philippines, Inc., Allied Banking Corporation, Eton Properties, Inc.,Philippine National Bank and PMFTC.

8. Terence D. Son Keng Po, 46, is presently the Treasurer of the company. Mr. Son Keng Poholds a degree in Business Administration and Accountancy (mcl) from the University of thePhilippines and a Master’s Degree in Business from the University of Chicago. He is thePresident and CEO of Victorias Foods Corporation (VFC). He is currently a Director ofVictorias Golf & Country Club, Inc. (VGCCI) and Canetown Development Corporation (CDC).He served as a Director of Cargill Financial Services, Inc. and Carval Investor Services (bothsubsidiaries of Cargill, Inc.).

9. Alberto P. Fenix, Jr., 71 years old, currently chairs the Audit Committee of VMC. Dr. Fenix isthe Chairman and President of Fenix Management and Capital, Inc., President of IvoclarVivadent, Inc., and Executive Director of the SPC Power Corporation. He is HonoraryPresident of the Philippine Chamber of Commerce and Industry (PCCI), President of the PCCIHuman Resources Development Foundation, Inc. and a trustee of the Angeles UniversityFoundation, Inc. Dr. Fenix holds a Bachelor’s Degree in Mathematics from the Ateneo deManila University and Master’s and Doctorate degrees in Industrial Management from theMassachusetts Institute of Technology.

27

10. Alvin C. Yu, age 42, Filipino, is the President of Narra Capital Investment Corporation,Bacolod DN Triumph Steel Corporation and Bacolod Twinstar Shipping Corporation. He is theVice President of VCY Sales Corporation and the Manager of Bacolod Triumph Hardware. Hegraduated from the Ateneo de Manila University with a Management Engineering degree.

11. Martin C. Yu, 40, serves as a Director of Victorias Milling Company, Inc. since Feb. 4, 2014, andhas been the President of Firefly Electric & Lighting Corporation since 2001. Mr. Yu has been aDirector of VCY Sales Corporation since 1998. He took up Business Management in the Ateneode Manila University.

In the subsequent organizational meeting of the Board of Directors, the following corporate officerswere appointed –

1. Wilson T. Young, Chairman of the Board of Directors

2. Anna Rosario V. Paner, Vice Chairman of the Board of Directors, Managing Director and CEO

3. Eduardo V. Concepcion, President & Chief Operating Officer

4. Terence D. Son Keng Po, Treasurer

5. Brian Keith F. Hosaka, Corporate Secretary

6. Eva A. Vicencio-Rodriguez, Assistant Corporate Secretary, Compliance and InformationOfficer, and Chief Administrative Officer.

7. Teresita V. Ilagan. Chief Finance Officer

8. Linley A. Retirado, Chief Manufacturing Officer

Executive Officers of VMC

1. Atty. Anna Rosario V. Paner (please see above)

2. Eduardo V. Concepcion (please see above)

3. Linley A. Retirado, age 54, Filipino, is currently occupying the position of the ChiefManufacturing Officer. He is a licensed Chemical Engineer. He was Chairman and President of PhilippineSugar Technologists Association, Inc. and currently member of the Board of Trustees.

4. Teresita V. Ilagan, 56 years old, Filipino, is the Chief Finance Officer of VMC. She is concurrentlyDirector and Treasurer of Victorias Foods Corporation (VFC). She also serves as treasurer of the followingVMC subsidiaries: Canetown Development Corporation (CDC) and Victorias Agricultural LandCorporation (VALCO), and Victorias Green Energy Corp. (VGEC), and she is also the assistant treasurer ofVictorias Golf & Country Club Inc. (VGCCI). She is a Certified Public Accountant and holds a MastersDegree in Business Administration from the Ateneo Business Graduate School.

5. Eva A. Vicencio-Rodriguez, age 47, Filipino, is the Chief Administrative Officer of VMC. Atty.Rodriguez holds a Master in Business Administration degree from the University of St. La Salle-Bacolod.She is also the Assistant Corporate Secretary and Compliance and Information Officer of the Corporation.She is likewise the Head of VMC’s Legal & Compliance Division and the Corporate Secretary of thefollowing VMC subsidiaries: Victorias Green Energy Corp. (VGEC), Victorias Foods Corporation (VFC),

28

Victorias Golf & Country Club, Inc. (VGCCI), and Canetown Development Corporation (CDC) where shelikewise serves as a Director. She is also a Director of Victorias Agricultural Land Corporation (VALCO).

To the knowledge and/or information of the Corporation, the above elected members of the Boardof Directors, are not, presently or during the last (5) years, involved or have been involved in any legalproceedings affecting/involving themselves and/or their property before any court of law oradministrative body in the Philippines or elsewhere and have not been convicted by final judgment of anyoffense, except as follows:

a. Vivian T. Tiongkiao vs. MERALCO, Paner, Hosaka, & Ypil Offices (PHY Law); ERC Case No.2010-059CC. Complainant filed a complaint against MERALCO and PHY Law to ensurecontinued service of electricity by MERALCO to a condominium unit owned by PHY Law butoccupied by Complainant. The case has been submitted for resolution;

b. Richard T. Divinagracia and Clinton Cayao vs. Victorias Milling Company, Inc./FrancisFerraris, Dept. Head/Eduardo V. Concepcion, President, RAB VI Case No. 10-10978-14, andRene Sobremisana vs. Victorias Milling Company, Inc. vs. Eduardo V. Concepcion, Presidentand COO, RAB VI Case No. 10-10944-14. For illegal dismissal, and money claims.

The said persons mentioned above are not related to each other in any way.

There is no person who is not a corporate officer of the Corporation who is expected to make asignificant contribution to the business. The Corporation, however, engages the services of consultants. Asof August 31, 2015, the Corporation has 9 consultants and none under special contract.

There were no transactions during the last two years or any proposed transactions, to which theCorporation was or is to be a party, in which any director or officers, any nominee for election as a director,any security holder or any member of the immediate family of any of the person mentioned had or is tohave a direct or indirect material interest.

ITEM 10 – EXECUTIVE COMPENSATION

The executive officers of the Corporation are its Managing Director and Chief Executive Officer(CEO), Atty. Anna Rosario V. Paner, President and Chief Operating Officer (COO), Mr. Eduardo V.Concepcion, Chief Finance Officer (CFO), Ms. Teresita V. Ilagan, Chief Manufacturing Officer (CMO), Mr.Linley A. Retirado, and Chief Administrative Officer (CAO), Atty. Eva A. Vicencio-Rodriguez.

The total annual compensation paid to all executive officers was all paid in cash. The total annualcompensation, which includes the basic salary, bonus and other compensation, for the past year amounts toThirty Two Million Pesos (Php32M).

AnnualCompensation

Salary Bonus and Other Compensation

Year 2016(projected)

2015 2014 2016(projected)

2015 2014

Top 5 Most HighlyCompensated Officers

18.6 M 15.1 M Not known 13.4 M 6.9M

All other officers as a groupunnamed

There are no other executive officers apart from the President andCOO, the Managing Director and CEO, the Chief Finance Officer(CFO), the Chief Manufacturing Officer (CMO) and ChiefAdministrative Officer (CAO).

29

Compensation of VMC Board of Directors

There is no compensatory plan or arrangement including payments to be received from theregistrant with respect to a named executive officer.

Employment Contracts

The Corporation entered into a Consultancy Contract with Mr. Roy C. Hautea, Mr. Justo ArcadioM. Solatorio, Mr. Victor T. Yu, Mr. Monserat T. Dumalaos, Mr. Enrique C. Hontiveros, Mr. Raymundo B.Reyes, Mr. Cris D. Tabligan, Mr. Mansueto C. Sioquim, and Ms. Catherine D. De Mesa.

Change in Control

As of August 30, 2015, the following are VMC’s principal stockholders: PCD Nominee Corporation– 47.64% Premier Network International, Ltd - 26.34%; LT Group, Inc. – 20.17%; and Narra CapitalInvestments Corp. – 16.66%.

ITEM 11 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Record and Beneficial Owners and Management

The following are known to VMC to be directly or indirectly the record or beneficial owner of morethan five percent (5%) of registrant’s voting securities (VMC has only one class of voting security, i.e.common shares) as of August 31, 2015:

TITLE ofCLASS

Name & Address of Record Owner andRelationship with Issuer

Citizenship Number ofShares Held

Percentage(%)

Common PCD Nominee Corporation Filipino/OtherAlien

1,257,703,731 47.64%

Common Premier Network International Ltd. BVI 695,470,059 26.34%Common LT Group, Inc. Filipino 532,473,797 20.17%Common Narra Capital Investment Corporation Filipino 439,812,102 16.66%

Security Ownership of Management as of August 31, 2015

TITLE ofClass

Name Citizenship No. ofShares

Percentage(%)

Common Anna Rosario V. Paner–ManagingDirector & CEO

Filipino 1,002 0.000%

Common Eduardo V. Concepcion – President &COO

Filipino 2,000 0.000%

ITEM 12 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Alvin T. Yu and Mr. Martin T. Yu are brothers.Mr. Michael G. Tan is related with Mr. Lucio K. Tan, Jr., the former being the brother of the latter.

30

PART IV – COPRORATE GOVERNANCE

ITEM 13 – CORPORATE GOVERNANCE

COMPLIANCE WITH LEADING PRACTICES ON CORPORATE GOVERNANCE

VMC substantially adopted all the provisions of the Manual on Corporate Governance, asprescribed by SEC Memorandum No. 2, Series of 2002. Further, VMC is committed and is trying its best tocomply with the provisions of the Corporation’s Manual on Good Corporate Governance.

Adherence thereof as well as to the other corporate principles and best practices is strongly advisedall throughout VMC in all its activities and undertakings.

ANNUAL CORPORATE GOVERNANCE REPORT (ACGR)

Please refer to the attached Changes and Updates in the Annual Corporate Governance Report(ACGR) dated September 24, 2015.

DEVIATION

There is no deviation from the provisions of the Manual on the election of independent directors,considering that the composition of the Corporation’s Board of Directors is determined under itsrehabilitation plan.

PART V- EXHIBITS AND SCHEDULES

A. EXHIBITS AND SCHEDULES

1. EXHIBIT “A” – Consolidated Audited Financial Statement as of August 31, 20152. EXHIBIT “B” – Reports on SEC Form 17-C3. EXHIBIT “C” – Consolidated Changes & Updates in the Annual Corporate Governance Report

B. REPORTS ON SEC FORM 17-C (EXHIBIT”B”)

1. Reported on April 28, 2015, the approval by the Securities and Exchange Commission of VictoriasMilling Company, Inc.’s Amendment of Articles of Incorporation on April 20, 2015.

2. Disclosed on February 13, 2015, the buy-back of 24,000 shares.



5. Reported on February 03, 2015, the result of the election of the members of the Board of Directors,Officers and the Board Committees with its corresponding composition, and the amendment ofSection 5.1 of the Manual on Corporate Governance as to the approval authority on expenditures.

6. Reported on January 9, 2015, the VMC Board of Directors authorized the setting up of a wholly-owned subsidiary to undertake any power-related projects and the approval of the list of nomineesto the Board of Directors for year 2015-2016 to be elected at the February 3, 2015 AnnualStockholders’ Meeting.

7. Reported on January 9, 2015, VMC’s increase in number of issued and outstanding shares of77,357,174 pursuant to the Corporation’s disclosure last October 10, 2015.

31

8. Reported on January 7, 2015, VMC furnished the Honorable Commission a copy of VMC’sapplication for listing of 663,524,384 common shares with the Philippine Stock Exchange.

9. Reported on December 8, 2014, VMC furnished the Honorable Commission a copy of VMC’sapplication for listing of 77, 357, 174 common shares with the Philippine Stock Exchange.

10. Reported on November 28, 2014, in compliance with SEC Memorandum Circular No. 20, series of2013, VMC submits the Certificates of Attendance of its Board of Directors, Messrs. Alvin C. Yu andMartin C. Yu to a Corporate Governance Training with SEC – Accredited Training Provider onNovember 21, 2014.

11. Disclosed on November 28, 2014, the approval of VMC Board of Directors of its Articles ofIncorporation to specify the principal address, to comply with SEC Memorandum Circular No. 6,series of 2014 and the closing of its Stock and Transfer Book on January 02, 2015.

12. Reported on November 21, 2014, VMC furnished the Honorable Commission a copy of VMC’sapplication for listing of 195,500,794 common shares with the Philippine Stock Exchange.

13. Reported on November 03, 2014, VMC informed the Honorable Commission that its Acting ChiefAdministrative Officer has attended the SEC – PSE Corporate Governance Forum on October 21,2014, in compliance with the SEC Memorandum Circular No. 20, series of 2013.

14. Reported on October 29, 2014, VMC furnished the Honorable Commission a copy of its PSE FormLR-1 (Comprehensive Corporate Disclosure on Issuance of Shares Private Placements, ShareSwaps, Property-for-Share Swaps or Conversion of Liabilities/Debt into Equity).

15. Reported on October 29, 2014, in compliance with SEC Memorandum Circular No. 20, series of2013, VMC submits the Certificate of Attendance of its Board of Director, Mr. Lucio K. Tan to aCorporate Governance Training with SEC – Accredited Training Provider on October 21, 2014.

16. Reported on October 25, 2014, the VMC Board of Directors approved the convening of the AnnualStockholders’ Meeting on February 3, 2015 at 8:00 o’clock in the morning and all stockholders ofrecord at the close of business on December 31, 2014 will be entitled to notice and to attend themeeting.

17. Reported on October 16, 2014, relative to its September 26, 2014 disclosure, the Board approved theissuance of 195,500,794 shares from the Corporation’s authorized but unissued capital stock toeffect the mandatory conversion into equity of the Corporation’s convertible notes, therebyincreasing the Corporation’s number of Issued and Outstanding Shares from 2,367,534,914 to2,563,035,708.

18. Reported on October 10, 2014, VMC’s Corporate Secretary has reported that the remainingunissued capital stock of the Corporation is 195,500,794 shares and not 195,511,324 as earlierreported.

19. Reported on September 26, 2014, the Board of Directors approved the following to comply with theDebt Restructuring Agreement: (a) The issuance of 272,857,968 shares in compliance with themandatory conversion into equity of the Convertible Notes amounting to Php272,857,968. (b) Inorder to effect 195,511,324 shares will be issued out of the Corporation’s unissued capital stock inOctober 2014; The balance of 77,346,644 shares will be issued out of and in support of an increase inthe Corporation’s authorized capital stock from 2,563,035,708 to 2,640,382,352, and (c) the filing of alisting application with the Philippine Stock Exchange covering 272,857,968 new shares as soon thesame shall have been issued.

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C O V E R S H E E Tfor

AUDITED FINANCIAL STATEMENTS

SEC Registration Number

P W - 3 6 4

C O M P A N Y N A M E

V I C T O R I A S M I L L I N G C O M P A N Y ,

I N C . A N D S U B S I D I A R I E S

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province )

V M C C O M P O U N D , J . J . O S S O R I O S T R

E E T , B R G Y . X V I , V I C T O R I A S C I T Y

, N E G R O S O C C I D E N T A L

Form Type Department requiring the report Secondary License Type, If Applicable

1 7 - A

C O M P A N Y I N F O R M A T I O N

Company’s Email Address Company’s Telephone Number Mobile Number

— (034) 399 3373 —

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)

— 1st Tuesday of February 08/31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation

Name of Contact Person Email Address Telephone Number/s Mobile Number

Teresita V. Ilagan — (034) 399 3373 —

CONTACT PERSON’s ADDRESS

NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commissionwithin thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.

2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records withthe Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for itsdeficiencies.

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INDEPENDENT AUDITORS’ REPORT

The Stockholders and the Board of DirectorsVictorias Milling Company, Inc.VMC Compound, J.J. Ossorio StreetBrgy. XVI, Victorias City, Negros Occidental

We have audited the accompanying consolidated financial statements of Victorias Milling Company,Inc. and Subsidiaries (the “Group”), which comprise the consolidated statement of financial positionas at August 31, 2015, and the consolidated statement of income, consolidated statement ofcomprehensive income, consolidated statement of changes in equity and consolidated statement ofcash flows for the year then ended, and a summary of significant accounting policies and otherexplanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements inaccordance with Philippine Financial Reporting Standards, and for such internal control asmanagement determines is necessary to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with Philippine Standards on Auditing. Those standards requirethat we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the entity’s internal control. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by management, as well asevaluating the overall presentation of the financial statements.

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

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global Limited

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- 2 -

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, thefinancial position of Victorias Milling Company, Inc. and subsidiaries as at August 31, 2015, and theirfinancial performance and cash flows for the year then ended in accordance with Philippine FinancialReporting Standards.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 1 to the consolidated financial statementswhich state that the Group is still under rehabilitation and debt restructuring programs.

The 15-year rehabilitation program includes a Debt Restructuring Agreement (DRA) as its keyelement under which the Group should be able to pay or convert to equity all its debts through thefollowing relevant features of the DRA as disclosed in Note16b: (b) conversion of P=1.1 billion loanson October 2, 2002; (a) conversion of P=2.4 billion loans into convertible notes on September 1, 2003;and (c) restructuring of the remaining balance of the loans on September 1, 2003 payable over a periodof 15 years. As of August 31, 2015, the Group already paid all its restructured loans and redeemed allof its convertible notes except those subject to mandatory conversion to common shares amounting toP=404.7 million.

The Parent Company is currently involved in a legal proceeding against a Bank in relation toconvertible notes issued under the Debt Restructuring Agreement (DRA) dated April 29, 2002. TheParent Company invoked its rights to redeem the convertible notes under the DRA while the Bankinvoked its right to convert the convertible notes into Parent Company’s common shares. In 2015, theParent Company extinguished its P=366.1 million liability with the Bank by virtue of a SEC en Bancdecision dated August 11, 2015 and by act of consigning the checks to the SEC appointedrehabilitation receiver on September 26, 2014. The Bank filed a petition to review the SEC en Bancdecision with the Court of Appeals on September 15, 2015. The outcome of this matter, includinglegal extinguishment of debt, depends upon the future events and cannot be presently determined.Any adjustments arising from the final outcome of this matter will be reflected in the consolidatedfinancial statements once determined.


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- 3 -

Other Matter

The consolidated financial statements of Victorias Milling Company, Inc. as at August 31, 2014 andfor the years ended August 31, 2014 and 2013 presented for comparative purposes, were audited byother auditors whose report dated December 15, 2014 expressed an unqualified opinion on thosefinancial statements. As part of our audit of the 2015 consolidated financial statements, we alsoaudited the adjustments described in Note 31 that were applied to the 2014 consolidated financialstatements and the consolidated statement of financial position as at August 31, 2013 to come up withconsolidated statement of financial position as at September 1, 2013 presented herein as correspondingfigures. In our opinion, such adjustments are appropriate and have been properly applied. We werenot engaged to audit, review, or apply any procedures to the 2014 and 2013 consolidated financialstatements of the company other than with respect to the adjustments, and accordingly, we do notexpress an opinion or any other form of assurance on the 2014 and 2013 consolidated financialstatements taken as a whole.

SYCIP GORRES VELAYO & CO.

Jessie D. CabalunaPartnerCPA Certificate No. 36317SEC Accreditation No. 0069-AR-3 (Group A), February 14, 2013, valid until February 13, 2016Tax Identification No. 102-082-365BIR Accreditation No. 08-001998-10-2015, March 24, 2015, valid until March 23, 2018PTR No. 4751262, January 5, 2015, Makati City

December 11, 2015


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VICTORIAS MILLING COMPANY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF FINANCIAL POSITION(Amounts in Thousands)


2015

2014(As restated -

Notes 3 and 31)

2013(As restated -

Notes 3 and 31)

ASSETSCurrent AssetsCash and cash equivalents (Notes 5 and 30) P=1,758,331 P=823,611 P=863,822Trade and other current receivables (Notes 6 and 30) 136,137 120,594 446,129Available-for-sale financial assets (Notes 7, 30 and 31) 502,787 216,320 −Inventories (Note 8) 348,737 244,038 410,001Other current assets (Note 9) 80,692 399,189 54,736

Total Current Assets 2,826,684 1,803,752 1,774,688Noncurrent AssetsProperty, plant and equipment (Note 11) 4,242,142 4,420,204 4,236,007Investment properties (Note 12) 840,941 1,130,904 1,131,361Other noncurrent assets (Note 13) 411,852 49,960 67,291


LIABILITIES AND EQUITYCurrent LiabilitiesTrade and other payables (Notes 14 and 31) P=542,706 P=733,264 P=351,136Income tax payable 111,295 60,339 63,559

Total Current Liabilities 654,001 793,603 414,695Noncurrent LiabilitiesProvisions (Note 15) 1,418,876 1,377,568 841,941Long-term debts - net of current portion (Note 16) − − 2,544,633Retirement liability (Note 26) 19,177 13,618 10,730Deferred tax liabilities - net (Note 24) 356,281 433,425 568,165Other noncurrent liabilities 6,000 6,000 6,000


EquityCapital stock (Note 17) 2,640,393 2,367,535 2,297,485Convertible notes awaiting conversion (Note 17) 404,668 677,526 203,093Interest on convertible notes awaiting conversion (Note 17) 330,420 550,906 135,803Additional paid-in capital (Note 17) 512,750 292,264 244,621Other comprehensive income 522,759 542,805 501,058Retained earnings (Deficit) 1,442,130 333,215 (559,338)Conversion feature on convertible notes (Note 17) − − 472Treasury stock (Note 17) (11) (11) (11)

5,853,109 4,764,240 2,823,183Non-controlling interest 14,175 16,366 −

Total Equity 5,867,284 4,780,606 2,823,183P=8,321,619 P=7,404,820 P=7,209,347

See accompanying Notes to Consolidated Financial Statements.

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VICTORIAS MILLING COMPANY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME(Amounts in Thousands)

Years Ended August 31

2015

2014(As restated -

Notes 3 and 31)

2013(As restated -

Notes 3 and 31)

REVENUE (Note 20)Sale of goods P=3,721,916 P=3,597,306 P=3,043,057Rendering of services 1,276,274 1,412,508 1,371,333

4,998,190 5,009,814 4,414,390

COST OF GOODS SOLD AND SERVICES (Note 21)Cost of sale of goods 2,160,758 2,130,553 1,966,247Cost of rendering of services 850,319 822,131 833,663

3,011,077 2,952,684 2,799,910

GROSS PROFIT 1,987,113 2,057,130 1,614,480

OPERATING EXPENSES (Note 23)General and administrative 395,510 275,818 356,996Selling 145,529 135,902 159,162

541,039 411,720 516,158

INCOME FROM OPERATIONS 1,446,074 1,645,410 1,098,322

OTHER INCOME - NET (Note 22) 142,067 125,383 793,611

FINANCE COST (Note 16) 41,308 766,130 862,332

INCOME BEFORE INCOME TAX 1,546,833 1,004,663 1,029,601

INCOME TAX EXPENSE (Note 24) 462,513 135,591 357,879

NET INCOME P=1,084,320 P=869,072 P=671,722

Net income attributable to:Equity holders of Victorias Milling Company, Inc. P=1,082,129 P=868,227 P=671,722Non-controlling interests 2,191 845 −

P=1,084,320 P=869,072 P=671,722

Earnings Per Share (Note 18)Net income attributable to equity holders of

Victorias Milling Company, Inc.Basic P=0.42 P=0.37 P=0.30Diluted 0.37 0.29 0.20


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VICTORIAS MILLING COMPANY, INC. AND SUBSIDIARIECONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in Thousands)


2015

2014(As restated -

Note 31)

2013(As restated -

Note 31)

NET INCOME P=1,084,320 P=869,072 P=671,722

OTHER COMPREHENSIVE INCOME (LOSS)Items that will be reclassified to profit or loss in

subsequent periods:Net unrealized gain on available-for-sale financial

assets (Note 7) 2,589 102 –Items that will not be reclassified to profit or loss in

subsequent periods:Revaluation increment of property, plant and

equipment (Note 11) – 117,361 283,406Remeasurement gains (losses) on retirement liability

(Note 26) (172) (1,101) (1,739)Tax effect relating to components of other

comprehensive income (loss) 51 (34,878) (84,500)2,468 81,484 197,167

TOTAL COMPREHENSIVE INCOME P=1,086,788 P=950,556 P=868,889Total comprehensive income attributable to:

Equity holders of Victorias Milling Company, Inc. P=1,088,979 P=949,711 P=868,889Non-controlling interests (2,191) 845 −

P=1,086,788 P=950,556 P=868,889


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VICTORIAS MILLING COMPANY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(Amounts in Thousands)

Year Ended August 31, 2015Equity attributable to equity holders of Victorias Milling Company, Inc.

CapitalStock

(Notes 16band 17)

ConvertibleNotes

AwaitingConversion(Note 16b2ii)

Interest onConvertible

NotesAwaiting

Conversion(Note 16b2iii)

AdditionalPaid-inCapital

RevaluationIncrement

onProperty,

Plantand

Equipment(Notes 11

and 17d)

RetirementBenefit

Reserve(Notes 26c

and 26)

NetUnrealized

Gain onAvailable-

for-saleFinancial

Assets(Note 7)

RetainedEarnings(Deficit)(Note 17)

ConversionFeature on

ConvertibleNotes

(Note 16b2ii)

TreasuryStock

(Note 17f) Total

Non-Controlling

Interest Total EquityBalance at beginning of year, as

previously reported P=2,367,535 P=677,526 P=550,906 P=292,264 P=177,062 (P=1,988) P=– P=738,191 P=– (P=11) 4,801,485 P=16,475 P=4,817,960Effects of restatements (Note 31) – – – – 367,629 – 102 (404,976) – – (37,245) (109) (37,354)Balance at beginning of year, as

restated 2,367,535 677,526 550,906 292,264 544,691 (1,988) 102 333,215 – (11) 4,764,240 16,366 4,780,606Conversion of convertible notes 272,858 (272,858) (220,486) 220,486 – – – – – – − − –Transfer of revaluation increment to

and from retained earnings(deficit) – – – – (22,514) – – 22,514 – − − –

Net income – – – – – – – 1,086,401 – – 1,086,401 (2,191) 1,084,210Other comprehensive income - net

of tax effect – – – – – (121) 2,589 – – – 2,468 − 2,468Total comprehensive income (loss) – – – – – (121) 2,589 1,086,401 – – 1,088,869 (2,191) 1,086,678Balance at end of year P=2,640,393 P=404,668 P=330,420 P=512,750 P=522,177 (2,109) P=2,691 P=1,442,130 P=– (P=11) 5,853,109 P=14,175 P=5,867,284

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Capital Stock(Notes 16b

and 17)

ConvertibleNotes

AwaitingConversion(Note 16b2ii)


NotesAwaiting



RevaluationIncrement on

Property,Plant

andEquipment(Notes 11

and 17d)

RetirementBenefit

Reserve(Notes 25c

and 26)

NetUnrealized

Gain onAvailable-

for-saleFinancial

Assets(Note 7)

RetainedEarnings(Deficit)

(Note 17)


ConvertibleNotes

(Note 16b2ii)

TreasuryStock

(Note 17f) Total

Non-Controlling

Interest Total EquityBalance at beginning of year, as

previously reported P=2,297,485 P=203,093 P=135,803 P=244,621 P=134,646 P=– P=– (P=212,071) P=472 (P=11) 2,804,038 P=– P=2,804,038Effects of restatements (Note 31) – – – – 367,629 (1,217) – (347,267) – – 19,145 − 19,145Balance at beginning of year, as

restated 2,297,485 203,093 135,803 244,621 502,275 (1,217) – (559,338) 472 (11) 2,823,183 − 2,823,183Conversion of convertible notes 70,050 (70,050) (47,171) 47,643 – – – – (472) – − − –Additional convertible notes

during the year – 544,483 462,274 – – – – – – – 1,006,757 − 1,006,757Transfer of revaluation increment to

deficit from depreciation onappraisal increase - net ofdeferred tax – – – – (24,216) – – 24,216 – – − − –

Revaluation increment of property,plant and equipment - net ofdeferred tax – – – – 66,632 – – – – – 66,632 15,631 82,263

Net income – – – – – – – 868,337 – – 868,337 735 869,072Other comprehensive income - net of

tax effect – – – – – (771) 102 – – – (669) − (669)Total comprehensive income (loss) – – – – 66,632 (771) 102 868,337 − – 934,300 16,366 950,666Balance at end of year P=2,367,535 P=677,526 P=550,906 P=292,264 P=544,691 (P=1,988) P=102 P=333,215 P=– (P=11) 4,764,240 P=16,366 P=4,780,606

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and 17)

ConvertibleNotes

AwaitingConversion

(Note 16b2ii)


NotesAwaiting




Property, Plantand Equipment

(Notes 11and 17d)

RetirementBenefit

Reserve(Notes 27c

and 26)

Net UnrealizedGain on

Available-for-sale Financial

Assets(Note 9)


(Note 17)


ConvertibleNotes

(Note 16b2ii)

TreasuryStock

(Note 17f) Total

Non-Controlling

Interest TotalBalances at beginning of year, as

previously reported P=2,024,627 P=459,401 P=198,782 P=62,130 P=41,166 P=– P=– (P=968,336) P=548 (P=11) P=1,818,307 P=− P=1,818,307Effects of restatements (Note 31) – – – – 299,675 – – (299,675) – – – − –Balances at beginning of year, as

restated 2,024,627 459,401 198,782 62,130 340,841 – – (1,268,011) 548 (11) 1,818,307 − 1,818,307Conversion of convertible notes 272,858 (272,858) (182,415) 182,491 – – – – (76) – − − −Additional convertible notes

during the year – 16,550 119,436 – – – – – – – 135,986 − 135,986Transfer of revaluation increment to

deficit from depreciation onappraisal increase - net ofdeferred tax – – – – (36,950) – – 36,950 – – − − −

Revaluation increment of property,plant and equipment - net ofdeferred tax – – – – 198,384 – – – – – 198,384 − 198,384

Net income – – – – – – 671,723 – – 671,723 − 671,723Other comprehensive income - net oftax effect – – – – – (1,217) – – – – (1,217) – (1,217)Total comprehensive income – – – – 198,384 (1,217) − 671,723 – – 868,890 – 868,890Balance at end of year P=2,297,485 P=203,093 P=135,803 P=244,621 P=502,275 (P=1,217) P=– (P=559,338) P=472 (P=11) P=2,823,183 P=− P=2,823,183

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VICTORIAS MILING COMPANY, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in Thousands)


2015

2014(As restated -

Note 31)

2013(As restated -

Note 31)

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax P=1,546,723 P=1,004,663 P=1,029,601Adjustments for:

Depreciation (Note 11) 300,253 275,259 275,706Loss on revaluation of investment properties 27,631 – –Gain on sale of property, plant and equipment

(Note 22) (33) (568) (268)Provision for (recovery of) write-down of inventory to

NRV (Note 8) 5,410 (20,529) 22,194Interest income (Notes 5 and 22) 24,915 (11,041) (38,546)Provisions for litigation claims (Note 15) – 279,509 527,953Net retirement benefit cost (income) (Note 25) 6,557 3,895 (12,997)Casualty loss (Note 22) – 732 –Net unrealized foreign exchange losses (gains) – 379 (7)Gain on sale of inventories – (434) –Fair value gain on investment property (Note 22) – – (358,054)Gain on extinguishment of liabilities (Note 22) – (67) (280,143)

Operating income before working capital changes 1,911,456 1,531,798 1,165,439Changes in operating assets and liabilities:

Decrease (increase) in:Trade and other current receivables (116,587) (238,744) (313,740)Inventories (110,109) (145,000) (62,642)Other current assets 318,456 344,453 450,665

Increase (decrease) in:Trade and other current payables (190,558) 381,463 28,427

Net cash generated from operations 1,812,658 1,873,970 1,268,149Interest received (23,431) 23,431 38,546Retirement benefits paid (998) (1,007) (66,793)Income tax paid (488,781) (308,806) (433,047)Net cash provided by operating activities 1,299,448 1,587,588 806,855

CASH FLOWS FROM INVESTING ACTIVITIESNet addition (sale) of available-for-sale financial assets (283,878) (216,320) 1,770,679Decrease (increase) in other noncurrent assets – 275,120 –Proceeds from sale of property, plant and equipment 125,288 3,148 268Additions to property, plant and equipment (247,446) (407,989) (321,226)Net cash provided by (used in) investing activities (406,036) (346,041) 1,449,721

(Forward)

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2015

2014(As restated -

Note 31)

2013(As restated -

Note 31)

CASH FLOWS FROM FINANCING ACTIVITIESAmortization of discount on provisions

(Notes 15 and 22) P=41,308 P=256,118 P=334,379Payment of long-term debt − (959,846) (2,325,458)Finance cost paid − (578,030) (164,397)Net cash provided by (used in) financing activities 41,308 (1,281,758) (2,489,855)

NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS 934,720 (40,211) (222,670)

CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR 823,611 863,822 1,086,492

CASH AND CASH EQUIVALENTSAT END OF YEAR P=1,758,331 P=823,611 P=863,822


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VICTORIAS MILLING COMPANY, INC. AND SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Reporting Entity and Status of Operations

Reporting EntityVictorias Milling Company, Inc. (herein referred to as the “Parent Company” or “VMC”) wasorganized and registered originally on May 7, 1919 with the Philippine Securities andExchange Commission (SEC) with an original corporate life of 50 years or untilMay 7, 1969. The corporate life was extended for an additional period of 50 years or untilMay 7, 2019. The primary purpose of the Parent Company is to operate mill and refineryfacilities for sugar and allied products, as well as engineering services.

On July 3, 2013, the SEC approved the Par ent C ompa ny’s amended articles ofincorporation to include, as among its business purposes, the ethanol and/or potablealcohol production, infrastructure, transportation, telecommunication, mining, water, powergeneration, recreation, and financial or credit consultancy.

The Parent Company and its subsidiaries and associate (collectively herein referred to as the“Group”) were incorporated in the Philippines (see Note 3).

The Parent Company’s shares of stock are listed in the Philippine Stock Exchange (PSE). Thetrading of its shares was temporarily suspended in 1997 on the ground of alleged fraudulentmisrepresentation of material information in the Group’s financial statements as well as inthe disclosure of VMC. Currently, VMC is s t i l l under SEC receivership. In 2012, the SECand the PSE lifted the order of suspension of the trading of VMC’s shares. Consequently, onMay 21, 2012, the trading of VMC shares resumed.

The Parent Company’s registered office, principal place of business and manufacturing plantis VICMICO Compound, J.J. Ossorio Street, Barangay XVI, Victorias City, NegrosOccidental.

The accompanying consolidated financial statements were approved and authorized for issue bythe Board of Directors (BOD) on December 11, 2015.

Management’s Assessment and PlansThese consolidated financial statements have been prepared on a going concern basis, whichcontemplates the realization of assets and the settlement of liabilities in the normal course ofbusiness. As disclosed in Notes 2 and 16, the Group is still under rehabilitation and debtrestructuring programs.

The actions made by management during the past several years to improve the Group’soperations and its financial position achieved the following:

· Generated net income of P=1.08 billion, P=869.07 million and P=671.72 million for theyears ended August 31, 2015, 2014, and 2013, respectively;

· Significant improvements in the capital structure of the Group which resulted inretained earnings.

· Conversion of certain convertible notes to equity, in accordance with the DebtRestructuring Agreement (DRA) (see Note 16a2iii);

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· Resumption of the trading of the Parent Company’s shares in the Philippine StockExchange (PSE) on May 21, 2012;

· Full payment of the Group’s outstanding restructured loans in 2013 (see Note 16a3); and

· Redemption of all its convertible notes except those awaiting mandatory conversionamounting to P=404.67 million and P=677.53 million as at August 31, 2015 and 2014,respectively (see Note 16a2iii).

In its efforts to achieve continuing successful operations and effective implementation of theprovisions of the rehabilitation plan, the Group has continuously focused its corporateobjectives, goals, strategies, and measures to attain sustainable financial stability through,among others: (a) synchronization of the refined sugar and raw sugar operations; (b)expansion of the boiling house to balance capacity with that of the A and C mills; (c)enhancement of mill efficiency; (d) increase profitability by addressing cost efficiency(which includes, among others, trimming down of corporate overtime expenses, minimizingcontracted labor/services, and sourcing out and maximizing use of cheaper fuel substitutesinstead of bunker fuel) and improving tolling fees; and (e) ongoing program of rightsizingmanpower.

Moreover, the Group’s management has undertaken the following action plans to improve itsfinancial position and its corporate governance structure:

1. Recapitalization and quasi-reorganization to reduce the deficit through reduction incapital stock and application of appraisal increment as discussed in Note 17.

2. Conversion of debt into equity as discussed in Note 16.

3. Conversion of debt into convertible notes and ultimately, conversion of certainconvertible notes to equity as disclosed in Note 16.

4. Management of cash flows.

As provided for in Section 13 of the DRA, in the event that VMC’s net cash flows at theend of a crop year exceeds the projected net cash flows for that particular crop year,VMC shall prepay in inverse order the restructured loans without penalty equal to 75% ofthe incremental net cash flows (defined as net income after tax plus depreciation andother non-cash charges), as provided for in the Alternative Rehabilitation Plan (ARP).

Furthermore, as per section 13.2 of the DRA, in the event that the restructured loans arefully settled before the fifteen (15) years repayment period, VMC cash flow in excess ofCapital Expenditure requirements shall be used to pay/redeem the convertible note(principal plus accumulated interest).

5. Composition of the BOD and appointment of Management Committee (MANCOM) bythe SEC.

Effective December 16, 2002, the new BOD (which replaced the MANCOM) consists ofthe following: three representatives from the existing stockholders, one representativefrom the secured creditors, six representatives from creditors with debt conversion, andone joint venture partner. Further, the SEC issued an Order dated January 27, 2003appointing Atty. Luis Ma. G. Uranza as the Rehabilitation Receiver to monitor every

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year, together with the new BOD elected and committees, the implementation of theARP. The composition of the board seats was subsequently amended as discussed inNote 2.

2. Rehabilitation and Debt Restructuring Programs

Discussed below are the series of events leading to the finalization of the rehabilitation anddebt restructuring programs of the Group.

Application for Suspension of Payment to CreditorsOn July 4, 1997, VMC filed with the SEC a Petition for the: (a) Declaration of Suspension ofPayment to Creditors, (b) Approval of a Rehabilitation Plan, and (c) Appointment of aMANCOM which was tasked to submit a feasible and viable rehabilitation plan for VMC.

Rehabilitation Plans and Amendments thereto:

1. Rehabilitation Plan as of September 25, 1998, subject to the terms of the FirstAddendum to the Rehabilitation Plan dated February 5, 1999 and of the SecondAddendum to the Rehabilitation Plan dated July 22, 1999, as approved by the SEC in itsorders dated August 17 and 19, 1999, respectively, (herein collectively referred to as the“Original Rehabilitation Plan” or “ORP”).

The salient features of the ORP follow:

i. Reduction in the authorized capital stock of VMC from P=2.7 billion consisting of270 million shares of common stock at P=10 par value per share to P=495,957,670consisting of 170,432,189 shares of common stock at P=2.91 par value per share(see Note 17d.1);

ii. Fresh capital infusion of around P=567 million through a public bidding which wasdeclared a failure for the reason that the deadline of submission of bids had expiredwithout any bid having been submitted;

iii. The stockholders shall have no pre-emptive right to the increase of P=1.5 billion sharesof common stock or any shares to be issued to accommodate the conversion of anyinterests earned on the convertible notes to common shares;

iv. VMC shall honor its contractual obligations to the MJ Ossorio Pension Fundretirees;

v. Implementation of a business strategy for operating improvements, which includemanpower reduction, upgrading of certain mills and other equipment, anddivestment of non-profitable business units;

vi. Sale of non-strategic assets and subsidiaries;

vii. Restructuring of loans from banks; and

viii. Debt-to-equity conversion.

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2. ARP as of May 11, 2000, as approved by the SEC in its Order dated November 29, 2000.

In view of the failure of the public bidding to raise fresh capital of aroundP=567 million, the MANCOM, as mandated by ORP, submitted an ARP on May 11, 2000which was approved by the SEC on November 29, 2000.

The basic features of the ARP follow:

i. Increase in the authorized capital stock from P=495.96 million consistingof 495.96 million shares of common stock at P=1 par value per share toP=4.61 billion consisting of 4.60 billion shares of common stock at P=1 par value pershare (see Note 17d.3). The new capital stock of P=4.61 billion will be allocated amongthe initial paid-in capital of P=1.60 billion, conversion of a portion of unsecuredloan into convertible notes of VMC in the amount of P=2.4 billion, and contingentRefined Sugar Invoice/Delivery Orders (RSDOs) of P=630 million representing theprincipal amounts of loans allegedly obtained;

ii. Conversion into equity of all unpaid interest and part of the principal of theunsecured loan amounting to P=1.1 billion;

iii. Conversion of a portion of unsecured loan into convertible notes amounting toP=2.4 billion;

iv. Restructuring of the secured and unsecured loans amounting to P=4.4 billion over aperiod of fifteen years, including a 3-year grace period as to the principal, at 10%annual interest for peso loans and 6% for dollar loans; and

v. Call for an acceptable joint venture partner to provide additional cash ofapproximately P=300 million payable after three years or an option to convert the loaninto equity.

All other terms and conditions of the ORP which have been previously approved by theSEC remain. The 15-year DRA took effect on September 1, 2003 (see Note 16).

Prayer to Ammend its ARP and DRA and be allowed to Elect Board pursuant to its By-LawsOn July 19, 2013, VMC filed a Manifestation and Motion dated July 18, 2013 with the SECSpecial Hearing Panel 1. In the said pleading, VMC manifested that on May 31, 2013,VMC caused the full payment of its Restructured Loans under the ARP and DRA therebyrendering its loan obligations to its Secured Creditors and Creditors with Debt Conversionfully satisfied. Consequently, the Board seats reserved for the Secured Creditors andCreditors with Debt Conversion have become functus officio. VMC prayed that it beauthorized to amend its ARP and DRA and be allowed to elect its Board pursuant to its By-Laws.

In an Order dated January 27, 2014, the SEC Special Hearing Panel 1 denied theManifestation and Motion dated July 18, 2013 of VMC. It also directed VMC to elect itsB O D in accordance with the ARP and DRA where the Secured Creditors and Creditorswith Debt Conversion will have one (1) seat and seven (7) seats, respectively.

On February 7, 2014, VMC filed with the SEC En Banc a Petition for Review on Certiorari(Re: Order dated January 27, 2014 issued by the SEC Special Hearing Panel 1) datedFebruary 6, 2014, which was docketed as SEC En Banc Case No. 02-14-317.

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On December 1, 2014, VMC filed a Notice of Withdrawal of Petition for Review on Certiorari(Re: Order dated January 27, 2014 issued by the SEC Special Hearing Panel 1) datedFebruary 6, 2014. As of August 31, 2015, no update on the notice of withdrawal of petition isreceived.

Prayer to Ammend its ARP and DRA by Reallocating the Board Seat previously reserved tothe Joint Venture PartnerOn November 12, 2012, VMC filed a Manifestation and Motion dated November 12, 2012with the SEC Special Hearing Panel 1 praying that VMC be authorized to amend its ARPand DRA to allocate the Board seat previously reserved to the Joint Venture Partner as anadditional Board seat for Creditors with Debt Conversion because the joint venture partneropted not to convert the loan into equity but be paid instead.

In an Order dated March 3, 2014, the SEC Special Hearing Panel 1 granted theManifestation and Motion dated November 12, 2012 and ordered the amendment of Part IV(4) of the ARP and Section 21 of the DRA to read as follows: three (3) seats for existingshareholders, one (1) seat for secured creditors and seven (7) seats for creditors with debtconversion.

On March 24, 2014, VMC filed with the SEC En Banc a Petition for Review on Certiorari(Re: Order dated March 3, 2014 issued by the SEC Special Hearing Panel 1) withMotion for Consolidation with SEC En Banc Case No. 02-14-317 dated March 21, 2014,which was docketed as SEC En Banc Case No. 03-14-322.

On December 1, 2014, VMC filed a Notice of Withdrawal of Petition for Review on Certiorari(Re: Order dated March 3, 2014 issued by the SEC Special Hearing Panel 1) withMotion for Consolidation with SEC En Banc Case No. 02-14-317 dated March 21, 2014.As of August 31, 2015, no update on the notice of withdrawal of petition is received.

Since March 3, 2014, no further updates or revisions were made on the ORP, ARP andDRA.

Litigations against the ARPVMC’s former management, in their comments and replies filed with the SEC, manifests theirstrong opposition to the ARP. Also, three creditor banks, on various dates, filed theiropposition to the ARP.

After the conduct of litigation, the Supreme Court, in its Resolution dated May 28, 2010,denied the petition filed by Mr. Mañalac, et al. for failure to show any reversible error in thechallenged decision and resolution as to warrant the exercise of its discretionary appellatejurisdiction. With the denial of the petition, there is no more legal impediment in thecontinued implementation of the ARP as approved by the SEC.

3. Summary of Significant Accounting Policies

Basis of PreparationThese financial statements have been prepared on the historical cost basis except foravailable-for-sale (AFS) financial assets and investment properties that have been measuredat fair value and property, plant and equipment which are carried at revalued amounts.These financial statements are presented in Philippine peso, which is the Parent Company

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and its Subsidiaries’ functional currency. All financial information in Philippine pesohas been rounded off to the nearest thousands, except when otherwise stated.

The Group presents an additional statement of financial position at the beginning of theearliest period presented when there is a retrospective application of an accounting policy, aretrospective restatement, or a reclassification of items in financial statements. An additionalstatement of financial position as at September 1, 2013 is presented in these consolidatedfinancial statements to show the adjustments and reclassifications discussed in Note 31 to theconsolidated financial statements.

Certain amounts shown on the face of the consolidated financial statements do not correspondto the audited August 31, 2014 and 2013 consolidated financial statements and reflectadjustments made. Refer to Note 31 for the nature and impact of prior period adjustmentsand reclassifications made.

Statement of ComplianceThe accompanying consolidated financial statements have been prepared in compliance withPhilippine Financial Reporting Standards (PFRS).

Basis of ConsolidationThe consolidated financial statements comprise the financial statements of the Group as ofAugust 31, 2015 and 2014 and for each of the three years in the period ended August 31, 2015.

Control is achieved when the Group is exposed, or has rights, to variable returns from itsinvolvement with the investee and has the ability to affect that return through its power over theinvestee. Specifically, the Group controls an investee if and only if the Group 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.

When the Group has less than a majority of the voting or similar rights of an investee, the Groupconsiders all relevant facts and circumstances in assessing whether it has power over an investee,including:· The contractual arrangement with the other vote holders of the investee· Rights arising from other contractual arrangements· The Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicatethat there are changes to one or more of the three elements of control. Consolidation of asubsidiary begins when the Group obtains control over the subsidiary and ceases when the Grouploses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired ordisposed of during the year are included or excluded in the consolidated financial statements fromthe date the Group gains control or until the date the Group ceases to control the subsidiary.

The financial statements of the subsidiaries are prepared for the same reporting period as theParent Company, using consistent accounting policies. All intra-group balances, transactions,unrealized gains and losses resulting from intra-group transactions and dividends are eliminated infull.

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Non-controlling interests represent the portion of profit or loss and net assets in subsidiaries notwholly owned and are presented separately in the consolidated statement of income, consolidatedstatement of comprehensive income and consolidated statement of changes in equity and withinequity in the consolidated statements of financial position, separately from the Company’s equity.

Total comprehensive income within a subsidiary is attributed to the non-controlling interests evenif that results in a deficit balance.

A change in the ownership interest of a subsidiary, without loss of control, is accounted for as anequity transaction. If the Group loses control over a subsidiary, it:· Derecognizes the assets (including goodwill) and liabilities of the subsidiary, the carrying

amount of any non-controlling interest and the cumulative translation differences recorded inequity.

· Recognizes the fair value of the consideration received, the fair value of any investmentretained and any surplus or deficit in profit or loss.

· Reclassifies the parent’s share of components previously recognized in other comprehensiveincome to profit or loss or retained earnings, as appropriate.

The consolidated financial statements represent the consolidation of the financial statements of theParent Company and the following subsidiaries:

Percentages ofEffective Ownership

Nature of Business 2015 2014Subsidiaries: Victorias Foods Corporation (VFC) Food Processing and Canning 100% 100% Victorias Agricultural Land Corporation (VALCO) Agricultural Land Leasing and

Cultivation100 100

Victorias Green Energy Corporation (VGEC) Co-generation of energy 100 −Canetown Development Corporation (CDC) Real Estate Development and Selling 100* 100*

Victorias Golf and Country Club, Inc. (VGCCI) Non-Profit Golf Facilities 81 81 Victorias Quality Packaging Company, Inc. (VQPC) Manufacture of Bags and Packaging

Materials55 55

Associate:Victorias Industrial Gases Corporation (VIGASCO) Gas dealership 30 30

*inclusive of 12% indirect ownership

In June 2012, the BOD of VQPC approved to cease VQPC’s operations effective July2012. As at August 31, 2015 and 2014, VQPC is undergoing liquidation process as approvedby its BOD and stockholders.

On April 8, 2015, the Parent Company incorporated VGEC, a wholly-owned subsidiary. Itsprimary purpose is to carry on the business of generation of power derived from renewableenergy resources for wholesale of electricity to power companies, distribution utilities,electric cooperatives, retail electricity suppliers, aggregators and other customers.

Adoption of New and Amended Accounting Standards and InterpretationsThe accounting policies adopted in the preparation of the Group’s financial statements areconsistent with those of the previous financial year except for the adoption of the followingnew and amended standards and Philippine Interpretations effective as of September 1, 2014.

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The adoption of these amendments and interpretations did not have any significant impact on theGroup’s financial statements.

· Investment Entities (Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12,Disclosure of Interests in Other Entities, and PAS 27, Separate Financial Statements), theseprovide an exception to the consolidation requirement for entities that meet the definition ofan investment entity under PFRS 10. The exception to consolidation requires investmententities to account for subsidiaries at fair value through profit or loss. The amendments mustbe applied retrospectively, subject to certain transition relief.

· PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and FinancialLiabilities (Amendments), clarifies the meaning of ‘currently has a legally enforceable right toset-off’ and the criteria for non-simultaneous settlement mechanisms of clearing houses toqualify for offsetting and are applied retrospectively.

· PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives andContinuation of Hedge Accounting (Amendments), provide relief from discontinuing hedgeaccounting when novation of a derivative designated as a hedging instrument meets certaincriteria and retrospective application is required.

· PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets(Amendments), remove the unintended consequences of PFRS 13, Fair Value Measurement,on the disclosures required under PAS 36. In addition, these amendments require disclosureof the recoverable amounts for assets or cash-generating units (CGUs) for which impairmentloss has been recognized or reversed during the period.

· Philippine Interpretation IFRIC 21, Levies, clarifies that an entity recognizes a liability for alevy when the activity that triggers payment, as identified by the relevant legislation, occurs.For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies thatno liability should be anticipated before the specified minimum threshold is reached.Retrospective application is required for IFRIC 21.

Annual Improvements to PFRSs (2010-2012 cycle)In the 2010 - 2012 annual improvements cycle, seven amendments to six standards were issued,which included an amendment to PFRS 13, Fair Value Measurement. The amendment toPFRS 13 is effective immediately and it clarifies that short-term receivables and payables with nostated interest rates can be measured at invoice amounts when the effect of discounting isimmaterial. This amendment has no impact on the Group.

Annual Improvements to PFRSs (2011-2013 cycle)In the 2011 - 2013 annual improvements cycle, four amendments to four standards were issued,which included an amendment to PFRS 1, First-time Adoption of Philippine Financial ReportingStandards-First-time Adoption of PFRS. This amendment has no impact on the Group as it is nota first time PFRS adopter.

Future Changes in Accounting PoliciesThe Group will adopt the following relevant standards and interpretations when these becomeeffective. The Group does not expect the adoption of the following relevant standards andinterpretations to have a significant impact on its financial statements.

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Effective January 1, 2015 (fiscal year 2016)

· PFRS 9, Financial Instruments - Classification and Measurement (2010 version), reflects thefirst phase on the replacement of PAS 39 and applies to the classification and measurement offinancial assets and liabilities as defined in PAS 39, Financial Instruments: Recognition andMeasurement. PFRS 9 requires all financial assets to be measured at fair value at initialrecognition.

A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequentlymeasured at amortized cost if it is held within a business model that has the objective to holdthe assets to collect the contractual cash flows and its contractual terms give rise, on specifieddates, to cash flows that are solely payments of principal and interest on the principaloutstanding. All other debt instruments are subsequently measured at fair value through profitor loss. All equity financial assets are measured at fair value either through othercomprehensive income (OCI) or profit or loss. Equity financial assets held for trading must bemeasured at fair value through profit or loss. For FVO liabilities, the amount of change in thefair value of a liability that is attributable to changes in credit risk must be presented in OCI.The remainder of the change in fair value is presented in profit or loss, unless presentation ofthe fair value change in respect of the liability’s credit risk in OCI would create or enlarge anaccounting mismatch in profit or loss. All other PAS 39 classification and measurementrequirements for financial liabilities have been carried forward into PFRS 9, including theembedded derivative separation rules and the criteria for using the FVO. The adoption of thefirst phase of PFRS 9 will have an effect on the classification and measurement of the Group’sfinancial assets, but will potentially have no impact on the classification and measurement offinancial liabilities.

PFRS 9 (2010 version) is effective for annual periods beginning on or after January 1, 2015.This mandatory adoption date was moved to January 1, 2018 when the final version ofPFRS 9 was adopted by the Philippine Financial Reporting Standards Council (FRSC). Suchadoption, however, is still for approval by the Board of Accountancy (BOA).

· PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments)requires an entity to consider contributions from employees or third parties when accountingfor defined benefit plans.

Annual Improvements to PFRSs (2010-2012 cycle)The Annual Improvements to PFRSs (2010-2012 cycle) are effective for annual periods beginningon or after January 1, 2015 (fiscal year 2016) and are not expected to have a material impact onthe Group.

· PFRS 2, Share-based Payment - Definition of Vesting Condition· PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business

Combination· PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Revaluation

Method - Proportionate Restatement of Accumulated Depreciation and Amortization· PAS 24, Related Party Disclosures - Key Management Personnel

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Annual Improvements to PFRSs (2011-2013 cycle)The Annual Improvements to PFRSs (2011-2013 cycle) are effective for annual periods beginningon or after January 1, 2015 and are not expected to have a material impact on the Group.

· PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements· PFRS 13, Fair Value Measurement - Portfolio Exception· PAS 40, Investment Property


· PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification ofAcceptable Methods of Depreciation and Amortization (Amendments)

· PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants(Amendments).

· PAS 27, Separate Financial Statements - Equity Method in Separate Financial Statements(Amendments)

· PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and JointVentures - Sale or Contribution of Assets between an Investor and its Associate or JointVenture

· PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations(Amendments)

Annual Improvements to PFRSs (2012-2014 cycle)The Annual Improvements to PFRSs (2012-2014 cycle) are effective for annual periods beginningon or after January 1, 2016 and are not expected to have a material impact on the Group.

· PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes inMethods of Disposal (Amendment)

· PFRS 7, Financial Instruments: Disclosures - Servicing Contracts· PAS 19, Employee Benefits - regional market issue regarding discount rate (Amendment)


· PFRS 9, Financial Instruments - Hedge Accounting and amendments to PFRS 9, PFRS 7 andPAS 39 (2013 version), already includes the third phase of the project to replace PAS 39which pertains to hedge accounting. This version of PFRS 9 replaces the rules-based hedgeaccounting model of PAS 39 with a more principles-based approach. PFRS 9 also requiresmore extensive disclosures for hedge accounting. PFRS 9 (2013 version) has no mandatoryeffective date. The mandatory effective date of January 1, 2018 was eventually set when thefinal version of PFRS 9 was adopted by the FRSC. The adoption of the final version ofPFRS 9, however, is still for approval by BOA.

· PFRS 9, Financial Instruments (2014 or final version) was issued. PFRS 9 reflects all phasesof the financial instruments project and replaces PAS 39, Financial Instruments: Recognitionand Measurement, and all previous versions of PFRS 9. The standard introduces newrequirements for classification and measurement, impairment, and hedge accounting. PFRS 9is effective for annual periods beginning on or after January 1, 2018, with early applicationpermitted. Retrospective application is required, but comparative information is notcompulsory. Early application of previous versions of PFRS 9 is permitted if the date of initialapplication is before February 1, 2015.

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The adoption of PFRS 9 will have an effect on the classification and measurement of theGroup’s financial assets but will have no impact on the classification and measurement of theGroup’s financial liabilities. The Group is currently assessing the impact of adopting thisstandard.

Effectivity to be determined

· IFRS 15 Revenue from Contracts with Customers, issued in May 2014 and establishes a newfive-step model that will apply to revenue arising from contracts with customers. The newrevenue standard is applicable to all entities and will supersede all current revenue recognitionrequirements under IFRS. Either a full or modified retrospective application is required forannual periods beginning on or after 1 January 2017 with early adoption permitted. TheGroup is currently assessing the impact of IFRS 15 and plans to adopt the new standard on therequired effective date once adopted locally.

· Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate, coversaccounting for revenue and associated expenses by entities that undertake the construction ofreal estate directly or through subcontractors. The SEC and the FRSC have deferred theeffectivity of this interpretation until the final Revenue standard is issued by the IASB and anevaluation of the requirements of the final Revenue standard against the practices of thePhilippine real estate industry is completed. Adoption of the interpretation when it becomeseffective will not have any impact on the financial statements of the Group.

The accounting policies set out below have been applied consistently to all periodspresented in these separate financial statements.

Revenue RecognitionRevenue is recognized to the extent that it is probable that economic benefits will flow to theGroup and the revenue can be reliably measured. Revenue is measured at the fair value ofthe consideration received or receivable, net of trade discounts and volume rebates, andrepresents amounts receivable for goods and services provided in the normal course ofbusiness.

The following specific recognition criteria must also be met before revenue is recognized:

· Sales of Raw Sugar, Refined Sugar and MolassesRevenue from sale of raw sugar, refined sugar and molasses is recognized upon deliveryof quedans and molasses warehouse receipts, respectively.

· Tolling RevenuesRevenue is recognized when the tolling services have been rendered.

· Sale of AlcoholRevenue is recognized upon delivery of the alcohol.

· Interest IncomeInterest is recognized as interest accrues, taking into account the effective yield of the asset.

· Rental IncomeRental income is recognized on a straight-line basis over the lease term.

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· Other IncomeOther income such as income from scrap sales, gains from disposal is recorded whenearned.

Cost and Expense RecognitionCosts and expenses are recognized in the consolidated statement of profit or loss when adecrease in future economic benefit related to a decrease in an asset or an increase of a liabilityhas arisen that can be measured reliably.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to known amounts of cash with original maturities ofthree (3) months or less from dates of placement and that are subject to an insignificant risk ofchanges in value.

Financial InstrumentsDate of recognitionThe Group recognizes a financial asset or a financial liability in the consolidated statement offinancial position when it becomes a party to the contractual provisions of the instrument.Purchases or sales of financial assets that require delivery of assets within the time frameestablished by regulation or convention in the marketplace are recognized on the settlementdate.

Initial recognition of financial instrumentsAll financial instruments are initially recognized at fair value. Except for financial assets andfinancial liabilities at FVPL, the initial measurement of financial instruments includestransaction costs. The Group classifies its financial assets into the following categories:financial assets at FVPL, held-to-maturity (HTM) investments, AFS financial assets, andloans and receivables. The Group classifies its financial liabilities into financial liabilities atFVPL and other financial liabilities. The classification depends on the purpose for which theinvestments were acquired and whether they are quoted in an active market. Managementdetermines the classification of its investments at initial recognition and, where allowed andappropriate, re-evaluates such designation at every reporting date.

Financial instruments are classified as liabilities or equity in accordance with the substance ofthe contractual arrangement. Interests, dividends, gains and losses relating to a financialinstrument or a component that is a financial liability, are reported as expense or income.Distributions to holders of financial instruments classified as equity are charged directly toequity, net of any related income tax expense or benefit.

As of August 31, 2015 and 2014, the Group’s financial instruments are of the nature of AFSfinancial assets, loans and receivables and other financial liabilities.

Loans and ReceivablesLoans and receivable are financial assets with fixed or determinable payments that are notquoted in an active market. They are not entered into with the intention of immediate orshort-term resale or are not classified as held for trading, held-to-maturity (HTM)investments, available-for-sale (AFS) financial assets or financial assets at fair valuethrough profit or loss (FVPL). These are initially recognized at fair value plus anydirectly attributable transaction cost and subsequently carried at amortized cost using theeffective interest rate method, less allowance for impairment loss. These are included as

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current assets if maturity is within twelve (12) months from the reporting date. Otherwise,these are classified as noncurrent assets.

The Group’s financial assets categorized under loans and receivables include cash and cashequivalents and receivables presented in the consolidated statements of financial position as“Trade and other current receivables” (excluding advances to suppliers), and as part of“Other noncurrent assets” account representing the cash and cash equivalents set aside forchecks payable to EWB.

AFS Financial AssetsAFS financial assets are those which are designated as such or do not qualify to be classifiedas designated at FVPL, HTM, or loans and receivables.

Financial assets may be designated at initial recognition as AFS financial assets if they arepurchased and held indefinitely, and may be sold in response to liquidity requirements orchanges in market conditions.

After initial measurement, AFS financial assets are measured at fair value. The unrealizedgains and losses arising from the fair valuation of AFS financial assets are excluded fromreported earnings and are reported as “Net unrealized gain on available-for-sale financialassets” in the equity section of the consolidated statement of financial position.

When the security is disposed of, the cumulative gain or loss previously recognized in equityis recognized as realized gains in the consolidated statement of income.

AFS financial assets are classified as noncurrent assets unless the intention is to dispose suchassets on demand or within twelve (12) months from reporting date.

As of August 31, 2015 and 2014, the Group’s AFS financial assets pertain to investments inUnit Investment Trust Funds (UITF).

Other Financial LiabilitiesIssued financial instruments or their components, which are not designated at FVPL, areclassified as other financial liabilities where the substance of the contractual arrangementresults in the Group having an obligation either to deliver cash or another financial asset to theholder, or to satisfy the obligation other than by the exchange of a fixed amount of cash oranother financial asset for a fixed number of own equity shares. The components of issuedfinancial instruments that contain both liability and equity elements are accounted forseparately, with the equity component being assigned the residual amount after deducting fromthe instrument as a whole the amount separately determined as the fair value of the liabilitycomponent on the date of issue. After initial measurement, other financial liabilities aresubsequently measured at amortized cost using the effective interest method. Amortized costis calculated by taking into account any discount or premium on the issue and fees that areintegral parts of the effective interest rate.

The Group’s financial liabilities categorized under other financial liabilities include long-term debt and other financial liabilities, presented in the consolidated statement of financialposition as “Trade and other current payables” (excluding VAT, withholding and other taxesand customers’ deposits) and “Due to a stockholder” accounts.

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Impairment of Financial AssetsThe Group assesses at each reporting date whether there is objective evidence that afinancial asset may be impaired. A financial asset is deemed to be impaired if there isobjective evidence of impairment as a result of one or more events that has occurred after theinitial recognition of the asset and that loss event has an impact on the estimated futurecash flows of the financial asset that can be reliably estimated.

Financial Assets at Amortized CostIf there is objective evidence that an impairment loss on loans and receivables carried atamortized cost has been incurred, the amount of the loss is measured as the differencebetween the asset’s carrying amount and present value of estimated future cash flows(excluding future credit losses that have not been incurred) discounted at the financialasset’s original effective interest rate (i.e., the effective interest rate computed at initialrecognition). The carrying amount of the asset shall be reduced either directly or through useof an allowance account. The amount of the loss shall be recognized in profit or loss.

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

If, in a business period, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized, thepreviously recognized impairment loss is reversed. Any subsequent reversal of animpairment loss is recognized in profit or loss, to the extent that the carrying value of the assetdoes not exceed its amortized cost at the reversal date.

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

AFS financial assetsIn case of investments in UITF classified as AFS financial assets, impairment would include asignificant or prolonged decline in the fair value of the investments below its cost. Where there isevidence of impairment loss, the cumulative loss - measured as the difference between theacquisition cost and the current fair value, less any impairment loss on that financial assetpreviously recognized in the consolidated statement of income - is removed from othercomprehensive income and recognized in profit or loss under “General and administrativeexpense”. Impairment losses on equity investments are not reversed through profit or loss.Increases in fair value after impairment are recognized directly in other comprehensive income.

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Derecognition of Financial Assets and LiabilitiesFinancial assetA financial asset (or, where applicable a part of a financial asset or part of a group ofsimilar financial assets) is derecognized when:· the right to receive cash flows from the asset have expired;· the Group retains the right to receive cash flows from the asset, but has assumed an

obligation to pay them in full without material delay to a third party under a“pass-through” arrangement; or

· the Group has transferred its rights to receive cash flows from the asset and either:(a) has transferred substantially all the risks and rewards of the asset, or (b) hasneither transferred nor retained substantially all the risks and rewards of the asset, but hastransferred control of the asset.

Where the Group has transferred its rights to receive cash flows from an asset and hasneither transferred nor retained substantially all the risks and rewards of the asset nortransferred control of the asset, the asset is recognized to the extent of the Group’scontinuing involvement in the asset. Continuing involvement that takes the form of aguarantee over the transferred asset is measured at the lower of the original carryingamount of the asset and the maximum amount of the consideration that the Group could berequired to repay.

Financial liabilityA financial liability is derecognized when the obligation under the liability is discharged,cancelled or has expired.

Where an existing financial liability is replaced by another from the same lender on substantiallydifferent terms, or terms of an existing liability are substantially modified, such an exchange ormodification is treated as a derecognition of the original liability and the recognition of a newliability and the difference in the respective carrying amounts is recognized in profit or loss.

Offsetting Financial Assets and LiabilitiesFinancial assets and financial liabilities are offset and reported at net amount in the statement offinancial position if, and only if, there is a currently enforceable legal right to offset the recognizedamounts and there is intention to settle on a net basis, or realize the asset and settle the liabilitysimultaneously. This is not generally the case with master netting agreements and the relatedassets and liabilities are presented at gross in the consolidated statement of financial position.

InventoriesInventories are valued at the lower of cost and net realizable value (NRV).

Costs incurred in bringing each product to its present location or condition, are accounted for asfollows:

Raw Sugar Inventory - determined using weighted average method; consist of cost in theproduction of crystallize brown sugar extracted from sugarcane through simple mechanicalprocess.

Refined Sugar Inventory - determined using weighted average method; consists of raw sugarcost of production and related direct labor and overhead cost incurred in the conversion of rawsugar to refined sugar.

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Unbilled Tolling Cost - consists mainly of direct labor and overhead components based onnormal operating capacity, and are determined on weighted average method.

Molasses Inventory - consist of cost of brownish liquid residue as sugar byproduct, in the processof producing raw sugar and/or refining.

Real Estate Held for Sale - determined using specific identification method; cost includespurchase price of subdivision and memorial park lots plus development cost.

Materials and Supplies - determined using weighted average method; cost includespurchase and other directly attributable costs determined based on their original purchase price.

Jobs in Progress - determined using the specific identification method; cost includes directmaterials, labor and a proportion of manufacturing overhead costs based on normal operatingcapacity.

For sugar inventory, alcohol inventory, manufactured and fabricated products, NRV is theestimated selling price in the ordinary course of business, less estimated costs of completionand the estimated costs necessary to make the sale. For materials and supplies, the NRV isthe current replacement cost.

Other Current AssetsOther current assets are expenses already paid but not yet incurred and are initially recorded at facevalue and subsequently measured at carrying value less impairment loss, if any. These includeexcess input VAT and creditable withholding taxes.

Biological asset pertains to the accumulated costs of purchasing, cultivating and propagating thelive and unharvested fish. Since there is no active market for the biological asset and due to theabsence of a reliable estimate to measure the fair value less estimated point-of-sale costs, biologicalasset is measured at cost less any impairment in value as permitted under PAS 41, Biological Assets.

Investment in an AssociateInvestment in an associate is accounted for under the equity method of accounting. An associate isan entity in which the Group has significant influence and which is neither a subsidiary nor a jointventure.

An investment is accounted for using the equity method from the day it becomes an associate. Onacquisition of investment, the excess of the cost of investment over the investor’s share in the netfair value of the investee’s identifiable assets, liabilities and contingent liabilities is accounted foras goodwill and included in the carrying amount of the investment and not amortized. Any excessof the investor’s share of the net fair value of the investee’s identifiable assets, liabilities andcontingent liabilities over the cost of the investment is excluded from the carrying amount of theinvestment, and is instead included as income in the determination of the share in the earnings ofthe investees.

Under the equity method, the investments in the investee companies are carried in the consolidatedstatement of financial position at cost plus post-acquisition changes in the Group’s share in the netassets of the investee companies, less any impairment in values. The consolidated statement ofincome reflects the share of the results of the operations of the investee companies. The Group’sshare of post-acquisition movements in the investee’s equity reserves is recognized directly inequity. Profits and losses resulting from transactions between the Group and the investee

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companies are eliminated to the extent of the interest in the investee companies and for unrealizedlosses to the extent that there is no evidence of impairment of the asset transferred. Dividendsreceived are treated as a reduction of the carrying value of the investment.

The Group discontinues applying the equity method when their investments in investee companiesare reduced to zero. Accordingly, additional losses are not recognized unless the Group hasguaranteed certain obligations of the investee companies. When the investee companiessubsequently report net income, the Group will resume applying the equity method but only afterits share of that net income equals the share of net losses not recognized during the period theequity method was suspended.

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

Upon loss of significant influence over the associate, the Group measures and recognizes anyretaining investment at its fair value. Any difference between the carrying amount of the associateupon loss of significant influence and the fair value of the retaining investment and proceeds fromdisposal is recognized in the consolidated statement of income.

Property, Plant and EquipmentProperty, plant and equipment, except for projects under construction (which are carried atcost less accumulated impairment losses), are carried at revalued amounts less accumulateddepreciation and impairment losses, if any. The revalued amount is the fair value at the dateof revaluation less any subsequent accumulated depreciation and subsequent impairmentlosses. Revaluation is performed by an independent firm of appraisers with sufficientregularity to ensure that the carrying amount of the asset does not differ materially from thatwhich would be determined using fair values at the reporting date. The net appraisalincrease resulting from the revaluation is credited to “Revaluation increment on property,plant and equipment” account (net of corresponding deferred tax liability) in the statementsof financial position and statements of changes in equity. The amount of revaluationincrement absorbed through depreciation and revaluation increment approved by the SEC forquasi- reorganization are transferred directly to retained earnings. The Group’s property, plantand equipment are appraised every three (3) years.

Initially, an item of property, plant and equipment is measured at its cost, which comprises itspurchase price and any directly attributable costs of bringing the asset to the location andcondition for its intended use. Subsequent costs that can be measured reliably are addedto the carrying amount of the asset when it is probable that future economic benefitsassociated with the asset will flow to the Group. The costs of day-to- day servicing of anasset are recognized as an expense in the period in which they are incurred.

All costs that are directly and clearly associated with the construction of certain property, plantand equipment, including borrowing costs, are capitalized.

Projects under construction, included in property, plant and equipment, represent structuresunder construction and are stated at cost. These include cost of construction and other directcosts. Projects under construction are not depreciated until such time as the relevant assets arecompleted and put into operational use.

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Major spare parts and stand-by equipment qualify as property, plant and equipment when theGroup expects to use them during more than one period. Similarly, if the spare parts andservicing equipment can be used only in connection with an item of property, plant andequipment, they are accounted for as property, plant and equipment.

Estimated future dismantlement costs of items of property, plant and equipment arising fromlegal or constructive obligations are recognized as part of property, plant and equipmentand are measured at present value at the time when the obligation was incurred.

Depreciation is computed using the straight-line method over the assets’ estimated useful lives.The estimated useful lives are as follows:

Category Number of YearsLand improvements 12.5Buildings and structures 20Community buildings and equipment 20Machinery and equipment 3-20

The estimated useful lives, as well as the depreciation method, are reviewed at eachreporting date to ensure that the period and method of depreciation are consistent with theexpected pattern of economic benefits from those assets.

Stand-by equipment should be depreciated from the date it is made available for use over theshorter of the life of the stand-by equipment or the life of the asset the stand-byequipment is part of, while major spare parts should be depreciated over the periodstarting when it is brought into service, continuing over the lesser of its useful life and theremaining expected useful life of the asset to which it relates.

Fully depreciated assets are retained in the accounts until they are no longer in use and nofurther charge for depreciation is made in respect of those assets.

When an asset is disposed of, or is permanently withdrawn from use and no futureeconomic benefits are expected from its disposal, the cost and related accumulateddepreciation and impairment losses, if any, are removed from the accounts and anyresulting gain or loss arising from the retirement or disposal is recognized in profit or loss.

The carrying amount of the Group’s property, plant and equipment is written downimmediately to its recoverable amount if the asset’s carrying amount is greater than itsrecoverable amount. The recoverable amount of the Group’s property, plant and equipmentis the higher between their fair values less cost of disposal and value in use.

If the carrying amount of the Group’s asset is decreased as a result of revaluation, thisdecrease is recognized as other comprehensive loss to the extent of any credit balanceexisting in the revaluation increment in respect of that asset. The excess of such decrease overthe existing balance in the revaluation increment is recognized in profit or loss.

An increase in the carrying amount of the Group’s property, plant and equipment isrecognized in profit or loss to the extent that it reverses a revaluation decrease of the sameasset previously recognized in profit or loss.

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Investment PropertiesInvestment properties composed of land and building, which are properties held by theGroup either to earn rentals or for capital appreciation or for both, but not for sale in theordinary course of business, use in the production or supply of goods or services or foradministrative purposes. Investment properties are initially measured at cost. Subsequently,investment properties are measured at fair value with any change therein recognized in profitor loss following the fair value model. Gains or losses arising from changes in the fairvalue of investment properties are included in profit or loss for the period in which they arise.

Investment property is derecognized when either it has been disposed of or when it ispermanently withdrawn from use and no future economic benefit is expected from itsdisposal. Any gains or losses on the retirement or disposal of an investment property arerecognized in profit or loss in the year of retirement or disposal.

Transfers are made to investment property only when there is a change in use evidenced byending of owner-occupation or commencement of an operating lease to another party.

When the use of a property changes such that it is reclassified as property, plant andequipment or inventories, its fair value at the date of reclassification becomes its cost forsubsequent accounting.

Transfers from investment property carried at fair value to owner-occupied property orinventories shall be its fair value at the date of change in use.

Impairment of Nonfinancial AssetsThe carrying amount of the Group’s nonfinancial assets which include investment in anassociate, property, plant and equipment and investment properties are reviewed for at eachreporting date to determine whether there is any indication of impairment. If such indicationexists, the asset’s recoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of the asset’s fairvalue less costs of disposal and value in use. Fair value less costs of disposal is the pricethat would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date, less the costs ofdisposal. In assessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-tax discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset. For an asset that does not generatecash inflows largely independent of those from other assets, the recoverable amount isdetermined for the cash-generating unit to which the asset belongs.

An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses, if any, are recognizedin profit or loss unless the asset is carried at revalued amounts. Any impairment loss on arevalued asset is treated as a revaluation decrease.

All assets are subsequently reassessed for indications that an impairment loss previouslyrecognized may no longer exist and the carrying amount of the asset is adjusted to therecoverable amount resulting in the reversal of the impairment loss.

An impairment loss is reversed only to the extent that the asset’s carrying amount does notexceed the carrying amount that would have been determined, net of depreciation, if noimpairment loss had been recognized. A reversal of an impairment loss in respect of a revalued

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asset is recognized in profit or loss to the extent that it reverses an impairment loss that waspreviously recognized in the profit or loss. Any additional increase in the carrying amount ofthe asset is treated as a revaluation increase.

Fair Value MeasurementFair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date.

The fair value measurement is based on the presumption that the transaction to sell the asset ortransfer 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.

The principal or the most advantageous market must be accessible to by the Group.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in theireconomic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's abilityto generate economic benefits by using the asset in its highest and best use or by selling it toanother market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observableinputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statementsare categorized within the fair value hierarchy, described as follows, based on the lowest levelinput 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 financial statements on a recurring basis, theGroup determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

Equity InstrumentsAn equity instrument is any contract that evidences a residual interest in the assets of theGroup after deducting all of its liabilities.

Capital stock is classified as equity and is determined using the nominal value of shares thathave been issued. Additional paid-in capital (APIC) includes any premiums received on theinitial issuance of capital stock. Any transaction costs associated with the issuing of sharesare deducted from additional paid-in capital, net of any related income tax benefits.

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When capital stocks are repurchased, the amount of the consideration paid, whichincludes directly attributable costs, net of any tax effects, is recognized as a deduction fromequity. Repurchased shares are classified as treasury stock and are presented as a deductionfrom total equity. When treasury shares are sold or reissued subsequently, the amountreceived is recognized as an increase in equity, and the resulting surplus or deficit on thetransaction is transferred to/from retained earnings, after considering any remaining APICrelated to treasury stock, if any.

Compound financial instruments issued by the Group comprise convertible notes that can beconverted to capital stock at the option of the holder, and the number of shares to be issueddoes not vary with changes in their fair value.

The liability component of a compound financial instrument is recognized initially at the fairvalue of a similar liability that does not have an equity conversion option. The equitycomponent is recognized initially as the difference between the fair value of the compoundfinancial instrument as a whole and the fair value of the liability component. Any directlyattributable transaction costs are allocated to the liability and equity components in proportionto their initial carrying amounts.

The mandatorily convertible notes of the Group are presented as an equity item under the“Convertible notes awaiting for conversion” account. These are non-derivative instrument forwhich the entity is or may be obliged to deliver a fixed number of the entity's own equityinstruments. The Group already fixed the number of shares to be converted into common sharesbased from the 1:1 share of the principal convertible notes to common shares. The 8% interestsaccrued from the convertible notes are treated as APIC upon conversion rather than a determinantin identifying the number of shares to be converted (see Note 17).

Earnings per Share (EPS)The Group presents both basic and diluted EPS. Basic EPS is computed by dividing the netincome applicable to common shareholders by the weighted average number of commonshares outstanding during the year, adjusted for treasury stock, conversion of convertibleinstruments and with retroactive adjustments for stock splits. Diluted EPS is computed inthe same manner as basic EPS except that the net income attributable to common shareholdersand the weighted average number of shares outstanding are adjusted for the effects of alldilutive potential common shares. The Group’s potential common shares comprise ofconvertible notes.

Leases - Operating LeaseLeases which do not transfer to the lessee substantially all the risks and benefits ofownership of the asset are classified as operating leases.

Group as a LessorLease income under operating leases is recognized as income in the Group statements ofcomprehensive income on a straight-line basis over the lease term.

Group as a LesseeOperating lease payments are recognized in profit or loss on a straight-line basis over the leaseterm.

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The Group determines whether an arrangement is, or contains a lease based on thesubstance of the arrangement. It makes an assessment of whether the fulfillment of thearrangement is dependent on the use of a specific asset or assets and the arrangementconveys a right to use the asset.

Retirement BenefitsThe Group’s net obligation in respect of the defined benefit plan is calculated byestimating the amount of the future benefit that employees have earned in the current and priorperiods, discounting that amount and deducting the fair value of any plan assets.

The calculation of defined benefit obligation is performed on a periodic basis by aqualified actuary using the projected unit credit method. When the calculation results in apotential asset for the Group, the recognized asset is limited to the present value ofeconomic benefits available in the form of any future refunds from the plan or reductions infuture contributions to the plan.

Remeasurements of the net defined benefit liability, which comprise actuarial gains andlosses, the return on plan assets (excluding interest) and the effect of the asset ceiling (ifany, excluding interest), are recognized immediately in Other Comprehensive Income (OCI).The Group determines the net interest expense or income on the net defined benefitliability or asset for the period by applying the discount rate used to measure the definedbenefit obligation at the beginning of the annual period to the then net defined benefitliability or asset, taking into account any changes in the net defined liability or asset duringthe period as a result of contributions and benefit payments. Net interest expense and otherexpenses related to the defined benefit plan are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change inbenefit that relates to past service or the gain or loss on curtailment is recognizedimmediately in profit or loss.

The Group recognizes gains and losses on the settlement of a defined benefit plan when thesettlement occurs.

Short-term Employee BenefitsShort-term employee benefit obligations are measured on an undiscounted basis and areexpensed as the related service is provided.

A liability is recognized for the amount expected to be paid such as those for salaries andwages, social security contributions, short-term compensated absences, bonuses and non-monetary benefits.

Foreign Currency Transactions and TranslationsTransactions in foreign currencies are translated into Philippine peso using the exchange ratesprevailing at the time of such transactions. Monetary assets and liabilities denominated inforeign currencies are translated using exchange rates prevailing at reporting date.Foreign exchange gains or losses resulting from the settlement of such transactions andfrom the translation of monetary assets and liabilities denominated in foreign currencies arerecognized in the profit or loss.

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Income TaxIncome tax expense comprises of current and deferred taxes. Current tax and deferred taxare recognized in profit or loss except to the extent that it relates to a businesscombination, or items recognized directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the yearusing tax rates enacted or substantively enacted at the reporting date, and any adjustmentto tax payable in respect of previous years. Current income tax payable also includes any taxliability arising from the declaration of dividends.

Deferred tax is recognized in respect of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and the amounts used fortaxation purposes. Deferred tax is not recognized for:· temporary differences on the initial recognition of assets or liabilities in a transaction that

is not a business combination and that affects neither accounting nor taxable profit orloss;

· temporary differences related to investments in subsidiaries and jointly controlledentities to the extent that it is probable that they will not reverse in the foreseeablefuture; and

· taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporarydifferences when they reverse, based on the laws that have been enacted or substantivelyenacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offsetcurrent tax liabilities and assets, and they relate to income taxes levied by the same taxauthority on the same taxable entity, or on different tax entities, but they intend to settlecurrent tax liabilities and assets on a net basis or their tax assets and liabilities will berealized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductibletemporary differences, to the extent that it is probable that future taxable profits will beavailable against which they can be utilized. Deferred tax assets are reviewed at eachreporting date and are reduced to the extent that it is no longer probable that the related taxbenefit will be realized.

A deferred tax liability is recognized whenever recovery or settlement of the carryingamount of an asset or liability would make future tax payment larger than they would if suchrecovery or settlement were to have no tax consequence. Deferred tax liability is recognizedin respect of asset revaluations and foreign exchange gains.

Operating SegmentsThe Group’s operations is organized and managed according to the nature of the products andservices provided. Financial information on operating segments is presented in Note 19 to theconsolidated financial statements.

Provisions and ContingenciesA provision is a liability of uncertain timing or amount. It is recognized when the Group has alegal or constructive obligation as a result of a past event, it is probable that an outflow ofeconomic benefits will be required to settle the obligation and a reliable estimate can bemade.

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When it is not probable that an outflow of economic benefits will be required, or theamount cannot be estimated reliably, the obligation is disclosed as a contingent liability,unless the probability of outflow of economic benefits is remote. Possible obligations,whose existence will only be confirmed by the occurrence or non-occurrence of one or morefuture events, are also disclosed as contingent liabilities unless the probability of outflow ofeconomic benefits is remote.

A contingent asset is an asset that arises from past events and whose existence will beconfirmed only by the occurrence or non-occurrence of one or more uncertain futureevents not wholly within the control of the entity. This is not recognized in the consolidatedfinancial statements but disclosed when an inflow of economic benefit is probable.

Events After the Reporting PeriodThe Group identifies post year-end events as events that occurred after the reporting date butbefore the date when the consolidated financial statements were authorized for issue. Anypost year-end events that provide additional information about the consolidated statementsof financial position at the reporting date (adjusting events) are recognized in theconsolidated financial statements. Events that are not adjusting events are disclosed in thenotes to the consolidated financial statements when material.

4. Significant Accounting Judgments and Estimates

The preparation of the accompanying consolidated financial statements in conformity withPFRS requires management to make estimates and assumptions that affect the amountsreported in the consolidated financial statements and accompanying notes. The estimates andassumptions used in the accompanying consolidated financial statements are based uponmanagement’s evaluation of relevant facts and circumstances as of the date of the consolidatedfinancial statements. Actual results could differ from such estimates.

JudgmentsIn the process of applying the Group’s accounting policies, management has made thefollowing judgments, apart from those involving estimations, which have the most significanteffect on the amounts recognized in the consolidated financial statements:

Classification to Available-for-sale financial assetsThe Group invested in Unit Investment Trust Funds (UITF) which does not qualify to be classifiedor designated as loans and receivables, financial assets at FVPL or HTM investments. The Groupexpects to hold the securities on demand, however, these can be sold in response to liquidityrequirements or changes on market conditions.

AFS financial assets are classified as noncurrent assets unless the intention is to dispose suchassets within 12 months from reporting date. The Group intends to dispose the investments ondemand or within the next twelve (12) months.

Distinction between Investment Properties from Owner-occupied PropertiesThe Group determines whether a property qualifies as investment property or owner-occupiedproperty. In making its judgment, the Group considers whether the property generates cashflows largely independent of the other assets held by an entity. Property and equipment orowner-occupied properties generate cash flows that are attributable not only to property butalso to the other assets used in the production or supply process. Investment property is held

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primarily to earn rental and capital appreciation and is not substantially for use by, or in theoperations of the Group.

The Group has determined that its building and land under operating lease and land held forcapital appreciation are classified as investment properties (see Note 12). Land and buildingsused in the operation of the Group are classified as owner-occupied properties (see Note 11).

Management’s Use of EstimatesThe key assumptions concerning the future and other key sources of estimation uncertainty at thereporting date, that have a significant risk of causing a material adjustment to the carrying amountsof assets and liabilities within the next financial year are discussed below.

Estimating NRV of InventoriesIn estimating NRV of inventories, management takes into account the most reliableevidence available at the time the estimates are made. The Group’s business is subject tochanges which may cause inventory obsolescence and the nature of the Group’s inventoriesis susceptible to physical deterioration, damage, breakage and technological changes.Moreover, future realization of the carrying amounts of inventories is affected by pricechanges in the market. These aspects are considered key sources of estimation uncertaintyand may cause significant adjustments to the Group’s inventories within the next financialyear.

The carrying amount of inventories as at August 31, 2015 and 2014 amounted toP=348.74 million and P=244.04 million, respectively (see Note 8).

Estimating Useful Lives of Property, Plant and EquipmentThe Group estimates useful lives of property, plant and equipment based on the period overwhich the assets are expected to be available for use. The Group reviews regularly theestimated useful lives of property, plant and equipment based on factors that include assetutilization, internal technical evaluation, technological changes, environmental and anticipateduse of the assets tempered by related industry benchmark information.

It is possible that future results of operation could be materially affected by changes in theseestimates brought about by changes in factors mentioned. A reduction in the estimateduseful lives of property, plant and equipment would increase depreciation and decreasenoncurrent assets.

As at Au gust 31, 2015 a nd 2014, the aggregate carrying amount of the Group’sproperty, plant and equipment amounted to P=4.04 billion and P=4.22 billion, respectively(see Note 11).

Estimating Fair ValueThe fair value of the Group’s property, plant and equipment and investment properties aredetermined from market-based evidence by appraisal that was undertaken by anindependent firm of appraisers in calculating such amounts. While management believes thatthe assumptions and market-based evidences used are reasonable and appropriate,significant differences in actual experience or significant changes in the assumptions maymaterially affect the valuation of the Group’s property, plant and equipment and investmentproperties. However, management believes that the carrying amounts of property, plant andequipment as at August 31, 2015 and 2014 and investment properties as at August 31, 2014 donot differ materially from that which would be determined using appraised value and fair value

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at reporting date. The Group’s property, plant and equipment and investment properties werelast appraised as of August 31, 2013 and 2015, respectively.

As at August 31, 2015 and 2014, the aggregate carrying amount of the Group’s property, plantand equipment amounted to P=4.04 billion and P=4.22 billion, respectively (see Note 11).

The aggregate carrying amount of the Group’s investment properties amounted toP=1.04 billion and P=1.33 billion as at August 31, 2015 and 2014, respectively (see Note 12).

Recoverability of Deferred Tax AssetsThe Group reviews its deferred tax assets at each reporting date and reduces the carryingamount to the extent that it is no longer probable that sufficient taxable profit will beavailable to allow all or part of the deferred tax asset to be utilized. Significantmanagement judgment is required to determine the amount of deferred tax assets that can berecognized, based on the likely timing and level of future taxable profits together with futuretax planning strategies. However, there is no assurance that the Group will utilize all or partof the deferred tax assets. Any deferred tax asset will be re-measured if it might result toderecognition in cases where the expected tax law to be enacted will impose a possible riskon its realization.

As at August 31, 2015 and 2014, the Group’s recognized deferred tax assets amounted toP=296.01 million and P=432.25 million, respectively (see Note 24).

Estimating Provisions and ContingenciesThe Group is currently involved in various legal proceedings (see Note 29) which are stillpending resolution or under suspension in view of the Group’s rehabilitations status.Estimates of probable costs for the resolution of these claims have been developed inconsultation with the legal counsels handling the defense in these matters and are based uponan analysis of potential results.

The carrying value of the provisions recognized as at August 31, 2015 and 2014, amounted toP=1.42 billion and P=1.38 billion respectively (see Note 15).

The Group discounts its provisions over the period such provisions are expected to besettled. The discount rate used by the Group is a government bond rate which is a pre-taxrate that reflects current market assessments of the time value of money and those risksspecific to the liability that have not been reflected in the best estimate of the expenditure.Where discounting is used, the increase in the provision due to the passage of time isrecognized as an interest expense.

It is possible, however, that future results of operations could be materially affected bychanges in the estimates or in the effectiveness of the Group’s strategies relating to theforegoing proceedings.

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5. Cash and Cash Equivalents

This account consist:

20152014

(As restated)(In Thousands)

Cash on hand P=6,258 P=1,578Cash in banks 196,515 147,003Cash equivalents 1,555,558 675,030

P=1,758,331 P=823,611

Cash in banks earns interest at the respective bank deposit rates.

Cash equivalents are composed of short-term, highly liquid investments that are made forvarying periods of up to 90 days, and bear annual interest rates as follows:

2015 2014Peso 0.75% - 3.25% 0.50% - 3.00%Dollar 1.25% - 1.90% −

As at August 31, 2014, cash and cash equivalents permanently set aside for checkspayable to East West Banking Corporation (EWB) are presented as part of “Other currentassets” account (see Note 9).

Total interest income on cash and cash equivalents amounted to P=24.92 million,P=11.04 million and P=38.55 million in 2015, 2014 and 2013, respectively (see Note 22).

6. Trade and Other Current Receivables

This account consists of:

2015 2014(In Thousands)

Trade:Outside parties P=87,852 P=23,681Related parties (Note 27) 40,345 86,232

Advances to:Suppliers 20,336 10,221Planters’ association 1,260 13,105Officers and employees 455 433

Other receivables 6,462 7,313156,710 140,985

Less allowance for impairment losses 20,573 20,391P=136,137 P=120,594

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The classes of receivables of the Group and their terms and conditions are as follows:

· Trade receivables to outside and related parties pertain to noninterest-bearing amounts duefrom customers for sale of raw sugar, refined sugar, molasses and alcohol, and for renderingof tolling services. The average credit period taken on sale of goods is from 30 to 60 days.

· Advances to suppliers are amounts paid for purchase orders not yet received by the Group.These are noninterest-bearing and are expected to be settled through delivery of goods andservices within one year.

· Advances to planters' association are amounts advanced to planters. These are noninterest-bearing and are settled within one year.

· Advances to officers and employees pertain to cash advances made by the Group for itsemployees.

· Other current receivables consist of accrued interest receivables and other non-tradereceivables from other companies.

The table below shows the movements in the allowance for impairment losses:


Balance at beginning of year P=20,391 P=19,097Allowance from previously unconsolidated

subsidiary – 1,342Written-off during the year – (245)Provision for the year 182 197

P=20,573 P=20,391

Allowance for impairment losses as at August 31, 2015 and 2014 pertain to allowances made fortrade and other receivables.

7. Available-for-Sale Financial Assets

This account consists of investment in the following Unit Investment Trust Funds (UITF):

20152014

(As Restated)(In Thousands)

PNB Prime Peso Money Market Fund P=100,000 P=216,218Security Bank Peso Money Market Fund 400,096 −

500,096 216,218Unrealized gain on AFS financial assets 2,691 102

P=502,787 P=216,320

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The Group has investments in UITF. These funds are structured as money market UITF whichaims to generate liquidity and stable income by investing in a diversified portfolio of primarilyshort-term fixed income instruments.

The Group invested in the PNB Prime Peso Money Market Fund (PNB UITF) in August 2014.It has a minimum holding period of 5 days and the Bangko Sentral ng Pilipinas (BSP) SpecialDeposit Account accounted for close to 70% of the Fund. As of August 31, 2015 and 2014,the total Net Asset Value (NAV) of the fund is P=12.81 billion and P=12.63 billion, with durationof 204 days and 230 days, respectively. The fair value of the Group’s total investment in thePNB UITF amounted to P=100.11 million and P=216.32 million as of August 31, 2015 and 2014,respectively.

In December 2014, the Group invested in the Security Bank Peso Money Market Fund(Security Bank UITF). It has no minimum holding period and the Bangko Sentral ngPilipinas (BSP) Special Deposit Account accounted for close to 75.9% of the fund. As ofAugust 31, 2015, the total Net Asset Value (NAV) of the Security Bank UITF isP=15.76 billion, with duration of 11 days. The fair value of the Group’s total investment in theSecurity Bank UITF amounted to P=402.68 million as of August 31, 2015.

The fair value of the investment in PNB UITF is valued at P=1.12 and P=1.10 NAV per unit as atAugust 31, 2015 and 2014, respectively. The fair value of the investment in Security BankUITF is valued at P=1.25 NAV per unit as of August 31, 2015. The NAV per unit is determinedby using valuation techniques. These valuation techniques maximize the use of observablemarket data where it is available such as quoted market prices or dealer quotes for similarinstruments. Thus, the fair value measurement is categorized under Level 3 of fair valuehierarchy.

As of August 31, 2015 and 2014, the Parent Company does not hold its investment in PNBUITF and Security Bank UITF as held for trading and classified these as available for salefinancial assets. Management takes the view that these are not held for trading in the nearfuture and are a portfolio of diversified short term fixed income instruments invested andmanaged by professional managers.

Movements in the net unrealized gain in available-for-sale financial assets follow:


Balance at beginning of year P=102 P=−Unrealized gain recognized during the year 6,901 102Realized gain on fund redemption (4,312) −Balance at end of year P=2,691 P=102

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8. Inventories

The carrying amounts of inventories follow:

20152014

(As Restated)(In Thousands)

At NRV:Materials and supplies P=134,455 P=136,274Raw sugar inventory 49,883 –Unbilled Tolling Cost – 15,696

184,338 151,970At Cost:

Raw sugar inventory 126,201 18,456Real estate held for sale 21,525 21,691Finished goods 10,909 13,874Jobs in progress 4,596 4,527Manufactured and fabricated products 1,168 1,168Alcohol – 32,352

164,399 92,068P=348,737 P=244,038

Cost of inventories stated at NRV amounted to P=207.38 million and P=184. 06 million as atAugust 31, 2015 and 2014, respectively.

The movement in the allowance to reduce materials and supplies and refined sugar inventory toNRV follows:


Balance at beginning of year P=11,164 P=31,693Write-down of inventory for the year 5,410 –Recovery during the year – (20,529)Balance at end of year P=16,574 P=11,164

The cost of inventories recognized as an expense is presented under “Cost of goods sold andservices” account and included increase in inventories of P=110.85 million in 2015, decrease ininventories of P=186.85 in 2014 and increase in inventories of P=81 million in 2013(see Note 21).

Recoveries in 2014 r efer to inventories previously provided with allowance but sold in 2014amounting to P=20.53 million.

Materials and supplies, refined sugar inventory and sugar inventory were stated at NRV whichwere lower than their corresponding costs. Management believes that the recordedallowance to reduce materials and supplies and raw sugar inventory to NRV is adequate.

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A summary of the movement of inventories is set out below:

As at August 31, 2015(In Thousands)

Raw Sugar Refined Sugar Molasses Alcohol

FinishedGoods and

Jobs inProgress

Real Estate Held forSale Total Goods

UnbilledTolling Cost Others Total Services Grand Total

Balance at beginning ofyear P=18,456 P=– P=– P=32,352 P=18,402 P=21,691 P=90,901 P=15,696 P=– P=15,696 P=106,597

Production cost 1,900,834 70,910 192,113 191,436 37,800 – 2,393,093 831,825 2,798 834,623 3,227,716Purchase cost 998 – – – – – 998 – – – 998Molasses transferred to

distillery – – (111,120) – – – (111,120) – – – (111,120)Cost of goods sold and

services (Note 21) (1,744,204) (70,910) (80,993) (223,788) (40,697) (166) (2,160,758) (847,521) (2,798) (850,319) (3,011,077)P=176,084 P=– P=– P=– 15,505 21,525 P=213,114 P=– P=– P=– P=213,114


Raw SugarRefined

Sugar Molasses Alcohol

FinishedGoods and

Jobs inProgress

Real EstateHeld for Sale Total Goods

UnbilledTolling Cost Entertainment Others

TotalServices Grand Total

Balance at beginning of year P=132,533 P=– P=21,507 P=1,844 P=10,786 P=23,518 P=190,188 P=59,733 P=– P=– P=59,733 P=249,921Production cost 1,716,521 – 148,042 168,396 48,514 (1,551) 2,079,922 761,498 15,844 752 778,094 2,858,016Purchase cost 2,233 – – – – – 2,233 – – – – 2,233Molasses transferred to

distillery – – (50,890) – – – (50,890) – – – – (50,890)Cost of goods sold and

services (Note 21) (1,832,831) – (118,659) (137,888) (40,899) (276) (2,130,553) (805,535) (15,844) (752) (822,131) (2,952,684)P=18,456 P=– P=– P=32,352 P=18,401 P=21,691 P=90,900 P=15,696 P=– P=– P=15,696 P=106,596

Materials and supplies charged to cost of sales amounted to P=431.81 million, P=393.17 million and P=308.83 million in 2015, 2014 and 2013, respectively.

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9. Other Current Assets

Details of this account are as follow:


Prepaid expenses P=58,476 P=16,704Input value added tax (VAT) 16,021 14,126Biological assets 5,937 1,948Creditable withholding tax 258 285Cash and cash equivalents permanently set aside for

checks payable to EWB (Note 14) – 366,126P=80,692 P=399,189

Prepaid expenses consist of advance payments for real property tax, utilities and other supplies.Prepayments pertaining to utilities are in the nature of advances made by the Group forconstruction of assets related to electricity distribution. The advances are to be reimbursed bythe electricity distributor through billing offset of an agreed component of the Group’sDistillery Operations monthly electricity bill.

Biological assets pertain to the accumulated costs of purchasing, cultivating and propagating thelive and unharvested fish from the aquaculture farm owned by the Group to cultivate andpropagate live fish that is needed as raw materials in its production of canned goods. Due to theabsence of an active market and basis of a reliable estimate to measure fair value, the Companymeasured its biological assets at cost less any impairment in value.

10. Investment in an Associate

As of August 31, 2015 and 2014, the Group’s investment in an associate accounted for underthe equity method of accounting, adjusted for impairment losses, if any, and the relatedpercentages of ownership are shown below:

Percentage ofDirect

OwnershipCarryingAmounts

Cost:VIGASCO 30% P=5,727

Allowance for impairment:VIGASCO (5,727)

P=−

Investment in VIGASCOVIGASCO, a 30%-owned associate, was incorporated and registered with the SEC onNovember 19, 1992 primarily to engage in importing, exporting, buying and selling, atwholesale or at retail, of gases, particularly oxygen, acetylene, hydrogen, liquefied petroleumgas and any types of gases.

Due to the capital deficiency of VIGASCO resulting from operating losses, the investment isfully provided with allowance for impairment.

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11. Property, Plant and Equipment

The roll forward and movements of this account follows:

August 31, 2015

LandLand

ImprovementsBuildings and

Structures

CommunityBuildings and

EquipmentMachinery and

EquipmentProject under

Construction TotalCost Revalued Revalued Revalued Revalued Revalued CostAt September 1 P=29,848 P=176,658 P=666,748 P=31,888 P=5,029,398 P=196,242 P=6,130,782Reclassification of completed projects − 8,469 2,473 − 251,099 (262,041) −Additions − − − − 3,519 243,926 247,445Disposals − − − − (336,569) − (336,569)At August 31 29,848 185,127 669,221 31,888 4,947,447 178,127 6,041,658

Cost-Accumulated Depreciation and Impairment LossesAt September 1 − 133,437 510,870 25,108 2,851,337 − 3,520,752Depreciation − 6,231 17,903 378 243,355 − 267,867Disposals − − − − (211,314) − (211,314)At August 31 − 139,668 528,773 25,486 2,883,378 − 3,577,305

29,848 45,459 140,448 6,402 2,064,069 178,127 2,464,353

Appraisal IncreaseAt September 1 506,274 333,700 648,459 6,508 4,157,128 − 5,652,069

Appraisal Increase-Accumulated Depreciation andImpairment Losses

At September 1 − 160,328 624,975 224 3,056,367 − 3,841,894Depreciation − 85 21,280 224 10,797 − 32,386At August 31 − 160,413 646,255 448 3,067,164 − 3,874,280

506,274 173,287 2,204 6,060 1,089,964 − 1,777,789Book Value, August 31, 2015 P=536,122 P=218,746 P=142,652 P=12,462 P=3,154,033 P=178,127 P=4,242,142

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August 31, 2014

LandLand


Structures



EquipmentProject underConstruction Total

Cost Revalued Revalued Revalued Revalued Revalued CostAt September 1 P=17,887 P=113,776 P=646,844 P=31,451 P=4,539,384 P=384,970 P=5,734,312Assets of previously unconsolidated subsidiary 11,961 54,229 13,096 − 4,595 − 83,881Reclassification of completed projects − 7,130 2,767 437 485,198 (495,532) −Additions − 1,523 4,041 − 2,148 308,669 316,381Disposals − − − − (1,927) (1,865) (3,792)At August 31 29,848 176,658 666,748 31,888 5,029,398 196,242 6,130,782

Cost-Accumulated Depreciation and Impairment LossesAt September 1 − 86,723 482,399 24,381 2,640,467 − 3,233,970Assets of previously unconsolidated subsidiary − 38,503 11,388 − 3,462 − 53,353Depreciation − 8,211 17,083 727 209,164 − 235,185Disposals − − − − (1,756) − (1,756)At August 31 − 133,437 510,870 25,108 2,851,337 − 3,520,752

29,848 43,221 155,878 6,780 2,178,061 196,242 2,610,030Appraisal IncreaseAt September 1 479,668 223,370 647,741 6,508 4,175,901 − 5,533,188Assets of previously unconsolidated subsidiary 26,606 110,330 1,731 − 4,787 − 143,454Disposals − − − − (13,513) − (13,513)Reclassification − − (1,013) − (10,047) − (11,060)At August 31 506,274 333,700 648,459 6,508 4,157,128 − 5,652,069

Appraisal Increase-Accumulated Depreciation and ImpairmentLosses

At September 1 − 131,363 602,978 − 3,063,182 − 3,797,523Assets of previously unconsolidated subsidiary − 20,680 1,730 − 3,527 − 25,937Depreciation − 8,285 21,280 224 10,832 − 40,621Disposals − − − − (11,127) − (11,127)Reclassification − − (1,013) − (10,047) − (11,060)At August 31 − 160,328 624,975 224 3,056,367 − 3,841,894


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August 31, 2013

LandLand


Structures




Cost Revalued Revalued Revalued Revalued Revalued CostAt September 1 P=19,367 P=102,920 P=647,624 P=31,451 P=4,124,710 P=502,776 P=5,428,848Reclassification of Completed Projects − 9,633 11,603 − 275,359 (296,595) −Completed projects awaiting completion documents − 1,223 5 − 135,579 (136,807) −Additions − − − − 5,630 315,596 321,226Disposals − − − − (1,894) − (1,894)Transfer to investment property (1,335) − (11,730) − − − (13,065)Adjustments (145) − (658) − − − (803)At August 31 17,887 113,776 646,844 31,451 4,539,384 384,970 5,734,312

Cost-Accumulated Depreciation and Impairment LossesAt September 1 − 82,006 470,055 21,695 2,464,943 − 3,038,699Depreciation − 4,717 18,978 518 177,418 − 201,631Transfer to investment properties − − (6,634) − − − (6,634)Disposals − − − − (1,894) − (1,894)Adjustments − − − 2,168 − − 2,168At August 31 − 86,723 482,399 24,381 2,640,467 − 3,233,970

17,887 27,053 164,445 7,070 1,898,917 384,970 2,500,342Appraisal IncreaseAt September 1 217,742 508,385 27,666 137,486 1,940,450 − 2,831,729Increase (decrease) during the year 261,926 (285,015) 620,075 (130,978) 2,235,850 − 2,701,858Disposals − − − − (399) − (399)At August 31 479,668 223,370 647,741 6,508 4,175,901 − 5,533,188

Appraisal Increase-Accumulated Depreciation and ImpairmentLosses

At September 1 − 94,440 106,793 117,364 832,085 − 1,150,682Depreciation − 1,221 305 764 71,785 − 74,075Increase (decrease) during the year − − − − (399) − (399)Disposals − 35,702 495,880 (118,128) 2,159,711 − 2,573,165At August 31 − 131,363 602,978 − 3,063,182 − 3,797,523


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Movements in this account are as follows:

Significant additions to Project Under Construction during the year include the repair ofbuildings and construction and assembly of boilers and mill equipment. For the year, projectswith accumulated cost of P=262.04 million were completed and transferred to mainlymachinery and equipment.

As at August 31, 2014, the Group acquired or constructed and installed certain air and waterpollution control devices to comply with the order of the Department of Environment andNatural Resources (DENR) accumulating to P=349.28 million. Moreover, the Group iscommitted for acquisition or construction and installation of more similar pollution controldevices amounting to P=40 million as at August 31, 2014 (see Note 29c).

As of August 31, 2015, the Group has outstanding advances to suppliers representingdownpayments for the purchase of a Condensing Extraction Turbo and a Crawler Excavatordue for delivery in 2016. These advances amount to P=99.43 million as of August 31, 2015(see Notes 13 and 29).

The fair value measurement for the net appraisal increase of property, plant and equipmentamounting to P=1.78 billion has been categorized as a level 3 based on the inputs to thevaluation technique used (see Note 3).

The Group’s property, plant and equipment were appraised by an independent appraiser. Thelatest appraisal was conducted on August 31, 2013.

In arriving at the value of machinery and equipment, the appraiser considered the two approachesto value, namely the Cost Approach and Market Data Approach. Cost Approach considers the costto reproduce or replace in new condition the assets appraised in accordance with current marketprices for similar assets, with allowance for accrued depreciation based on physical wear and tear,and obsolescence. Market Data or Comparative Sales Approach considers prices recently paid forsimilar assets, with adjustments made to the indicated market prices to reflect condition and utilityof the appraised assets relative to the market comparable. Assets for which there is establishedmarket comparable were appraised by this approach.

The carrying value of property, plant and equipment is net of allowance for impairment lossesamounting to P=550.11 million. The reconciliation of the allowance for impairment lossesfollows:

Machinery Land and Buildingsand Land and

Equipment Improvements Structures TotalAt August 31, 2015 P=334,642 P=135,025 P=80,438 P=550,105

At August 31, 2014 P=334,642 P=135,025 P=80,438 P=550,105

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The carrying amounts of the Group’s property, plant and equipment had these been carriedat cost less accumulated depreciation and impairment losses, follow:

Buildings Community MachineryLand and Buildings and And

Land Improvements Structures Equipment Equipment TotalAt August 31, 2015 P=29,848 P=45,459 P=140,448 P=6,402 P=2,064,069 P=2,286,226

At August 31, 2014 P=29,848 P=43,221 P=155,878 P=6,780 P=2,178,061 P=2,413,788

At August 31, 2013 P=17,887 P=27,053 P=164,445 P=7,070 P=1,898,917 P=2,115,372

A summary of depreciation on cost and on appraisal increase and the distributionfollows:

2015 2014 2013Depreciation on:

Cost P=267,867 P=235,185 P=201,631Appraisal increase 32,386 40,621 74,075

P=300,253 P=275,806 P=275,706Depreciation charged to:

Cost of goods manufactured and sold(Note 21) P=217,360 P=197,136 P=190,150

Cost of rendering services (Note 21) 58,123 59,939 73,399General and administrative expenses

(Note 23) 17,579 11,730 9,320Selling expenses (Note 23) 7,191 7,001 2,837

P=300,253 P=275,806 P=275,706

On September 1, 2003, the Group’s land, building and machineries and equipment with acarrying value of P=2.48 billion are used as mortgage lien for loans under the MortgageTrust Indenture (MTI) (see Note 16). The loans under the MTI have been fully paid as ofAugust 31, 2015 while the said properties have not yet been released from the MTI.

12. Investment Properties

The details of this account follow:

Land Building TotalBalance, August 31, 2012 P= 669,656 P=53,944 P=723,600Transfer from property, plant and equipment 1,336 5,096 6,432Reclassification of “land under voluntary

offer to sell” to “Other noncurrentassets” (Note 13) (25,809) − (25,809)

Fair value gain 401,324 25,814 427,138Balance, September 1, 2013 1,046,507 84,854 1,131,361Reclassification of land subject to voluntary

offer to sell” to “Other noncurrentassets” (Note 13) (457) – (457)

Balance, August 31, 2014 1,046,050 84,854 1,130,904Fair value gain (loss) − (27,631) (27,631)Reclassification of “Land subject to

voluntary offer to sell” to “Othernoncurrent assets” (Note 13) (262,332) – (262,332)

Balance, August 31, 2015 P=783,718 P=57,223 P=840,941

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Parcels of land with an aggregate area of 3,727,041 square meters is subject to voluntaryoffer to sell. As the Group is yet to agree on the valuation and consideration for the saidproperties, the same are still carried in the books of the Group (see Note 13).

The fair value measurement for the investment property amounting to P=840.94 million hasbeen categorized as a level 3 based on the inputs to the valuation technique used(see Note 3).

The Group’s investment properties were appraised by an independent appraiser who holdsa recognized and relevant professional qualification and has recent experience in the locationand category of the investment property being valued. The latest appraisal was conducted onAugust 31, 2015.

The value of the land was arrived at using the Market Data Approach. In this approach, the valueof the land was based on sales and listings of comparable property registered within the vicinity.The technique of this approach requires the establishment of comparable property by reducingreasonable comparative sales and listings to a common denominator. This is done by adjusting thedifferences between the subject property and those actual sales and listings regarded ascomparable. The properties used as basis of comparison are situated within the immediate vicinityof the subject property.

The value of buildings was arrived at using the Cost Approach. Under this approach, an estimateis made of the current Cost of Replacement, New of the buildings and other land improvements, inaccordance with the prevailing market prices for materials, labor and overhead. Adjustments arethen made to reflect depreciation resulting from physical deterioration, functional and economicobsolescence based on inspection by the appraiser of the buildings and other land improvements.

The cost of the investment properties amounted to P=78.37 million as of August 31, 2015 andP=78.48 million in 2014. Of the total investment properties, P=934.24 million has been leased outunder several short- term and cancellable operating leases to third parties and related parties, andthe P=106.76 million is deemed held for capital appreciation. The total rental income earned fromthe investment properties presented under “Rental income” in “Other income (expenses)” for theyears ended August 31, 2015 and 2014 amounted to P=12.67 million and P=13.26 million,respectively (see Note 22).

Direct expenses incurred for the Group’s investment properties presented under “Taxes andlicenses” amounted to P=5.91 million in 2015 and P=4.61 million in 2014 (see Note 23).

13. Other Noncurrent Assets


20152014


Land subject to voluntary offer to sell (Note 12) P=288,598 P=26,265Advances to Suppliers (Note 11) 99,433 −Cash surety bond 32,214 32,088

420,245 58,353Less allowance for impairment losses 8,393 8,393

P=411,852 P=49,960

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Parcels of land with an aggregate area of 3,727,041 square meters is subject to voluntaryoffer to s ell. As the Group is yet to agree on the valuation and consideration for the saidproperties, the same are still carried in the books of the Group (see Note 11).

Advances to suppliers pertain to down payments made by the Company for the purchase of aCondensing Extraction Turbo and a Crawler Excavator due for delivery in 2016.

Cash surety bonds pertain to cash collateral for the labor cases against the Group(see Note 29b). It includes cash in a closed bank amounting to P=8.39 million (net of theP=500 thousand recovered from PDIC in 2013 - see Note 6) which was fully provided withallowance for impairment.

14. Trade and Other Payables

This account is composed of the following:

20152014


Trade suppliers P= 296,956 P=226,090Customers deposits 161,839 86,451Retention payable 9,879 4,838Liens payable on sugar 8,966 15,773Withholding and other taxes 32,078 11,517Accrued expenses 24,090 15,631Checks payable to EWB – 366,126Others 8,898 6,838

P=542,706 P=733,264

Trade suppliers represent amounts of obligation of the Group to third parties. These are non-interest bearing and are normally settled on 30 to 90-day term.

Customer deposits pertain to payments received in advance by the Group for the sale of sugarand molasses. These are non-refundable in nature and are recognized as revenue upon deliveryof goods.

Liens payable on sugar refers to amounts payable to the Sugar Regulatory Authority asimposed based on the volume of sugar produced due to be settled within one year.

Retention payable refers to amounts withheld from contact price for contracts entered duringthe year. This is normally set at 10% of the total price or to an amount equal as stipulated inthe contract. This becomes payable upon completion or performance of terms and condition asstated in the contract.

Withholding and other taxes refers to accrued remittances for statutory taxes withheld for theyear. Included therein also are contributions payable to Social Security System, Home MutualDevelopment Fund and Philippine Health Insurance Corporation.

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Accrued expenses pertain to accruals made for contracted services, janitorial and securityservices, utilities, postage and other operating expenses which are payable within one year.

Other payables include amounts pertaining to social amelioration fund set aside for the sugarworkers and association dues payable to the different planters association registered with theParent company.

Management considers that the carrying amount of trade and other payables approximatesfair value due to their short-term maturities.

As disclosed in Note 16a, on February 28, 2014 (partial redemption) and April 4, 2014 (finalredemption), the remaining convertible notes were paid pursuant to ARP, DRA and convertiblenote provisions.

However, on February 28, 2014, and April 4, 2014 , Eastwest Bank informed VMC of itsdecision not to accept the redemption.

In summary, VMC made the following payments/redemption amounts:

Date Received andreturned by

EWBDate of Letter

of VMC Attached Check Date of Check Amount of CheckApril 2, 2014 March 26, 2014 Metrobank

Check No.370038109February 28, 2014 P=170,258,259

MetrobankCheck No.3700383146

February 28, 2014 15,397,762

April 2, 2014 April 1, 2014 PNB Check No.001645504

April 4, 2014 89,982,086

April 4, 2014 April 3, 2014 MetrobankCheck No.3700383152

April 4, 2014 180,469,880

In a letter dated September 25, 2014, VMC consigned to the SEC-appointed rehabilitationreceiver of VMC, the following amounts as payment/redemption of convertible note, to wit:

Check No. Date Amount3700383154 August 26, 2014 P=185,656,0203700383155 September 23, 2014 180,469,880

P=366,125,900

As of August 31, 2015, “Checks payable to EWB” were extinguished by the Parent Companysince these were already consigned to the SEC-appointed rehabilitation receiver. Thisconsignation was confirmed by the SEC En Banc in its Decision dated August 11, 2015 inSEC Case No.04-15-368.

15. Provisions

The Group is currently involved in various legal proceedings (see Note 29) which are stillpending resolution or under suspension in view of the Group’s rehabilitations status.Estimates of probable costs for the resolution of these claims have been developed inconsultation with the legal counsels handling the defense in these matters and are basedupon an analysis of potential results.

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The Group recognized provisions as follows:

20152014

(As restated)Balance at beginning of year P=1,377,568 P=841,941Provision during the year – 279,509Amortization of discount 41,308 256,118Ending balance P=1,418,876 P=1,377,568

The undiscounted amount and the related unamortized discount follow:

20152014

(As restated)Undiscounted amount P=1,552,022 P=1,067,618Provision during the year − 484,404

1,552,022 1,552,022Unamortized discount (133,146) (174,454)

P=1,418,876 P=1,377,568

On a regular basis, the provisions are re-evaluated and recalculated to consider latestavailable information and estimates. If the resulting difference between the originalamount and the recalculated amount is significant, an adjustment is recognized.

Based on the re-assessments made, additional provisions with a present value ofP=279.51 million (gross undiscounted amount of P=484.40 million) in 2014 was recognized.

As of August 31, 2015 and 2014 the discount rate is estimated at 3.03% and 3.04%,respectively.

16. Long-term Debt

Except for convertible notes that are considered mandatorily converted in accordancewith Section 16(k) of the DRA amounting to P=404.67 million and P=677.53 million and as atAugust 31, 2015 and 2014, respectively (see Note 16c), in 2014, the BOD of the Groupapproved the payment/redemption of convertible notes (principal plus correspondingaccumulated interest) pursuant to ARP, DRA and convertible note provisions. For thispurpose, notice of payment/redemption of convertible notes was sent on February 24, 2014(for partial redemption) and on March 31, 2014 (for final redemption) to all of theconvertible note holders who were eventually paid on February 28, 2014 and April 4, 2014.

In 2014, the total payments made by the Group to redeem the convertible notes amounted toP=1.768 billion consisting of P=959.8 million principal and P=808.5 million accrued interest.

On May 31, 2013, the Group fully paid the outstanding restructured loans (see Notes 2 and 9).Accordingly, on July 17, 2013, the Group demanded trustee-banks for the release of propertiesunder the MTI and secondary MTI.

The trustee-banks did not comply with the demand. Accordingly, the Group filed with theSEC a motion to secure the release of the mortgage lien under the MTI and secondary MTIon July 25, 2013. As at report date, SEC is yet to act on the Group’s petition.

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In a letter dated July 10, 2015 to the SEC Special Hearing Panel, the trustee-bank filed a motion toconsign assets and documents following VMC’s and the creditors secured by the Indenture’sappointment of the successor trustee in connection to the trustee-bank’s resignation letter datedMarch 6, 2014. As at report date, SEC Special Hearing Panel is yet to act on the trustee-banks’motion.

The following are details from the Debt Restructuring Agreement and rehabilitation programwhich are relevant to the Group’s long-term debt:

a. Debt Restructuring Agreement

As discussed in Note 2 to the consolidated financial statements, a key element of the ARPis the restructuring of the above loans from banks and financial institutions.Consequently, the Group and the secured and unsecured creditors executed a DRA datedApril 29, 2002. As stated in the DRA, secured creditors are VMC creditors who areholding on to valid Mortgage Participation Certificates (MPC) to the extent of theamount loaned to VMC and covered by said MPCs while all other VMC creditors shallbe deemed as unsecured creditors, provided, however, that loan facilities and/or creditaccommodations granted by the secured creditors to VMC that are not directlycollateralized, secured, or covered by the MPC shall, for all intents and purposes, beconsidered unsecured loan facilities and/or credit accommodations and will be governedby the same terms and conditions as the loan facility and/or credit accommodations ofthe unsecured creditors. This DRA took effect on September 1, 2003 and which provides,among others, for the following:

1. Conversion of P=1.1 billion loans into equity.

On October 9, 2002, loans from unsecured creditors of P=1.1 billion were convertedinto common shares of VMC at a ratio of P=1 of debt to P=1 of common shares with apar value of P=1.

2. Conversion of P=2.4 billion loans into convertible notes.

Features of the convertible notesSeptember 1, 2003, the unsecured creditors proportionately converted, on amandatory basis, P=2.4 billion of their principal loans into convertible notes. Theconvertible notes bear an annual interest of 8% which is cumulative and payable onlyin respect of those convertible notes which have not been actually converted intocommon stock of the Group. The conversion resulted to the recognition of anequity component of the convertible feature (presented in the consolidatedstatements of financial position as “Conversion feature on convertible notes”account). This will be reclassified to “Additional paid-in capital” upon conversionof the related convertible notes.

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Starting September 1, 2003, annual interest of 8% has been accrued in respect of alloutstanding convertible notes. The convertible notes provide for a term of paymentof 15 years from the effectivity date of the DRA (herein referred to as the“restructuring date”).

i. Collateral for issuance of convertible notes:

The collateral for issuance of convertible notes is under Section 17 of the DRAwhich read as follows:

a) The secured creditors which converted their principal loan into convertiblenotes shall have a first mortgage on VMC’s fixed assets (excludingidentified non-core assets for disposal and MTI properties), in addition to theirfirst mortgage under the existing MTI pursuant to the terms and conditionsof the DRA. A list of VMC’s fixed assets which shall be used as collateralfor those holding convertible notes can be found in the Annex G of the DRA.

b) The unsecured creditors which converted their principal loan intoconvertible notes shall have a second mortgage on VMC’s fixed assets listedin Annex G of the DRA (excluding identified non-core assets for disposaland MTI properties), in addition to their second mortgage under the secondaryMTI pursuant to the terms and conditions of the DRA.

c) As security for the prompt and effective repayment and compliance by VMCof any or all obligations arising from VMC’s issuance of the convertiblenotes, including payment of interests and other fees due thereon, VMChereby creates, establishes and constitutes in favor of the secured creditors,which converted their principal loan into convertible notes, pari passu andin such proportion to the amount of convertible notes they are respectivelyholding, a first mortgage over VMC’s fixed assets (excluding identified non-core assets for disposal and MTI properties), in addition to their firstmortgage under the MTI.

d) As security for the prompt and effective repayment and compliance by VMCof any or all obligations arising from VMC’s issuance of the convertiblenotes, including payment of interests and other fees due thereon, VMChereby creates, establishes and constitutes in favor of the unsecured creditors,which converted their principal loan into convertible notes, pari passu and insuch proportion to the amount of convertible notes they are respectivelyholding, a second mortgage over VMC’s fixed assets (excluding identifiednon-core assets for disposal and MTI properties), in addition to their secondmortgage under the secondary MTI.

e) The mortgage lien created, established and constituted in favor of thesecured creditors as first mortgagee and unsecured creditors as secondmortgagee shall cover only those VMC fixed assets that are not subject ofany encumbrances or liens in favor of any party. It is hereby understood bythe parties that the mortgage lien created shall not in any way novate anyprovisions, terms and conditions of any existing mortgage nor prejudice ordiminish the rights, benefits and privileges of any existing mortgagees.

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ii. Convertibility Feature:

The convertible notes shall be converted at the option of the holders thereof intocommon shares of the Group at the ratio of one (1) convertible note to one (1)common share of the Group, subject to the following schedule:

a) Maximum of 20% of the original issue amount of the convertible notes maybe converted within a period beginning on the 31st day after the end of the3rd year from issue date and shall expire 60 days thereafter (the “Firstconversion period”);

b) Maximum of 20% of the original issue amount of the convertible notes maybe converted within a period beginning on the 31st day after the end of the 4thyear from issue date and shall expire 60 days thereafter (the “Secondconversion period”);

c) Maximum of 20% of the original issue amount of the convertible notes maybe converted within a period beginning on the 31st day after the end of the 5thyear from issue date and shall expire 60 days thereafter (the “Thirdconversion period”);

d) Maximum of 20% of the original issue amount of the convertible notes maybe converted within a period beginning on the 31st day after the end of the 6thyear from issue date and shall expire 60 days thereafter (the “Fourthconversion period”);

e) Any or all outstanding unconverted convertible notes which were notcovered during the First, Second, Third and Fourth conversion periods maybe converted within a period beginning on the 31st day after the end of the 7thyear from issue date and shall expire 60 days thereafter (the “Fifthconversion period”);

f) After the Fifth conversion period, a maximum of 13% of the outstandingunconverted convertible notes may be converted per year from the 8th yearto the 14th year. The convertible notes may be converted within a periodbeginning on the 31st day after the end of each succeeding year from theFifth conversion period and shall expire 60 days thereafter. The term“Outstanding Unconverted Convertible Notes” is defined as the principalamount of the Convertible Notes outstanding as of 92nd day after the end ofthe 7th year; and,

g) Any or all convertible notes which were not converted during the previousconversion periods may be converted within a period beginning on the 60thday before the end of the 15th year from issue date and shall expire 30 daysthereafter (the “Final conversion period”).

The aggregate amount of convertible notes that may be converted intocommon shares of the Group shall not exceed 20% of the original issue amountof the convertible notes for each year covering the conversion beginning on thethird year to the sixth year from the issue date of the convertible notes. Forthe period beginning the eight year to the fourteenth year, the annual aggregate

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amount of convertible notes that may be converted into common shares of theGroup shall not exceed 13% of the outstanding unconverted notes.

As stated in the convertible note, the issuer, shall have the option to redeem theconvertible note by paying the convertible note holder in cash an amountequivalent to the subscription price, plus all accrued interest beginning at the endof the third (3rd) year from the issue date and ending on the last day of thefifteen (15th) year from issue date (the “Final Redemption Date”). The issuermay exercise its option to redeem the convertible note at any time prior tofinal redemption date by sending written notice thereof to the convertible noteholder, which notice, when so sent, shall be deemed final and irrevocable.

The above provisions were religiously complied on the February 28, 2014 andApril 4, 2014 redemption of convertible notes.

Also, under the DRA, the buyer of the convertible note from the originalholder shall convert the notes into common shares of the Group in accordancewith the schedule of the convertibility feature of Section 16 (h) of the DRA.Section 16 (g) of the DRA further provides that interest is payable only at thefinal redemption date and in respect only to those convertible note whichhave not been actually converted to common shares of the Group.

iii. Conversions to common shares

Conversions to common shares of certain convertible notes amounting toP=272.86 million in 2015, P=70.05 million in 2014 and P=272.86 million in 2013(see Note 15b) were made in accordance with the schedule of theconvertibility feature of Section 16 (h) of the DRA. The conversions resulted tothe recognition of “Additional paid-in capital” for the related accrued interestpayable.

Moreover, certain convertible notes and the related accrued interest payable withthe total amount of P=735.09 million (principal amount is P=404.67 million),P=1.23 billion (principal amount is P=677.53 million) and P=338.90 million (principalamount is P=203.09 million) as at August 31, 2015, 2014 and 2012, respectively,were recognized as equity as they are considered mandatorily converted inaccordance with provision of Section 16 (k) of the DRA which requires that alltransferred/sold convertible notes are to be converted to common shares inaccordance with the schedule of the convertibility feature of Section 16 (h) of theDRA. The convertible notes and the related accrued interest payable arepresented in the consolidated statements of financial position as “Convertiblenotes awaiting conversion” and “Interest on convertible notes awaitingconversion” account, respectively.

These convertible notes and related accrued interest payable are no longerrecognized as financial liability as the Group has ceased to have a presentobligation as the DRA provides for mandatory conversion upon transfer/saleof convertible notes. These will be converted to common shares as soon as theschedule of the convertibility feature of Section 16 (h) of the DRA permits theconversion.

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The outstanding balance of the convertible notes is carried at present value usingeffective interest of 5.397%. Total finance costs incurred on convertible notesamounted to nil in 2015, P=230.50 million in 2014 and P=186.14 million in2013. As at August 31, 2015, 2014 and 2013, the balance of the accruedinterest on the convertible notes amounted to nil, nil and P=1.20 billion,respectively.

3. Restructuring of the remaining balance of the loans (herein referred to as“Restructured loans”).

On April 29, 2002, the unsecured and secured creditors restructured the remainingbalance of their loans (after the debt-to-equity conversion and the debt conversion toconvertible notes), with annual interest of 10% for Philippine peso- denominated loansand 6% for the U.S. dollar-denominated loans payable quarterly in arrears. Therestructuring provides for a term of payment of 15 years from September 1, 2003, therestructuring date, with a 3-year grace period from the restructuring date.

In 2015, 2014 and 2013, details of finance cost as follow:

2015 2014 2013Interest on convertible notes P=– P=230,504 P=186,136Interest on bank loans – – 109,419Bank charges 282 405 552Amortization of discount on

provisions 41,308 39,341 38,824P=41,590 P=270,250 P=334,931

The Group fully paid the outstanding restructured loans on May 31, 2013.

4. Secured creditors and/or unsecured creditors who are actually and physicallyholding legitimate and valid VMC sugar quedans as a form of security as ofrestructuring date shall be considered as other secured creditors to the extent of thevalid sugar quedans they are physically and legitimately holding.

The outstanding principal loans, including interest, held by these creditors holdingsugar quedans as collateral shall have the same terms and conditions as that of therestructured loans of the unsecured creditors under the DRA, including arestructuring period of 15 years. As at August 31, 2015 and 2014, outstanding loanbalance amounted to nil.

5. Restructuring of the RSDO Claims, arising from RSDO purportedly issued by VMCwhich was used by NONEMARCO, Inc. to obtain loans for the latter’s own useand pending litigation before the SEC, under the same terms and conditions asthat of the unsecured creditors once VMC is found liable by final judgment.

6. Restructuring of the trade liabilities as follows: 25% during the first year ofrehabilitation, 37.5% during the second year of rehabilitation, and 37.5% during thethird year of rehabilitation. As at August 31, 2015 and 2014, outstanding loan balanceamounted to nil.

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The DRA became effective on September 1, 2003 (also known as the restructuring date)upon the occurrence of the following conditions as per Section 36 of the DRA, amongothers:

1. Conversion of P=1.1 billion loans into equity;2. Conversion of P=2.4 billion loans into convertible notes;3. Generation of the required minimum cash capital infusion of P=300 million;4. Election of a new Board of Directors; and5. Receipt of certain documents by the creditors as provided for in the DRA

(i.e., promissory notes, etc.).

b. Cash Infusion by a Strategic Investor

As part of the provision of the rehabilitation program, the Group obtained aP=300 million loan from a strategic investor, Tanduay Holdings, Inc. The loan was fullypaid in 2008 in accordance with the terms of the loan.

c. Compliance with the DRA

As at August 31, 2015 and 2014, VMC is in compliance with the provisions of the DRA.No further updates or revisions were made on the ORP, ARP and DRA as of reportingdate.

17. Capital Management

The Group manages its capital to ensure that the Group will be able to continue as a goingconcern while maximizing the return on the investments of stockholders. The Group isgoverned by its ARP as submitted and approved by SEC. The details of these plans orprograms are disclosed in Note 2.

The capital structure of the Group consists of equity attributable to the stockholderscomprising of the capital stock while debt is defined as long and short-term borrowings, asdisclosed in Note 16.

a. Debt to Total Asset Ratio

The debt to total assets ratio of the G r ou p as at A u gu s t 3 1, 2 0 1 5 a n d 2 01 4 , whichhas been within the Group’s acceptable range as set by the BOD, is calculated as follows:

2015 2014(In Thousands Except Ratio Information)

Debt P=– P=–Total assets 8,321,619 7,404,820

0:1 0:1

The amount of debt being considered in the above ratio pertains only to long-term debtscovered by the DRA.

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b. Capital Stock

Details of the capital stock of the Parent Company follow:

2015 2014 2013Authorized: Common shares - P=1 par value 2015 - 2,640,392,882 shares P=2,640,393

2014 and 2013 - 2,563,036 shares P=2,563,036 P=2,563,036

Balance at beginning of the year: 2015 - 2,367,534,914 shares P=2,367,535 2014 - 2,297,484,948 shares P=2,297,485 2013 - 2,024,626,981 shares P=2,024,627 Conversion of convertible notes: January 2015 - 77,357,174 shares 77,357 October 2014 - 195,500,794 shares 195,501 December 2013 - 70,049,966 shares 70,050 December 2012 - 272,857,966 shares 272,858Issued shares 2,640,393 2,367,535 2,297,485Treasury shares (11) (11) (11)

P=2,640,382 P=2,367,524 P=2,297,474

Except for the conversion of certain convertible notes to common shares as disclosedabove, there was no other movement on capital stock for the years ended August 31, 2015and 2014. The conversion of certain convertible notes to common stock is provided for inthe DRA.

c. Convertible notes awaiting for conversion and interest on convertible notes awaitingconversion


Convertible notes awaiting conversion (Note 15) P=404,668 P=677,526Interest on convertible notes awaiting conversion

(Note 15) 330,420 550,906P=735,088 P=1,228,432

“Convertible notes awaiting conversion” amounting to P=404.67 million and P=677.53 millionas at August 31, 2015 and 2014, respectively pertain to the principal amount of theConvertible Note awaiting for conversion at a ratio of one (1) Convertible Note to One (1)common share of VMC. Related interest on the “Convertible notes awaiting for conversion”amounted to P=330.42 million and P=550.91 million as at August 31, 2015 and 2014,respectively pertain to the 8% annual interest transferred to the secondary note holders fromthe original note holders.

The contracting party for the “Convertible notes awaiting for conversion” are the secondaryholders of the Convertible notes who are also the buyers from the original note holders orother secondary holders. The buyer of the Convertible Note shall then convert the ConvertibleNotes into common shares of VMC, subject to the conversion schedule provided for in theconvertibility feature stated in Section 16 (h) of the DRA. Convertible Notes, includingaccumulated interest is classified under Equity in compliance with the provisions of the DRAthat Convertible Note of secondary holders are convertible to equity. To support suchintention, interest is computed at transfer date between the primary holders to the secondary

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holders and become as well part of conversion to equity. Further to the intent to convert theConvertible Notes from liability to equity, such Convertible Notes is cancelled.

During the current fiscal year, 195,500,794 shares were issued out of the Corporation’sunissued capital stock in October 2014 and 77,357,174 shares were issued in January 2015 outand in support of an increase in the Parent Company’s authorized capital stock from2,563,035,708 to 2,640,392,882 as approved by SEC on December 14, 2014.

d. Recapitalization and Quasi-reorganization

The SEC approved the following recapitalization programs:

1. The authorized capital stock was reduced initially from P=2.7 billion consisting of270 million shares with par value of P=10 per share to P=495,957,670 consisting of170,432,189 shares with par value of P=2.91 per share (see Note 2.1.i).

2. The reduction in par value likewise resulted in the reduction of the subscribedcapital stock from P=1,704,321,890 consisting of 170,432,189 shares with a par valueof P=10 per share to P=495,957,670 consisting of 170,432,189 shares with a par value ofP=2.91 per share. The par value of the capital stock was then further reduced fromP=2.91 to P=1, simultaneous thereto, the subscribed capital stock was increased fromP=170,432,189 consisting of 170,432,189 shares at par value of P=2.91 per share toP=495,957,670 consisting of 495,957,670 shares at par value of P=1 per share through astock split. The resulting reduction surplus of P=1,208,364,220 (P=1,704,321,890 lessP=495,957,670) was used to partially wipe out the deficit of the Group.

3. SEC issued a certificate of filing of certificate of increase in capital stock datedOctober 2, 2002 approving the Group’s increase in the authorized capital stockfrom P=495,957,670 consisting of 495,957,670 common shares at par value of P=1 pershare to P=2,563,035,708 consisting of 2,563,035,708 shares of common stock at parvalue of P=1 per share. The increase in the authorized capital stock was a partialimplementation by the Group of the ARP’s provision on the increase in authorizedcapital stock as approved by the SEC on November 29, 2000 (see Note 2.2.i).However, the approval by the SEC on the increase in authorized capital stock wassubject to condition that the Group shall submit to the SEC all duly executed deedsof assignment evidencing the creditors’ assignment of a portion of their unpaid loansas payment for the subscription of the increase in the Group’s authorized capital stock.

On June 17, 2009, which was within the extended period requested for submission ofall the duly executed deeds of assignment, the Group submitted the required documentsto the SEC.

In an order dated March 26, 2009, the SEC’s Company Registration and MonitoringDepartment revoked the Group’s certificate of increase in capital stock datedOctober 2, 2002 due to alleged non-compliance with the conditions provided inthe grant of the same. On December 20, 2012, the SEC granted the Group’spetition for lifting the order of revocation.

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e. Partial Wipe-out of Deficit

The Second Amendment to the Rehabilitation Plan dated July 22, 1999 provided for thereduction of the capital stock and revaluation as of actual implementation which shall be usedto reduce the deficit of the Company at the time of the implementation of the quasireorganization. The Second Amendment to the Rehabilitation was approved by the SEC in itsorder dated August 17, 1999 (see Note 2)

For purpose of dividend declaration, any retained earnings of the Group shall berestricted to the extent of deficit wiped out by the revaluation increment and reduction ofthe subscribed capital stock.

However, in an SEC Order dated August 17, 1999, the SEC granted the Company’sprayer for exemption from the application of paragraph 7 of SEC’s Guidelines for QuasiReorganization which requires that for purposes of dividend declaration, the retainedearnings of the company shall be restricted to the extent of the deficit wiped out and notrecovered by accumulated depreciation or appraisal increment by the appraisal surplus.

f. Conversion of Debt into Equity

As discussed in Note 16, the unsecured creditors converted proportionatelyP=1.1 billion of their loans into common stock of the Group at a ratio of P=1 of debt toP=1 of common stock. The said conversion resulted in a change in management controlof the Group effective October 9, 2002, whereby the creditor controls 69% of theownership of the Group while the existing stockholders prior to the conversion wasreduced to 31%. Since December of 2010, movement in common stock pertains to theconversion of convertible notes to common stock amounting to P=701.54 million(Note 16b).

g. Treasury Stock

The Group had an Employees Stock Ownership Plan (ESOP) which was administered bya Board of Administrators appointed by the former Board of Directors of the Group. TheESOP allocated approximately 18 million shares from the Group’s authorized andunissued shares of capital stock. This ESOP gave permanent and regular employeesthe right to subscribe to a minimum of 100 shares and to a maximum of 5,000 shares ata discounted prevailing market value price. Since August 19, 1998, the implementationof the ESOP has been permanently suspended.

The treasury shares as at August 31, 2015, 2014 and 2013 represented the ESOP shareswithdrawn, decrease in treasury shares due to recapitalization, and investments of theconsolidated subsidiaries in the Group.

The Group’s overall capital management strategy remains unchanged from 2010. TheGroup is not subject to externally-imposed capital requirements.

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18. Earnings Per Share

The following table presents information necessary to calculate EPS on net income of the Group:

2015 2014 2013(In Thousands, Except per Share Data)

Net income P=1,084,320 P=869,072 P=671,722Add profit impact of assumed

conversion of convertible notes – 12,095 130,176P=1,084,320 P=881,167 P=801,898

Weighted average number ofcommon shares P=2,575,566 P=2,344,174 P=2,206,521

Dilutive shares arising fromconvertible notes – – 1,504,328

Dilutive shares arising fromconvertible notes awaitingconversion 404,668 677,526 203,093

Adjusted weighted average numberof common shares for dilutedEPS 2,980,234 3,021,700 3,913,942

Basic EPS P=0.42 P=0.37 P=0.30Diluted EPS P=0.37 P=0.29 P=0.20

Basic EPS is calculated by dividing net income by the weighted average number of shares,wherein conversion to common shares of certain convertible notes amounting toP=272.86 million in 2015, P=70.05 million in 2014 and P=272.86 million in 2013 was recognizedon the date of issuance.

Convertible notes awaiting conversion amounting to P=404.67 million, P=677.53 million andP=203.09 million as of August 31, 2015, 2014 and 2013, respectively, have been considered asdilutive potential common shares to compute the adjusted weighted average number ofcommon shares for diluted EPS.

19. Operating Segment Information

Business segment information is required on the basis that is used internally for evaluatingsegment performance and deciding how to allocate resources in operating segment.Accordingly, the segment information is reported based on the nature of goods and servicesthe Group is providing.

The Group has two reportable segments: sugar milling and distillery operations. Segmentperformance is evaluated based on operating profit or loss. A detailed description of eachsegment is set below.

Sugar MillingRevenues from sugar milling consist of the following:a. sale of raw sugar and molasses (mill share)b. tolling fees

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For its raw sugar and molasses operations, the Group operates a raw sugar mill with a dailycapacity of 15,000 metric tons. Cane supply is sourced from both district and non-district planters who have milling contracts with VMC. The production sharing agreement is69.5% for planters and 30.5% for VMC.

The Group also operates a refinery plant with a daily capacity of 25,000 Lkg.(1 Lkg = 50 kilograms). To ensure maximum utilization of the refinery, VMC alsoprovides toll refinery services to traders and planters for their raw sugar milled by other sugarcentrals.

Food ProcessingThis segment is involved primarily in processing canned sardines and bangus in different variantssuch as tomato-based and chili-based, among others. In December 2002 and January 2003, thissegment introduced the luncheon meat and lechon paksiw product lines, respectively. Moreover,in May 2003, this segment re-operated its slaughterhouse operations which had been closed foryears.

Real EstateThis segment is involved in the development and sale of subdivision and memorial lots. Among itsprojects are Phase I to III of Canetown Subdivision and the St. Joseph Memorial Garden which areboth located in Victorias City. These projects were initially intended to provide for the housingand personal needs of the offiers and employees of the Group. In recent years, however, certainlots had also been made available to the general public.

LeasingThis segment derives income from the lease of certain parcels of land to planters.

Distillery OperationsThe Group’s alcohol distillery division, which resumed operations in November 2011,started commercial operations in March 2013.

For its operations, the division operates an alcohol production with an actual dailycapacity of 25,000 liters and with molasses as the primary raw material. Molasses issourced from sugar operations which produces it as a by-product.

EntertainmentThis segment derives income from membership fees when billed and when correspondingservices is rendered.

Power GenerationA newly incorporated segment with a the primary purpose to carry on the business of generationof power derived from renewable energy resources for wholesale of electricity to powercompanies, distribution utilities, electric cooperatives, retail electricity suppliers, aggregators andother customers.

Joint revenues and expenses are allocated to the various business segments. All othersegment revenues and expenses are directly attributable to the segments.

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Segment Assets and LiabilitiesSegment assets include all operating assets used by a segment and consist principally ofoperating cash, receivables, inventories, prepaid expenses, and property, plant and equipment,net of related allowance and depreciation. The carrying amount of certain assets used jointlyby the various segments is allocated to the segments on a reasonable basis. Segmentliabilities include all operating liabilities and consist principally of trade payables, accruals,value added tax and other taxes, and customers’ deposits. Segment assets and liabilities donot include deferred income taxes.

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The following tables regarding operating segments present assets and liabilities as atAugust 31, 2015, 2014 and 2013 and revenue and income information for each of the three years in the period ended August 31, 2015(in millions):

2015

Sugar Milling Food Processing Real Estate LeasingDistillery

Operations EntertainmentPower

GenerationElimination

Items TotalRevenueExternal sales P=4,607 P=43 P=7 P=1 P=342 P=– P=– (P=2) P=4,998Inter-segment sales – – – – – – – – –

P=4,607 P=43 P=7 P=1 P=342 P= P= (P=2) P=4,998

ResultSegment result P=1,767 (P=1) P=4 P=1 P=131 P=– P=– P=1 P=1,772Unallocated

corporateexpense (385) (9) (3) (1) – – – – (398)

Operating profit 1,382 (10) 1 – 131 – – 1 1,504Interest expense – – –Interest income 24 – – – – – – – 24Foreign exchange

gains (losses) -net – – – – – – – – –

Income tax expense (464) (2) – 1 – – – – (465)Other income

(expense) 17 – 1 – – – – – 17P=959 (P=8) (P=1) P=1 P=131 P=– P=– P=1 P=1,084

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2014Sugar

Milling Food Processing Real Estate LeasingDistillery

Operations Entertainment Power Generation Elimination Items TotalRevenueExternal sales P=4,742 P=44 P=5 P=1 P=212 P=8 P=– (P=2) P=5,010Inter-segment sales – – – – – – – – –

P=4,742 P=44 P=5 P=1 P=212 P=8 P=– (P=2) P=5,010

ResultSegment result P=1,794 P=– P=5 P=1 P=80 (P=8) P=– P=1 P=1,873Unallocated corporate expense (492) (12) (4) (2) (22) (3) – – (535)Operating profit 1,302 (12) 1 (1) 58 (11) – 1 1,338Interest expense (231) – (231)Interest income 10 – – – – – – – 10Foreign exchange gains (losses) -

net – – – – – – – – –Income tax expense (155) 2 (1) 2 – 3 (149)Other income (expense) (27) 2 1 – (7) – – – (31)

P=899 (P=8) P=1 P=1 P=51 (P=8) P=– P=1 P=869

2013Sugar

Milling Food Processing Real Estate LeasingDistillery

Operations Entertainment Power Generation Elimination Items TotalRevenueExternal sales P=4,319 P=33 P=5 P=1 P=57 P=8 P=– (P=1) P=4,414Inter-segment sales – – – – – – – – –

P=4,319 P=33 P=5 P=1 P=57 P=8 P= (P=1) P=4,414

ResultSegment result P=1,516 (P=2) P=5 P=1 P=20 (P=8) P=– (P=1) P=1,539Unallocated corporate expense (882) (7) (4) (1) (12) (3) – (2) (908)Operating profit 634 (9) 1 8 (11) – (3) 631Interest expense (292) (4) 1 (296)Interest income 37 – – 1 – – – – 38Net curtailment gain 20 20Foreign exchange gains (losses) - net 8 – – – – – – – 8Gin on revaluation of investment

properties 421 39 (10) 5 455Income tax expense (377) 2 (12) 3 (5) 3 (389)Other income (expense) 188 1 15 – – – 204

P=639 (P=8) P=27 P=9 P=4 (P=8) P=– (P=2) P=671

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Segment Assets Segment Liabilities2015 2014 2013 2015 2014 2013

Sugar milling P=7,390 P=4,539 P=5,694 P=2,131 P=2,451 P=4,271Food processing 75 91 90 47 55 47Real estate 251 250 44 127 125 121Leasing 108 109 1,464 21 23 25Distillery operations 549 2,443 10 158 105Entertainment 146 145 59 58Power generation 31Eliminations (225) (168) (113) (165) (224) (85)

P=8,325 P=7,409 P=7,189 P=2,378 P=2,593 P=4,379

20. Revenue from Operations

Revenue from the sale of goods consists of:

2015 2014 2013Raw sugar P=2,935,674 P=3,157,293 P=2,746,646Alcohol 342,432 212,058 57,149Molasses 258,667 185,025 205,834Refined sugar 140,959 – –Others 44,184 42,930 33,428

P=3,721,916 P=3,597,306 P=3,043,057

Revenue from rendering of services consists of:

2015 2014 2013Tolling fees P=1,269,539 P=1,399,690 P=1,366,154Others 6,735 12,818 5,179

P=1,276,274 P=1,412,508 P=1,371,333

21. Cost of Goods Sold and Services


2015 2014 2013Cost of goods sold P=2,160,758 P=2,130,553 P=1,966,247Cost of services 850,319 822,131 833,663

P=3,011,077 P=2,952,684 P=2,799,910

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Cost of goods sold consists of the following:

2015 2014 2013Cost of hauling P=942,511 P=808,259 P=913,179Repairs and maintenance 412,001 361,408 460,726Materials and supplies 243,902 233,289 131,008Depreciation (Note 11) 217,360 197,136 190,150Professional fees and contracted

services 112,296 159,460 207,120Direct labor 94,645 54,848 10,251Fuel 67,486 62,334 43,230Raw sugar purchased 56,366 330 2,233Light and water 44,204 28,698 4,205Input tax from exempt sales 40,983 40,760 30,254Taxes and licenses 31,159 39,244 39,879Write-down (recovery) of inventory

to NRV 6,484 (20,529) 20,529Insurance 3,571 3,653 2,626Rental 1,950 5,528 1,691Others 12,390 13,325 2,506Total cost of goods manufactured 2,287,308 1,987,743 2,059,587Inventories, beginning of year 210,213 353,023 259,683Inventories, end of year (336,763) (210,213) (353,023)

P=2,160,758 P=2,130,553 P=1,966,247

Cost of hauling pertains to cane trucking, hauling allowances and other incentives to encourageplanters to mill with the Group.

Cost of services consists of the following:

2015 2014 2013Repairs and maintenance P=260,362 P=194,727 P=198,379Materials and supplies 206,615 188,239 204,235Fuel 109,800 120,478 129,983Direct labor 60,788 29,234 3,289Depreciation (Note 11) 58,123 59,939 73,399Professional fees and contractedservices 52,354 79,408 105,576Input tax from exempt sales 40,983 40,760 30,254Light and water 30,009 45,259 ,59,259Taxes and licenses 6,975 9,474 10,597Insurance 1,209 1,604 2,465Rental 2,272 2,094 688Others 5,133 6,878 3,206Total cost of services rendered 834,623 778,094 821,330Inventories, beginning of year 15,696 59,733 72,066Inventories, end of year – (15,696) (59,733)

P=850,319 P=822,131 P=833,663

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22. Other Income - Net


2015 2014 2013Other income P=171,360 P=145,837 P=803,109Other expense (29,293) (20,454) (9,498)

P=142,067 P=125,383 P=793,611


2015 2014 2013Charges to traders P=101,567 P=114,838 P=82,234Interest income (Note 5) 24,915 11,041 38,546Reversal of remeasurement of liability 22,858 – –Rental income (Note 12) 12,671 13,256 14,879Foreign exchange gain-net 6,181 – 8,024Gain on sale of property, plant and

equipment 33 624 268Gain on extinguishment of liability – 67 280,143Fair value gain on investment property – – 358,054Others 3,135 6,011 20,961

P=171,360 P=145,837 P=803,109


2015 2014 2013Loss on revaluation of investment

properties P=27,631 P=− P=−Others 1,662 20,454 9,498

P=29,293 P=20,454 P=9,498

Others consist mainly of guest accommodation expenses and various individually insignificantexpenses. Moreover, “others” in 2014 includes casualty loss amounting to P=0.73 million due toTyphoon Yolanda which is already netted by the claim from the insurer (see Note 8).

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23. Operating Expenses

This account consists of the following:

Selling Expenses

2015 2014 2013Freight and handling P=80,425 P=84,281 P=109,384Taxes and licenses 18,935 13,065 13,128Rental 11,604 12,639 14,414Materials and supplies 9,083 2,738 4,274Depreciation (Note 11) 7,191 7,001 2,837Salaries and employee benefits 7,302 4,935 2,482Repairs and maintenance 2,707 2,772 4,063Others 8,283 8,471 8,580

P=145,530 P=135,902 P=159,162

Others consist mainly of the Group’s insurance expenses, travel and transportation expenses.

General and Administrative Expenses2015 2014 2013

Professional fees and contractedservices P=131,925 P=136,592 P=114,587

Salaries and employee benefits 60,704 30,144 17,964Repairs and maintenance 53,364 5,311 4,560Travel and transportation 41,355 29,913 22,861Taxes and licenses 18,699 21,299 16,000Representation and entertainment 16,934 7,965 6,914Depreciation (Note 11) 17,579 11,729 9,320Retirement benefit 6,557 3,895 6,734Impairment losses on:

Receivable 183 197 –Materials and supplies – – 1,665Property, plant and equipment – 33 136,648

Supplies 26,208 3,357 2,610Insurance 1,629 2,935 3,705Rental 2,184 1,528 840Retrenchment cost – 10,100 –Others 16,519 10,820 12,588

P=393,840 P=275,818 P=356,996

24. Income Taxes

The breakdown of income tax expense (benefit) follows:

2015 2014 2013Recognized in profit or lossCurrent P=539,737 P=305,586 P=407,897Deferred (77,224) (169,995) (50,018)

P=462,513 P=135,591 P=357,879

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Deferred tax expensei recognized in other comprehensive income amounted to nil,P=35.25 million and P=70.17 million in 2015, 2014 and 2013, respectively.

The reconciliation of income tax expense computed at the applicable statutory rates to the taxexpense is as follows:

2015 2014 2013Income before tax P=1,546,833 P=1,004,663 P=1,029,601Tax expense at 30% P=464,050 P=301,399 P=308,880Effect of non-deductible and non-taxable

items:Realization of previously unrecognized

deferred tax – (173,594) –Non-deductible interest and other

expense – – 59,583Interest income subject to final tax (7,475) (3,306) (11,388)Increase in unrecognized deferred tax

asset – 231 504 Expired NOLCO and MCIT – 1,344

Other non-deductible expenses 5,938 9,517 300P=462,513 P=135,591 P=357,879

The composition of “Deferred tax liabilities - net” account as reported in the separatestatements of financial position follows:

2015 2014 2013(In Thousands)

Deferred tax liabilities:Net appraisal increase on

property, plant and equipment P=515,064 P=752,813 729,025Fair value gain on investment

properties 337,025 112,858 112,858Unrealized foreign exchange gain 640 – 3

852,729 865,671 841,886Deferred tax assets:

Provisions 425,664 413,271 252,582Customers’ deposits 43,469 –Allowance for impairment losses 14,732 8,257 13,624Retirement benefit obligations 5,800 4,085 3,219Unrealized foreign exchange loss 10 –NOLCO 6,268 6,219 4,119MCIT 515 404 177

496,448 432,246 273,721P=356,281 P=433,425 P=568,165

The Group expects that it will have sufficient taxable profits for which it can use thesubsequent benefits of the deferred tax assets related to the provisions, retirement benefitsobligation and allowances for impairment losses on receivables, allowance to reducematerials and supplies to NRV and impairment losses on investments, which are expected toreverse in the foreseeable future.

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Previously, the Group did not recognize deferred tax on accrued interest on convertible notes as itwas expected before that the convertible notes and related accrued interest will be converted toequity.

In 2014, following redemption and payment of the convertible notes and the related accruedinterest, the Group realized the previously unrecognized deferred tax on accrued interest.

Details of NOLCO are as follows:

25. Personnel Costs and Expenses

a. Composition of Personnel Costs and Expenses

The following are the details of the personnel costs and expenses and the distribution:

2015 2014 2013Salaries and employee benefits

Cost of goods manufactured P=94,645 P=58,848 10,251Cost of rendering services 60,788 29,234 3,289Selling expenses 7,302 4,935 2,482General and administrative

expenses 60,704 30,144 17,964Retirement benefits

General and administrativeexpenses 6,557 3,895 6,734

P=229,996 P=127,056 P=40,720

26. Retirement Plan

The Group has an unfunded, non-contributory defined benefit plan covering all of its permanentemployees. Contributions and costs are determined in accordance with the actuarial studies madefor the plan. Annual cost is determined using the projected unit credit method. The Group’s latestactuarial valuation date is August 31, 2015. Valuations are obtained on a periodic basis.

The pension benefit under the Miguel J. Ossorio Pension Foundation, Inc. (MJO Pension Plan)was based on the basic monthly salary plus additional components which comprised theemployee-member’s total gross earnings for purposes of benefit computation. Pension benefits arepaid monthly over the lifetime of the Pensioner.

For the active employees, the Group does not have an established retirement plan and onlyconforms to the minimum regulatory benefit under the Retirement Pay Law (Republic Act.No. 7641) which is of the defined benefit type and provides a retirement benefit equal to 22.5 dayspay for every year of credited services. The regulatory benefit is paid in a lump sum uponretirement. The benefits are 75.30% of the monthly basic pay multiplies to the number of creditedyear of service.

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Republic Act 7641, The New Retirement Law, requires a provision for retirement pay to qualifiedprivate sector employees in the absence of any retirement plan in the entity, provided however thatthe employee’s retirement benefits under any collective bargaining and other agreements shall notbe less than those provided under the law. The law does not require minimum funding of the plan.

The Group’s retirement plans meet the minimum retirement benefit specified by the law.

The components of pension expense included under “Operating expenses” in the Group statementsof comprehensive income are as follows (see Note 23):

August 31 September 1,2015 2014 2013

(In Thousands)Current service cost P=5,983 P=3,429 P=–Net interest expense 574 466 6,734Pension expense P=6,557 P=3,895 P=6,734

The remeasurement effects recognized in other comprehensive income (included in Equity under“Remeasurement loss on defined benefit plan”) in the Group statements of financial positionfollow:


(In Thousands)Actuarial gain (loss) due to

changes in financialassumptions (P=1,166) (P=449) P=2,578

Actuarial gain due to changes indemographic assumptions 2,225 – –

Actuarial loss due to experience (1,231) (652) (30,333)Remeasurement loss in other

comprehensive income (P=172) (P=1,101) (P=27,755)

The amounts recognized as pension liabilities in the consolidated statements of financial positionfor the pension plan are as follows:


(In Thousands)Benefit obligations P=19,177 P=13,618 P=10,730

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Changes in the present value of the defined benefit obligation are as follows:

August 312015 2014

(In Thousands)Balance at beginning of year P=13,618 P=10,730Remeasurement loss arising from changes in

financial assumptions 1,166 449Remeasurement gain arising from changes in

demographic assumptions (2,225) –Remeasurement loss arising from experience 1,231 652Current service cost 5,983 3,429Interest expense 574 466Benefits paid (1,170) (2,108)Balance at end of year P=19,177 P=13,618

The cost of defined benefit pension plans and the present value of the pension liabilities aredetermined using actuarial valuations. The actuarial valuation involves making variousassumptions.

The principal assumptions used in determining pension benefits for the defined benefit plans areas shown below:

2015 2014Discount rate 3.75% - 4.30% 3.74% - 4.36%Salary increase rate 2% - 4% 2% - 3%

Below shows the sensitivity analysis determined based on reasonably possible changes of eachsignificant assumptions stated above, assuming all other assumptions were held constant:

December 31, 2015Effect on DBO

Discount rate 1.0% increase P=15,3941.0% decrease 17,734

Rate of salary increase 1.0% increase 17,4571.0% decrease 15,584

The average duration of the defined benefit liability at the end of the reporting period is 6.4 to 13.2years.

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The following table shows the maturity profile of the Group’s defined benefit obligation based onundiscounted benefit payments:

NormalRetirement

Other thanNormal

Retirement TotalLess than 1 year P=1,068 P=– P=1,068More than 1 year to 5 years 27,170 – 27,170More than 5 years to 10 years 26,707 – 26,707More than 10 years to 15 years 27,746 – 27,746More than 15 years to 20 years 12,575 – 12,575More than 20 years 52,532 – 52,532

27. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, tocontrol the other party or exercise significant influence over the other party in makingfinancial and operating decisions. Parties are also considered to be related if they are subjectto common control or common significant influence which include affiliates.

2015Amount/Volume

OutstandingBalance Terms Conditions

Other related parties1. Interbev Philippines, Inc.

Tolling revenue (c) P=209,860 P=1,895 Non-interestbearing

Unsecured,no impairment

Raw sugar sales (c) 452,789 −

(Forward)2015

Amount/Volume


2. Philippine National BankCash in bank (a) P=− P=98,942 Current account,

__% interest perannum

Unsecured, noimpairment

Cash equivalents – peso (a) − 367,158 1.25% to 1.70%interest per

annum


Cash equivalents – dollar (a) − 135,580 1.25% to 1.50%interest per

annum


Available for sale financial assets (a) − 100,105 Money marketfund


Provision for RSQ claims (b) 22,053 252,309

3. Tanduay Distillers, Inc.Alcohol sales (c) 137,984 38,450 Non-interest

bearingUnsecured,

no impairmentRaw sugar sales (c) 7,2400 −

4. Absolut Distillers, Inc.Sale of molasses (c) 50,630 506 Non-interest

bearingUnsecured,

no impairment

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2014Amount/Volume



Tolling revenue (c) P=64,567 P=64,567 Non-interestbearing


Raw sugar sales (c) −

2. Philippine National BankCash in bank (a) − 105,990 Current account,



Available for sale financial assets (a) − 216,320 Money market fund Unsecured, noimpairment

Provision for RSQ claims (b)

3. Tanduay Distillers, Inc.Alcohol sales (c) 137,984 38,450 Non-interest

bearingUnsecured,

no impairmentRaw sugar sales (c) 7,240 −

(a) The Group maintains current account, money market placements and UITF investmentswith PNB.

(b) The Group has an outstanding legal case against PNB for the latter's RSQ claims.Provisions were recognized by the Group based on the management's judgment that theycannot anticipate with certainty the progress and outcome of the legal proceedings(see Notes 15 and 29).

(c) In the normal course of business, the Group sold raw sugar, alcohol, molasses and tollingservices to Interbev, Tanduay and Absolut.

The Group is related to PNB, Interbev, Tanduay and Absolut who are subsidiaries under theLT Group, Inc., which owns a 15.71% ownership interest in the Group.

(d) Compensation of key management personnel by benefit type follows:

2015 2014 2013Short-term benefits P=32,142,062 P=29,696,442 P=31,795,194Post-employment benefits – 8,961,111 –

P=32,142,062 P=38,657,553 P=31,795,194

28. Agreements and Commitments

The significant agreements at August 31, 2015 and 2014 were as follows:

a. Milling contracts with various planters provide for a 69.5% share to the planters(including related parties) and 30.5% share to the Group of sugar and molassesproduced from sugar canes milled. The milling contracts are renewed annually.

b. As at August 31, 2015 and 2014, the Group had in its custody sugar owned by severalquedan holders and sugar traders. These sugar inventories are not reflected in thestatements of financial position since these are not assets of the Group. The Group isaccountable to both quedan holders and sugar traders for the value of these trusteed sugaror their sales proceeds.

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c. In 1993, the Group has entered into a deed of assignment and exchange of shares of stockwith VGCCI for the latter to issue shares of stock with a total par value ofP=224 thousand in exchange for the Group’s land with an appraised value ofP=13.21 million the difference of P=12.98 million to be accounted for as additional paid-incapital of the Group to VGCCI.

As provided for in the agreement, VGCCI is in possession of the above-mentioned landwithout any consideration yet until such time that the assignment of the aforementionedland is completed. As at August 31, 2015, the certificate of title has not yet beentransferred in the name of VGCCI since the land to be transferred is covered by theMTI of the Group with various creditor banks as disclosed in Note 14. Hence, thetransaction is on hold until the subject land is released as collateral.

d. The Group leases for an office space for one of its subsidiaries and for certainmachineries and equipment from third parties for terms of one year, subject to yearlyrenewal.

e. Commitments on the purchase of PPE is a total of P=99.43 million and are covered by2 contracts as follows:

On July 29, 2015, The Group executed a letter of intent for the supply of 1 x 200 TPHTraveling Grate Boiler along with the balance of plant (BoP) equipment in favor of ThermaxLimited. Total contract price amounts to $16.8 million and expected completion is on orbefore March 15, 2017. As provided for the said contract, a 10% down payment was made onAugust 12, 2015 for a peso equivalent of P=76.62 million.

A Sales Contract dated July 14, 2015 was signed between The Parent and Shin NipponMachinery Co., Ltd. for the purchase of generator set, inclusive of spare parts andsupervision for installation and commissioning with a total contract price of JPY 623million and delivery date of August 31, 2016. As provided for the said contract, a 10%down payment was made July 30, 2015 for a peso equivalent of P=22.81 million.

29. Provisions and Contingencies

The Group’s legal proceedings are as follows:

a. RSDOs and RSQs ClaimsNONEMARCO used RSDOs and RSQs allegedly issued by the Group to avail of bankloans totaling to about P630 million. Several creditor banks filed collection casesagainst NONEMARCO aggregating to P=1.19 billion.

The Group denied liability as these RSDOs and RSQs claims lacked any factual or legalbasis and that the officers who issued them acted fraudulently.

The SEC, in its order dated March 26, 2013, ordered the dismissal and exclusion from therehabilitation proceedings the “Claim” (dated October 9, 1998) and “Amended Claim”(dated September 23, 1999) of a claimant-bank.

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b. Labor, Civil and Other CasesThere are various lawsuits and claims such as labor cases, collection disputes andassessments filed by third parties against VMC which are either pending decision by theproper judicial bodies or under negotiation, the outcome of which are presentlyundeterminable. Relative to this, VMC is required to put up cash surety bonds(see Note 15).

c. Proceeding with Pollution Adjudication Board (PAB)On September 22, 2003, the Group received an order issued by the PAB directing theformer to permanently seal the opening of the underground canal leading to Malihaoriver; provide protective lining in the pond immediately; and show cause within five(5) days from receipt of order why a cease and desist order should not be imposed onthe Group by the DENR for non-compliance with both water and air standards.

The Management of the Group has placed the handling of pollution problems on itspriority list and is now addressing it to comply with the applicable environmentalcompliance requirements.

The Group submitted a number of pleadings to the PAB in order to avert a re-impositionof the Cease and Desist Order on which PAB issued temporary lifting order (TLO). TheGroup was issued by PAB with a one-year TLO dated May 20, 2014 and is effective untilMay 20, 2015. As of August 31, 2015, a Notice of Issuance to Extend the TLO was issuedby PAB for another year effective August 5, 2015 and until August 5, 2016.

In an Urgent Motion for the above extension, dated April 27, 2015, the Group acquiredor constructed and installed certain air and water pollution control devices to complywith the order of the Department of Environment and Natural Resources (DENR)accumulating to P=350.00 million, including the P=2.32 million and P=1.68 million installationof polishing scrubbers for Boiler No. 3 and 1, respectively (see Note 9).

The Group’s management and legal counsels have made judgment that, while the legalproceedings briefly discussed above are legally defensible, they cannot anticipate withcertainty the progress and the outcome of the legal proceedings, the appreciation of theavailable evidences by the relevant courts or tribunal involved and the evolution ofjurisprudence or similar cases that will be decided by the highest court, which will berelevant to pending cases.

The other information normally required to be disclosed under PAS 37 is not disclosed bymanagement so as not to seriously prejudice the Group’s position on the said disputes.

30. Risk Management, Objectives and Policies

Regulatory RiskThe Group is subject to laws and regulations in the Philippines in which it operates.

The Group has established policies and procedures in compliance with local and other laws.Management performs regular reviews to identify compliance risks and to ensure that thesystems in place are adequate to manage those risks.

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In 1992, the ASEAN economic ministers signed the ASEAN Free Trade Agreement(AFTA) on the Common Effective Preferential Tariffs (CEPT) for the ASEAN Free TradeArea. The AFTA committed the ASEAN member-states to set-up a free trade area in theregion, reducing most tariffs on trade within the region. Sugar is one of the productsaffected by the gradual tariff reduction as follows:

Year Rate2012 28%2013 18%2014 10%2015 5%

Relative to AFTA, on June 17, 2012, the Philippine government passed Executive OrderNo. 892 adopting the above-yearly gradual reduction of duty on imported sugar incompliance with the AFTA.

Fair Value HierarchyThe methods used by the Group in estimating the fair value of the financial instruments are:

Cash and cash equivalents, receivables - Carrying amount approximates their fair value.

Accounts and other payables - Carrying amounts approximate fair values due to the relativelyshort-term nature of these transactions.

Available-for-sale investments - carrying amount of AFS investments are determined basedon net asset value per unit.

The Group uses the following hierarchy for determining and disclosing the fair value of thefinancial instruments by valuation technique:Level 1: quoted (unadjusted prices) in active markets for identical assets and liabilities.Level 2: other techniques for which all inputs which have a significant effect on the

recorded fair value are observable, either directly and indirectly.Level 3: techniques which use inputs which have a significant effect on the recorded fair

value that are not based on observable market data

The fair value of AFS investments is based on the published net asset value per unit(NAVPU). NAVPU is computed as total assets of the fund less total liabilities over the totalunits outstanding as of the end of the reporting period. The funds are primarily invested inBangko Sentral ng Pilipinas special deposit accounts and time deposits with other banks. TheGroup uses the level 2 valuation technique in determining fair value of its quotes AFSfinancial assets.

In August 31, 2015 and 2014, there was no transfer between Level 1, Level 2, and Level 3 offair value measurements.

Financial Risk ManagementThe Group’s financial assets comprise of cash and cash equivalents, trade and other currentreceivables, advances to related parties, AFS investments. The financial liabilities of theGroup, which arise directly from its operations, comprise trade payables, advances fromrelated parties, accrued expenses and other payables.

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The Group has exposure to the following risks from its use of financial instruments:

· Credit Risk· Liquidity Risk· Market Risk

The BOD of the Group has overall responsibility for the establishment and oversight of theGroup’s risk management framework. Moreover, market and credit risk management iscarried out by the Group’s Treasury. The objective is to minimize potential adverse effectson its financial performance due to unpredictability of financial markets.

Credit RiskCredit risk refers to the risk that a counterparty will default on its contractual obligationsresulting in financial loss to the Group.

The Group trades only with recognized and creditworthy third parties. It is the Group’spolicy that all customers who wish to trade on credit terms are subject to credit verificationprocedures. In addition, receivable balances are monitored on an ongoing basis. Theamounts presented in the consolidated statements of financial position are net of allowancesfor impairment losses on receivables, estimated by the Group’s management based on priorexperience and their assessment of the prevailing economic environment at any given time.

As at August 31, 2015, 2014 and 2013, the aging profile of the Group’s financial assets is asfollows:

August 31, 2015Neither past due Past Due but not Impaired Past due and

or impaired <30 days 31-60 days 61-90 days >90 days Impaired TotalCash and cash equivalents * P=1,752,073 P=– P=– P=– P=– P=– P=1,752,073Trade receivables:

Outside parties 64,221 380 268 2,754 1,277 18,952 87,852Related parties 24,099 - 38 15,127 1,081 – 40,345

Advances to:Planter association 1,260 – – – – – 1,260Officers and employees 429 3 15 1 7 – 455

Other Receivables 4,485 104 94 39 120 1,621 6,463AFS financial assets 502,787 – – – – – 502,787Other noncurrent assets 23,821 – – – – 8,393 32,214Total P=2,373,175 P=487 P=415 P=17,921 P=2,485 P=28,966 P=2,423,449

*Excluding cash on hand*Excluding land under dispute

August 31, 2014

Neither past due Past Due but not Impaired Past due andor impaired <30 days 31-60 days 61-90 days >90 days Impaired Total

Cash and cash equivalents * P=804,033 P=– P=– P=– P=– P=– P=804,033Trade receivables:

Outside parties 1,031 568 247 188 1,342 20,305 23,681Related parties 86,232 – – – – – 86,232

Advances to:Planter association 13,105 – – – – – 13,105Officers and employees 410 – – – 23 – 433

Other Receivables 5,842 61 – – 1,324 86 7,313AFS financial assets 216,320 – – – – – 216,320Other noncurrent assets 24,268 – – – – 8,393 32,661Total P=1,151,241 P=629 P=247 P=188 P=2,689 P=28,784 P=1,183,778

*Excluding cash on hand*Excluding land under dispute

At the reporting date, there were no significant concentrations of credit risk as theGroup’s financial assets are actively monitored.

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The credit quality of the Group’s financial assets that are neither past due nor impaired isconsidered to be of good quality and expected to be collectible without incurring any creditlosses.

Information on the G r o u p ’s advances to related parties and other current receivables andother noncurrent assets that are impaired as at August 31, 2015 andAugust 31, 2014 and the movement of the allowance used to record the impairment lossesare disclosed in Notes 6 and 14 to the consolidated financial statements.

As at August 31, 2015 and 2014, the Group’s maximum credit exposure is equal to thecarrying values of the following financial assets:


Cash and cash equivalents1 P=1,752,073 P=804,033Trade and other current receivables - net2 115,801 110,373AFS financial assets3 502,787 216,320Other non-current assets 24,268 24,141Total P=2,397,264 P=1,173,1911Excluding cash on hand2Excluding advances to suppliers3Net of impairment loss

Liquidity RiskLiquidity risk is the risk of not meeting obligations as they become due because of aninability to liquidate assets or obtain adequate funding.

The Group monitors and maintains a level of cash deemed adequate by the management tofinance the Group’s operations and mitigate the effects of fluctuations in cash flows.

The following tables summarize the maturity profile of the Group’s financial liabilities as atAugust 31, 2015 and August 31, 2014 based on contractual undiscounted payments:

August 31, 2015

On Demand Within 1 yearMore than

Total1 yearFinancial AssetsLoans and receivables:

Cash and cash equivalents P=1,752,073 P= – P=– P=1,752,073Trade receivables:

Outside parties 64,221 4679 – 68,900Related parties 24,099 16,246 – 40,345

Advances to:Planter association 1,260 – – 1,260Officers and employees 429 26 – 455

Other receivables1 4,485 357 – 4,842AFS financial assets 502,787 – – 502,787Other noncurrent assets1 23,821 – – 23,821

Total P=2,373,175 P=21,308 P=– P=2,394,483

Financial LiabilitiesOther financial liabilities:

Accounts payables2 P= 161,364 P= 77,709 P= 57,883 P=296,956Accrued expenses 24,090 – – 24,090Retention payable – 9,879 9,879

Other payables 8,898 – – 8,898Total P=194,352 P=87,588 P=- P=339,8231Net of allowance for impairment loss2Excluding customer deposits and statutory liabilities

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August 31, 2014


Total1 yearFinancial AssetsLoans and receivables

Cash and cash equivalents P=822,033 P=– P=– P=822,033Trade receivables:

Outside parties 981 4,739 – 5,720Related parties - 86,232 – 86,232

Advances to:Planter association 13,105 13,105Officers and employees 209 23 – 232

Other receivables1 5,841 1,385 – 7,226AFS financial assets 216,320 – – 216,320

Other noncurrent assets1 24,268 – – 24,268Total P=1,082,757 P=92,379 P=– P=1,175,136


Checks payable to EWB P=366,126 P=– P=– P=366,126Accounts payables2 224,760 531 799 226,090Retention payable – 4,838 – 4,838

Other payables 7,836 – – 7,836Total P=598,722 P=5,369 P=- P=604,8901Net of allowance for impairment loss2Excluding customer deposits and statutory liabilities

a. Market Risk

Market risk is the risk that the fair value or cash flows of a financial instrument of theGroup will fluctuate due to change in market prices. Market risk reflects interest rate risk,currency risk and other price risks. The G r o u p ’s market risk exposures and itsrisk management strategies as of August 31, 2015 and August 31, 2014 are as follows:

b. Interest Rate Risk

Interest rate risk is the possibility that changes in interest rates will affect future cash flowsor the fair values of financial instruments. The Gr oup’s exposure to the risk changes inmarket interest rates relates primarily to the Group’s interest-bearing bank loans andinterest-bearing short-term placements.

The Group minimizes its spread exposure by ensuring that surplus cash is available toeither offset debt or by matching maturity dates of assets and liabilities. By thesemanagement approaches, possible market rate fluctuations would have no significantimpact on the Group’s net income.

The Group, however, has no significant interest rate risk considering that the Group hasno significant financial instruments that bear fixed and variable interest rate as atAugust 31, 2015, 2014 and 2013.

c. Price Risk

The Group is exposed to commodity price risk with respect to sugar produced. Tomanage this risk, the Group monitors prices with the Sugar Regulatory Administration(SRA) to plan its transactions. As at August 31, 2015, 2014 and 2013, managementassessed that the Group’s exposures to commodity price risk were insignificant.

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d. Foreign Currency Risk

The Group’s currency risk occurs because of its US dollar (USD) bank deposits. Thefinancial asset of the Group that is foreign currency denominated is a portion of theGroup’s cash and cash equivalent.

Exposures to foreign exchange rates vary during the year depending on the volume offoreign currency-denominated transactions.

The Group’s foreign currency denominated monetary assets and liabilities as ofAugust 31, 2015 and 2014 are as follows:

2015Change in ImpactCurrency on Income

Currency Rate Before TaxUSD 5% 14,849USD -5% (14,849)


Currency Rate Before TaxUSD 5% 4,988USD -5% (4,988)

e. Equity Price Risk

Quoted AFS financial assets pertain to investment in UITF (Fund). The Fund, which isstructured as a money market UITF, aims to generate liquidity and stable income byinvesting in a diversified portfolio of primarily short-term fixed income instruments.

The Group measures the sensitivity of its investment securities based on the averagehistorical fluctuation of the investment securities net asset value per unit (NAVPU). Allother variables held constant, for every 100 basis points decrease (increase) in NAVPU,the fair value of the Group’s investments, net income and equity will increase (decrease)by the following amounts:

August 312015 2014

PNB Prime Peso Money Market FundWeighted Average Duration (Years) 0.53 0.63Investment in UITF 520,559 1,362,813

Security Bank Peso Money Market FundWeighted Average Duration (Years) 0.03 0.06Investment in UITF 120,804 −

Fair Value of Financial Assets and LiabilitiesThe carrying values of cash and cash equivalents, trade and other current receivables andtrade and other current payables approximate their fair values due to the short-termmaturity of these instruments.

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The carrying value of long-term debt approximates its fair value and is calculated bydiscounting the expected future cash outflows at prevailing effective interest rate. Thecarrying values of advances to and from an unconsolidated subsidiary and due tostockholder approximate their fair values because they represent the expected cash flowshould they be settled or realized at the reporting date.

31. Prior Period Adjustments

The Group's comparative financial statements as of and for the years ended August 2014 and 2013were restated to reflect the effects of the various adjustments and reclassifications.

Effects of the reclassification and adjustments are discussed below.

Statement of Financial Position

August 31,2014

September 1,2013

Increase (decrease) in:Cash and cash equivalents (P=216,218) P=−Available-for-sale investments 216,320 −Inventories (4,555) 20,363Property, plant and equipment 112,652 113,745Investment properties (113,745) (113,745)Accounts and other payables (242,792) −Income tax payable − 6,109Provisions 289,012 −Retirement liability − 1,739Deferred tax liabilities (13,866) (522)Retained earnings (265,807) (207,988)Other comprehensive income 228,350 227,133

Equity

August 31,2014

September 1,2013

As previously reportedPrior period adjustments:

Change in inventory costing (5,100) 20,362Reversal of accruals 242,792 −Provisions (289,012) −Transfer from investment property to PPE (228,350) (228,350)Tax impact of prior period adjustments 13,863Effect on retained earnings (265,807) (207,988)Increase in revaluation increment in PPE 228,350 228,350Change in retirement benefit − (1,217)Net unrealized gain on available-for-sale financial assets 102 −

As restated

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Cash and cash equivalentsCertain investments with duration of more than 180 days from acquisition date and not qualifiedas cash and cash equivalents were reclassified to Available-for-sale financial assets. The relatedunrealized gain was recognized in equity.

Property, plant and equipmentParcels of land previously classified under investment properties were reclassified to propertyplant and equipment based on the use of the properties.ProvisionsAdjustments to recognized provisions were based on reassessment made by the Group related torisk-adjusted cash flows and discount rate used in determining provisions.

Effect on earnings per shareBasic and diluted earnings per share for the years ended August 31, 2014 and 2013will increase byP=0.02 and P=0.01 per share, respectively.

32. Notes to Group Statements of Cash Flows

The noncash activities of the Group pertain to transfers from investment properties whichamounted to P=106.10 million in 2014; transfer from investment properties to other noncurrentassets in 2014 amounted to P=0.46 million; transfer from other noncurrent assets in 2015amounted to P=262.33 million; conversion of convertible notes to capital stock amounted toP=272.86 million and P=70.05 million with interest on convertible notes transferred toadditional paid in capital amounted to P=220.49 million and P=47.64 million in 2015 and 2014,respectively.

33. Events After Reporting Date

The following are the events after reporting date:

a. Events related to redemption of the remaining convertible notes

EWB filed with the Court of Appeals on September 15, 2015 a petition for review appealingthe Decision promulgated on August 11, 2015 of the SEC en Banc (see Note 14).

On October 26, 2015, VMC received a Resolution from the Eighth Division of the HonorableCourt of Appeals dated October 8, 2015 directing VMC to submit its comment on the Petitionand on the prayer of EWB for the issuance of a Writ of Preliminary Injunction among others.VMC accordingly responded on October 27, 2015 praying that that the Honorable Court ofAppeals (i) deny petitioner East West Banking Corporation’s Petition dated September 15,2015 and affirm the Decision of the Honorable SEC En Banc dated August 11, 2015, and(ii) deny petitioner East West Banking Corporation’s prayer for the issuance of a Writ ofPreliminary Prohibitory Injunction (see Note 14).

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b. Events related to capitalization and compliance with DRA

On September 24, 2015, to comply with the provisions of the DRA, BOD approved theissuance of 272,857,968 shares in compliance with the mandatory conversion into equity ofthe convertible notes amounting to P=272,857,968. T h i s w i l l be issued out of and insupport of an increase in VMC’s authorized capital stock from 2,640,392,882 to2,913,250,850. The application for the increase in VMC’s authorized capital stock wasfiled with the SEC on November 3, 2015.

c. Commitments on the purchase of PPE

On October 22, 2015, An Engineering, Manufacturing and Supply Contract was signedbetween the Parent and Thermax Limited for the delivery of boiler and related plantequipment for a total contract price of $16.8 Million and expected completion of on or beforeMarch 15, 2017.

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INDEPENDENT AUDITORS’ REPORTON SUPPLEMENTARY SCHEDULES

We have audited in accordance with Philippine Standards on Auditing, the consolidated financialstatements of Victorias Milling Company, Inc. and its subsidiaries as at August 31, 2015 and for theperiod ended August 31. 2015, included in this Form 17-A, and have issued our report thereon datedDecember 11, 2015. Our audits were made for the purpose of forming an opinion on the basicconsolidated financial statements taken as a whole. The Schedules A to K listed in the Index to theConsolidated Financial Statements and Supplementary Schedules are the responsibility of theCompany’s management. These schedules are presented for purposes of complying with the SecuritiesRegulation Code Rule 68, As Amended (2011) and are not part of the basic consolidated financialstatements. These schedules have been subjected to the auditing procedures applied in the audit of thebasic consolidated financial statements and, in our opinion, fairly state in all material respects theinformation required to be set forth therein in relation to the basic consolidated financial statementstaken as a whole.



December 11, 2015


Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph



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C O V E R S H E E Tfor

AUDITED FINANCIAL STATEMENTS

SEC Registration Number

P W - 3 6 4

C O M P A N Y N A M E

V I C T O R I A S M I L L I N G C O M P A N Y , I N C .

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province )

V M C C O M P O U N D , J . J . O S S O R I O S T R E E

T , B R G Y . X V I , V I C T O R I A S C I T Y , N E G R

O S O C C I D E N T A L

Form Type Department requiring the report Secondary License Type, If Applicable

A A F S I E O

C O M P A N Y I N F O R M A T I O N

Company’s Email Address Company’s Telephone Number Mobile Number

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)

1st Tuesday of February 08/31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation

Name of Contact Person Email Address Telephone Number/s Mobile Number

Teresita V. Ilagan Teresita.ilagan@victoriasmilling .com

(034) 399 3373

CONTACT PERSON’s ADDRESS

NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to theCommission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact persondesignated. 2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records withthe Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation fromliability for its deficiencies.

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INDEPENDENT AUDITORS’ REPORT

The Stockholders and the Board of DirectorsVictorias Milling Company, Inc.VMC Compound, J.J. Ossorio StreetBrgy. XVI, Victorias City, Negros Occidental

Report on the Parent Company Financial Statements

We have audited the accompanying parent company financial statements of Victorias MillingCompany, Inc. (the “Parent Company”), which comprise the parent company statement of financialposition as at August 31, 2015, and the statement of comprehensive income, statement of changes inequity and statement of cash flows for the year then ended, and a summary of significant accountingpolicies and other explanatory information.

Management’s Responsibility for the Parent Company Financial Statements

Management is responsible for the preparation and fair presentation of these parent company financialstatements in accordance with Philippine Financial Reporting Standards, and for such internal controlas management determines is necessary to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these parent company financial statements based on ouraudit. We conducted our audit in accordance with Philippine Standards on Auditing. Those standardsrequire that we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity’spreparation and fair presentation of the financial statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectivenessof the entity’s internal control. An audit also includes evaluating the appropriateness of accountingpolicies used and the reasonableness of accounting estimates made by management, as well asevaluating the overall presentation of the financial statements.

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


Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph



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Opinion

In our opinion, the parent company financial statements present fairly, in all material respects, thefinancial position of Victorias Milling Company, Inc. as at August 31, 2015, and its financialperformance and cash flows for the year then ended in accordance with Philippine Financial ReportingStandards.

Emphasis of Matter

Without qualifying our opinion, we draw attention to Note 1 to the parent company financialstatements which state that the Parent Company is still under rehabilitation and debt restructuringprograms.

The 15-year rehabilitation program includes a Debt Restructuring Agreement (DRA) as its keyelement under which the Parent Company should be able to pay or convert to equity all its debtsthrough the following relevant features of the DRA as disclosed in Note 16b: (a) conversion ofP=1.1 billion loans on October 2, 2002; (b) conversion of P=2.4 billion loans into convertible notes onSeptember 1, 2003; and (c) restructuring of the remaining balance of the loans on September 1, 2003payable over a period of 15 years. As of August 31, 2015, the Parent Company already paid all itsrestructured loans and redeemed all of its convertible notes except those subject to mandatoryconversion to common shares amounting to P=404.7 million.

The Parent Company is currently involved in a legal proceeding against a Bank in relation to convertiblenotes issued under the Debt Restructuring Agreement (DRA) dated April 29, 2002. The Parent Companyinvoked its rights to redeem the convertible notes under the DRA while the Bank invoked its right toconvert the convertible notes into Parent Company’s common shares. In 2015, the Parent Companyextinguished its P=366.1 million liability with the Bank by virtue of a SEC en Banc decision datedAugust 11, 2015 and by act of consigning the checks to the SEC appointed rehabilitation receiver onSeptember 26, 2014. The Bank filed a petition to review the SEC en Banc decision with the Court ofAppeals on September 15, 2015. The outcome of this matter, including the legal extinguishment of thedebt, depends upon the future events and cannot be presently determined. Any adjustments arising fromthe final outcome of this matter will be reflected in the financial statements once determined.

Other Matter

The parent company financial statements of Victorias Milling Company, Inc. as at August 31, 2014and for the years ended August 31, 2014 and 2013 presented for comparative purposes, were auditedby other auditors whose report dated December 15, 2014 expressed an unqualified opinion on thosefinancial statements. As part of our audit of the 2015 parent company financial statements, we alsoaudited the adjustments described in Note 31 that were applied to the 2014 parent company financialstatements and the parent company statement of financial position as at August 31, 2013 to come upwith parent company statement of financial position as at September 1, 2013 presented herein ascorresponding figures. In our opinion, such adjustments are appropriate and have been properlyapplied. We were not engaged to audit, review, or apply any procedures to the 2014 and 2013financial statements of the parent company other than with respect to the adjustments, andaccordingly, we do not express an opinion or any other form of assurance on the 2014 and 2013 parentcompany financial statements taken as a whole.


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Report on the Supplementary Information Required Under Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statementstaken as a whole. The supplementary information required under Revenue Regulations 15-2010 inNote 34 to the financial statements, is presented for purposes of filing with the Bureau of InternalRevenue and is not a required part of the basic financial statements. Such information is theresponsibility of the management of Victorias Milling Company, Inc. The information has beensubjected to the auditing procedures applied in our audits of the basic financial statements. In ouropinion, the information is fairly stated, in all material respects, in relation to the basic financialstatements taken as a whole.



December 11, 2015


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VICTORIAS MILLING COMPANY, INC.PARENT COMPANY STATEMENTS OF FINANCIAL POSITION(Amounts in Thousands)


2015

2014(As restated -

Note 31)

2013(As restated -

Note 31)

ASSETS

Current AssetsCash and cash equivalents (Notes 5, 30 and 31) P=1,695,115 P=750,150 P=782,238Trade and other current receivables (Notes 6 and 30) 163,376 149,957 476,242Available-for-sale financial assets (Notes 7, 30 and 31) 502,787 216,320 −Inventories (Note 8) 305,198 196,856 370,789Other current assets (Note 9) 73,326 395,924 27,494

Total Current Assets 2,739,802 1,709,207 1,656,763

Noncurrent AssetsInvestments in subsidiaries and an associate (Note 10) 165,184 133,934 133,934Property, plant and equipment (Note 11) 3,874,287 4,046,459 3,995,068Investment properties (Note 12) 747,838 1,037,801 1,038,258Other noncurrent assets (Note 13) 411,852 49,959 51,611


LIABILITIES AND EQUITY

Current LiabilitiesTrade and other current payables (Notes 14 and 30) P=562,252 P=717,963 P=338,584Income tax payable 111,264 60,303 63,524

Total Current Liabilities 673,516 778,266 402,108

Noncurrent LiabilitiesProvisions (Note 15) 1,418,876 1,377,568 841,941Long-term debts - net of current portion (Note 16) − − 2,544,633Retirement liability (Note 26) 16,352 10,520 8,934Deferred tax liabilities - net (Note 24) 241,562 316,868 480,204


EquityCapital stock (Note 17) 2,640,393 2,367,535 2,297,485Additional paid-in capital (Note 17) 512,750 292,264 244,621Convertible notes awaiting conversion (Note 17) 404,668 677,526 203,093Interest on convertible notes awaiting conversion

(Note 17) 330,420 550,906 135,803Conversion feature on convertible notes (Note 17) − − 472Other comprehensive income (Notes 11 and 17) 314,606 331,489 350,617Retained earnings (deficit) 1,385,831 274,429 (634,266)Treasury stock (Note 17) (11) (11) (11)

Total Equity 5,588,657 4,494,138 2,597,814P=7,938,963 P=6,977,360 P=6,875,634

See accompanying Notes to Parent Company Financial Statements.

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VICTORIAS MILLING COMPANY, INC.PARENT COMPANY STATEMENTS OF INCOME(Amounts in Thousands)


2015

2014(As restated -

Note 31)

2013(As restated -

Note 31)

REVENUE (Note 20)Sale of goods P=3,679,578 P=3,554,376 P=3,009,629Rendering of services 1,269,866 1,399,690 1,366,154

4,949,444 4,954,066 4,375,783

COST OF GOODS SOLD AND SERVICES (Note 21)Cost of sale of goods 2,119,895 2,089,378 1,934,350Cost of rendering of services 847,521 805,535 832,916

2,967,416 2,894,913 2,767,266

GROSS PROFIT 1,982,028 2,059,153 1,608,517

OPERATING EXPENSES (Note 23)General and administrative 385,551 256,263 343,836Selling 142,051 133,176 156,914

527,602 389,439 500,750

OTHER INCOME - NET (Note 22) 143,293 127,447 837,604

FINANCE COST (Note 16) 41,308 766,130 862,332

INCOME BEFORE INCOME TAX 1,556,411 1,031,031 1,083,039

INCOME TAX EXPENSE (Note 24) 464,421 141,748 374,366

NET INCOME P=1,091,990 P=889,283 P=708,673


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VICTORIAS MILLING COMPANY, INC.PARENT COMPANY STATEMENTS OF COMPREHENSIVE INCOME(Amounts in Thousands)


2015

2014(As restated -

Note 31)

2013(As restated -

Note 31)

NET INCOME P=1,091,990 P=889,283 P=708,673

OTHER COMPREHENSIVE INCOME (LOSS)Items that will be reclassified to profit or loss in

subsequent periods:Net unrealized gain on available-for-sale financial

assets (Note 7) 2,589 102 –Items that will not to be reclassified to profit or loss in

subsequent periods:Revaluation increment of property, plant and

equipment (Note 11) – – 199,461Remeasurement gains (losses) on retirement liability

(Note 26) (86) 260 (1,739)Tax effect relating to components of other

comprehensive income (loss) 26 (78) (59,316)2,529 284 138,406

TOTAL COMPREHENSIVE INCOME P=1,094,519 P=889,567 P=847,079


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VICTORIAS MILLING COMPANY, INC.PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY(Amounts in Thousands)

Year Ended August 31, 2015


and 17)

ConvertibleNotes

AwaitingConversion

(Note 16b2ii)


Notes AwaitingConversion

(Note 16b2iii)




(Notes 11and 17d)

RetirementBenefit

Reserve(Notes 26c

and 26)



Assets(Note 7)


(Note 17)


ConvertibleNotes

(Note 16b2ii)

TreasuryStock

(Note 17f) TotalBalances at beginning of year, as

previously reported P=2,367,535 P=677,526 P=550,906 P=292,264 P=104,072 (P=1,035) P=– P=540,236 P=– (P=11) P=4,531,493Effects of restatements (Note 31) – – – – 228,350 – 102 (265,807) – – (37,355)Balances at beginning of year, as restated 2,367,535 677,526 550,906 292,264 332,422 (1,035) 102 274,429 – (11) 4,494,138Conversion of convertible notes 272,858 (272,858) (220,486) 220,486 – – – – – – –Transfer of revaluation increment to

deficit from depreciation onappraisal increase - net of deferredtax – – – – (19,412) – – 19,412 – – –

Net income – – – – – – – 1,091,990 – – 1,091,990Other comprehensive income - net of tax

effect – – – – – (60) 2,589 – – – 2,529Total comprehensive income (loss) – – – – (19,412) (60) 2,589 1,091,990 – – 1,094,519Balance at end of year P=2,640,393 P=404,668 P=330,420 P=512,750 P=313,010 (P=1,095) P=2,691 P=1,385,831 P=– (P=11) P=5,588,657

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and 17)

ConvertibleNotes

AwaitingConversion

(Note 16b2ii)



(Note 16b2iii)




(Notes 11and 17d)

RetirementBenefit

Reserve(Notes 25c

and 26)



Assets(Note 7)


(Note 17)


ConvertibleNotes

(Note 16b2ii)

TreasuryStock


previously reported P=2,297,485 P=203,093 P=135,803 P=244,621 P=123,484 P=– P=– (P=426,278) P=472 (P=11) P=2,578,669Effects of restatements (Note 31) – – – – 228,350 (1,217) – (207,988) – – 19,145Balances at beginning of year, as restated 2,297,485 203,093 135,803 244,621 351,834 (1,217) – (634,266) 472 (11) 2,597,814Conversion of convertible notes 70,050 (70,050) (47,171) 47,643 – – – – (472) – –Additional convertible notes during

the year – 544,483 462,274 – – – – – – – 1,006,757Transfer of revaluation increment to


Revaluation increment of property, plantand equipment - net of deferred tax – – – – – – – – – – –

Net income – – – – – – – 889,283 – – 889,283Other comprehensive income - net of tax

effect – – – – – 182 102 – – – 284Total comprehensive income – – – – (19,412) 182 102 889,283 – – 889,567Balance at end of year P=2,367,535 P=677,526 P=550,906 P=292,264 P=332,422 (P=1,035) P=102 P=274,429 P=– (P=11) P=4,494,138

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and 17)

ConvertibleNotes

AwaitingConversion

(Note 16b2ii)



(Note 16b2iii)




(Notes 11and 17d)

RetirementBenefit

Reserve(Notes 27c

and 26)



Assets(Note 9)


(Note 17)


ConvertibleNotes

(Note 16b2ii)

TreasuryStock


previously reported P=2,024,627 P=459,401 P=198,782 P=62,130 P=33,427 P=– P=– (P=1,164,155) P=548 (P=11) P=1,614,749Effects of restatements (Note 31) – – – – 212,211 – – (212,211) – – –Balances at beginning of year 2,024,627 459,401 198,782 62,130 245,638 – – (1,376,366) 548 (11) 1,614,749Conversion of convertible notes 272,858 (272,858) (182,415) 182,491 – – – – (76) – –Additional convertible notes during

the year – 16,550 119,436 – – – – – – – 135,986Transfer of revaluation increment to


Revaluation increment of property, plantand equipment - net of deferred tax – – – – 139,623 – – – – – 139,623

Net income – – – – – – – 708,673 – – 708,673Other comprehensive income - net of tax

effect – – – – – (1,217) – – – – (1,217)Total comprehensive income – – – – 139,623 (1,217) – 708,673 – – 707,456Balance at end of year P=2,297,485 P=203,093 P=135,803 P=244,621 P=351,834 (P=1,217) P=– (P=634,266) P=472 (P=11) P=2,597,814


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VICTORIAS MILLING COMPANY, INC.PARENT COMPANY STATEMENTS OF CASH FLOWS(Amounts in Thousands)


2015

2014(As restated -

Note 31)

2013(As restated -

Note 31)

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax P=1,556,411 P=1,031,031 P=1,083,039Adjustments for:

Depreciation (Note 11) 290,779 255,427 269,156Provisions for litigation claims − 279,509 527,953Finance cost − 230,504 295,555Loss on revaluation of investment properties (Note 12) 27,631 − −Provision for (recovery of) write-down of inventory to

NRV (Note 8) 5,410 (20,529) 22,194Gain on sale of property, plant and equipment

(Note 22) (33) (285) (268)Interest income (Notes 5 and 22) (24,359) (10,300) (36,896)Net retirement benefit cost (income) (Note 25) 6,285 3,653 5,707Gain on extinguishment of liability − − (279,176)Fair value gain on investment property (Note 22) − − (404,082)

Operating income before working capital changes 1,862,124 1,769,010 1,483,182Changes in operating assets and liabilities:

Decrease (increase) in:Trade and other current receivables (11,935) 326,980 (319,133)Inventories (113,752) 194,462 (74,100)Other current assets (43,528) (368,430) 11,676

Increase (decrease) in:Trade and other current payables 210,415 379,379 (23,970)

Net cash generated from operations 1,903,324 2,301,401 1,077,655Interest received 22,875 9,605 40,505Retirement benefits paid (513) (1,885) (84,468)Income tax paid (488,766) (308,304) (432,809)Net cash provided by operating activities 1,436,920 2,000,817 600,883

CASH FLOWS FROM INVESTING ACTIVITIESSale of available-for-sale financial assets 1,225,238 (216,218) −Proceeds from sale of property, plant and equipment 125,287 2,205 268Investment in a subsidiary (31,250) − (12,000)Decrease (increase) in other noncurrent assets (99,560) 2,109 1,771,179Additions to property, plant and equipment (243,862) (308,739) (179,614)Additions to available-for-sale financial assets (1,509,116) − −Net cash provided by (used in) investing activities (533,263) (520,643) 1,579,833

(Forward)

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2015

2014(As restated -

Note 31)

2013(As restated -

Note 31)

CASH FLOWS FROM FINANCING ACTIVITIESAmortization of discount on provisions (Notes 15 and 22) P=41,308 P=256,118 P=38,824Payment of long-term debt − (959,846) (2,277,536)Finance cost paid − (808,534) (164,397)Net cash provided by (used in) financing activities 41,308 (1,512,262) (2,403,109)

NET INCREASE (DECREASE) IN CASHAND CASH EQUIVALENTS 944,965 (32,088) (222,393)

CASH AND CASH EQUIVALENTSAT BEGINNING OF YEAR 750,150 782,238 1,004,631

CASH AND CASH EQUIVALENTSAT END OF YEAR P=1,695,115 P=750,150 P=782,238


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VICTORIAS MILLING COMPANY, INC.NOTES TO PARENT COMPANY FINANCIAL STATEMENTS

1. Reporting Entity and Status of Operations

Reporting EntityVictorias Milling Company, Inc. (herein referred to as the “Parent Company” or “VMC”) wasorganized and registered originally on May 7, 1919 with the Philippine Securities andExchange Commission (SEC) with an original corporate life of 50 years or untilMay 7, 1969. The corporate life was extended for an additional period of 50 years or untilMay 7, 2019. The primary purpose of the Parent Company is to operate mill and refineryfacilities for sugar and allied products, as well as engineering services.

On July 3, 2013, the SEC approved the Par ent Company’s amended articles ofincorporation to include, as among its business purposes, the ethanol and/or potablealcohol production, infrastructure, transportation, telecommunication, mining, water, powergeneration, recreation, and financial or credit consultancy.

It also has investments in the shares of stock of the following domestic subsidiaries andassociates (see Note 10):

Percentages ofEffective Ownership

Nature of Business 2015 2014Subsidiaries: Victorias Foods Corporation (VFC) Food processing and canning 100% 100% Victorias Agricultural Land Corporation (VALCO) Agricultural land leasing and

cultivation100 100

Victorias Green Energy Corporation (VGEC) Co-generation of energy 100 −Canetown Development Corporation (CDC) Real estate development and selling 100* 100*

Victorias Golf and Country Club, Inc. (VGCCI) Non-profit golf facilities 81 81 Victorias Quality Packaging Company, Inc. (VQPC) Manufacture of bags and packaging

materials55 55

Associate:Victorias Industrial Gases Corporation (VIGASCO) Gas dealership 30 30

*inclusive of 12% indirect ownership

In June 2012, the Board of Directors (BOD) of VQPC approved to cease VQPC’soperations effective July 2012. As at August 31, 2015 and 2014, VQPC is undergoingliquidation process as approved by its BOD and stockholders.

On April 8, 2015, the Parent Company incorporated VGEC, a wholly-owned subsidiary. Itsprimary with purpose is to carry on the business of generation of power derived fromrenewable energy resources for wholesale of electricity to power companies, distributionutilities, electric cooperatives, retail electricity suppliers, aggregators and other customers.

The Parent Company’s shares of stock are listed in the Philippine Stock Exchange (PSE). Thetrading of its shares was temporarily suspended in 1997 on the ground of alleged fraudulentmisrepresentation of material information in the Parent Company’s financial statements aswell as in the disclosure of VMC. Currently, VMC is s t i l l under SEC receivership. In2012, the SEC and the PSE lifted the order of suspension of the trading of VMC’s shares.Consequently, on May 21, 2012, the trading of VMC shares resumed.

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The Parent Company’s registered office, principal place of business and manufacturing plantis VICMICO Compound, J.J. Ossorio Street, Barangay XVI, Victorias City, NegrosOccidental.

The accompanying parent company financial statements were approved and authorized for issueby the Board of Directors (BOD) on December 11, 2015.

Management’s Assessment and PlansThese financial statements of the Parent Company have been prepared on a going concernbasis, which contemplates the realization of assets and the settlement of liabilities in thenormal course of business. As disclosed in Notes 2 and 16, the Parent Company is stillunder rehabilitation and debt restructuring programs.

The actions made by management during the past several years to improve the ParentCompany’s operations and its financial position achieved the following:

· Generated net income of P=1.09 billion, P=889.28 million and P=708.67 million for theyear ended August 31, 2015, 2014, and 2013, respectively;

· Significant improvements in the capital structure of the Parent Company whichresulted to retained earnings;

· Conversion of certain convertible notes to equity, in accordance with the DebtRestructuring Agreement (DRA) (see Note 16a2iii);

· Resumption of the trading of the Parent Company’s shares in the Philippine StockExchange (PSE) on May 21, 2012;

· Full payment of the Parent Company’s outstanding restructured loans in the year endedAugust 31, 2013 (see Note 16a3); and

· Redemption of all its convertible notes except those awaiting mandatory conversionamounting to P=404.67 million and P=677.53 million as at August 31, 2015 and 2014,respectively (see Note 16a2iii).

In its efforts to achieve continuing successful operations and effective implementation of theprovisions of the rehabilitation plan, the Parent Company has continuously focused itscorporate objectives, goals, strategies, and measures to attain sustainable financial stabilitythrough, among others: (a) synchronization of the refined sugar and raw sugar operations;(b) expansion of the boiling house to balance capacity with that of the A and C mills; (c)enhancement of mill efficiency; (d) increase profitability by addressing cost efficiency(which includes, among others, trimming down of corporate overtime expenses, minimizingcontracted labor/services, and sourcing out and maximizing use of cheaper fuel substitutesinstead of bunker fuel) and improving tolling fees; and (e) ongoing program of rightsizingmanpower.

Moreover, the Parent Company’s management has undertaken the following action plans toimprove its financial position and its corporate governance structure:

1. Recapitalization and quasi-reorganization to reduce the deficit through reduction incapital stock and application of appraisal increment as discussed in Note 17.

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2. Conversion of debt into equity as discussed in Note 16.

3. Conversion of debt into convertible notes and ultimately, conversion of certainconvertible notes to equity as disclosed in Note 16.

4. Management of cash flows.

As provided for in Section 13 of the DRA, in the event that VMC’s net cash flows at theend of a crop year exceeds the projected net cash flows for that particular crop year,VMC shall prepay in inverse order the restructured loans without penalty equal to 75% ofthe incremental net cash flows (defined as net income after tax plus depreciation andother non-cash charges), as provided for in the Alternative Rehabilitation Plan (ARP).

Furthermore, as per section 13.2 of the DRA, in the event that the restructured loans arefully settled before the fifteen (15) years repayment period, VMC cash flow in excess ofCapital Expenditure requirements shall be used to pay/redeem the convertible note(principal plus accumulated interest).

5. Composition of the BOD and appointment of Management Committee (MANCOM) bythe SEC.

Effective December 16, 2002, the new BOD (which replaced the MANCOM) consists ofthe following: three representatives from the existing stockholders, one representativefrom the secured creditors, six representatives from creditors with debt conversion, andone joint venture partner. Further, the SEC issued an Order dated January 27, 2003appointing Atty. Luis Ma. G. Uranza as the Rehabilitation Receiver to monitor everyyear, together with the new BOD elected and committees, the implementation of theARP. The composition of the board seats was subsequently amended as discussed inNote 2.

2. Rehabilitation and Debt Restructuring Programs

Discussed below are the series of events leading to the finalization of the rehabilitation anddebt restructuring programs of the Parent Company:

Application for Suspension of Payment to CreditorsOn July 4, 1997, VMC filed with the SEC a Petition for the: (a) Declaration of Suspension ofPayment to Creditors, (b) Approval of a Rehabilitation Plan, and (c) Appointment of aMANCOM which was tasked to submit a feasible and viable rehabilitation plan for VMC.

Rehabilitation Plans and Amendments thereto:

1. Rehabilitation Plan as of September 25, 1998, subject to the terms of the FirstAddendum to the Rehabilitation Plan dated February 5, 1999 and of the SecondAddendum to the Rehabilitation Plan dated July 22, 1999, as approved by the SEC in itsorders dated August 17 and 19, 1999, respectively, (herein collectively referred to as the“Original Rehabilitation Plan” or “ORP”).

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The salient features of the ORP follow:

i. Reduction in the authorized capital stock of VMC from P=2.7 billion consisting of270 million shares of common stock at P=10 par value per share to P=495,957,670consisting of 170,432,189 shares of common stock at P=2.91 par value per share(see Note 17d.1);

ii. Fresh capital infusion of around P=567 million through a public bidding which wasdeclared a failure for the reason that the deadline of submission of bids had expiredwithout any bid having been submitted;

iii. The stockholders shall have no pre-emptive right to the increase of 1.5 billion sharesof common stock or any shares to be issued to accommodate the conversion of anyinterests earned on the convertible notes to common shares;

iv. VMC shall honor its contractual obligations to the MJ Ossorio Pension Fundretirees;

v. Implementation of a business strategy for operating improvements, which includemanpower reduction, upgrading of certain mills and other equipment, anddivestment of non-profitable business units;

vi. Sale of non-strategic assets and subsidiaries;

vii. Restructuring of loans from banks; and

viii. Debt-to-equity conversion.

2. ARP as of May 11, 2000, as approved by the SEC in its Order dated November 29, 2000.

In view of the failure of the public bidding to raise fresh capital of aroundP=567 million, the MANCOM, as mandated by ORP, submitted an ARP on May 11, 2000which was approved by the SEC on November 29, 2000.

The basic features of the ARP follow:

i. Increase in the authorized capital stock from P=495.96 million consistingof 495.96 million shares of common stock at P=1 par value per share toP=4.61 billion consisting of 4.60 billion shares of common stock at P=1 par value pershare (see Note 17d.3). The new capital stock of P=4.61 billion will be allocated amongthe initial paid-in capital of P=1.60 billion, conversion of a portion of unsecuredloan into convertible notes of VMC in the amount of P=2.4 billion, and theproportionate share of the contingent Refined Sugar Invoice/Delivery Orders(RSDOs) claims in case the SEC recognizes them as clean credits equivalent to theCompany’s clean loans;

ii. Conversion into equity of all unpaid interest and part of the principal of theunsecured loan amounting to P=1.1 billion;

iii. Conversion of a portion of unsecured loan into convertible notes amounting toP=2.4 billion;

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*SGVFS014399*

iv. Restructuring of the secured and unsecured loans amounting to P=4.4 billion over aperiod of fifteen years, including a 3-year grace period as to the principal, at 10%annual interest for peso loans and 6% for dollar loans; and

v. Call for an acceptable joint venture partner to provide additional cash ofapproximately P=300 million payable after three years or an option to convert the loaninto equity.

All other terms and conditions of the ORP which have been previously approved by theSEC remain. The 15-year DRA took effect on September 1, 2003 (see Note 16).

Prayer to Amend its ARP and DRA and be allowed to Elect Board pursuant to its By-LawsOnJuly 19, 2013, VMC filed a Manifestation and Motion dated July 18, 2013 with the SECSpecial Hearing Panel 1. In the said pleading, VMC manifested that on May 31, 2013,VMC caused the full payment of its Restructured Loans under the ARP and DRA therebyrendering its loan obligations to its Secured Creditors and Creditors with Debt Conversionfully satisfied. Consequently, the Board seats reserved for the Secured Creditors andCreditors with Debt Conversion have become functus officio. VMC prayed that it beauthorized to amend its ARP and DRA and be allowed to elect its Board pursuant to its By-Laws.

In an Order dated January 27, 2014, the SEC Special Hearing Panel 1 denied the Manifestationand Motion dated July 18, 2013 of VMC. It also directed VMC to elect its BOD in accordancewith the ARP and DRA where the Secured Creditors and Creditors with Debt Conversion willhave one (1) seat and seven (7) seats, respectively.

On February 7, 2014, VMC filed with the SEC En Banc a Petition for Review on Certiorari(Re: Order dated January 27, 2014 issued by the SEC Special Hearing Panel 1) datedFebruary 6, 2014, which was docketed as SEC En Banc Case No. 02-14-317.

On December 1, 2014, VMC filed a Notice of Withdrawal of Petition for Review on Certiorari(Re: Order dated January 27, 2014 issued by the SEC Special Hearing Panel 1) datedFebruary 6, 2014. As of August 31, 2015, there is no update on the notice of withdrawal ofpetition is received.

Prayer to Amend its ARP and DRA by Reallocating the Board Seat previously reserved to theJoint Venture PartnerOn November 12, 2012, VMC filed a Manifestation and Motion dated November 12, 2012with the SEC Special Hearing Panel 1 praying that VMC be authorized to amend its ARPand DRA to allocate the Board seat previously reserved to the Joint Venture Partner as anadditional Board seat for Creditors with Debt Conversion because the joint venture partneropted not to convert the loan into equity but be paid instead.

In an Order dated March 3, 2014, the SEC Special Hearing Panel 1 granted theManifestation and Motion dated November 12, 2012 and ordered the amendment of Part IV(4) of the ARP and Section 21 of the DRA to read as follows: three (3) seats for existingshareholders, one (1) seat for secured creditors and seven (7) seats for creditors with debtconversion.

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On March 24, 2014, VMC filed with the SEC En Banc a Petition for Review on Certiorari(Re: Order dated March 3, 2014 issued by the SEC Special Hearing Panel 1) withMotion for Consolidation with SEC En Banc Case No. 02-14-317 dated March 21, 2014,which was docketed as SEC En Banc Case No. 03-14-322.

On December 1, 2014, VMC filed a Notice of Withdrawal of Petition for Review on Certiorari(Re: Order dated March 3, 2014 issued by the SEC Special Hearing Panel 1) withMotion for Consolidation with SEC En Banc Case No. 02-14-317 dated March 21, 2014.As of August 31, 2015, there is no no update on the notice of withdrawal of petition isreceived.

Since March 3, 2014, no further updates or revisions were made on the ORP, ARP andDRA.

Litigations against the ARPVMC’s former management, in their comments and replies filed with the SEC, manifests theirstrong opposition to the ARP. Also, three creditor banks, on various dates, filed theiropposition to the ARP.

After the conduct of litigation, the Supreme Court, in its Resolution dated May 28, 2010,denied the petition filed by Mr. Mañalac, et al. for failure to show any reversible error in thechallenged decision and resolution as to warrant the exercise of its discretionary appellatejurisdiction. With the denial of the petition, there is no more legal impediment in thecontinued implementation of the ARP as approved by the SEC.

3. Summary of Significant Accounting Policies

Basis of PreparationThese financial statements have been prepared on the historical cost basis except foravailable-for-sale (AFS) financial assets and investment properties that have been measuredat fair value and property, plant and equipment which are carried at revalued amounts. Thesefinancial statements are presented in Philippine peso, which is the Parent Company’sfunctional currency. All financial information in Philippine peso has been rounded off to thenearest thousands, except when otherwise stated.

In addition, the Parent Company presents an additional statement of financial position at thebeginning of the earliest period presented when there is a retrospective application of anaccounting policy, a retrospective restatement, or a reclassification of items in financialstatements. An additional statement of financial position as at September 1, 2013 is presentedin these financial statements to reflect prior period adjustments and reclassifications.

Certain amounts shown in the face of the financial statements do not correspond to theaudited August 31, 2014 and 2013 Parent Company’s financial statements and reflectadjustments made. Refer to Note 31 for the nature and impact of the prior period adjustmentsand reclassifications made.

Statement of ComplianceThe accompanying parent company financial statements have been prepared in compliancewith Philippine Financial Reporting Standards (PFRS).

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Adoption of New and Amended Accounting Standards and InterpretationsThe accounting policies adopted in the preparation of the Parent Company’s financialstatements are consistent with those of the previous financial year except for the adoption ofthe following new and amended standards and Philippine interpretations effective as ofSeptember 1, 2014.

The adoption of these amendments and interpretations did not have any significant impact on theParent Company’s financial statements.

· Investment Entities (Amendments to PFRS 10, Consolidated Financial Statements, PFRS 12,Disclosure of Interests in Other Entities, and PAS 27, Separate Financial Statements), theseprovide an exception to the consolidation requirement for entities that meet the definition ofan investment entity under PFRS 10. The exception to consolidation requires investmententities to account for subsidiaries at fair value through profit or loss. The amendments mustbe applied retrospectively, subject to certain transition relief.

· PAS 32, Financial Instruments: Presentation - Offsetting Financial Assets and FinancialLiabilities (Amendments), clarifies the meaning of ‘currently has a legally enforceable right toset-off’ and the criteria for non-simultaneous settlement mechanisms of clearing houses toqualify for offsetting and are applied retrospectively.

· PAS 39, Financial Instruments: Recognition and Measurement - Novation of Derivatives andContinuation of Hedge Accounting (Amendments), provide relief from discontinuing hedgeaccounting when novation of a derivative designated as a hedging instrument meets certaincriteria and retrospective application is required.

· PAS 36, Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets(Amendments), remove the unintended consequences of PFRS 13, Fair Value Measurement,on the disclosures required under PAS 36. In addition, these amendments require disclosureof the recoverable amounts for assets or cash-generating units (CGUs) for which impairmentloss has been recognized or reversed during the period.

· Philippine Interpretation IFRIC 21, Levies, clarifies that an entity recognizes a liability for alevy when the activity that triggers payment, as identified by the relevant legislation, occurs.For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies thatno liability should be anticipated before the specified minimum threshold is reached.Retrospective application is required for IFRIC 21.

Annual Improvements to PFRSs (2010-2012 cycle)In the 2010 - 2012 annual improvements cycle, seven amendments to six standards were issued,which included an amendment to PFRS 13, Fair Value Measurement. The amendment toPFRS 13 is effective immediately and it clarifies that short-term receivables and payables with nostated interest rates can be measured at invoice amounts when the effect of discounting isimmaterial. `

Annual Improvements to PFRSs (2011-2013 cycle)In the 2011 - 2013 annual improvements cycle, four amendments to four standards were issued,which included an amendment to PFRS 1, First-time Adoption of Philippine Financial ReportingStandards-First-time Adoption of PFRS.

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Future Changes in Accounting PoliciesThe Parent Company will adopt the following relevant standards and interpretations when thesebecome effective. The Parent Company does not expect the adoption of the following relevantstandards and interpretations to have a significant impact on its financial statements.


· PFRS 9, Financial Instruments - Classification and Measurement (2010 version), reflects thefirst phase on the replacement of PAS 39 and applies to the classification and measurement offinancial assets and liabilities as defined in PAS 39, Financial Instruments: Recognition andMeasurement. PFRS 9 requires all financial assets to be measured at fair value at initialrecognition.

A debt financial asset may, if the fair value option (FVO) is not invoked, be subsequentlymeasured at amortized cost if it is held within a business model that has the objective to hold theassets to collect the contractual cash flows and its contractual terms give rise, on specified dates, tocash flows that are solely payments of principal and interest on the principal outstanding. Allother debt instruments are subsequently measured at fair value through profit or loss. All equityfinancial assets are measured at fair value either through other comprehensive income (OCI) orprofit or loss. Equity financial assets held for trading must be measured at fair value throughprofit or loss. For FVO liabilities, the amount of change in the fair value of a liability that isattributable to changes in credit risk must be presented in OCI. The remainder of the change infair value is presented in profit or loss, unless presentation of the fair value change in respect ofthe liability’s credit risk in OCI would create or enlarge an accounting mismatch in profit or loss.All other PAS 39 classification and measurement requirements for financial liabilities have beencarried forward into PFRS 9, including the embedded derivative separation rules and the criteriafor using the FVO. The adoption of the first phase of PFRS 9 will have an effect on theclassification and measurement of the Parent Company’s financial assets, but will potentially haveno impact on the classification and measurement of financial liabilities.

PFRS 9 (2010 version) is effective for annual periods beginning on or after January 1, 2015. Thismandatory adoption date was moved to January 1, 2018 when the final version of PFRS 9 wasadopted by the Philippine Financial Reporting Standards Council (FRSC). Such adoption,however, is still for approval by the Board of Accountancy (BOA).

· PAS 19, Employee Benefits - Defined Benefit Plans: Employee Contributions (Amendments)requires an entity to consider contributions from employees or third parties when accountingfor defined benefit plans.

Annual Improvements to PFRSs (2010-2012 cycle)The Annual Improvements to PFRSs (2010-2012 cycle) are effective for annual periods beginningon or after January 1, 2015 (fiscal year 2016) and are not expected to have a material impact onthe Parent Company.

· PFRS 2, Share-based Payment - Definition of Vesting Condition· PFRS 3, Business Combinations - Accounting for Contingent Consideration in a Business

Combination· PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Revaluation

Method - Proportionate Restatement of Accumulated Depreciation and Amortization· PAS 24, Related Party Disclosures - Key Management Personnel

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Annual Improvements to PFRSs (2011-2013 cycle)The Annual Improvements to PFRSs (2011-2013 cycle) are effective for annual periods beginningon or after January 1, 2015 and are not expected to have a material impact on the Parent Company.

· PFRS 3, Business Combinations - Scope Exceptions for Joint Arrangements· PFRS 13, Fair Value Measurement - Portfolio Exception· PAS 40, Investment Property


· PAS 16, Property, Plant and Equipment, and PAS 38, Intangible Assets - Clarification ofAcceptable Methods of Depreciation and Amortization (Amendments)

· PAS 16, Property, Plant and Equipment, and PAS 41, Agriculture - Bearer Plants(Amendments).

· PAS 27, Separate Financial Statements - Equity Method in Separate Financial Statements(Amendments)

· PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and JointVentures - Sale or Contribution of Assets between an Investor and its Associate or JointVenture

· PFRS 11, Joint Arrangements - Accounting for Acquisitions of Interests in Joint Operations(Amendments)

Annual Improvements to PFRSs (2012-2014 cycle)The Annual Improvements to PFRSs (2012-2014 cycle) are effective for annual periods beginningon or after January 1, 2016 and are not expected to have a material impact on the Parent Company.

· PFRS 5, Non-current Assets Held for Sale and Discontinued Operations - Changes inMethods of Disposal (Amendment)

· PFRS 7, Financial Instruments: Disclosures - Servicing Contracts· PAS 19, Employee Benefits - regional market issue regarding discount rate (Amendment)


· PFRS 9, Financial Instruments - Hedge Accounting and amendments to PFRS 9, PFRS 7 andPAS 39 (2013 version), already includes the third phase of the project to replace PAS 39which pertains to hedge accounting. This version of PFRS 9 replaces the rules-based hedgeaccounting model of PAS 39 with a more principles-based approach. PFRS 9 also requiresmore extensive disclosures for hedge accounting. PFRS 9 (2013 version) has no mandatoryeffective date. The mandatory effective date of January 1, 2018 was eventually set when thefinal version of PFRS 9 was adopted by the FRSC. The adoption of the final version ofPFRS 9, however, is still for approval by BOA.

· PFRS 9, Financial Instruments (2014 or final version) was issued. PFRS 9 reflects all phasesof the financial instruments project and replaces PAS 39, Financial Instruments: Recognitionand Measurement, and all previous versions of PFRS 9. The standard introduces newrequirements for classification and measurement, impairment, and hedge accounting. PFRS 9is effective for annual periods beginning on or after January 1, 2018, with early applicationpermitted. Retrospective application is required, but comparative information is notcompulsory. Early application of previous versions of PFRS 9 is permitted if the date of initialapplication is before February 1, 2015.

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The adoption of PFRS 9 will have an effect on the classification and measurement of theParent Company’s financial assets but will have no impact on the classification andmeasurement of the Parent Company’s financial liabilities. The Parent Company is currentlyassessing the impact of adopting this standard.

Effectivity to be determined

· IFRS 15 Revenue from Contracts with Customers, issued in May 2014 and establishes a newfive-step model that will apply to revenue arising from contracts with customers. The newrevenue standard is applicable to all entities and will supersede all current revenue recognitionrequirements under IFRS. Either a full or modified retrospective application is required forannual periods beginning on or after 1 January 2017 with early adoption permitted. TheParent Company is currently assessing the impact of IFRS 15 and plans to adopt the newstandard on the required effective date once adopted locally.

· Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate, coversaccounting for revenue and associated expenses by entities that undertake the construction ofreal estate directly or through subcontractors. The SEC and the FRSC have deferred theeffectivity of this interpretation until the final Revenue standard is issued by the IASB and anevaluation of the requirements of the final Revenue standard against the practices of thePhilippine real estate industry is completed. Adoption of the interpretation when it becomeseffective will not have any impact on the financial statements of the Parent Company.

Revenue RecognitionRevenue is recognized to the extent that it is probable that economic benefits will flow to theParent Company and the revenue can be reliably measured. Revenue is measured at thefair value of the consideration received or receivable and represents amounts receivable forgoods and services provided in the normal course of business.

The following specific recognition criteria must also be met before revenue is recognized:

· Sales of Raw Sugar, Refined Sugar and MolassesRevenue from sale of raw sugar, refined sugar and molasses is recognized upon deliveryof quedans and molasses warehouse receipts, respectively.

· Tolling RevenuesRevenue is recognized when the tolling services have been rendered.

· Sale of AlcoholRevenue is recognized upon delivery of the alcohol.

· Interest IncomeInterest is recognized as interest accrues, taking into account the effective yield of the asset.

· Rental IncomeRental income is recognized on a straight-line basis over the lease term.

· Other IncomeOther income such as income from scrap sales, gains from disposal is recognized whenearned.

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Cost and Expense RecognitionCosts and expenses are recognized in the Parent Company statement of profit or loss when adecrease in future economic benefit related to a decrease in an asset or an increase of a liabilityhas arisen that can be measured reliably.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to known amounts of cash with original maturities ofthree (3) months or less from dates of placement and that are subject to an insignificant risk ofchanges in value.

Financial InstrumentsDate of recognitionThe Parent Company recognizes a financial asset or a financial liability in the parent companystatement of financial position when it becomes a party to the contractual provisions of theinstrument. Purchases or sales of financial assets that require delivery of assets within thetime frame established by regulation or convention in the marketplace are recognized on thesettlement date.

Initial recognition of financial instrumentsAll financial instruments are initially recognized at fair value. Except for financial assets andfinancial liabilities at FVPL, the initial measurement of financial instruments includestransaction costs. The Parent Company classifies its financial assets into the followingcategories: financial assets at FVPL, held-to-maturity (HTM) investments, available-for-sale( AFS) financial assets, and loans and receivables. The Parent Company classifies itsfinancial liabilities into financial liabilities at FVPL and other financial liabilities. Theclassification depends on the purpose for which the investments were acquired and whetherthey are quoted in an active market. Management determines the classification of itsinvestments at initial recognition and, where allowed and appropriate, re-evaluates suchdesignation at every reporting date.

Financial instruments are classified as liabilities or equity in accordance with the substance ofthe contractual arrangement. Interests, dividends, gains and losses relating to a financialinstrument or a component that is a financial liability, are reported as expense or income.Distributions to holders of financial instruments classified as equity are charged directly toequity, net of any related income tax expense or benefit.

As of August 31, 2015 and 2014, the Parent Company’s financial instruments are of thenature of AFS financial assets, loans and receivables and other financial liabilities.

Loans and ReceivablesLoans and receivable are financial assets with fixed or determinable payments that are notquoted in an active market. They are not entered into with the intention of immediate orshort-term resale or are not classified as held for trading, held-to-maturity (HTM)investments, AFS financial assets or financial assets at fair value through profit or loss(FVPL). These are initially recognized at fair value plus any directly attributabletransaction cost and subsequently carried at amortized cost using the effective interest ratemethod, less allowance for impairment loss. These are included as current assets if maturityis within twelve (12) months from the reporting date. Otherwise, these are classified asnoncurrent assets.

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The Parent Company’s financial assets categorized under loans and receivables include cash andcash equivalents and receivables presented in the parent company statement of financial positionas “Trade and other current receivables” (excluding advances to suppliers), and as part of “Othernoncurrent assets” account representing the cash and cash equivalents set aside for checkspayable to East West Banking Corporation (EWB).

AFS Financial AssetsAFS financial assets are those which are designated as such or do not qualify to be classifiedas designated at FVPL, HTM, or loans and receivables.

Financial assets may be designated at initial recognition as AFS financial assets if they arepurchased and held indefinitely, and may be sold in response to liquidity requirements orchanges in market conditions.

After initial measurement, AFS financial assets are measured at fair value. The unrealizedgains and losses arising from the fair valuation of AFS financial assets are excluded fromreported earnings and are reported as “Net unrealized gain on available-for-sale financialassets” in the equity section of the parent company statement of financial position.

When the security is disposed of, the cumulative gain or loss previously recognized in equityis recognized as realized gains in the parent company statement of profit or loss.

AFS financial assets are classified as noncurrent assets unless the intention is to dispose suchassets within twelve (12) months from reporting date.

As of August 31, 2015 and 2014, the Parent Company’s AFS financial assets pertain toinvestments in Unit Investment Trust Funds (UITF).

Other Financial LiabilitiesIssued financial instruments or their components, which are not designated at FVPL, areclassified as other financial liabilities where the substance of the contractual arrangementresults in the Parent Company having an obligation either to deliver cash or another financialasset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount ofcash or another financial asset for a fixed number of own equity shares. The components ofissued financial instruments that contain both liability and equity elements are accounted forseparately, with the equity component being assigned the residual amount after deducting fromthe instrument as a whole the amount separately determined as the fair value of the liabilitycomponent on the date of issue. After initial measurement, other financial liabilities aresubsequently measured at amortized cost using the effective interest method. Amortized costis calculated by taking into account any discount or premium on the issue and fees that areintegral parts of the effective interest rate.

The Parent Company’s financial liabilities categorized under other financial liabilitiesinclude long-term debt and other financial liabilities, presented in the parent companystatement of financial position as “Trade and other current payables” (excluding VAT,withholding and other taxes and customers’ deposits) and “Due to a stockholder” accounts.

Impairment of Financial AssetsThe Parent Company assesses at each reporting date whether there is objective evidencethat a financial asset may be impaired. A financial asset is deemed to be impaired if thereis objective evidence of impairment as a result of one or more events that has occurred after theinitial recognition of the asset and that loss event has an impact on the estimated futurecash flows of the financial asset that can be reliably estimated.

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Financial Assets at Amortized CostIf there is objective evidence that an impairment loss on loans and receivables carried atamortized cost has been incurred, the amount of the loss is measured as the differencebetween the asset’s carrying amount and present value of estimated future cash flows(excluding future credit losses that have not been incurred) discounted at the financialasset’s original effective interest rate (i.e., the effective interest rate computed at initialrecognition). The carrying amount of the asset shall be reduced either directly or through useof an allowance account. The amount of the loss shall be recognized in profit or loss.

The Parent Company first assesses whether objective evidence of impairment existsindividually for financial assets that are individually significant, and individually orcollectively for financial assets that are not individually significant. If it is determined thatno objective evidence of impairment exists for an individually assessed financial asset,whether significant or not, the asset is included in a group of financial assets with similarcredit risk characteristics and the group of financial assets is collectively assessed forimpairment. Assets that are individually assessed for impairment and for which animpairment loss is or continues to be recognized are not included in a collective assessment ofimpairment.

If, in a business period, the amount of the impairment loss decreases and the decrease can berelated objectively to an event occurring after the impairment was recognized, thepreviously recognized impairment loss is reversed. Any subsequent reversal of animpairment loss is recognized in profit or loss, to the extent that the carrying value of the assetdoes not exceed its amortized cost at the reversal date.

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

AFS financial assetsIn case of investments in UITF classified as AFS financial assets, impairment would include asignificant or prolonged decline in the fair value of the investments below its cost. Where there isevidence of impairment loss, the cumulative loss - measured as the difference between theacquisition cost and the current fair value, less any impairment loss on that financial assetpreviously recognized in the parent company statement of income - is removed from othercomprehensive income and recognized in profit or loss under “General and administrativeexpense”. Impairment losses on equity investments are not reversed through profit or loss.Increases in fair value after impairment are recognized directly in other comprehensive income.

Derecognition of Financial Assets and LiabilitiesFinancial assetA financial asset (or, where applicable a part of a financial asset or part of a group ofsimilar financial assets) is derecognized when:· the right to receive cash flows from the asset have expired;· the Parent Company retains the right to receive cash flows from the asset, but has

assumed an obligation to pay them in full without material delay to a third partyunder a “pass-through” arrangement; or

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· the Parent Company has transferred its rights to receive cash flows from the asset andeither: (a) has transferred substantially all the risks and rewards of the asset, or (b) hasneither transferred nor retained substantially all the risks and rewards of the asset, but hastransferred control of the asset.

Where the Parent Company has transferred its rights to receive cash flows from an asset andhas neither transferred nor retained substantially all the risks and rewards of the asset nortransferred control of the asset, the asset is recognized to the extent of the ParentCompany’s continuing involvement in the asset. Continuing involvement that takes theform of a guarantee over the transferred asset is measured at the lower of the originalcarrying amount of the asset and the maximum amount of the consideration that the ParentCompany could be required to repay.

Financial liabilityA financial liability is derecognized when the obligation under the liability is discharged,cancelled or has expired.

Where an existing financial liability is replaced by another from the same lender on substantiallydifferent terms, or terms of an existing liability are substantially modified, such an exchange ormodification is treated as a derecognition of the original liability and the recognition of a newliability and the difference in the respective carrying amounts is recognized in profit or loss.

Offsetting Financial Assets and LiabilitiesFinancial assets and financial liabilities are offset and reported at net amount in the statement offinancial position if, and only if, there is a currently enforceable legal right to offset the recognizedamounts and there is intention to settle on a net basis, or realize the asset and settle the liabilitysimultaneously. This is not generally the case with master netting agreements and the relatedassets and liabilities are presented at gross in the parent company statement of financial position.

InventoriesInventories are valued at the lower of cost and net realizable value (NRV).

Costs incurred in bringing each product to its present location or condition, are accounted for asfollows:

Alcohol Inventory and Manufactured and Fabricated Products - determined using weightedaverage method; cost includes direct materials, labor and a proportion of manufacturingoverhead costs based on normal operating capacity.

Raw Sugar Inventory - determined using weighted average method; consist of cost in theproduction of crystallize brown sugar extracted from sugarcane through simple mechanicalprocess.

Refined Sugar Inventory - determined using weighted average method; consists of raw sugarcost of production and related direct labor and overhead cost incurred in the conversion of rawsugar to refined sugar.

Unbilled Tolling Cost - consists mainly of direct labor and overhead components based onnormal operating capacity, and are determined on weighted average method.

Molasses Inventory - consist of cost of brownish liquid residue as sugar byproduct, in the processof producing raw sugar and/or refining.

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Materials and Supplies - determined using weighted average method; cost includespurchase and other directly attributable costs determined based on their original purchase price.

For sugar inventory, alcohol inventory, manufactured and fabricated products, NRV is theestimated selling price in the ordinary course of business, less estimated costs of completionand the estimated costs necessary to make the sale. For materials and supplies, the NRV isthe current replacement cost.

Property, Plant and EquipmentProperty, plant and equipment, except for projects under construction (which are carried at cost lessaccumulated impairment losses), are carried at revalued amounts less accumulated depreciation andimpairment losses, if any. The revalued amount is the fair value at the date of revaluation less anysubsequent accumulated depreciation and subsequent impairment losses. Revaluation isperformed by an independent firm of appraisers with sufficient regularity to ensure that thecarrying amount of the asset does not differ materially from that which would be determined usingfair values at the reporting date. The net appraisal increase resulting from the revaluation iscredited to “Revaluation increment on property, plant and equipment” account (net of correspondingdeferred tax liability) in the statement of financial position and statement of changes in equity.The amount of revaluation increment absorbed through depreciation and revaluation incrementapproved by the SEC for quasireorganization are transferred directly to retained earnings. TheParent Company’s property, plant and equipment are appraised every three (3) years.

Initially, an item of property, plant and equipment is measured at its cost, which comprises itspurchase price and any directly attributable costs of bringing the asset to the location andcondition for its intended use. Subsequent costs that can be measured reliably are added tothe carrying amount of the asset when it is probable that future economic benefits associatedwith the asset will flow to the Parent Company. The costs of day-to- day servicing of an assetare recognized as an expense in the period in which they are incurred.

All costs that are directly and clearly associated with the construction of certain property, plantand equipment, including borrowing costs, are capitalized.

Projects under construction, included in property, plant and equipment, represent structuresunder construction and are stated at cost. These include cost of construction and other directcosts. Projects under construction are not depreciated until such time as the relevant assets arecompleted and put into operational use.

Major spare parts and stand-by equipment qualify as property, plant and equipment when theParent Company expects to use them during more than one period. Similarly, if the spareparts and servicing equipment can be used only in connection with an item of property, plantand equipment, they are accounted for as property, plant and equipment.

Depreciation is computed using the straight-line method over the assets’ estimated useful lives.The estimated useful lives are as follows:

Category Number of YearsLand improvements 12.5Building and structures 20Community buildings and equipment 20Machinery and equipment 3-20

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The estimated useful lives, as well as the depreciation method, are reviewed at eachreporting date to ensure that the period and method of depreciation are consistent with theexpected pattern of economic benefits from those assets.

Stand-by equipment should be depreciated from the date it is made available for use over theshorter of the life of the stand-by equipment or the life of the asset the stand-byequipment is part of, while major spare parts should be depreciated over the periodstarting when it is brought into service, continuing over the lesser of its useful life and theremaining expected useful life of the asset to which it relates.

Fully depreciated assets are retained in the accounts until they are no longer in use and nofurther charge for depreciation is made in respect of those assets.

When an asset is disposed of, or is permanently withdrawn from use and no futureeconomic benefits are expected from its disposal, the cost and related accumulateddepreciation and impairment losses, if any, are removed from the accounts and anyresulting gain or loss arising from the retirement or disposal is recognized in profit or loss.

The carrying amount of the Parent Company’s property, plant and equipment is writtendown immediately to its recoverable amount if the asset’s carrying amount is greater than itsrecoverable amount. The recoverable amount of the Parent Company’s property, plant andequipment is the higher between their fair values less cost of disposal and value in use.

If the carrying amount of the Parent Company’s asset is decreased as a result of revaluation,this decrease is recognized as other comprehensive loss to the extent of any credit balanceexisting in the revaluation increment in respect of that asset. The excess of such decrease overthe existing balance in the revaluation increment is recognized in the profit or loss.

An increase in the carrying amount of the Parent Company’s property, plant andequipment is recognized in the profit or loss to the extent that it reverses a revaluationdecrease of the same asset previously recognized in profit or loss.

Investment PropertiesInvestment properties composed of land and building, which are properties held by theParent Company either to earn rentals or for capital appreciation or for both, but not for salein the ordinary course of business, use in the production or supply of goods or services or foradministrative purposes. Investment properties are initially measured at cost. Subsequently,investment properties are measured at fair value with any change therein recognized in profitor loss following the fair value model. Gains or losses arising from changes in the fairvalue of investment properties are included in profit or loss for the period in which they arise.

Investment property is derecognized when either it has been disposed of or when it ispermanently withdrawn from use and no future economic benefit is expected from itsdisposal. Any gains or losses on the retirement or disposal of an investment property arerecognized in profit or loss in the year of retirement or disposal.

Transfers are made to investment property only when there is a change in use evidenced byending of owner-occupation or commencement of an operating lease to another party.

When the use of a property changes such that it is reclassified as property, plant andequipment or inventories, its fair value at the date of reclassification becomes its cost forsubsequent accounting.

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Transfers from investment property carried at fair value to owner-occupied property orinventories shall be its fair value at the date of change in use.

Impairment of Nonfinancial AssetsThe carrying amount of the Parent Company’s nonfinancial assets which includeinventories, investment in subsidiaries and an associate, property, plant and equipment andinvestment properties are reviewed for at each reporting date to determinewhether there is any indication of impairment. If such indication exists, the asset’srecoverable amount is estimated.

The recoverable amount of an asset or cash-generating unit is the greater of the asset’s fairvalue less costs of disposal and value in use. Fair value less costs of disposal is the pricethat would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date, less the costs ofdisposal. In assessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-tax discount rate that reflects current market assessments of thetime value of money and the risks specific to the asset. For an asset that does notgenerate cash inflows largely independent of those from other assets, the recoverableamount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses, if any, are recognizedin profit or loss unless the asset is carried at revalued amounts. Any impairment loss on arevalued asset is treated as a revaluation decrease.

All assets are subsequently reassessed for indications that an impairment loss previouslyrecognized may no longer exist and the carrying amount of the asset is adjusted to therecoverable amount resulting in the reversal of the impairment loss.

An impairment loss is reversed only to the extent that the asset’s carrying amount does notexceed the carrying amount that would have been determined, net of depreciation, if noimpairment loss had been recognized. A reversal of an impairment loss in respect of a revaluedasset is recognized in profit or loss to the extent that it reverses an impairment loss that waspreviously recognized in the profit or loss. Any additional increase in the carrying amount ofthe asset is treated as a revaluation increase.

Fair Value MeasurementFair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date.

The fair value measurement is based on the presumption that the transaction to sell the asset ortransfer 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.

The principal or the most advantageous market must be accessible to by the Parent Company.

The fair value of an asset or a liability is measured using the assumptions that market participantswould use when pricing the asset or liability, assuming that market participants act in theireconomic best interest.

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A fair value measurement of a non-financial asset takes into account a market participant's abilityto generate economic benefits by using the asset in its highest and best use or by selling it toanother market participant that would use the asset in its highest and best use.

The Parent Company uses valuation techniques that are appropriate in the circumstances and forwhich sufficient data are available to measure fair value, maximizing the use of relevantobservable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statementsare categorized within the fair value hierarchy, described as follows, based on the lowest levelinput 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 financial statements on a recurring basis, theParent Company determines whether transfers have occurred between Levels in the hierarchy byre-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

Equity InstrumentsAn equity instrument is any contract that evidences a residual interest in the assets of theParent Company after deducting all of its liabilities.

Capital stock is classified as equity and is determined using the nominal value of shares thathave been issued. Additional paid-in capital (APIC) includes any premiums received on theinitial issuance of capital stock. Any transaction costs associated with the issuing of sharesare deducted from additional paid-in capital, net of any related income tax benefits.

When capital stocks are repurchased, the amount of the consideration paid, whichincludes directly attributable costs, net of any tax effects, is recognized as a deduction fromequity. Repurchased shares are classified as treasury stock and are presented as a deductionfrom total equity. When treasury shares are sold or reissued subsequently, the amountreceived is recognized as an increase in equity, and the resulting surplus or deficit on thetransaction is transferred to/from retained earnings, after considering any remaining APICrelated to treasury stock, if any.

Compound financial instruments issued by the Parent Company comprise convertible notesthat can be converted to capital stock at the option of the holder, and the number of shares tobe issued does not vary with changes in their fair value.

The liability component of a compound financial instrument is recognized initially at the fairvalue of a similar liability that does not have an equity conversion option. The equitycomponent is recognized initially as the difference between the fair value of the compoundfinancial instrument as a whole and the fair value of the liability component. Any directlyattributable transaction costs are allocated to the liability and equity components in proportionto their initial carrying amounts.

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The mandatorily convertible notes of the Parent Company are presented as an equity item underthe “Convertible notes awaiting for conversion” account. These are non-derivative instrument forwhich the entity is or may be obliged to deliver a fixed number of the entity's own equityinstruments. The Parent Company already fixed the number of shares to be converted intocommon shares based from the 1:1 share of the principal convertible notes to common shares.The 8% interests accrued from the convertible notes are treated as APIC upon conversion ratherthan a determinant in identifying the number of shares to be converted (see Note 17).

Earnings per Share (EPS)The Parent Company presents both basic and diluted EPS. Basic EPS is computed bydividing the net income applicable to common shareholders by the weighted averagenumber of common shares outstanding during the year, adjusted for treasury stock,conversion of convertible instruments and with retroactive adjustments for stock splits.Diluted EPS is computed in the same manner as basic EPS except that the net incomeattributable to common shareholders and the weighted average number of shares outstandingare adjusted for the effects of all dilutive potential common shares. The Parent Company’spotential common shares comprise of convertible notes.

Leases - Operating LeaseLeases which do not transfer to the lessee substantially all the risks and benefits ofownership of the asset are classified as operating leases.

Parent Company as a LessorLease income under operating leases is recognized as income in the profit or loss on a straight-line basis over the lease term.

Parent Company as a LesseeOperating lease payments are recognized in profit or loss on a straight-line basis over the leaseterm.

The Parent Company determines whether an arrangement is, or contains a lease based onthe substance of the arrangement. It makes an assessment of whether the fulfillment of thearrangement is dependent on the use of a specific asset or assets and the arrangementconveys a right to use the asset.

Retirement BenefitsThe Parent Company’s net obligation in respect of the defined benefit plan is calculatedby estimating the amount of the future benefit that employees have earned in the current andprior periods, discounting that amount and deducting the fair value of any plan assets.

The calculation of defined benefit obligation is performed on a periodic basis by aqualified actuary using the projected unit credit method. When the calculation results in apotential asset for the Parent Company, the recognized asset is limited to the present valueof economic benefits available in the form of any future refunds from the plan or reductions infuture contributions to the plan.

Remeasurements of the net defined benefit liability, which comprise actuarial gains andlosses, the return on plan assets (excluding interest) and the effect of the asset ceiling (ifany, excluding interest), are recognized immediately in Other Comprehensive Income (OCI).The Parent Company determines the net interest expense or income on the net definedbenefit liability or asset for the period by applying the discount rate used to measure thedefined benefit obligation at the beginning of the annual period to the then net defined

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benefit liability or asset, taking into account any changes in the net defined liability or assetduring the period as a result of contributions and benefit payments. Net interest expenseand other expenses related to the defined benefit plan are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change inbenefit that relates to past service or the gain or loss on curtailment is recognizedimmediately in profit or loss.

The Parent Company recognizes gains and losses on the settlement of a defined benefit planwhen the settlement occurs.

Short-term Employee BenefitsShort-term employee benefit obligations are measured on an undiscounted basis and areexpensed as the related service is provided.

A liability is recognized for the amount expected to be paid such as those for salaries andwages, social security contributions, short-term compensated absences, bonuses and non-monetary benefits.

Foreign Currency Transactions and TranslationsTransactions in foreign currencies are translated into Philippine peso using the exchange ratesprevailing at the time of such transactions. Monetary assets and liabilities denominated inforeign currencies are translated using exchange rates prevailing at reporting date.Foreign exchange gains or losses resulting from the settlement of such transactions andfrom the translation of monetary assets and liabilities denominated in foreign currencies arerecognized in the profit or loss.

Income TaxIncome tax expense comprises of current and deferred taxes. Current tax and deferred taxare recognized in profit or loss except to the extent that it relates to a businesscombination, or items recognized directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or loss for the yearusing tax rates enacted or substantively enacted at the reporting date, and any adjustmentto tax payable in respect of previous years. Current income tax payable also includes any taxliability arising from the declaration of dividends.

Deferred tax is recognized in respect of temporary differences between the carryingamounts of assets and liabilities for financial reporting purposes and the amounts used fortaxation purposes. Deferred tax is not recognized for:· temporary differences on the initial recognition of assets or liabilities in a transaction that

is not a business combination and that affects neither accounting nor taxable profit orloss;

· temporary differences related to investments in subsidiaries and jointly controlledentities to the extent that it is probable that they will not reverse in the foreseeablefuture; and

· taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporarydifferences when they reverse, based on the laws that have been enacted or substantivelyenacted by the reporting date.

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Deferred tax assets and liabilities are offset if there is a legally enforceable right to offsetcurrent tax liabilities and assets, and they relate to income taxes levied by the same taxauthority on the same taxable entity, or on different tax entities, but they intend to settlecurrent tax liabilities and assets on a net basis or their tax assets and liabilities will berealized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductibletemporary differences, to the extent that it is probable that future taxable profits will beavailable against which they can be utilized. Deferred tax assets are reviewed at eachreporting date and are reduced to the extent that it is no longer probable that the related taxbenefit will be realized.

A deferred tax liability is recognized whenever recovery or settlement of the carryingamount of an asset or liability would make future tax payment larger than they would if suchrecovery or settlement were to have no tax consequence. Deferred tax liability is recognizedin respect of asset revaluations and foreign exchange gains.

Operating SegmentsThe Parent Company’s operations is organized and managed according to the nature of theproducts and services provided. Financial information on operating segments is presented inNote 19 to the separate financial statements.

Provisions and ContingenciesA provision is a liability of uncertain timing or amount. It is recognized when the ParentCompany has a legal or constructive obligation as a result of a past event, it is probablethat an outflow of economic benefits will be required to settle the obligation and areliable estimate can be made.

When it is not probable that an outflow of economic benefits will be required, or theamount cannot be estimated reliably, the obligation is disclosed as a contingent liability,unless the probability of outflow of economic benefits is remote. Possible obligations,whose existence will only be confirmed by the occurrence or non-occurrence of one or morefuture events, are also disclosed as contingent liabilities unless the probability of outflow ofeconomic benefits is remote.

A contingent asset is an asset that arises from past events and whose existence will beconfirmed only by the occurrence or non-occurrence of one or more uncertain futureevents not wholly within the control of the entity. This is not recognized in the financialstatements but disclosed when an inflow of economic benefit is probable.

Events After the Reporting PeriodThe Parent Company identifies post year-end events as events that occurred after the reportingdate but before the date when the parent company financial statements were authorized forissue. Any post year-end events that provide additional information about the ParentCompany’s statement of financial position at the reporting date (adjusting events) arerecognized in the parent company financial statements. Events that are not adjusting eventsare disclosed in the notes to the parent company financial statements when material.

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4. Significant Accounting Judgments and Estimates

The preparation of the accompanying parent company financial statements in conformity withPFRS requires management to make estimates and assumptions that affect the amountsreported in the parent company financial statements and accompanying notes. The estimatesand assumptions used in the accompanying parent company financial statements are basedupon management’s evaluation of relevant facts and circumstances as of the date of the parentcompany financial statements. Actual results could differ from such estimates.

JudgmentsIn the process of applying the Parent Company’s accounting policies, management has madethe following judgments, apart from those involving estimations, which have the mostsignificant effect on the amounts recognized in the parent company financial statements:

Classification to Available-for-sale financial assetsThe Parent Company invested in Unit Investment Trust Funds (UITF) which does not qualify tobe classified or designated as loans and receivables, financial assets at FVPL or HTM investments.The Parent Company expects to hold the securities on demand, however, these can be sold inresponse to liquidity requirements or changes on market conditions.

AFS financial assets are classified as noncurrent assets unless the intention is to dispose suchassets within 12 months from reporting date. The Parent Company intends to dispose theinvestments on demand or within the next twelve (12) months whichever comes first.

Distinction between Investment Properties from Owner-occupied PropertiesThe Parent Company determines whether a property qualifies as investment property orowner-occupied property. In making its judgment, the Parent Company considers whether theproperty generates cash flows largely independent of the other assets held by an entity.Property and equipment or owner-occupied properties generate cash flows that are attributablenot only to property but also to the other assets used in the production or supply process.Investment property is held primarily to earn rental and capital appreciation and is notsubstantially for use by, or in the operations of the Parent Company.

The Parent Company has determined that its building and land under operating lease and landheld for capital appreciation are classified as investment properties (see Note 12). Land andbuilding used in the operations of the Parent Company are classified as owner-occupiedproperties (see Note 11).

Management’s Use of EstimatesThe key assumptions concerning the future and other key sources of estimation uncertainty at thereporting date, that have a significant risk of causing a material adjustment to the carrying amountsof assets and liabilities within the next financial year are discussed below.

Estimating NRV of InventoriesIn estimating NRV of inventories, management takes into account the most reliableevidence available at the time the estimates are made. The Parent Company’s business issubject to changes which may cause inventory obsolescence and the nature of the ParentCompany’s inventories is susceptible to physical deterioration, damage, breakage andtechnological changes. Moreover, future realization of the carrying amounts of inventories isaffected by price changes in the market. These aspects are considered key sources ofestimation uncertainty and may cause significant adjustments to the Parent Company’sinventories within the next financial year.

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The carrying amount of inventories as at August 31, 2015 and 2014 amounted toP=305.20 million and P=196.86 million, respectively (see Note 8).

Estimating Useful Lives of Property, Plant and EquipmentThe Parent Company estimates useful lives of property, plant and equipment based on theperiod over which the assets are expected to be available for use. The Parent Companyreviews regularly the estimated useful lives of property, plant and equipment based on factorsthat include asset utilization, internal technical evaluation, technological changes,environmental and anticipated use of the assets tempered by related industry benchmarkinformation.

It is possible that future results of operation could be materially affected by changes in theseestimates brought about by changes in factors mentioned. A reduction in the estimateduseful lives of property, plant and equipment would increase depreciation and decreasenoncurrent assets.

As at Au gust 31, 2015 a nd 2014, the aggregate carrying amount of the ParentCompany’s property, plant and equipment amounted to P=3.87 billion and P=4.05 billion,respectively (see Note 11).

Estimating Fair ValueThe fair value of the Parent Company’s property, plant and equipment and investmentproperties are determined from market-based evidence by appraisal that was undertakenby an independent firm of appraisers in calculating such amounts. While managementbelieves that the assumptions and market-based evidences used are reasonable andappropriate, significant differences in actual experience or significant changes in theassumptions may materially affect the valuation of the Parent Company’s property, plant andequipment and investment properties. However, management believes that the carryingamounts of property, plant and equipment and investment properties do not differ materiallyfrom that which would be determined using appraised value and fair value at reporting date.The Parent Company’s property, plant and equipment and investment properties were lastappraised as of August 31, 2013 and August 31, 2015, respectively.

As at August 31, 2015 and 2014, the aggregate carrying amount of the Parent Company’sproperty, plant and equipment amounted to P=3.87 billion and P=4.05 billion, respectively(see Note 11).

The aggregate carrying amount of the Parent Company’s investment properties amounted toP=747.84 million and P=1.04 billion as at August 31, 2015 and 2014, respectively (see Note 12).

Recoverability of Deferred Tax AssetsThe Parent Company reviews its deferred tax assets at each reporting date and reduces thecarrying amount to the extent that it is no longer probable that sufficient taxable profit willbe available to allow all or part of the deferred tax asset to be utilized. Significantmanagement judgment is required to determine the amount of deferred tax assets that can berecognized, based on the likely timing and level of future taxable profits together with futuretax planning strategies. However, there is no assurance that the Parent Company will utilizeall or part of the deferred tax assets. Any deferred tax asset will be re-measured if it mightresult to derecognition in cases where the expected tax law to be enacted will impose apossible risk on its realization.

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As at August 31, 2015 and 2014, the Parent Company’s recognized deferred tax assetsamounted to P=488.11 million and P=428.84 million, respectively (see Note 24).

Estimating Provisions and ContingenciesThe Parent Company is currently involved in various legal proceedings (see Note 29) which arestill pending resolution or under suspension in view of the Parent Company’s rehabilitationsstatus. Estimates of probable costs for the resolution of these claims have been developed inconsultation with the legal counsels handling the defense in these matters and are based uponan analysis of potential results.

The carrying value of the provisions recognized as at August 31, 2015 and 2014, amountedto P=1.42 billion a n d P=1.38 billion respectively (see Note 15). The estimated amount ofgross undiscounted provision (including imputed finance cost) amounted to P=1.55 billion asof August 31, 2015.

The Parent Company discounts its provisions over the period such provisions are expectedto be settled. The discount rate used by the Parent Company is a government bond ratewhich is a pre-tax rate that reflects current market assessments of the time value of moneyand those risks specific to the liability that have not been reflected in the best estimate of theexpenditure. Where discounting is used, the increase in the provision due to the passage oftime is recognized as an interest expense.

It is possible, however, that future results of operations could be materially affected bychanges in the estimates or in the effectiveness of the Parent Company’s strategies relatingto the foregoing proceedings.

5. Cash and Cash Equivalents


20152014


Cash on hand P=5,822 P=1,375Cash in banks 186,175 133,424Cash equivalents 1,503,118 615,351

P=1,695,115 P=750,150

Cash in banks earns interest at the respective bank deposit rates.

Cash equivalents are composed of short-term, highly liquid investments that are made forvarying periods of up to 90 days, and bear annual interest rates as follows:

2015 2014Peso 0.75% - 3.25% 0.50% - 3.00%Dollar 1.25% - 1.90% −

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As at August 31, 2014, cash and cash equivalents permanently set aside for checks payable toEWB are presented as part of “Other current assets” account (see Note 9). Total interestincome on cash and cash equivalents amounted to P=24.36 million, P=10.30 million,P=36.90 million in 2015, 2014 and 2013, respectively (see Notes 13 and 22).

6. Trade and Other Current Receivables



Trade:Outside parties P=61,960 P=35Related Parties (Note 27) 40,345 86,232

Advances to:Related parties (Note 27) 94,220 94,274Suppliers 20,336 10,221Planters’ association 1,260 13,105Officers and employees 201 181

Other receivables 4,328 5,183222,650 209,231

Less allowance for impairment losses on trade andother current receivable (59,274) (59,274)

P=163,376 P=149,957

The classes of receivables of the Parent Company and their terms and conditions are asfollows:

· Trade receivables to outside and related parties pertain to noninterest-bearing amounts duefrom customers for sale of raw sugar, refined sugar, molasses, and alcohol and for renderingof tolling services. The average credit period taken on sale of goods is from 30 to 60 days.

· Advances to suppliers are amounts paid for purchase orders not yet received by the ParentCompany. These are noninterest-bearing and are expected to be settled through delivery ofgoods and services within one year.

· Advances to planters' association are amounts advanced to planters. These are noninterest-bearing and are settled within one year.

· Advances to officers and employees pertain to cash advances made by the Parent Companyfor its employees.

· Other current receivables consist of accrued interest receivables and other non-tradereceivables from other companies.

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The table below shows the movements in the allowance for impairment losses:


At September 1 P=59,274 P=59,239Provision during the year – 35At August 31 P=59,274 P=59,274

Allowance for impairment losses as at August 31, 2015 and 2014 pertain to allowances made fornon-trade receivables and advances to related parties at P=59.19 million. No additional provisionfor impairment losses was made by the Parent Company in 2015.

7. Available-for-Sale Financial Assets

This account consists of investment in the following Unit Investment Trust Funds (UITF):


PNB Prime Peso Money Market Fund P=100,000 P=216,218Security Bank Peso Money Market Fund 400,096 −

500,096 216,218Unrealized gain on AFS financial assets 2,691 102

P=502,787 P=216,320

The Parent Company has investments in UITF. These funds are structured as money marketUITF which aims to generate liquidity and stable income by investing in a diversified portfolioof primarily short-term fixed income instruments.

The Parent Company invested in the PNB Prime Peso Money Market Fund (PNB UITF) inAugust 2014. It has a minimum holding period of 5 days and the Bangko Sentral ng Pilipinas(BSP) Special Deposit Account accounted for close to 70% of the Fund. As of August 31,2015 and 2014, the total Net Asset Value (NAV) of the fund is P=12.81 billion andP=12.63 billion, with duration of 204 days and 230 days, respectively. The fair value of theParent Company’s total investment in the PNB UITF amounted to P=100.11 million andP=216.32 million as of August 31, 2015 and 2014, respectively.

In December 2014, the Parent Company invested in the Security Bank Peso Money MarketFund (Security Bank UITF). It has no minimum holding period and the Bangko Sentral ngPilipinas (BSP) Special Deposit Account accounted for close to 75.9% of the fund. As ofAugust 31, 2015 the total Net Asset Value (NAV) of the Security Bank Fund is P=15.76 billion,with duration of 11 days. The fair value of the Parent Company’s total investment in theSecurity Bank UITF amounted to P=402.68 million as of August 31, 2015.

The fair value of the investment in PNB UITF is valued at P=1.12 and P=1.10 NAV per unit as atAugust 31, 2015 and 2014, respectively. The fair value of the investment in Security BankUITF is valued at P=1.25 NAV per unit as of August 31, 2015. The NAV per unit is determinedby using valuation techniques. These valuation techniques maximize the use of observablemarket data where it is available such as quoted market prices or dealer quotes for similarinstruments. Thus, the fair value measurement is categorized under Level 2 of fair valuehierarchy.

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As of August 31, 2015 and 2014, the Parent Company does not hold its investment in PNBUITF and Security Bank UITF as held for trading and classified these as available for salefinancial assets. Management takes the view that these are not held for trading in the nearfuture and are a portfolio of diversified short term fixed income instruments invested andmanaged by professional managers.

Movements in the net unrealized gain in available-for-sale financial assets follow:


Balance at January 1 P=102 P=−Unrealized gain during the year 6,901 102Realized gain on fund redemption (4,312) −

P=2,691 P=102

8. Inventories

The carrying amounts of inventories follow:


At NRV:Raw sugar inventory P=49,883 P=–Materials and supplies 127,946 129,184Unbilled Tolling Cost – 15,696

177,829 144,880At Cost:

Raw sugar inventory 126,201 18,456Refined Sugar Inventory – –Molasses – –Alcohol – 32,352Manufactured and fabricated products 1,168 1,168

127,369 51,976P=305,198 P=196,856

Cost of inventories stated at NRV amounted to P=200.38 million and P=176.06 million as atAugust 31, 2015 and 2014, respectively.

The movement in the allowance to reduce materials and supplies and refined sugar inventory toNRV follows:


Balance at beginning of year P=10,651 P=31,180Write-down of inventory for the year 5,410 –Recovery during the year – (20,529)

P=16,061 P=10,651

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The cost of inventories recognized as an expense is presented as “Cost of sale of goods”account and included increase in inventories of P=113.75 million in 2015, decrease ininventories of P=194.46 in 2014 and increase in inventories of P=74.10 million in 2013(see Note 21).

Recovery in 2014 refers to inventories previously provided with allowance but sold in 2014amounting to P=20.53 million.

In 2014, inventories with total carrying value of P=0.96 million were damaged by TyphoonYolanda. Of the total amount, P=0.40 million were covered by insurance for which the ParentCompany filed the corresponding insurance claims (see Note 6). The remaining balanceamounting to P=0.56 million which was not covered by insurance was charged to profit and loss aspart of “Others” under “Other income (expenses)” (see Note 22).

Materials and supplies, refined sugar inventory and sugar inventory were stated at NRV whichwere lower than their corresponding costs. Management believes that the recordedallowance to reduce materials and supplies, refined sugar inventory and sugar inventory to NRVis adequate.

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A summary of the movement of inventories is set out below:


Raw Sugar Refined Sugar Molasses Alcohol Total GoodsUnbilled

Tolling Cost Grand TotalBalance at beginning of year P=18,456 P=– P=– P=32,352 P=50,808 P=15,696 P=66,504Production cost 1,900,834 70,910 192,113 191,436 2,355,293 831,825 3,187,118Purchase cost 998 – – – 998 – 998Molasses transferred to distillery (111,120) (111,120) (111,120)Cost of goods sold and services (Note 21) (1,744,204) (70,910) (80,993) (223,788) (2,119,895) (847,521) (2,967,416)

P=176,084 P=– P=– P=– P=176,084 P=– P=176,084


Raw Sugar Refined Sugar Molasses Alcohol Total GoodsUnbilled

Tolling Cost Grand TotalBalance at beginning of year P=132,533 P=– P=21,507 P=1,844 P=155,884 P=59,733 P=215,617Production cost 1,716,521 – 148,042 168,396 2,032,959 761,498 2,794,457Purchase cost 2,233 – – – 2,233 – 2,233Molasses transferred to distillery (50,890) – (50,890) (50,890)Cost of goods sold and services (Note 21) (1,832,831) – (118,659) (137,888) (2,089,378) (805,535) (2,894,913)

P=18,456 P=– P=– P=32,352 P=50,808 P=15,696 P=66,504

Materials and supplies charged to cost of sales amounted to P=431.81 million, P=393.17 million and P=308.83 million in 2015, 2014 and 2013, respectively

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9. Other Current Assets



Prepaid expenses P=57,580 P=15,996Value-added input tax - net 15,746 13,803Cash and cash equivalents set aside for checks

payable to EWB (see Note 14) – 366,125P=73,326 P=395,924

Prepaid expenses consist of advance payments for real property tax, utilities and other supplies.Prepayments pertaining to utilities are in the nature of advances made by the Parent Companyfor construction of assets related to electricity distribution. The advances are to bereimbursed by the electricity distributor through billing offset of an agreed component of theParent Company’s Distillery Operations monthly electricity bill.

10. Investment in Subsidiaries and an Associate

The Parent Company’s investments in and deposits to subsidiaries and associate accountedfor under the cost method of accounting, adjusted for impairment losses, if any, and therelated percentages of ownership are shown below:

Percentage of DirectOwnership Carrying Amounts

2015 2014 2015 2014Cost:Subsidiaries

VFC 100% 100% P=61,693 P=61,693VALCO 100% 100% 33,168 33,168CDC 88% 88% 23,393 23,393VQPC 55% 55% 16,500 16,500VGCCI 81% 81% 15,680 15,680VGEC 100% − 31,250 −

AssociateVIGASCO 30% 30% 5,727 5,727

187,411 156,161Allowance for impairment:

VQPC (16,500) (16,500)VIGASCO (5,727) (5,727)

(22,227) (22,227)P=165,184 P=133,934

Investment in VFCVFC, a wholly-owned subsidiary, was registered and incorporated with the SEC onFebruary 24, 1983 primarily to operate factories and other manufacturing facilities for theprocessing, preservation and packaging food products and selling the same at wholesale andretail. The corporate office and production plant of VFC is located at VICMICO Compound,Victorias City, Negros Occidental.

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The Parent Company entered into an agreement with VFC to transfer equipment with fairvalue of P=39.69 million in exchange for shares of stocks. As of August 31, 2015, 2014 and2013, this amount is carried in the books of VFC as Deposits for Future Stock Subscription.The carrying value of the Parent Company's investment in VFC amounted to P=61.69 million,as of August 31, 2015 and 2014.

Investment in VALCOVALCO, a wholly-owned subsidiary, was incorporated and registered with the SEC onJune 30, 1987 primarily to acquire and own agricultural and other real estate properties, bypurchase, lease or otherwise to improve and develop the same, and to plant thereon all kinds offarm products. The registered address of VALCO is at VICMICO Compound, Victorias City,Negros Occidental.

The Parent Company entered into an agreement with VALCO whereby the latter will issueshares of stock in exchange for the former's certain parcels of land. P=33.07 million wasrecorded in the books of VALCO as Deposits in Future Stock Subscription pending thetransfer of the certificate of land title in the name of VALCO. In 2014, deposits amounting toP=10.45 million were reversed with respect to the rescission of the Deed of Exchange due toinability of the Parent Company to transfer the TCTs in the name of VALCO as those werecovered by the Parent Company's mortgage trust indenture with various banks.

The carrying value of the investment in VALCO amounted to P=33.17 million as ofAugust 31, 2015and 2014.

Investment in CDCCDC, an 88% owned subsidiary, was incorporated and registered with the SEC onFebruary 19, 1974 primarily to purchase, develop, lease, exchange and sell real estate. CDC iseffectively a wholly- owned subsidiary of the Parent Company through the 88% directownership and the 12% indirect ownership through VALCO. The registered address of CDCis at VICMICO Compound, Victorias City, Negros Occidental. The carrying value of theinvestment in CDC amounted to P=23.39 million as of August 31, 2015 and 2014.

Investment in VGCCIVGCCI, an 81% owned subsidiary, is a non-profit corporation registered with the SEC onOctober 8, 1992 primarily to engage exclusively in social, recreational and athletic activitieson a non-profit basis among its stockholders, the core of which will be the acquisition andmaintenance of a golf course and tennis courts, residential and other similar facilities. Theregistered office of VGCCI is located in VICMICO Compound, Victorias City, NegrosOccidental.

As of August 31, 2015 and 2014, the carrying value of the investment amounted toP=15.68 million.

Investment in VQPCVQPC, 55% owned subsidiary, was incorporated and registered with the SEC onMay 14, 1990 primarily to engage in the manufacture and sale of polyethylene bags, boxes,packages and special packaging products. The registered address and production plant ofVQPC is at VICMICO Compound, Victorias City, Negros Occidental.

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In June 2012, the BOD of VQPC approved to cease VQPC’s operations effective July 2012.As at August 31, 2015, VQPC is undergoing dissolution process as approved by its BOD andstockholders. The Parent Company has fully impaired its investment in VQPC.

Investment in VGECVGEC, a wholly-owned subsidiary, was incorporated and registered with the SEC onApril 13, 2015 primarily to carry on the business of generation of power derived fromrenewable energy resources for wholesale of electricity to power companies, distributionutilities, electric cooperatives, retail electricity suppliers, aggregators and other customers.As of August 31, 2015, the Parent Company has made payments amounting to P=31.25 millionfor its subscription of P=125.00 million, P=1 par-value shares of VGEC.

Investment in VIGASCOVIGASCO, a 30%-owned associate, was incorporated and registered with the SEC onNovember 19, 1992 primarily to engage in importing, exporting, buying and selling, atwholesale or at retail, of gases, particularly oxygen, acetylene, hydrogen, liquefied petroleumgas and any types of gases.

Due to the capital deficiency of VIGASCO resulting from operating losses, the investment isfully provided with allowance for impairment.

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11. Property, Plant and Equipment

The roll forward and movements of this account follows:

August 31, 2015

LandLand


Structures



EquipmentProject under

Construction TotalCost Revalued Revalued Revalued Revalued Revalued CostAt September 1 P=16,577 P=110,079 P=638,726 P=31,888 P=4,966,601 P=196,243 P=5,960,114Reclassification of completed projects − 8,469 2,473 − 251,099 (262,041) −Additions − − − − 862 243,000 243,862Disposals − − − − (336,569) − (336,569)At August 31 16,577 118,548 641,199 31,888 4,881,993 177,202 5,867,407Cost-Accumulated Depreciation and Impairment LossesAt September 1 − 85,262 491,304 25,109 2,798,145 − 3,399,820Depreciation − 5,351 17,048 378 240,047 − 262,824Disposals − − − − (211,314) − (211,314)At August 31 − 90,613 508,352 25,487 2,826,878 − 3,451,330

16,577 27,935 132,847 6,401 2,055,115 177,202 2,416,077Appraisal IncreaseAt September 1 280,698 223,370 638,101 6,508 4,140,773 − 5,289,450Appraisal Increase-Accumulated Depreciation andImpairment LossesAt September 1 − 131,363 622,143 224 3,049,555 − 3,803,285Depreciation − − 20,180 224 7,551 − 27,955At August 31 − 131,363 642,323 448 3,057,106 − 3,831,240

280,698 92,007 (4,222) 6,060 1,083,667 − 1,458,210Book Value, August 31, 2015 P=297,275 P=119,942 P=128,625 P=12,461 P=3,138,782 P=177,202 P=3,874,287

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August 31, 2014

LandLand


Structures




Cost Revalued Revalued Revalued Revalued Revalued CostAt September 1 P=16,577 P=107,255 P=635,959 P=31,450 P=4,482,429 P=380,664 P=5,654,334Reclassification of completed projects − 2,824 2,767 438 485,199 (491,228) −Additions − − − − 67 308,672 308,739Disposals − − − − (1,094) (1,865) (2,959)At August 31 16,577 110,079 638,726 31,888 4,966,601 196,243 5,960,114Cost-Accumulated Depreciation and Impairment LossesAt September 1 − 80,206 474,577 24,382 2,594,220 − 3,173,385Depreciation − 5,056 16,727 727 204,963 − 227,473Disposals − − − − (1,038) − (1,038)At August 31 − 85,262 491,304 25,109 2,798,145 − 3,399,820

16,577 24,817 147,422 6,779 2,168,456 196,243 2,560,294Appraisal IncreaseAt September 1 280,698 223,370 638,101 6,508 4,140,773 − 5,289,450Increase (decrease) during the year − − − − − − −At August 31 280,698 223,370 638,101 6,508 4,140,773 − 5,289,450Appraisal Increase-Accumulated Depreciation and ImpairmentLossesAt September 1 131,363 601,964 − 3,042,004 − 3,775,331Depreciation − 20,179 224 7,551 − 27,954At August 31 131,363 622,143 224 3,049,555 − 3,803,285

280,698 92,007 15,958 6,284 1,091,218 − 1,486,165Book Value, August 31, 2014 P=297,275 P= 116,824 P=163,380 P=13,063 P=3,259,674 P=196,243 P=4,046,459

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August 31, 2013

LandLand


Structures




Cost Revalued Revalued Revalued Revalued Revalued CostAt September 1 P=18,057 P=96,400 P=636,739 P=31,450 P=4,072,051 P=502,776 P=5,357,473Reclassification of completed projects − 10,855 11,608 − 410,938 (433,401) –Additions − − − − 1,283 311,289 312,572Disposals − − − − (1,843) − (1,843)Transfer to investment properties (1,480) − (12,388) − − − (13,868)At August 31 16,577 107,255 635,959 31,450 4,482,429 380,664 5,654,334Cost-Accumulated Depreciation and Impairment LossesAt September 1 − 75,605 463,100 21,695 2,420,848 − 2,981,248Depreciation − 4,601 18,111 518 175,215 − 198,445Adjustments − − − 2,169 − − 2,169Disposals − − − − (1,843) − (1,843)Transfer to investment properties − − (6,634) − − − (6,634)At August 31 − 80,206 474,577 24,382 2,594,220 − 3,173,385

16,577 27,049 161,382 7,068 1,888,209 380,664 2,480,949Appraisal IncreaseAt September 1 92,795 508,385 25,646 137,486 1,907,224 − 2,671,536Increase (decrease) during the year 187,903 (285,015) 612,455 (130,978) 2,233,549 − 2,617,914At August 31 280,698 223,370 638,101 6,508 4,140,773 − 5,289,450

Appraisal Increase-Accumulated Depreciation and ImpairmentLossesAt September 1 − 94,440 106,084 117,364 815,235 − 1,133,123Depreciation − 1,221 764 68,726 − 70,711Increase (decrease) during the year − 35,702 495,880 (118,128) 2,158,043 − 2,571,497At August 31 − 131,363 601,964 − 3,042,004 − 3,775,331


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Movements in this account are as follows:

Significant additions to Project Under Construction during the year include the repair ofbuildings and construction and assembly of boilers and mill equipment. For the year, projectswith accumulated cost of P=262.04 million were completed and transferred to mainlymachinery and equipment.

As at August 31, 2014, the Parent Company acquired or constructed and installed certain airand water pollution control devices to comply with the order of the Department ofEnvironment and Natural Resources (DENR) accumulating to P=349.28 million. Moreover,the Parent Company is committed for acquisition or construction and installation of moresimilar pollution control devices amounting to P=40 million as at August 31, 2014(see Note 29c).

As of August 31, 2015, the Parent Company has outstanding advances to suppliers includedin other non-current assets representing downpayments for the purchase of a CondensingExtraction Turbo and a Crawler Excavator due for delivery in 2016. These advances amountto P=99.43 million as of August 31, 2015 (see Notes 13 and 29).

The fair value measurement for the net appraisal increase of property, plant and equipmentamounting to P=1.46 billion has been categorized as a level 3 based on the inputs to thevaluation technique used (see Note 3).

The Parent Company’s property, plant and equipment were appraised by an independentappraiser. The latest appraisal was conducted on August 31, 2013.

In arriving at the value of machinery and equipment, the appraiser considered the two approachesto value, namely the Cost Approach and Market Data Approach. Cost Approach considers the costto reproduce or replace in new condition the assets appraised in accordance with current marketprices for similar assets, with allowance for accrued depreciation based on physical wear and tear,and obsolescence. Market Data or Comparative Sales Approach considers prices recently paid forsimilar assets, with adjustments made to the indicated market prices to reflect condition and utilityof the appraised assets relative to the market comparable. Assets for which there is establishedmarket comparable were appraised by this approach.

The carrying value of property, plant and equipment is net of allowance for impairment lossesamounting to P=547.24 million. The reconciliation of the allowance for impairment lossesfollows:

Machinery Land and Buildingsand Land and

Equipment Improvements Structures TotalAt August 31, 2015 P=331,774 P=135,025 P=80,438 P=547,237

At August 31, 2014 P=331,774 P=135,025 P=80,438 P=547,237

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The carrying amounts of the Parent Company’s property, plant and equipment had thesebeen carried at cost less accumulated depreciation and impairment losses, follow:

Buildings Community MachineryLand and Buildings and and

Land Improvements Structures Equipment Equipment TotalAt August 31, 2015 P=16,577 P=27,935 P=132,847 P=6,401 P=2,055,115 P=2,238,875

At August 31, 2014 P=16,577 P=24,817 P=147,422 P=6,779 P=2,168,456 P=2,364,051

At August 31, 2013 P=16,577 P=27,049 P=161,382 P=7,068 P=1,888,209 P=2,100,285

A summary of depreciation on cost and on appraisal increase and the distributionfollows:

2015 2014 2013Depreciation on:

Cost P=262,824 P=227,473 P=198,445Appraisal increase 27,955 27,954 70,711

P=290,779 P=255,427 P=269,156Depreciation charged to:

Cost of goods manufactured and sold (Note 21) P=209,502 P=189,588 P=183,896Cost of rendering services

(Note 21) 58,123 50,928 73,399General and administrative expenses (Note 23) 16,158 8,110 9,107Selling expenses (Note 23) 6,996 6,801 2,754

P=290,779 P=255,427 P=269,156

On September 1, 2003, Parent Company’s land, building and machineries and equipment witha carrying value of P2.48 billion are used as mortgage lien for loans under the MortgageTrust Indenture (MTI) (see Notes 16a). The loans under the MTI have been fully paid as ofAugust 31, 2015 while the said properties have not yet been released from the MTI.

12. Investment Properties

The details of this account follow:

Land Building TotalBalance, August 31, 2012, as restated P=599,609 P=53,944 P=653,553Transfer from property, plant and

equipment 1,336 5,096 6,432Reclassification of “land under

voluntary offer to sell” to “Othernoncurrent assets” (Note 13) (25,809) − (25,809)

Fair value gain 378,268 25,814 404,082

(Forward)

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Land Building TotalBalance, September 1, 2013 P=953,404 P=84,854 P=1,038,258Reclassification of land subject to

voluntary offer tosell” to “Othernoncurrent assets” (Note 13) (457) – (457)

Balance, August 31, 2014 952,947 84,854 1,037,801Fair value gain (loss) − (27,631) (27,631)Reclassification of “Land subject to

voluntary offer to sell” to “Othernoncurrent assets” (Note 13) (262,332) – (262,332)

Balance, August 31, 2015 P=690,615 P=57,223 P=747,838

Parcels of land, with an aggregate area of 3,727,041 square meters, subjected to voluntaryoffer to sell. As the Parent Company is yet to agree on the valuation and consideration forthe said properties, the same are still carried in the books of the Parent Company (see Note 13).

The fair value measurement for the investment property amounting to P=747.84 million hasbeen categorized as a level 3 based on the inputs to the valuation technique used(see Note 3).

The Parent Company’s investment properties were appraised by an independent appraiserwho holds a recognized and relevant professional qualification and has recent experience inthe location and category of the investment property being valued. The latest appraisal wasconducted on August 31, 2015.

The value of the land was arrived at using the Market Data Approach. In this approach, the valueof the land was based on sales and listings of comparable property registered within the vicinity.The technique of this approach requires the establishment of comparable property by reducingreasonable comparative sales and listings to a common denominator. This is done by adjusting thedifferences between the subject property and those actual sales and listings regarded ascomparable. The properties used as basis of comparison are situated within the immediate vicinityof the subject property.

The value of buildings was arrived at using the Cost Approach. Under this approach, an estimateis made of the current Cost of Replacement, New of the buildings and other land improvements, inaccordance with the prevailing market prices for materials, labor and overhead. Adjustments arethen made to reflect depreciation resulting from physical deterioration, functional and economicobsolescence based on inspection by the appraiser of the buildings and other land improvements.

The cost of the investment properties amounted to P=65.13 million in August 31, 2015 andP=65.24 million in 2014. Of the total investment properties, P=648.65 million has been leasedout under several short- term and cancellable operating leases to third parties and relatedparties, and the P=99.19 million is deemed held for capital appreciation. The total rentalincome earned from the investment properties presented under “Rental income” in “Otherincome (expenses)” for the years ended August 31, 2015 and 2014 amounted toP=12.67 million and P=13.26 million, respectively (see Note 22).

Direct expenses incurred for the Parent Company’s investment properties presented under“Taxes and licenses” amounted to P=3.78 million in 2015 and P=4.23 million in 2014(see Note 23).

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13. Other Noncurrent Assets



Land subject to voluntary offer to sell (Note 12) P=288,597 P=26,265Advances to Suppliers (Note 11) 99,434 −Cash surety bond 32,214 32,087

420,245 58,352Less allowance for impairment loss on cash in a

closed bank 8,393 8,393P=411,852 P=49,959

Parcels of land, with an aggregate area of 3,727,041 square meters, subjected to voluntaryoffer to sell. As the Parent Company is yet to agree on the valuation and consideration forthe said properties, the same are still carried in the books of the Parent Company (see Note 12).

Advances to suppliers pertain to down payments made by the Company for the purchase of aCondensing Extraction Turbo and a Crawler Excavator due for delivery in 2016.

Cash surety bonds pertain to cash collateral for the labor cases against the ParentCompany (see Note 29b). It includes cash in a closed bank amounting to P=8.39 million (netof the P=500 thousand recovered from PDIC in 2013) which was fully provided withallowance for impairment.

14. Trade and Other Current Payables

This account is composed of the following:


Trade suppliers P=291,322 P=225,970Customers deposits 161,055 80,742Advances from related parties (Note 27) 31,464 189Accrued expenses 22,703 –Withholding and other taxes 19,214 21,369Retention payable 9,879 4,838Liens payable on sugar 8,966 15,773Checks payable to EWB – 366,126Others 17,649 2,956

P=562,252 P=717,963

Trade suppliers represent amounts of obligation of the Parent Company to third parties. Theseare non-interest bearing and are normally settled on 30 to 90-day term.

Customer deposits pertain to payments received in advance by the Parent Company sale ofsugar and molasses. These are non-refundable in nature and are recognized as revenue upondelivery of goods.

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Accrued expenses pertain to accruals made for contracted services, janitorial and securityservices, utilities, postage and other operating expenses which are payable within one year.

Withholding and other taxes refer to accrued remittances for statutory taxes withheld for theyear. Included therein also are contributions payable to Social Security System, Home MutualDevelopment Fund and Philippine Health Insurance Corporation.

Retention payable refers to amounts withheld from contact price for contracts entered duringthe year. This is normally set at 10% of the total price or to an amount equal as stipulated inthe contract. This becomes payable upon completion or performance of terms and condition asstated in the contract.

Liens payable on sugar refers to amounts payable to the Sugar Regulatory Authority asimposed based on the volume of sugar produced due to be settled within one year.

Other payables include amounts pertaining to social amelioration fund set aside for the sugarworkers and association dues payable to the different planters association registered with theParent company.

Management considers that the carrying amount of trade and other current payablesapproximates fair value due to their short-term maturities.

As disclosed in Note 16, on February 28, 2014 (partial redemption) and April 4, 2014 (finalredemption), the remaining convertible notes were paid pursuant to ARP, DRA and convertiblenote provisions.

However, on February 28, 2014 and April 4, 2014, EWB informed VMC of its decision not toaccept the redemption.

In summary, VMC made the following offer of payment/redemption:

Date Received andreturned by EWB

Date of Letterof VMC Attached Check Date of Check Amount of Check

April 2, 2014 March 26, 2014 MetrobankCheck No.370038109

February 28, 2014 P=170,258,259

MetrobankCheck No 3700383146

February 28, 2014 15,397,762

April 2, 2014 April 1, 2014 PNB Check No.001645504

April 4, 2014 89,982,086

April 4, 2014 April 3, 2014 MetrobankCheck No.3700383152

April 4, 2014 180,469,880

In a letter dated September 25, 2014, VMC consigned to the SEC-appointed rehabilitationreceiver of VMC, the following amounts as payment/redemption of convertible note, to wit:

Check No. Date Amount370038154 August 26, 2014 P=185,656,0203700383155 September 23, 2014 180,469,880

P=366,125,900

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As at August 31, 2015, “Checks payable to EWB” presented as part of “Trade and othercurrent payables” account were extinguished by the Company since these were alreadyconsigned to the SEC-appointed rehabilitation receiver. This consignation was confirmed bythe SEC En Banc in its Decision dated August 11, 2015 in SEC Case No. 04-15-368.

15. Provisions

The Parent Company is currently involved in various legal proceedings (see Note 29) whichare still pending resolution or under suspension in view of the Parent Company’srehabilitations status. Estimates of probable costs for the resolution of these claims have beendeveloped in consultation with the legal counsels handling the defense in these matters andare based upon an analysis of potential results.

The Parent Company recognized provisions as follows:

20152014

(As restated)Balance at beginning of year P=1,377,568 P=841,941Provision during the year – 279,509Amortization of discount 41,308 256,118Ending balance P=1,418,876 P=1,377,568

The undiscounted amount and the related unamortized discount follow:

20152014

(As restated)Undiscounted amount P=1,552,022 P=1,067,618Provision during the year − 484,404

1,552,022 1,552,022Unamortized discount (133,146) (174,454)

P=1,418,876 P=1,377,568

On a regular basis, the provisions are re-evaluated and recalculated to consider latestavailable information and estimates. If the resulting difference between the originalamount and the recalculated amount is significant, an adjustment is recognized.

Based on the re-assessments made, additional provisions with a present value ofP=279.51 million (gross undiscounted amount of P=484.40 million) in 2014 was recognized.

As of August 31, 2015 and 2014 the discount rate is estimated at 3.03% and 3.04%,respectively.

16. Long-term Debt

Except for convertible notes that are considered mandatorily converted in accordancewith Section 16(k) of the DRA amounting to P=404.67 million and P=677.53 million and as atAugust 31, 2015 and 2014, respectively (see Note 17c), in 2014, the BOD of the ParentCompany approved the payment/redemption of convertible notes (principal pluscorresponding accumulated interest) pursuant to ARP, DRA and convertible note provisions.

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For this purpose, notice of payment/redemption of convertible notes was sent onFebruary 24, 2014 (for partial redemption) and on March 31, 2014 (for final redemption)to all of the convertible note holders who were eventually paid on February 28, 2014 andApril 4, 2014.

In 2014, the total payments made by the Parent Company to redeem the convertible notesamounted to P=1.768 billion consisting of P=959.8 million principal and P=808.5 millionaccrued interest.

On May 31, 2013, the Parent Company fully paid the outstanding restructured loans(see Notes 5 and 13). Accordingly, on July 17, 2013, the Parent Company demanded trustee-banks for the release of properties under the MTI and secondary MTI.

The trustee-banks did not comply with the demand. Accordingly, the Parent Company filedwith the SEC a motion to secure the release of the mortgage lien under the MTI andsecondary MTI on July 25, 2013. As at report date, SEC is yet to act on the ParentCompany’s petition.

In a letter dated July 10, 2015 to the SEC Special Hearing Panel, the trustee-bank filed a motion toconsign assets and documents following VMC’s and the creditors secured by the Indenture’sappointment of the successor trustee in connection to its resignation letter dated March 6, 2014.As at report date, SEC Special Hearing Panel is yet to act on the trustee-banks’ motion.

The following are details from the Debt Restructuring Agreement and rehabilitation programwhich are relevant to the Parent Company’s long-term debt:

a. Debt Restructuring Agreement

As discussed in Note 2 to the parent company financial statements, a key element of theARP is the restructuring of the above loans from banks and financial institutions.Consequently, the Parent Company and the secured and unsecured creditors executed aDRA dated April 29, 2002. As stated in the DRA, secured creditors are VMCcreditors who are holding on to valid Mortgage Participation Certificates (MPC) to theextent of the amount loaned to VMC and covered by said MPCs while all other VMCcreditors shall be deemed as unsecured creditors, provided, however, that loan facilitiesand/or credit accommodations granted by the secured creditors to VMC that are notdirectly collateralized, secured, or covered by the MPC shall, for all intents andpurposes, be considered unsecured loan facilities and/or credit accommodations and willbe governed by the same terms and conditions as the loan facility and/or creditaccommodations of the unsecured creditors. This DRA took effect on September 1, 2003and which provides, among others, for the following:

1. Conversion of P=1.1 billion loans into equity.

On October 9, 2002, loans from unsecured creditors of P=1.1 billion were convertedinto common shares of VMC at a ratio of P=1 of debt to P=1 of common shares with apar value of P=1.

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2. Conversion of P=2.4 billion loans into convertible notes.

Features of the convertible notes

On September 1, 2003, the unsecured creditors proportionately converted, on amandatory basis, P=2.4 billion of their principal loans into convertible notes. Theconvertible notes bear an annual interest of 8% which is cumulative and payable onlyin respect of those convertible notes which have not been actually converted intocommon stock of the Parent Company. The conversion resulted to the recognitionof an equity component of the convertible feature (presented in the Parent Companystatement of financial position as “Conversion feature on convertible notes”account). This will be reclassified to “Additional paid-in capital” upon conversionof the related convertible notes.

Starting September 1, 2003, annual interest of 8% has been accrued in respect of alloutstanding convertible notes. The convertible notes provide for a term of paymentof 15 years from the effectivity date of the DRA (herein referred to as the“restructuring date”).

i. Collateral for issuance of convertible notes:

The collateral for issuance of convertible notes under Section 17 of the DRAwhich read as follows:

a) The secured creditors which converted their principal loan into convertiblenotes shall have a first mortgage on VMC’s fixed assets (excludingidentified non-core assets for disposal and MTI properties), in addition to theirfirst mortgage under the existing MTI pursuant to the terms and conditionsof the DRA. A list of VMC’s fixed assets which shall be used as collateralfor those holding convertible notes can be found in the Annex G of the DRA.

b) The unsecured creditors which converted their principal loan intoconvertible notes shall have a second mortgage on VMC’s fixed assets listedin Annex G of the DRA (excluding identified non-core assets for disposaland MTI properties), in addition to their second mortgage under the secondaryMTI pursuant to the terms and conditions of the DRA.

c) As security for the prompt and effective repayment and compliance by VMCof any or all obligations arising from VMC’s issuance of the convertiblenotes, including payment of interests and other fees due thereon, VMChereby creates, establishes and constitutes in favor of the secured creditors,which converted their principal loan into convertible notes, pari passu and insuch proportion to the amount of convertible notes they are respectivelyholding, a first mortgage over VMC’s fixed assets (excluding identified non-core assets for disposal and MTI properties), in addition to their firstmortgage under the MTI.

d) As security for the prompt and effective repayment and compliance by VMCof any or all obligations arising from VMC’s issuance of the convertiblenotes, including payment of interests and other fees due thereon, VMChereby creates, establishes and constitutes in favor of the unsecured creditors,which converted their principal loan into convertible notes, pari passu and in

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such proportion to the amount of convertible notes they are respectivelyholding, a second mortgage over VMC’s fixed assets (excluding identifiednon-core assets for disposal and MTI properties), in addition to their secondmortgage under the secondary MTI.

e) The mortgage lien created, established and constituted in favor of thesecured creditors as first mortgagee and unsecured creditors as secondmortgagee shall cover only those VMC fixed assets that are not subject ofany encumbrances or liens in favor of any party. It is hereby understood bythe parties that the mortgage lien created shall not in any way novate anyprovisions, terms and conditions of any existing mortgage nor prejudice ordiminish the rights, benefits and privileges of any existing mortgagees.

ii. Convertibility Feature:

The convertible notes shall be converted at the option of the holders thereof intocommon shares of the Parent Company at the ratio of one (1) convertible note toone (1) common share of the Parent Company, subject to the following schedule:

a) Maximum of 20% of the original issue amount of the convertible notes maybe converted within a period beginning on the 31st day after the end of the3rd year from issue date and shall expire 60 days thereafter (the “Firstconversion period”);

b) Maximum of 20% of the original issue amount of the convertible notes maybe converted within a period beginning on the 31st day after the end of the 4thyear from issue date and shall expire 60 days thereafter (the “Secondconversion period”);

c) Maximum of 20% of the original issue amount of the convertible notes maybe converted within a period beginning on the 31st day after the end of the 5thyear from issue date and shall expire 60 days thereafter (the “Thirdconversion period”);

d) Maximum of 20% of the original issue amount of the convertible notes maybe converted within a period beginning on the 31st day after the end of the 6thyear from issue date and shall expire 60 days thereafter (the “Fourthconversion period”);

e) Any or all outstanding unconverted convertible notes which were notcovered during the First, Second, Third and Fourth conversion periods maybe converted within a period beginning on the 31st day after the end of the 7thyear from issue date and shall expire 60 days thereafter (the “Fifthconversion period”);

f) After the Fifth conversion period, a maximum of 13% of the outstandingunconverted convertible notes may be converted per year from the 8th yearto the 14th year. The convertible notes may be converted within a periodbeginning on the 31st day after the end of each succeeding year from theFifth conversion period and shall expire 60 days thereafter. The term“Outstanding Unconverted Convertible Notes” is defined as the principalamount of the Convertible Notes outstanding as of 92nd day after the end ofthe 7th year; and,

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g) Any or all convertible notes which were not converted during the previousconversion periods may be converted within a period beginning on the 60thday before the end of the 15th year from issue date and shall expire 30 daysthereafter (the “Final conversion period”).

The aggregate amount of convertible notes that may be converted intocommon shares of the Parent Company shall not exceed 20% of the originalissue amount of the convertible notes for each year covering the conversionbeginning on the third year to the sixth year from the issue date of theconvertible notes. For the period beginning the eight year to the fourteenth year,the annual aggregate amount of convertible notes that may be converted intocommon shares of the Parent Company shall not exceed 13% of the outstandingunconverted notes.

As stated in the convertible note, the issuer, shall have the option to redeem theconvertible note by paying the convertible note holder in cash an amountequivalent to the subscription price, plus all accrued interest beginning at the endof the third (3rd) year from the issue date and ending on the last day of thefifteen (15th) year from issue date (the “Final Redemption Date”). The issuermay exercise its option to redeem the convertible note at any time prior tofinal redemption date by sending written notice thereof to the convertible noteholder, which notice, when so sent, shall be deemed final and irrevocable.

The above provisions were religiously complied by VM C on theFebruary 28, 2014 and April 4, 2014 redemption of convertible notes.

Also, under the DRA, the buyer of the convertible note from the originalholder shall convert the notes into common shares of the Parent Company inaccordance with the schedule of the convertibility feature of Section 16 (h) ofthe DRA. Section 16 (g) of the DRA further provides that interest is payableonly at the final redemption date and in respect only to those convertiblenote which have not been actually converted to common shares of the ParentCompany.

iii. Conversions to common shares

Certain convertible notes and the related accrued interest payable with the totalamount of P=735.09 million (principal amount is P=404.67 million), P=1.23 billion(principal amount is P=677.53 million) and P=338.90 million (principal amount isP=203.09 million) as at August 31, 2015, 2014 and 2013, respectively, wererecognized as equity as they are considered mandatorily converted in accordancewith provision of Section 16 (k) of the DRA which requires that alltransferred/sold convertible notes are to be converted to common shares inaccordance with the schedule of the convertibility feature of Section 16 (h) of theDRA. The convertible notes and the related accrued interest payable arepresented in the parent company statement of financial position as “Convertiblenotes awaiting conversion” and “Interest on convertible notes awaitingconversion” account, respectively.

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Conversions to common shares of certain convertible notes amounting toP=272.86 million in 2015, P=70.05 million in 2014 and P=272.86 million in 2013(see Note 16b) were made in accordance with the schedule of theconvertibility feature of Section 16 (h) of the DRA. The conversions resulted tothe recognition of “Additional paid-in capital” for the related accrued interestpayable.

These convertible notes and related accrued interest payable are no longerrecognized as financial liability as the Parent Company has ceased to have apresent obligation as the DRA provides for mandatory conversion upontransfer/sale of convertible notes. These will be converted to common shares assoon as the schedule of the convertibility feature of Section 16 (h) of the DRApermits the conversion.

Prior to classifying it to equity, the outstanding balance of the convertible notesis carried at present value using effective interest of 5.397%. Total financecosts incurred on convertible notes amounted to P=230.50 million in 2014.

3. Restructuring of the remaining balance of the loans (herein referred to as“Restructured loans”).

The Parent Company fully paid the outstanding restructured loans on May 31, 2013.

On April 29, 2002, the unsecured and secured creditors restructured the remainingbalance of their loans (after the debt-to-equity conversion and the debt conversion toconvertible notes), with annual interest of 10% for Philippine peso- denominated loansand 6% for the U.S. dollar-denominated loans payable quarterly in arrears. Therestructuring provides for a term of payment of 15 years from September 1, 2003, therestructuring date, with a 3-year grace period from the restructuring date.

Details of finance cost as follow:

2015 2014 2013Interest on convertible notes P=– P=230,504 P=186,136Interest on bank loans – – 109,419

P=– P=230,504 P=295,555

4. Secured creditors and/or unsecured creditors who are actually and physicallyholding legitimate and valid VMC sugar quedans as a form of security as ofrestructuring date shall be considered as other secured creditors to the extent of thevalid sugar quedans they are physically and legitimately holding.

The outstanding principal loans, including interest, held by these creditors holdingsugar quedans as collateral shall have the same terms and conditions as that of therestructured loans of the unsecured creditors under the DRA, including arestructuring period of 15 years. As at August 31, 2015 and 2014, outstanding loanbalance amounted to nil.

5. Restructuring of the RSDO Claims, arising from RSDO purportedly issued by VMCwhich was used by NONEMARCO, Inc. to obtain loans for the latter’s own useand pending litigation before the SEC, under the same terms and conditions asthat of the unsecured creditors once VMC is found liable by final judgment.

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6. Restructuring of the trade liabilities as follows: 25% during the first year ofrehabilitation, 37.5% during the second year of rehabilitation, and 37.5% during thethird year of rehabilitation.

The DRA became effective on September 1, 2003 (also known as the restructuring date)upon the occurrence of the following conditions as per Section 36 of the DRA, amongothers:

1. Conversion of P=1.1 billion loans into equity;2. Conversion of P=2.4 billion loans into convertible notes;3. Generation of the required minimum cash capital infusion of P=300 million;4. Election of a new Board of Directors; and5. Receipt of certain documents by the creditors as provided for in the DRA

(i.e., promissory notes, etc.).

b. Cash Infusion by a Strategic Investor

As part of the provision of the rehabilitation program, the Parent Company obtained aP=300 million loan in 2003 from a strategic investor, Tanduay Holdings, Inc. This wasfully paid in 2008 in accordance with the terms of the loan.

c. Compliance with the DRA

As at August 31, 2015 and 2014, VMC is in compliance with the provisions of the DRA.No further updates or revisions were made on the ORP, ARP and DRA as of reportingdate.

17. Capital Management

The Parent Company manages its capital to ensure that the Parent Company will be able tocontinue as a going concern while maximizing the return on the investments ofstockholders. The Parent Company is governed by its ARP as submitted and approved bySEC. The details of these plans or programs are disclosed in Note 2.

The capital structure of the Parent Company consists of equity attributable to thestockholders comprising of the capital stock and retained earnings while debt is defined aslong -term debts as disclosed in Note 16.

a. Debt to Total Asset Ratio

The debt to total assets ratio of the P a r e nt Company as at Au gu s t 3 1, 2 0 1 5 a n d2014, which has been within the Parent Company’s acceptable range as set by the BOD,is calculated as follows:

2015 2014(In Thousands Except Ratio Information)

Debt P=– P=–Total assets 7,938,963 6,977,360

0:1 0:1

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The amount of debt being considered in the above ratio pertains only to long-term debtscovered by DRA.

b. Capital Stock

Details of the capital stock of the Parent Company follow:

2015 2014 2013Authorized: Common shares - P=1 par value 2015 - 2,640,392,882 shares

2014 and 2013 - 2,563,036 shares P=2,640,393 P=2,563,036 P=2,563,036

Balance at beginning of the year: 2015 - 2,367,534,914 shares P=2,367,535 2014 - 2,297,484,948 shares P=2,297,485 2013 - 2,024,626,981 shares P=2,024,627 Conversion of convertible notes: January 2015 - 77,357,174 shares 77,357 October 2014 - 195,500,794 shares 195,501 December 2013 - 70,049,966 shares 70,050 December 2012 - 272,857,966 shares 272,858Issued shares 2,640,393 2,367,535 2,297,485Treasury shares (11) (11) (11)

P=2,640,382 P=2,367,524 P=2,297,474

Except for the conversion of certain convertible notes to common shares as disclosedabove, there was no other movement on capital stock for the years ended August 31, 2015,2014 and 2013. The conversion of certain convertible notes to common stock is providedfor in the DRA.

c. Convertible notes awaiting for conversion and interest on convertible notes awaitingconversion


Convertible notes awaiting conversion (Note 16) P=404,668 P=677,526Interest on convertible notes awaiting conversion

(Note 16) 330,420 550,906P=735,088 P=1,228,432

“Convertible notes awaiting conversion” amounting to P=404.67 million and P=677.53 millionas at August 31, 2015 and 2014, respectively pertain to the principal amount of theConvertible Note awaiting for conversion at a ratio of one (1) Convertible Note to One (1)common share of VMC. Related interest on the “Convertible notes awaiting for conversion”amounted to P=330.42 million and P=550.91 million as at August 31, 2015 and 2014,respectively pertain to the 8% annual interest transferred to the secondary note holders fromthe original note holders.

The contracting party for the “Convertible notes awaiting for conversion” are the secondaryholders of the Convertible notes who are also the buyers from the original note holders orother secondary holders. The buyer of the Convertible Note shall then convert the ConvertibleNotes into common shares of VMC, subject to the conversion schedule provided for in theconvertibility feature stated in Section 16 (h) of the DRA. Convertible Notes, including

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accumulated interest is classified under Equity incompliance with the provisions of the DRAthat Convertible Note of secondary holders are convertible to equity. To support suchintention, interest is computed at transfer date between the primary holders to the secondaryholders and become as well part of conversion to equity. Further to the intent to convert theConvertible Notes from liability to equity, such Convertible Notes is cancelled.

During the current fiscal year, 195,500,794 shares were issued out of the Corporation’sunissued capital stock in October 2014 and 77,357,174 shares were issued in January 2015 outand in support of an increase in VMC’s authorized capital stock from 2,563,035,708 to2,640,392,882 as approved by SEC on December 14, 2014.

On September 24, 2015, to comply with the provisions of the DRA, BOD approved theissuance of 272,857,968 shares in compliance with the mandatory conversion into equity ofthe convertible notes amounting to 272,857,968. This will be issued out of and in support ofan increase in VMC’s authorized capital stock from 2,640,392,882 to 2,913,250,850. Theapplication for the increase in VMC’s authorized capital stock was filed with the SEC onNovember 3, 2015.

d. Recapitalization and Quasi-reorganization

The SEC approved the following recapitalization programs:

1. The authorized capital stock was reduced initially from P=2.7 billion consisting of270 million shares with par value of P=10 per share to P=495,957,670 consisting of170,432,189 shares with par value of P=2.91 per share (see Note 2.1.i).

2. The reduction in par value likewise resulted in the reduction of the subscribedcapital stock from P=1,704,321,890 consisting of 170,432,189 shares with a par valueof P=10 per share to P=495,957,670 consisting of 170,432,189 shares with a par value ofP=2.91 per share. The par value of the capital stock was then further reduced fromP=2.91 to P=1, simultaneous thereto, the subscribed capital stock was increased fromP=170,432,189 consisting of 170,432,189 shares at par value of P=2.91 per share toP=495,957,670 consisting of 495,957,670 shares at par value of P=1 per share through astock split. The resulting reduction surplus of P=1,208,364,220 (P=1,704,321,890 lessP=495,957,670) was used to partially wipe out the deficit of the Parent Company as atAugust 31, 2002.

3. SEC issued a certificate of filing of certificate of increase in capital stock datedOctober 2, 2002 approving the Parent Company’s increase in the authorizedcapital stock from P=495,957,670 consisting of 495,957,670 common shares at par valueof P=1 per share to P=2,563,035,708 consisting of 2,563,035,708 shares of commonstock at par value of P=1 per share. The increase in the authorized capital stockwas a partial implementation by the Parent Company of the ARP’s provision on theincrease in authorized capital stock as approved by the SEC on November 29, 2000(see Note 2.2.i). However, the approval by the SEC on the increase in authorizedcapital stock was subject to condition that the Parent Company shall submit to theSEC all duly executed deeds of assignment evidencing the creditors’ assignment of aportion of their unpaid loans as payment for the subscription of the increase in theParent Company’s authorized capital stock. On June 17, 2009, which was within theextended period requested for submission of all the duly executed deeds of assignment,the Parent Company submitted the required documents to the SEC.

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In an order dated March 26, 2009, the SEC’s Company Registration and MonitoringDepartment revoked the Parent Company’s certificate of increase in capital stockdated October 2, 2002 due to alleged non-compliance with the conditionsprovided in the grant of the same. On December 20, 2012, the SEC granted theParent Company’s petition for lifting the order of revocation.

e. Partial Wipe-out of Deficit

The Second Amendment to the Rehabilitation Plan dated July 22, 1999 provided for thereduction of the capital stock and revaluation as of actual implementation which shall beused to reduce the deficit of the Parent Company at the time of the implementation of thequasi-reorganization. The Second Amendment of the Rehabilitation Plan was approvedby the SEC in its order dated August 17, 1999 (see Note 2).

For purpose of dividend declaration, any retained earnings of the Parent Company shallbe restricted to the extent of deficit wiped out by the revaluation increment and reductionof the subscribed capital stock.

However, in an SEC Order dated August 17, 1999, the SEC grants the Company’s prayerfor exemption from the application of paragraph 7 of SEC’s Guidelines for QuasiReorganization which requires that for purposes of dividend declaration, the retainedearnings of the company shall be restricted to the extent of the deficit wiped out and notrecovered by accumulated depreciation or appraisal increment by the appraisal surplus.

f. Conversion of Debt into Equity

As discussed in Note 16, the unsecured creditors converted proportionatelyP=1.1 billion of their loans into common stock of the Parent Company at a ratio of P=1 ofdebt to P=1 of common stock. The said conversion resulted in a change in managementcontrol of the Parent Company effective October 9, 2002, whereby the creditor controls69% of the ownership of the Parent Company while the existing stockholders prior tothe conversion was reduced to 31%. Since December of 2010, movement in commonstock pertains to the conversion of convertible notes to common stock amounting toP=701.54 million (Note 17b).

g. Treasury Stock

The Parent Company had an Employees Stock Ownership Plan (ESOP) which wasadministered by a Board of Administrators appointed by the former Board of Directors ofthe Parent Company. The ESOP allocated approximately 18 million shares from theParent Company’s authorized and unissued shares of capital stock. This ESOP gavepermanent and regular employees the right to subscribe to a minimum of 100 shares andto a maximum of 5,000 shares at a discounted prevailing market value price. SinceAugust 19, 1998, the implementation of the ESOP has been permanently suspended.

The treasury shares as at August 31, 2015 and 2014 represented the ESOP shareswithdrawn, decrease in treasury shares due to recapitalization, and investments of theconsolidated subsidiaries in the Parent Company.

The Parent Company’s overall capital management strategy remains unchanged from 2010.The Parent Company is not subject to externally-imposed capital requirements.

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18. Earnings Per Share

The following table presents information necessary to calculate EPS on net income of the ParentCompany:

2015 2014 2013(In Thousands, Except per Share Data)

Net income P=1,091,990 P=889,283 P=708,673Add profit impact of assumed

conversion of convertible notes – 12,095 130,176P=1,091,990 P=901,378 P=838,849

Weighted average number ofcommon shares 2,575,566 2,344,174 2,206,521

Dilutive shares arising fromconvertible notes – – 1,504,328

Dilutive shares arising fromconvertible notes awaitingconversion 404,668 677,526 203,093

Adjusted weighted average numberof common shares for dilutedEPS 2,980,234 3,021,700 3,913,942

Basic EPS P=0.42 P=0.38 P=0.32Diluted EPS P=0.37 P=0.30 P=0.21

Basic EPS is calculated by dividing net income by the weighted average number of sharesissued and outstanding, wherein conversion to common shares of certain convertible notesamounting to P=272.86 million in 2015, P=70.05 million in 2014 and P=272.86 million in 2013was recognized on the date of issuance.

Convertible notes awaiting conversion amounting to P=404.67 million, P=677.53 million andP=203.09 million in 2015, 2014 and 2013 respectively and Convertibles notes amounting toP=1,504.33 million in 2013 are considered as dilutive potential common shares in computingthe adjusted weighted average number of common shares for diluted EPS.

19. Operating Segment Information

Business segment information is required on the basis that is used internally for evaluatingsegment performance and deciding how to allocate resources in operating segment.Accordingly, the segment information is reported based on the nature of goods and servicesthe Parent Company is providing.

The Parent Company has two reportable segments: sugar milling and distillery operations.Segment performance is evaluated based on operating profit or loss. A detailed description ofeach segment is set below.

Sugar MillingRevenues from sugar milling consist of the following:a. sale of raw sugar and molasses (mill share)b. tolling fees

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For its raw sugar and molasses operations, the Parent Company operates a raw sugar mill witha daily capacity of 15,000 metric tons. Cane supply is sourced from both district and non-district planters who have milling contracts with VMC. The production sharing agreement is69.5% for planters and 30.5% for VMC.

The Parent Company also operates a refinery plant with a daily capacity of 25,000 Lkg.(1 Lkg = 50 kilograms). To ensure maximum utilization of the refinery, VMC alsoprovides toll refinery services to traders and planters for their raw sugar milled by other sugarcentrals.

Distillery OperationsThe Parent Company’s alcohol distillery division, which resumed operations in November2011, started commercial operations in March 2013.

For its operations, the division operates an alcohol production with an actual dailycapacity of 25,000 liters and with molasses as the primary raw material. Molasses issourced from sugar operations which produces it as a by-product.

Joint revenues and expenses are allocated to the various business segments. All othersegment revenues and expenses are directly attributable to the segments.

Segment Assets and LiabilitiesSegment assets include all operating assets used by a segment and consist principally ofoperating cash, receivables, inventories, prepaid expenses, and property, plant and equipment,net of related allowance and depreciation. The carrying amount of certain assets used jointlyby the various segments is allocated to the segments on a reasonable basis. Segmentliabilities include all operating liabilities and consist principally of trade payables, accruals,value added tax and other taxes, and customers’ deposits. Segment assets and liabilities donot include deferred income taxes.

The following tables regarding operating segments present assets and liabilities as atAugust 31, 2015, 2014 and 2013 and revenue and income information for each of the threeyears in the period ended August 31, 2015 (in millions):

2015

Sugar MillingDistillery

Operations TotalRevenueExternal sales P=4,607 P=342 P=4,949

ResultSegment result P=1,767 P=131 P=1,898Unallocated corporate expense – – (385)Operating profit 1,767 131 1,513Interest income 24 – 24Income tax expense (464) – (464)Other income 19 – 19

P=1,346 P=131 P=1,092

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2014



ResultSegment result P=1,579 P=54 P=1,633Unallocated corporate expense – – (514)Operating profit 1,579 54 1,119Interest expense (679) – (679)Interest income 10 – 10Rental income 13 – 13Income tax expense (142) – (142)Other income 568 – 568

P=1,349 P=54 P=889

2013



ResultSegment result P=1,915 P=20 P=1,935Unallocated corporate expense – – (894)Operating profit 1,915 20 1,041Interest expense (862) – (862)Interest income 37 – 37Rental income 15 – 15Foreign exchange gains - net 8 – 8Income tax expense (325) – (325)Other income 679 – 679

P=1,467 P=20 P=593

Segment Assets Segment Liabilities2015 2014 2013 2015 2014 2013

Sugar milling P=7,391 P=6,678 P=6,786 P=2,188 P=2,377 P=4,222Distillery operations 548 299 90 162 106 56

P=7,939 P=6,977 P=6,876 P=2,350 P=2,483 P=4,278

20. Revenue

Revenue from the sale of goods consists of:

2015 2014 2013Raw sugar sales P=2,937,520 P=3,157,293 P=2,746,646Alcohol 342,432 212,058 57,149Molasses 258,667 185,025 205,834Refined sugar 140,959 – –

P=3,679,578 P=3,554,376 P=3,009,629

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Revenue from rendering of services is attributable to tolling revenue of the Parent Company in2015, 2014 and 2013 amounting to P=1.27 billion, P=1.40 billion and P=1.37 billion, respectively.

21. Cost of Goods Sold and Services


2015 2014 2013Cost of goods sold P=2,119,895 P=2,089,378 P=1,934,350Cost of services 847,521 805,535 832,916

P=2,967,416 P=2,894,913 P=2,767,266

Cost of goods sold consists of the following:

2015 2014 2013Cost of hauling P=942,511 P=808,259 P=913,179Repairs and maintenance 411,127 360,093 460,726Materials and supplies 225,194 205,044 104,592Depreciation 209,502 189,588 183,896Professional fees and contracted

services 106,755 156,792 207,120Direct labor 92,866 49,561 3,593Fuel 67,353 62,260 43,230Raw sugar purchased 56,366 330 2,233Light and water 44,204 28,653 4,205Input tax allocable to exempt sales 40,983 40,760 30,254Taxes and licenses 31,096 39,196 39,879Write-down (recovery) of inventory

to NRV 6,484 (20,529) 20,529Insurance 3,571 3,653 2,626Rental 1,950 5,528 1,691Others 9,381 9,764 3,030Total cost of goods manufactured 2,249,343 1,938,952 2,020,783Inventories, beginning of year 191,811 342,237 255,804Inventories, end of year (321,259) (191,811) (342,237)

P=2,119,895 P=2,089,378 P=1,934,350

Cost of hauling pertains to cane trucking, hauling allowances and other incentives toencourage planters to mill with the Parent Company.

Cost of services consists of the following:

2015 2014 2013Repairs and maintenance P=260,362 P=194,727 P=198,379Materials and supplies 206,615 188,123 204,235Fuel 109,800 120,478 129,983Direct labor 60,788 29,234 3,289Depreciation 58,123 50,928 73,399Professional fees and contracted

services 51,515 75,105 105,576Input tax allocable to exempt sales 40,983 40,760 30,254

(Forward)

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2015 2014 2013Light and water P=30,009 P=42,259 P=59,259Taxes and licenses 6,975 9,474 10,429Insurance 1,209 1,604 2,465Rental 311 1,830 688Others 5,135 6,976 2,627Total cost of services rendered 831,825 761,498 820,583Inventories, beginning of year 15,696 59,733 72,066Inventories, end of year – (15,696) (59,733)

P=847,521 P=805,535 P=832,916

22. Other Income - net


2015 2014 2013Other income P=171,246 P=138,731 P=845,217Other expense (27,953) (11,284) (7,613)

P=143,293 P=127,447 P=837,604


2015 2014 2013Charges to traders P=101,567 P=114,838 P=82,234Interest income 24,359 10,300 36,896Gain on remeasurement of liability 22,858 − −Rental income 12,671 13,256 14,956Foreign exchange gain-net 6,071 – 7,874Gain on sale of property, plant and

equipment 33 337 268Gain on extinguishment of liability – – 279,176Curtailment gain – – 19,731Fair value gain on investment

property – – 404,082Others 3,687 – –

P=171,246 P=138,731 P=845,217


2015 2014 2013Loss on revaluation of investment

properties P=27,631 P=– P=–Others 322 11,284 7,613

P=27,953 P=11,284 P=7,613

Others consist mainly of g uest accommodation expenses and various individuallyinsignificant expenses. Moreover, “others” in 2014 includes casualty loss amounting toP=0.56 million due to Typhoon Yolanda which is already netted by the claim from the insurer(see Note 8).

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23. Operating Expenses

This account consists of the following:

Selling Expenses

2015 2014 2013Freight and handling P=78,881 P=83,962 P=109,061Taxes and licenses 18,908 13,065 13,125Rental 11,605 12,639 14,491Materials and supplies 8,970 2,536 4,165Depreciation 6,996 6,801 2,754Salaries and employee benefits 6,647 3,705 1,369Repairs and maintenance 2,544 2,685 4,016Others 7,500 7,783 7,933

P=142,051 P=133,176 P=156,914

Others consist mainly of the Parent Company’s insurance expenses, travel and transportationexpenses.

General and Administrative Expenses

2015 2014 2013Professional fees and contracted

services P=126,594 P=131,696 P=109,704Salaries and employee benefits 59,980 28,521 14,904Repairs and maintenance 53,123 5,016 4,422Travel and transportation 40,818 28,980 22,325Supplies 25,986 2,673 2,040Taxes and licenses 17,353 16,276 15,052Representation and entertainment 16,509 7,150 6,726Depreciation 16,158 8,110 9,107Retirement benefit 6,285 3,653 6,229Impairment losses on:

Materials and supplies 5,410 35 1,664Property, plant and equipment – – 136,023

Communication 3,196 3,383 2,560Insurance 1,590 2,846 3,620Rental 954 356 713Retrenchment cost – 10,100 –Others 11,595 7,468 8,747

P=385,551 P=256,263 P=343,836

24. Income Taxes

The breakdown of income tax expense (benefit) follows:

2015 2014 2013Recognized in profit or lossCurrent P=539,664 P=305,162 P=407,638Deferred (75,243) (163,414) (33,272)

P=464,421 P=141,748 P=374,366

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Deferred tax expense (benefit) recognized in other comprehensive income amounted to(P=.04) million, (P=.08) million and P=59.32 million in 2015, 2014 and 2013, respectively.

The reconciliation of income tax expense computed at the applicable statutory rates to the taxexpense is as follows:

2015 2014 2013Income before tax P=1,556,528 P=1,031,031 P=1,083,040

Tax expense at 30% P=466,958 P=309,309 P=324,912Effect of non-deductible and non-taxable

items:Realization of previously unrecognized

deferred tax – (172,122) –Non-deductible interest and other expense – – 65,861Interest income subject to final tax (7,308) (3,090) (11,069)Other non-deductible expenses 4,771 7,651 (5,338)

P=464,421 P=141,748 P=374,366

The composition of “Deferred tax liabilities - net” account as reported in the separatestatements of financial position follows:

2015 2014 2013(In Thousands)

Deferred tax liabilities:Net appraisal increase on property, plant

and equipment P=506,579 P=514,965 P=523,283Fair value gain on investment properties 222,457 230,746 230,746Unrealized foreign exchange gain 640 – 3

729,676 745,711 754,032Deferred tax assets:

Provisions 425,663 413,270 252,582Customers’ deposits 43,468 – –Allowance for impairment losses 14,030 12,407 18,566Others 4,953 3,166 2,680

488,114 428,843 273,828P=241,562 P=316,868 P=480,204

The Parent Company expects that it will have sufficient taxable profits for which it can usethe subsequent benefits of the deferred tax assets related to the provisions, retirement benefitsobligation and allowances for impairment losses on receivables, allowance to reducematerials and supplies to NRV and impairment losses on investments, which are expected toreverse in the foreseeable future.

Previously, the Company did not recognize deferred tax on accrued interest on convertiblenotes as it as expected before that the convertible notes and related accrued interest will beconverted to equity. In 2014, following redemption and payment of the convertible notes andthe related accrued interest, the Company realized the previously unrecognized deferred taxon accrued interest.

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25. Personnel Costs and Expenses

The following are the details of the personnel costs and expenses and the distribution:

2015 2014 2013Salaries and employee benefits

Cost of goods manufactured P=92,866 P=49,561 P=3,593Cost of rendering services 60,788 29,234 3,289Selling expenses 6,647 3,705 1,369General and administrative

expenses 59,980 28,521 14,904Retirement benefits

General and administrativeexpenses 6,285 3,653 6,229

P=226,566 P=114,674 P=29,384

26. Retirement Plan

The Parent Company has an unfunded, non-contributory defined benefit plan covering all of itspermanent employees. Contributions and costs are determined in accordance with the actuarialstudies made for the plan. Annual cost is determined using the projected unit credit method. TheParent Company’s latest actuarial valuation date is August 31, 2015. Valuations are obtained on aperiodic basis.

The pension benefit under the Miguel J. Ossorio Pension Foundation, Inc. (MJO Pension Plan)was based on the basic monthly salary plus additional components which comprised theemployee-member’s total gross earnings for purposes of benefit computation. Pension benefits arepaid monthly over the lifetime of the Pensioner.

For the active employees, the Parent Company does not have an established retirement plan andonly conforms to the minimum regulatory benefit under the Retirement Pay Law (Republic Act.No. 7641) which is of the defined benefit type and provides a retirement benefit equal to 22.5 dayspay for every year of credited services. The regulatory benefit is paid in a lump sum uponretirement. The benefits are 75.30% of the monthly basic pay multiplies to the number of creditedyear of service.

Republic Act 7641, The New Retirement Law, requires a provision for retirement pay to qualifiedprivate sector employees in the absence of any retirement plan in the entity, provided however thatthe employee’s retirement benefits under any collective bargaining and other agreements shall notbe less than those provided under the law. The law does not require minimum funding of the plan.

The Parent Company’s retirement plans meet the minimum retirement benefit specified by thelaw.

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The components of pension expense included under “Operating expenses” in the parent companystatement of comprehensive income are as follows (see Note 23):


Current service cost P=5,826 P=3,330Net interest expense 459 323Pension expense P=6,285 P=3,653

The remeasurement effects recognized in other comprehensive income (included in Equity under“Remeasurement loss on defined benefit plan”) in the parent company statement of financialposition follow:


Actuarial gain (loss) due to changes in financialassumptions (P=1,080) P=705

Actuarial gain (loss) due to changes in demographicassumptions 2,225 –

Actuarial gain (loss) due to experience (1,231) (445)Remeasurement gain (loss) in other comprehensive

income (P=86) P=260

The amounts recognized as pension liabilities in the parent company statement of financialposition for the pension plan are as follows:


Benefit obligations P=16,352 P=10,520Plan assets – –Liability recognized in the parent company

statement of financial position P=16,352 P=10,520

Changes in the present value of the defined benefit obligation are as follows:


Balance at beginning of year P=10,520 P=8,934Remeasurement loss (gain) arising from changes in

financial assumptions 1,080 (707)Remeasurement loss (gain) arising from changes in

demographic assumptions (2,225) –Remeasurement loss (gain) arising from experience 1,231 445Current service cost 5,826 3,331Interest expense 459 323Curtailment gain – –Benefits paid (539) (1,806)Balance at end of year P=16,352 P=10,520

The cost of defined benefit pension plans and the present value of the pension liabilities aredetermined using actuarial valuations. The actuarial valuation involves making variousassumptions.

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The principal assumptions used in determining pension benefits for the defined benefit plans areas shown below:

2015 2014Discount rate 4.30% 4.36%Salary increase rate 4% 3%

Below shows the sensitivity analysis determined based on reasonably possible changes of eachsignificant assumptions stated above, assuming all other assumptions were held constant:

December 31,2015

Effect on DBODiscount rate 1.0% increase P=15,260

1.0% decrease 17,587Rate of salary increase 1.0% increase 17,335

1.0% decrease 15,470

The average duration of the defined benefit liability at the end of the reporting period is 6.4 to 13.2years.

The following table shows the maturity profile of the Parent Company’s defined benefit obligationbased on undiscounted benefit payments:

NormalRetirement

Other thanNormal

Retirement TotalLess than 1 year P=519 P=– P=519More than 1 year to 5 years 25,626 – 25,626More than 5 years to 10 years 25,578 – 25,578More than 10 years to 15 years 27,746 – 27,746More than 15 years to 20 years 12,575 – 12,575More than 20 years 52,532 – 52,532

27. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, tocontrol the other party or exercise significant influence over the other party in makingfinancial and operating decisions. Parties are also considered to be related if they are subjectto common control or common significant influence which include affiliates.

2015Amount/Volume


Subsidiaries1. Canetown Development Corporation

Advances (a) P=1,477 P=54,769 Interest-bearing Unsecured Rent expense (b) (40) (200) Non-interest

bearingUnsecured,

no impairment

(Forward)

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2015Amount/Volume


2. Victorias Agricultural Land CorporationAdvances (a) P=117 P=215 Non-interest

bearingUnsecured,

no impairment Rent expense (b) (13) (13) Non-interest

bearingUnsecured,

no impairment3. Victorias Foods Corporation

Advances (a) 386 2,483 Non-interestbearing


4. Victorias Golf & Country ClubAdvances (a) 1,118 24,570 Non-interest

bearingUnsecured

5. Victorias Quality Packaging Company, Inc.Advances (a) − 12,193 Non-interest

bearingUnsecured,

no impairmentOther related parties1. Interbev Philippines, Inc.

Tolling revenue (e) 209,860 1,895 Non-interestbearing


Raw sugar sales (e) 452,789 −2. Philippine National Bank

Cash in bank (c) − 98,942 Current account,__% interest per

annum


Cash equivalents – peso (c) − 367,158 1.25% to 1.70%interest per

annum


Cash equivalents – dollar (c) − 135,580 1.25% to 1.50%interest per

annum


Available for sale financial assets (c) − 100,105 Money marketfund


Provision for RSQ claims (d) 22,053 252,309

3. Tanduay Distillers, Inc.Alcohol sales (e) 137,984 38,450 Non-interest

bearingUnsecured,

no impairmentRaw sugar sales (e) 7,2400 −

4. Absolut Distillers, Inc.Sale of molasses (e) 50,630 506 Non-interest

bearingUnsecured,

no impairment

2014Amount/Volume


Subsidiaries1. Canetown Development Corporation

Advances (a) P=1,457 P=53,194 Interest-bearing Unsecured Rent expense (b) (40) (160) Non-interest

bearingUnsecured,

no impairment

2. Victorias Agricultural Land CorporationAdvances (a) 91 106 Non-interest

bearingUnsecured,

no impairment

3. Victorias Foods CorporationAdvances (a) 2,474 2,092 Non-interest

bearingUnsecured,

no impairment

4. Victorias Golf & Country ClubAdvances (a) 1,103 24,878 Non-interest

bearingUnsecured

5. Victorias Quality Packaging Company, Inc.Advances (a) 48 13,993 Non-interest

bearingUnsecured,

no impairment

(Forward)

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2014Amount/Volume



Tolling revenue (e) P=64,567 P=64,567 Non-interestbearing


Raw sugar sales (e) −

2. Philippine National BankCash in bank (c) − 105,990 Current account,



Available for sale financial assets (c) − 216,320 Money market fund Unsecured, noimpairment

Provision for RSQ claims (d)

3. Tanduay Distillers, Inc.Alcohol sales (e) 137,984 38,450 Non-interest

bearingUnsecured,

no impairmentRaw sugar sales (e) 7,240 −

(a) In the normal course of business, the Parent Company has transactions with related partiesprincipally consisting of advance payments made on behalf of the subsidiaries. Theseadvances are unsecured and are due and demandable.

As of August 31, 2015 and 2014, the Parent Company has provided an allowance forimpairment amounting to P=59.19 million and P=59.15 million, respectively. This assessment isundertaken at each reporting date by examining the financial position of the related party andthe market in which the related party operates.

(b) The Parent Company entered into an operating lease agreement with VALCO for the leaseof 2.93 hectares of agricultural land. In consideration for the lease, the Parent Company shallpay P=5,000 per hectare per year.

(c) The Parent Company maintains current account, money market placements and UITFinvestments with PNB.

(d) The Parent Company has an outstanding legal case against PNB for the latter's RSQclaims. Provisions were recognized by the Parent Company based on the management'sjudgment that they cannot anticipate with certainty the progress and outcome of the legalproceedings (see Note 15).

(e) In the normal course of business, the Parent Company sold raw sugar, alcohol, molassesand tolling services to Interbev, Tanduay and Absolut.

The Parent Company is related to PNB, Interbev, Tanduay and Absolut who are subsidiariesunder the LT Group, Inc., which owns a 15.71% ownership interest in the Parent Company.

(f) Compensation of key management personnel by benefit type follows:

2015 2014 2013Short-term benefits P=32,142,062 P=29,696,442 P=31,795,194Post-employment benefits – 8,961,111 –

P=32,142,062 P=38,657,553 P=31,795,194

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28. Agreements and Commitments

The significant agreements at August 31, 2015 and 2014 were as follows:

a. Milling contracts with various planters provide for a 69.5% share to the planters(including related parties) and 30.5% share to the Parent Company of sugar andmolasses produced from sugar canes milled. The milling contracts are renewedannually.

b. As at August 31, 2015 and 2014, the Parent Company had in its custody sugar owned byseveral quedan holders and sugar traders. These sugar inventories are not reflected inthe statement of financial position since these are not assets of the Parent Company.The Parent Company is accountable to both quedan holders and sugar traders for the valueof these trusteed sugar or their sales proceeds.

c. In 1993, the Parent Company has entered into a deed of assignment and exchange ofshares of stock with VGCCI for the latter to issue shares of stock with a total par valueof P=224 thousand in exchange for the Parent Company’s land with an appraised value ofP=13.21 million the difference of P=12.98 million to be accounted for as additional paid-incapital of the Parent Company to VGCCI.

As provided for in the agreement, VGCCI is in possession of the above-mentioned landwithout any consideration yet until such time that the assignment of the aforementionedland is completed. As at August 31, 2015, the certificate of title has not yet beentransferred in the name of VGCCI since the land to be transferred is covered by theMTI of the Parent Company with various creditor banks as disclosed in Note 14. Hence,the transaction is on hold until the subject land is released as collateral.

d. The Parent Company leases for an office space for one of its subsidiaries and for certainmachineries and equipment from third parties for terms of one year, subject to yearlyrenewal.

e. Commitments on the purchase of PPE is a total of P=99.43 million and are covered by2 contracts as follows:

On July 29, 2015, The Parent Company executed a letter of intent for the supply of 1 x 200TPH Traveling Grate Boiler along with the balance of plant (BoP) equipment in favor ofThermax Limited. Total contract price amounts to $16.8 million and expected completion ison or before March 15, 2017. As provided for the said contract, a 10% down payment wasmade on August 12, 2015 for a peso equivalent of P=76.62 million.

A Sales Contract dated July 14, 2015 was signed between The Parent and Shin NipponMachinery Co., Ltd. for the purchase of generator set, inclusive of spare parts andsupervision for installation and commissioning with a total contract price of JPY 623million and delivery date of August 31, 2016. As provided for the said contract, a 10%down payment was made July 30, 2015 for a peso equivalent of P=22.81 million.

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29. Provisions and Contingencies

The Parent Company’s legal proceedings discussed below are not disclosed in detail so asnot to seriously prejudice the Parent Company’s position on the said disputes.

a. RSDOs and RSQs ClaimsNONEMARCO used RSDOs and RSQs allegedly issued by the Parent Company toavail of bank loans totaling to about P630 million. Several creditor banks filedcollection cases against NONEMARCO aggregating to P1.19 billion.

The Parent Company denied liability as these RSDOs and RSQs claims lacked anyfactual or legal basis and that the officers who issued them acted fraudulently.

The SEC, in its order dated March 26, 2013, ordered the dismissal and exclusion from therehabilitation proceedings the “Claim” (dated October 9, 1998) and “Amended Claim”(dated September 23, 1999) of a claimant-bank.

b. Labor, Civil and Other CasesThere are various lawsuits and claims such as labor cases, collection disputes andassessments filed by third parties against VMC which are either pending decision by theproper judicial bodies or under negotiation, the outcome of which are presentlyundeterminable. Relative to this, VMC is required to put up cash surety bonds(see Note 13).

c. Proceeding with Pollution Adjudication Board (PAB)On September 22, 2003, the Parent Company received an order issued by the PABdirecting the former to permanently seal the opening of the underground canalleading to Malihao river; provide protective lining in the pond immediately; and showcause within five (5) days from receipt of order why a cease and desist order should notbe imposed on the Parent Company by the DENR for non-compliance with both waterand air standards.

The Management of the Parent Company has placed the handling of pollutionproblems on its priority list and is now addressing it to comply with the applicableenvironmental compliance requirements.

The Parent Company submitted a number of pleadings to the PAB in order to avert a re-imposition of the Cease and Desist Order on which PAB issued temporary lifting order(TLO). The Parent Company was issued by PAB with a one-year TLO dated May 20,2014 and is effective until May 20, 2015. As of August 31, 2015, a Notice of Issuance toExtend the TLO was issued by PAB for another year effective August 5, 2015 and untilAugust 5, 2016.

In an Urgent Motion for the above extension, dated April 27, 2015, the Parent Companyacquired or constructed and installed certain air and water pollution control devices tocomply with the order of the Department of Environment and Natural Resources(DENR) accumulating to P=349.28 million, including the P=2.32 million and P=1.68 millioninstallation of polishing scrubbers for Boiler No. 3 and 1, respectively (see Note 11).

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The Parent Company’s management and legal counsels have made judgment that, while thelegal proceedings briefly discussed above are legally defensible, they cannot anticipate withcertainty the progress and the outcome of the legal proceedings, the appreciation of theavailable evidences by the relevant courts or tribunal involved and the evolution ofjurisprudence or similar cases that will be decided by the highest court, which will berelevant to pending cases. With due consideration of prior decision involving similar casesand for prudent financial reporting, the Parent Company recognized provisions (see Note 15).

The other information normally required to be disclosed under PAS 37 is not disclosed bymanagement so as not to seriously prejudice the Parent Company’s position on the saiddisputes.

30. Risk Management, Objectives and Policies

Regulatory RiskThe Parent Company is subject to laws and regulations in the Philippines in which it operates.

The Parent Company has established policies and procedures in compliance with local andother laws. Management performs regular reviews to identify compliance risks and to ensurethat the systems in place are adequate to manage those risks.

In 1992, the ASEAN economic ministers signed the ASEAN Free Trade Agreement(AFTA) on the Common Effective Preferential Tariffs (CEPT) for the ASEAN Free TradeArea. The AFTA committed the ASEAN member-states to set-up a free trade area in theregion, reducing most tariffs on trade within the region. Sugar is one of the productsaffected by the gradual tariff reduction as follows:

Year Rate2012 28%2013 18%2014 10%2015 5%

Relative to AFTA, on June 17, 2012, the Philippine government passed Executive OrderNo. 892 adopting the above-yearly gradual reduction of duty on imported sugar incompliance with the AFTA.

Fair Value HierarchyThe methods used by the Parent Company in estimating the fair value of the financialinstruments are:

Cash and cash equivalents, receivables - Carrying amount approximates their fair value.

Accounts and other payables - Carrying amounts approximate fair values due to the relativelyshort-term nature of these transactions.

Available-for-sale investments - carrying amount of AFS investments are determined basedon net asset value per unit.

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The Parent Company uses the following hierarchy for determining and disclosing the fairvalue of the financial instruments by valuation technique:Level 1: quoted (unadjusted prices) in active markets for identical assets and liabilities.Level 2: other techniques for which all inputs which have a significant effect on the

recorded fair value are observable, either directly and indirectly.Level 3: techniques which use inputs which have a significant effect on the recorded fair

value that are not based on observable market data

The fair value of AFS investments is based on the published net asset value per unit(NAVPU). NAVPU is computed as total assets of the fund less total liabilities over the totalunits outstanding as of the end of the reporting period. The funds are primarily invested inBangko Sentral ng Pilipinas special deposit accounts and time deposits with other banks. TheParent Company uses the level 2 valuation technique in determining fair value of its quotesAFS financial assets.

In August 31, 2015 and 2014, there was no transfer between Level 1, Level 2, and Level 3 offair value measurements.

Financial Risk ManagementThe Parent Company’s financial assets comprise of cash and cash equivalents, trade and othercurrent receivables, advances to related parties, AFS investments and cash surety bond. Thefinancial liabilities of the Parent Company, which arise directly from its operations, comprisetrade payables, advances from related parties, accrued expenses and other payables.The Parent Company has exposure to the following risks from its use of financial instruments:

· Credit Risk· Liquidity Risk· Market Risk

The BOD of the Parent Company has overall responsibility for the establishment andoversight of the Parent Company’s risk management framework. Moreover, market and creditrisk management is carried out by the Parent Company’s Treasury. The objective is tominimize potential adverse effects on its financial performance due to unpredictability offinancial markets.

Credit RiskCredit risk refers to the risk that a counterparty will default on its contractual obligationsresulting in financial loss to the Parent Company.

The Parent Company trades only with recognized and creditworthy third parties. It is theParent Company’s policy that all customers who wish to trade on credit terms are subject tocredit verification procedures. In addition, receivable balances are monitored on an ongoingbasis. The amounts presented in the parent company statement of financial position are net ofallowances for impairment losses on receivables, estimated by the Parent Company’smanagement based on prior experience and their assessment of the prevailing economicenvironment at any given time.

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As at August 31, 2015 and 2014, the aging profile of the Parent Company’s financial assets isas follows:


or impaired <30 days 31-60 days 61-90 days >90 days Impaired TotalCash and cash equivalents * P=1,689,293 P=– P=– P=– P=– P=– P=1,689,293Trade receivables:

Outside parties 61,453 – – – 507 – 61,960Related parties 24,099 – 38 15,127 1,081 – 40,345

Advances to:Planter association 1,260 – – – – – 1,260Related parties 603 187 202 137 33,901 59,190 94,220Officers and employees 175 3 15 1 7 – 201

Other receivables 3,887 104 94 39 120 84 4,328AFS financial assets 502,787 – – – – – 502,787Other noncurrent assets** 23,821 – – – – 8,393 32,214Total P=2,307,378 P=294 P=349 P=15,304 P=35,616 P=67,667 P=2,426,608

*Excluding cash on hand**Excluding land subject to voluntary offer to sell and advance to suppliers


or impaired <30 days 31-60 days 61-90 days >90 days Impaired TotalCash and cash equivalents * P=748,775 P=– P=– P=– P=– P=– P=748,775Trade receivables:

Outside parties – 19 16 – – – 35Related parties 86,232 – – – – – 86,232

Advances to:Planter association 13,105 – – – – – 13,105Related parties 35,084 – – – – 59,190 94,274Officers and employees 181 – – – – – 181

Other receivables 5,099 – – – – 84 5,183AFS financial assets 216,320 – – – – – 216,320Other noncurrent assets** 23,694 – – – – 8,393 32,087Total P=1,128,490 P=19 P=16 P=– P=– P=67,667 P=1,196,192

*Excluding cash on hand**Excluding land subject to voluntary offer to sell

At the reporting date, there were no significant concentrations of credit risk as the ParentCompany’s financial assets are actively monitored.

The credit quality of the Parent Company’s financial assets that are neither past due norimpaired is considered to be of good quality and expected to be collectible withoutincurring any credit losses.

Information on the P a r e n t Company’s advances to related parties and other currentreceivables and other noncurrent assets that are impaired as at August 31, 2015 andAugust 31, 2014 and the movement of the allowance used to record the impairment lossesare disclosed in Notes 6 and 13 to the parent company financial statements.

As at August 31, 2015 and 2014, the Parent Company’s maximum credit exposure is equal tothe carrying values of the following financial assets:


Cash and cash equivalents1 P=1,689,293 P=748,775AFS financial assets 502,787 216,320Trade and other current receivables - net2,3 67,665 18,420Advances to subsidiaries3 35,030 35,084Other non-current assets 23,821 23,694Total P=2,318,596 P=1,042,2931Excluding cash on hand2Excluding advances to suppliers and advances to related parties3Net of impairment loss

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Liquidity RiskLiquidity risk is the risk of not meeting obligations as they become due because of aninability to liquidate assets or obtain adequate funding.

The Parent Company monitors and maintains a level of cash deemed adequate by themanagement to finance the Parent Company’s operations and mitigate the effects offluctuations in cash flows.

The following tables summarize the maturity profile of the Parent Company’s financialliabilities as at August 31, 2015 and August 31, 2014 based on contractual undiscountedpayments:

August 31, 2015


Total1 yearFinancial AssetsLoans and receivables: Cash and cash equivalents P=1,695,115 P=– P=– P=1,695,115 Trade receivables: Outside parties 21,524 40,436 – 61,960 Related parties – 40,345 – 40,345 Advances to: Related parties1 35,030 – – 35,030 Planter association 1,260 – – 1,260 Officers and employees 201 – – 201

Other receivables1 4,244 – – 4,244AFS financial assets 502,787 – – 502,787Other noncurrent assets1 23,821 – – 23,821Total P=2,283,982 P=80,781 P=– P=2,364,763


Trade suppliers P=155,730 P=77,709 P=57,883 P=291,322Retention payable – 9,879 9,879Accrued expenses 22,703 – – 22,703Advances from related parties 31,464 – – 31,464

Other payables 17,649 – – 17,649Total P=227,546 P=87,588 P=57,883 P=373,0171Net of allowance for impairment loss

August 31, 2014


Total1 yearFinancial AssetsLoans and receivables: Cash and cash equivalents P=750,150 P=– P=– P=750,150 Trade receivables: Outside parties – 35 – 35 Related parties 86,232 – – 86,232 Advances to: Related parties1 35,084 – – 35,084 Planter association 13,105 13,105 Officers and employees 181 – – 181 Other receivables1 5,099 – – 5,099AFS financial assets 216,320 – – 216,320Other noncurrent assets1 23,694 – – 23,694Total P=1,129,865 P=35 P=– P=1,129,9001Net of allowance for impairment loss2Excluding customer deposits and statutory liabilities

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August 31, 2014


Total1 yearFinancial LiabilitiesOther financial liabilities: Trade suppliers P=224,640 P=531 P=799 P=225,970 Retention payable – – – – Checks payable to EWB 366,126 – – 366,126 Accrued expense 10,348 – – 10,348 Advances from related parties 189 – – 189Other payables 7,794 – – 7,794Total P=609,097 P=531 P=799 P=610,4271Net of allowance for impairment loss

Market RiskMarket risk is the risk that the fair value of financial instruments of the Parent Companyfrom fluctuation in market interest rates (interest rate risk), price with respect to sugar (pricerisk), foreign exchange rates (foreign currency risk) and equity price (equity price risk),whether such change in prices is caused by factors specific to the individual instruments or itsissuer, or factors affecting all instruments traded in the market.

a. Interest Rate Risk

Interest rate risk is the possibility that changes in interest rates will affect future cash flowsor the fair values of financial instruments. The Parent Company’s exposure to the riskchanges in market interest rates relates primarily to the Parent Company’s interest-bearingbank loans and interest-bearing short-term placements.

The Parent Company minimizes its spread exposure by ensuring that surplus cash isavailable to either offset debt or by matching maturity dates of assets and liabilities. Bythese management approaches, possible market rate fluctuations would have no significantimpact on the Parent Company’s net income.

The Parent Company, however, has no significant interest rate risk considering that theParent Company has no significant financial instruments that bear fixed and variableinterest rate as at August 31, 2015 and 2014.

b. Price Risk

The Parent Company is exposed to commodity price risk with respect to sugar produced.To manage this risk, the Parent Company monitors prices with the Sugar RegulatoryAdministration (SRA) to plan its transactions. As at August 31, 2015 and 2014,management assessed that the Parent Company’s exposures to commodity price risk wereinsignificant.

c. Foreign Currency Risk

The Parent Company’s currency risk occurs because of its US dollar (USD) bank deposits.The financial asset of the Parent Company that is foreign currency denominated is aportion of the Parent Company’s cash and cash equivalent.

Exposures to foreign exchange rates vary during the year depending on the volume offoreign currency-denominated transactions.

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The Parent Company’s foreign currency denominated monetary assets and liabilities as ofAugust 31, 2015 and 2014 are as follows:


Currency Rate Before TaxUSD 5% P=14,849USD -5% (14,849)


Currency Rate Before TaxUSD 5% P=4,988USD -5% (4,988)

d. Equity Price Risk

Quoted AFS financial assets pertain to investment in UITF (Fund). The Fund, which isstructured as a money market UITF, aims to generate liquidity and stable income byinvesting in a diversified portfolio of primarily short-term fixed income instruments.

The Parent Company measures the sensitivity of its investment securities based on theaverage historical fluctuation of the investment securities net asset value per unit(NAVPU). All other variables held constant, for every 100 basis points decrease(increase) in NAVPU, the fair value of the Parent Company’s investments, net incomeand equity will increase (decrease) by the following amounts:

August 312015 2014

PNB Prime Peso Money Market FundWeighted Average Duration (Years) 0.53 0.63Investment in UITF 520,559 1,362,813

Security Bank Peso Money Market FundWeighted Average Duration (Years) 0.03 0.06Investment in UITF 120,804 −

Fair Value of Financial Assets and LiabilitiesThe carrying values of cash and cash equivalents, trade and other current receivables andtrade and other current payables approximate their fair values due to the short-termmaturity of these instruments.

The carrying value of long-term debt approximates its fair value and is calculated bydiscounting the expected future cash outflows at prevailing effective interest rate. Thecarrying values of advances to and from an unconsolidated subsidiary and due tostockholder approximate their fair values because they represent the expected cash flowshould they be settled or realized at the reporting date.

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31. Prior Period Adjustments

The Parent Company's comparative financial statements as of and for the years ended August2014 and 2013 were restated to reflect the effects of the various adjustments and reclassifications.

Effects of the reclassification and adjustments are discussed below.

Statement of Financial Position

August 31,2014

September 1,2013

Increase (decrease) in:Cash and cash equivalents (P=216,218) P=−Available-for-sale investments 216,320 −Inventories (4,555) 20,363Property, plant and equipment 112,652 113,745Investment properties (113,745) (113,745)Accounts and other payables (242,792) −Income tax payable − 6,109Provisions 289,012 −Retirement liability − 1,739Deferred tax liabilities (13,866) (522)Retained earnings (265,807) (207,988)Other comprehensive income 228,350 227,133

Equity

August 31,2014

September 1,2013

As previously reported P=4,531,493 P=2,578,669Prior period adjustments:

Change in inventory costing (5,100) 20,362Reversal of accruals 242,792 −Provisions (289,012) −Transfer from investment property to PPE (228,350) (228,350)Tax impact of prior period adjustments 13,863Effect on retained earnings (265,807) (207,988)Increase in revaluation increment in PPE 228,350 228,350Change in retirement benefit − (1,217)Net unrealized gain on available-for-sale financial assets 102 −

As restated P=4,494,138 P=2,597,814

Cash and cash equivalentsCertain investments with duration of more than 180 days from acquisition date were reclassified toAvailable-for-sale financial assets. The related unrealized gain for the AFS investments wasrecognized in equity.

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Property, plant and equipmentLand properties previously classified as investment properties were reclassified based on the useof the properties.

ProvisionsAdjustments to recognized provisions were based on reassessment made by the Parent Companyrelated to risk-adjusted cash flows and government bond rate (risk free rate) used in determiningprovisions.

Effect on earnings per shareBasic and diluted earnings per share for the year-ended August 31, 2014 will increase byP=0.02 and P=0.01 per share, respectively.

32. Notes to Parent Company Statement of Cash Flows

The noncash activities of the Parent Company pertain to transfers from investment propertiesto property and equipment which amounted to P=7.23 million in 2013; transfer from investmentproperties to other noncurrent assets in 2015, 2014 and 2013 amounted to P=262.33 million,P=0.46 million and P=25.81 million, respectively; conversion of convertible notes to capital stockamounted to P=272.86 million, P=70.05 million and P=272.86 million with interest on convertiblenotes transferred to additional paid in capital amounted to P=220.49 million, P=47.64 millionand P=182.49 million in 2015, 2014 and 2013, respectively.

33. Events After Reporting Date

The following are the events after reporting date:

a. Events related to redemption of the remaining convertible notes

EWB filed with the Court of Appeals on September 15, 2015 a petition for review appealingthe Decision promulgated on August 11, 2015 of the SEC en Banc (see Note 14).

On October 26, 2015, VMC received a Resolution from the Eighth Division of the HonorableCourt of Appeals dated October 8, 2015 directing VMC to submit its comment on the Petitionand on the prayer of EWBC for the issuance of a Writ of Preliminary Injunction among others.VMC accordingly responded on October 27, 2015 praying that that the Honorable Court ofAppeals (i) deny petitioner East West Banking Corporation’s Petition dated September 15,2015 and affirm the Decision of the Honorable SEC En Banc dated August 11, 2015, and (ii)deny petitioner East West Banking Corporation’s prayer for the issuance of a Writ ofPreliminary Prohibitory Injunction (see Note 14).

b. Events related to capitalization and compliance with DRA

c. Events related to capitalization and compliance with DRA

On September 24, 2015, to comply with the provisions of the DRA, BOD approved theissuance of 272,857,968 shares in compliance with the mandatory conversion into equity ofthe convertible notes amounting to P=272,857,968. T h i s w i l l be issued out of and insupport of an increase in VMC’s authorized capital stock from 2,640,392,882 to

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2,913,250,850. The application for the increase in VMC’s authorized capital stock wasfiled with the SEC on November 3, 2015.

Commitments on the purchase of PPE

On October 22, 2015, an Engineering, Manufacturing and Supply Contract was signedbetween the Parent and Thermax Limited for the delivery of boiler and related plantequipment for a total contract price of $16.8 Million and expected completion of on or beforeMarch 15, 2017.

34. Supplementary Tax Information under Revenue Regulations 15-2010

RR No. 15-2010 are promulgated to amend certain provisions of RR No. 21-2002 prescribing themanner of compliance with any documentary and/or procedural requirements in connection withthe preparation and submission of financial statements accompanying tax returns. In addition tothe disclosures mandated under PFRS, RR No. 15-2010 requires disclosures regarding informationon taxes, duties and license fees paid or accrued during the taxable year.

The Parent Company also reported and/or paid the following types of taxes for the year endedAugust 31, 2015:

Value Added Tax (VAT)Details of the Parent Company’s net sales/receipts, output VAT and input VAT accounts are asfollows:

a. Net sales/receipts and output VAT declared in the Parent Company’s VAT returns filed for2015

VAT ExemptNet Vatable

Sales/Receipts Output VATTaxable sales:

Sale of services P=– P=1,288,900,412 P=154,668,049Sale of goods 3,197,781,290 491,797,746 59,015,729

P=3,197,781,290 P=1,780,698,158 P=213,683,778

b. The rollforward of Input VAT for 2015 follow:

Balance at January 1 P=293,237Input VAT on purchase of goods and services including importation 183,705,923Total 183,999,160Less: Claims for tax credit/refund and other adjustments 179,203,074Balance at December 31 P=4,796,086

The Parent Company’s sales of services are based on actual collections received, hence, may notbe the same as amounts accrued in the profit or loss.

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Other Taxes and LicensesTaxes and licenses, local and national, include documentary stamp taxes, real estate taxes, licensesand permit fees included in operating expenses for 2015:

Real property taxes P=16,996,935Business taxes 13,248,546Licenses and registration fees 2,272,985Documentary and science stamps 1,774,767Liens 1,542,736Others 425,499

P=36,261,468

Withholding TaxesThe expanded withholding taxes and withholding taxes on compensation and benefits amountingto P=29,473,131 and P=29,127,425, respectively

Deficiency Tax AssessmentsA Preliminary Assessment Notice (PAN) was issued on September 21, 2015 to cover assessmentfor various tax deficiencies for fiscal year ending August 31, 2012 in the amount of P=4.2 billion,inclusive of surcharges and interest. A Reply to the Preliminary Assessment Notice, datedOctober 6, 2015 was submitted to BIR to document protest of the said assessment for grounds ofbeing bereft of legal and factual basis with prayer that after reinvestigation, the same is cancelledand withdrawn.

VMC 2015 Annual Report - Victorias Milling Company

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