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MISSION
“To offer time-conscious customers a full range of products and services that meet their ever-changing daily needs through quality, speed, selection, and value in a safe, friendly, and pleasant environment.”

VISION
“To be the recognized leader in providing time conscious customers with a full range of products and services that meet their ever-changing daily needs.”

STRATEGIC PLAN
Basically, further efficiency and effectiveness will be generated through continuous improvement of the corporation’s supply chain. To achieve the expansion plans and dominate the convenience store market, the company will be continuing its successful franchise program. The Corporation shall continue with setting up an evaluation procedure to measure compliance with the Manual of Corporate Governance. Furthermore, it will also provide workshops and seminars to operationalize the manual evaluation system and compliance review as part of the Company’s training program. 7-Eleven maintains corporate values such as, Customer Focused, Teamwork, Leadership Integrity, Personal Accountability, Reliability, and Results Oriented. In addition, the 5 7-Eleven fundamentals are Quality, Speed, Selection, Cleanliness and Value in Safe and Pleasant Environment. An oath is implemented to their employees, which states “I want to treat everybody honestly and promise to try my best to serve our customers in order to create a better future for the company, my family, and myself.” The Company will likewise continue to adopt the International Accounting Standards as they are approved as Philippine Accounting Standards.

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PSC invited two outstanding businessmen. while on his/her way home or to office or those people who are labeled as on-the-go. on December 13. to contribute capital and then became the first shareholders and directors of PSC. 1982. the first corporate office was located at the ninth floor of the Century Tower building in Salcedo Village. Accounting Manager Wilfredo Villanueva. To introduce an entirely new retailing concept to the Filipino consumers. busy employee who preferred a quick fix. and Store Operations Manager Teodoro Wenceslao. BF Homes. One month later. PSC acquired from Southland Corporation (now 7-Eleven Inc. Texas the license to operate 7-Eleven stores in the Philippines. Makati City. the company was able to identify their customers which came from the middle class: the salaried. The team left on February 15. Vicente T.Philippine Seven Corporation was registered with the Securities and Exchange Commission (SEC) in November 1982.) of Dallas. Ernesto B. Araneta and Mr. PSC sent five of its employees to various Southland installations in the US in order to apply Southland technology in all phases of managing a 7-Elevem convenience store. 4 . 1983 and consisted of: Executive Vice President Fransisco R. The company grew slowly despite the country’s economic condition. Jorge L. In fact. which triggered a steady deterioration of the economic and political situation in the country. Merchandising Manager Jose Blanch. The second store was located at President Ave. Paterno and Francisco R.. Pardo. Sibal. Through this opening of two 7-Eleven stores. They underwent a five-week in-depth training in their respective fields and immediately applied to practice upon their return to the Philippines. PSC decided to push through with the 7-Eleven projects. i. Sibal. Metro Manila on February 29. Paranaque. The first 7-Eleven convenience store was opened at the corner of Kamias road EDSA Quezon City. the company needed fresh capital to build its first two stores. Thus.e. General Manager Ramon de Jesus. Rufino Jr. On the other hand. Despite the assassination of Ninoy Aquino in 1983. operating a chain of 24-hrs convenience stores was the company’s main mission. The incorporators were Jose T. Mr.

5 . due to impossibility of securing bank loans. PSC then transferred the Philippine area license to operate 7-Eleven stores to its affiliate. which offered a substantial semi equity loan. Fortunately. Simultaneously. PSC sought the assistance of a friendly large Philippine organization. but remain based on the fundamental principle of the simple business concept to provide customers an ever changing selection of quality products and services at fair prices. PSC entered to an agreement with PSPC to operate stores in Metro Manila and suburbs. and some of its store properties in July 1988. safe and friendly environment. Philippine Seven Properties Corporation (PSPC). Thus. through speedy transactions in a clean.The company lost money during the years 1984 and 1985. 7-Eleven today is focused on redefining and enhancing convenience through strategic initiatives designed to take advantage of new technologies and merchandising processes. they were able to open the third store located at Pasay City in October 1985.

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Mr. Due to the long history of successful ventures in Taiwan as well as Mainland China. Mr. he also served as Minister of Industry.S. Kao was the director of sales of Tainan Spinning Company. He is the Founding Chairman of the Philippine Seven Corporation and currently sits in the Board of First Philippine Holding Corporation. It is one of the largest and perhaps the most respected company in Taiwan. Starbucks Coffee. 7-11 Convenience stores. Prior to establishing the President's Group. Vicente T. Store Sites Holding. France's Carrefour and Germany's Allianz. has formed very successful international joint ventures with the U. Chairman and President of the Philippine National Oil Company. Mr. Kao has been its only chairman and in recent years. Kao is considered a legendary businessman in the Pacific Rim and has held the position of Chairman of Taiwan's Industrial Manufacturer's Association in 1999. Pepsi Drinks. Cityland Development Corporation and State Land Investment Corporation. Deputy Executive Secretary for Energy. Chin-Yen Kao Honorary Chairman of the Board He founded the President Enterprises Group in 1968. Paterno Chairman of the Board and Directors Chairman & President. Inc. Minister of Public Works and Highways. PhilSeven Foundation. 7 . Mr. Chairman & Trustee. Inc. A former Senator of the Republic.Mr. Chairman of the Board of Investments.

Mr. He served as Vice President of Operations at Philippine Seven Corp. Paterno President & CEO Chairman & President. Jen Hsu Chung serves as the Managing Director and President of President Chain Store Corp. Inc. Chung serves as a Director of Philippine Seven Corp. and Director of Philippine Seven Corp. 8 . He has been in service of Philippine Seven Corporation for 8 years. Mr. Jose Victor P. Mr. Inc. He serves as Chairman of the Board of Convenience Distribution. Vice-Chairman & Trustee. PhilSeven Foundation. Inc. since January 1. Inc. Chung serves as the President of Ren-Hui Investment Corp. 2005 and serves as its Chief Executive Officer. Chung Jen-Hsu Director President President Chain Mr. Convenience Distribution. Mr. Paterno has been President of Philippine Seven Corp. Since June 10. 1987. He received MBA from Waseda University. Paterno serves as President of Convenience Distribution. Victor P. Mr.

Operations and Franchising leadership roles. he served in various International. With nearly 20 years of experience. He leads the international team and oversees international licensing and global expansion for 7-Eleven. Previously.Mr. He began his career as an Area Manager and later. Chris Tanco Senior Vice President International Chris Tanco is the Senior Vice President of International for 7Eleven. a Regional Vice President for Pizza Hut. 9 . Inc. Tanco was the Chief Franchise Officer at Yum! Brands. He holds a bachelor’s degree from Ateneo de Manila (Jesuit) University and a master’s degree in business from the University of Virginia Darden School of Business.

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“7-Eleven cares for our less fortunate Filipinos. it also practices Corporate Social Responsibility. they took part in ABS-CBN Foundation’s La Mesa Watershed Project. despite of being the leader in the convenient store industry. It means that. Thus. a voluntary humanitarian organization that serves as the government’s auxiliary arm in providing relief.200 hectares of open areas to ensure the sustainability of Metro Manila’s water source.”  7-Eleven believes that protecting the environment is one of the best ways to invest in the country’s future. Said program aims to reforest some 1. their business is not all about profits and making money. 11 . The company continuously provides various of programs. 7-Eleven is committed to being a friendly neighborhood convenience store. In fact. they consider community. such as.Philippine Seven Corporation. especially the Filipinos. outreach and services. And 7-Eleven takes pride in supporting their Coin Can Project which is seen in our store’s cash register counters. To site some are the “Computer Donation Project”. Their way of saying.  7-Eleven is in partnership with the Philippine National Red Cross (PNRC). health. and assistance extended to several charitable institutions. our participation in environmental welfare programs sponsored by local NGOs. not only to reach out to their brothers and sisters but also aiming to be one with the community in uplifting the lives of the Filipinos. and welfare to the most vulnerable people in need including victims of disaster and other emergencies. an essential part of their business.

Barangay Captain Severo Servillon gleefully them. During 7-Eleven’s celebration of the 204th Grand Store Opening Celebration. 7-Eleven donated monobloc chairs to the Barangay Satellite of Highway Hills in Mandaluyong City. accepted 12 .

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83 million from P8. Likewise. 2006 14 . variation of inventory and utilities to operations. All but one were converted into 7Eleven Outlets.9 million. facilitate Operating Expense Increase  Conversion through the year of 21 company- Operating Expense (employeerelated) Increase owned stores to service agreement (SA) stores. Total Assets Increase Revenue (Average sales per store) Decrease  Company loans caused Finance costs to balloon to P23.  Balance Sheet Account Effect Income Statement Account Effect The company acquired 35 Bingo Convenience Store Philippines. it opened nine franchised stores and 22 companyowned corporate stores last year.Events/Transactions 2005 Rapid Expansion. Cash Decrease Interest Expense Increase  More supplies. bring the total number of SA stores to37.

Negotiated rental reductions and increase in sublease rent income Other Income (Rent Income) Increase Expense (Rent Expense) Decrease Net increase in bank borrowings amounting to 45. Proliferation of retailers offering similar product such as prepaid cards and bills payment and lower denomination e-pins.The implementation of EVAT affected the purchasing power of end customers. promotional discounts and display allowances Increased number of franchise operated stores. Revenue (Sales) Decrease Revenue (Commission Income) Decrease Other Income (Marketing Income) Decrease Revenue (Franchise Revenue) Increase Higher occupancy rate and increase in number of rentable spaces. Various premiums of telecommunications increased the number of post paid subscribers. Fewer support granted by trade suppliers in terms of exclusivity agreement. The proceeds of the new loan Expense (Interest expense) Increase 15 .7 million php. Customer count dropped by 4% per store per month.

Loan pretermination Expense (Interest Expense) Decrease Other Income (Marketing Income) Increase Asset Property and Equipment Increase Revenue Increase 2008 The aggregate merchandise transfers through the distribution center subsidiary. Decline in occupancy rate brought about by unfavorable market condition Revenue (Commission Income) Other Income (Rent Income) Decrease Decrease Revenue Increase 16 . Inc. Convenience Distribution. 2007 Aggregate merchandise tranfers through the distribution center subsidiary. The company penalized suppliers when valuable shelf space was vacant due to production problem. (CDI) to franchise-operated stores. Inc. (CDI) to franchise-operated stores Competition brought about by other retail channels offering physical cards.were used to pay short and long term loans. Convenience Distribution.

Conversion and operation as SA store Asset Inventories Increase General and Administrative Expense (Service Fees) Increase Loan Pretermination and lower interest rates Expense (Interest Expense) Decrease Two week holiday declared by the Government in December resulting into the inability of suppliers to collect their accounts from the Company. Liabilities Accounts Payable Increase 2009 Aggressive store expansion. highlighted by the strategic alliance with Chevron Philippines and introduction of new products. Expansion program   Asset Increase Revenues Increase Sales Increase Net Income Increase Opening of 90 new stores (Inventories) all over Luzon. Opening of 25 new stores at various Caltex gas 17 . Intensified marketing and merchandising program— introduction of new service items.

stations linking the company with Chevron Philippines.  Franchise operators also boosted the store base. Higher present value of retirement obligations assessed by the actuary. Expense (Pension Cost) Increase

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Board of Directors

Auditing Office

Chairman

Prseident

7-ELEVEN Business

Retail Business

Public Relations Office

Finance Office

Administration Group

President Office

Development and Franchise Department

Operations Group

Marketing Group

Finance Department

Procurement Department

Information System Department

Management Support Depertment

Operations Department

Integrated Marketing Department

Accounting Department

General Administration Department

Human Resource Department

E-Shopping Department

Engineering Technology Department

Genral Merchandise Department

Lifestlye Center Department

Service and EBusiness Department

Operations Planning Department

Fresh Food Department

Logistics Department

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207 233.271.886.115) (773.708 39.417 Provision for Income Tax Current 81. 2009.745 28.886 8.290.271.050.997.000 0.052 Impairment Loss on Goodwill 4.322.790.007.817 25.358 57.909.541 8.224 Interest Income 4.251.014 Operating Expenses 2.651 54.553 Marketing Income 236.401.785 2.957. 2007.816 20.082.331 301.151 39. 2008.566 27.618 INCOME BEFORE INTEREST & INCOME TAX 257.113 3.412 237.274 127.502.785 28.848.432.332.503.417.883 42.980) 75.256 901.247.707 230.364 35.547.994 6.023 18.401.270.265.206.084.465 16.828.558.371.186.825 96.429.784 74.683 (1.211 37.502.988.969.130.412 20.051 Rent Income 52.307 11.572.142 250.516 26.795.661 204.644 655.815.673 5.839.715.922 260.768 41.792.945 4.146.477 GROSS PROFIT 1.23 2006 4.239.398 60.908 4.683.491 COST OF MERCHANDISE SOLD 4.792.867) 27.260 83.060.827.323 36.651 84.092 237.252.425.627.717.774.170 709.280 4.204 4.446.252.661.068) (2.470.211.033.788.040.557.703.527.685.534.138 OTHER COMPREHENSIVE INCOME Appraisal increase in value of land .900 1.721.224.284 deferred income tax liability (6.889.855 31.902 17.06 22 .368 Loss on Sale of Property and Equipment 890.572.144.635.647 5.074.203.731 3.net of deferred income tax liability 2.285.387 3.958.240.802.784.335.695.403.PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Consolidated Income Statement For the Years Ended December 31.000 BASIC/DILUTED EARNINGS PER SHARE 0.401 33.880.990 3.186.966 13.096 Other Income 35.513 21.959.531 21.082.913.54 0.116.988 11.412.277 1.295.380 82.855.144.685 466.329 1.857.680.545 Other Expenses excluding Interest Expense Loss from Typhoon 3.760.574.310.026.188 Effect of changes in tax rate in 2009 230.566 Other Expenses 4.215 97.326 Average number of shares outstanding 287.32 0.425 26.848.790.313. & 2005 December 31 2009 2008 2007 REVENUE FROM MERCHANDISE SOLD 6.611.682 58.982 394.252.999.08 13.587.860 136.473 1.771.646.924.240 1.304 NET INCOME 155.082 Other Revenue Franchise Revenue 303.164 1.753 10.893.611.952.866 170.651 84.771 215.488 5.999.977 Commission Income 22.455.498 1. 2006.165.726.466 62.213.502.441 3.532.760.819.306.760.707 2.648.200 237.000 0.160 147.798.171 Unrealized Foreign Exchange Loss 485.693 35.027.482.873 1.281 1.859 Interest Expenses 26.188 TOTAL COMPREHENSIVE INCOME 155.977.092 2005 4.949 1.606.

009.357 199.081 1.525.246) (2.447 287.500.887 133.401 77.700.098.646 35.913 2.736 237.877 1.598.217.revaluation incremental on land Cost of held Treasury Total Stockholders' Equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2006 2005 448.116 261.056 1.667.663.037 10.070.841 6.000.329 132. 2007.242.973.193.675.699 98.671 174.838.880 81.463 197.421 1.723 623.070.592 1.638. 2006.188 910.526.586.018 119.835 667.653.375 47.000.529.227.172 293.462.244.898.178 918.485.874.111.100.079.948 6. 2009.938.129 1.902.467 714.000.450 293.955.041.486 752.000.520.587.458.838.000 582.222.000 1.957 335.384.246) (2.181.402 1.222 1.825 1.102 775.081 670.532.481.074.921.264.158 110.054 55.P1 par value Additional Paid-In Capital Unrealized gain on available-for-sale financial assets Retained Earnings Other Component of Equity .PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Consolidated Balance Sheet December 31. & 2005 December 31 2009 2008 2007 ASSETS Current Assets Cash and cash equivalents Receivables .513 339.761.000.464 1.904 800.508.842 65.904.773.511 26.638 331.718.980 1.383.877 2.926.563 304.511 1.531.561.616.684 6.000 1.059 2.241 6.238.364.129.710.951 308.010.383.105 415.617.849 69.328 1.000 556.700.500.866 174.033 46.479 1.048 1.000.895 2.000 163.131.898.246) (2.357 145.923.229.899 1.518 2.035.888 140.873.052.276.795 23 .888.675.246) (2.958.659 70.866 54.250 293.653 323.892 30.947.715.449.375 404.000 22.921.967.512.710.283.951 1.649.070.486.277 592.430 151.264.975.802.031 589.008.179.524 35.000.525.677 1.007.870 111.738.328.659.043.198 37.923.246) 907.829.652.609.605 38.548 852.876.668.525.899 6.795 340.677 329.000.078.556.072.999.940.693 18.860 35.972 1.856.938.185.767 25.046 184.208.524 41.602.605 375.938.383 1.525.250 293. 2008.184.827.302.614.000.811 1.225.000 848.250 293.200 237.241 6.387 768.504 59.072.037 326.383 204.895 3.435.123 1.net Inventories Prepayments and other current assets Total Current Assets Noncurrent Assets Property and Equipment Deposits Deferred Lease Expense Deferred Income Tax Assets Goodwill Other Noncurrent Assets Total Noncurrent Assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Current Liabilities Bank Loans Accounts Payable and Accrued Expenses Income Tax Payable Current Portion of Long-Term Debt Other Current Liabilites Total Current Liabilities Noncurrent Liabilities Long-Term Debt .200.933 314.766 73.218.140.983 330.178.628 83.027.475 30.398 211.net of current portion Total Noncurrent Liabilities Total Liabilities Stockholders' Equity Capital Stock .008.938.339 17.082.498.737 1.378.695.477 620.008 336.525.947.000 61.352 237.110 240.774 65.567.770.567.000 610.252.876.253.519.345.385 117.659.470 39.229.384.211.854.923.841 1.354.933 2.830.870 1.430.453.923.185.944 72.825.880.037 61.037 196.837 32.037 136.888.609.000 136.833 649.115.544.305 (2.360.923.193 93.310.000.131.309.000 32.000 119.392 1.net of current portion Deposits Payable Net Retirement Obligations Deferred Income Tax Liability Cumulative Redeemable Preferred Shares Deferred Revenue .732 755.248 3.433 1.934.000 7.211.

2005 Net income for the year BALANCES AS OF DECEMBER 31.923.938.037 293.880 10.647 13.761.151 57.092 20.651 907.923.628 Treasury Stock (2.229.092 81.606 13.902.782.525.938.880 (412.059 10.037 293.250 237.358 752.638.651 326.760.246) 24 .271.525.923.938.246) (2.828.092 20.880 10.519.880 20.037 293. 2006.250 237.842) 47.525.250 237.031 609.525.200) 84.519.242.250 237.519.250 23. 2008.110 81.248 (23.037 293.938.070.923.337. 2007 Issuance of stock dividends Total comprehensive income for the year BALANCES AS OF DECEMBER 31.144.302.923.923.895 (2.895 3.525.525. 2007.999.246) (2.725.309.827.246) (2. 2005 Unrealized gain on available-for-sale financial assets during the year Total income recognized directly in equity Net income for the year Total income for the year BALANCES AS OF DECEMBER 31.092 620.722) 155.250 293.699 (26.525.519.663.229.326 667.477 84. 2006 BALANCES AS OF DECEMBER 31.172 - (2.138 136.923.242. 2009 PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Consolidated Statement of Changes in Stockholders' Equity For The Year Ended December 31.144.502.246) (2.144.651 196.097.246) Total 576.037 10.519.999. 2004 Effect of change in accounting for refundable security deposits BALANCES AS OF JANUARY 1.877.790.037 293.290.037 293.246) 2.188 230.200 261.760. 2006 Total comprehensive income for the year BALANCES AS OF DECEMBER 31. 2009.412 61.110 54.097.880 10.018 20.842) 575.BALANCES AS OF DECEMBER 31.725.938.486 237.246) (2.144.489 (412.938.412 589.835 155.750. & 2005 Unrealized Revaluation Additional Gain on AFS Retained Increment on Capital Stock Paid-In Capital Financial Assets Earnings Land 237.790.188 2. 2008 Issuance of stock dividends Total comprehensive income for the year BALANCES AS OF DECEMBER 31.037 47.923.722 287.609.707 3.525.111.098.450 26.448 293.616.

207.376 208.531 6.785 9.482.400.831.105. 2008.171 Loss on sale of property and equipment 890.915) (44.107.000.680.445.728 2.071 Cash generated from operations 606.100.000) (119.000) (6.798.000.000 (281.196.050.524 1.593.151) (1.635.498 (2.357 308.887.718 179.868 32.619.839.000) (717.528.982.905.913.280 (3.419 96.490.173) 3.086.000) Deductions from (additions to) deposits (17.226.000.762.765) (32.321.462.149) 446.337.769.000) Long-term debt (6.000.950 Inventories (76.286) (15.833 (243.180.866.500. 2007.378.004 Payment of refundable security deposit Net cash flow from investing activities (389.348 Deposits payable 36.888 314.942 389.903.567.636.908 154.952.771) (224.121.364.325.076) 2.331) 1.782.383 (84.990) (415.096.952.830.049 144.000.355.134) Prepayments and other current assets (56.771 215.690) Amortization of software 3.984) 265.028 67.063.678 Interest Income (4.232.664 286.151) (764.018) 8.083 2.714.000) (54.362) Interest received 3.262.044.507.185.110 Net cash from operating activities 513.393.310.000 252.264.431) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 314.829) 42.620) (21.608 Net pension liabililities 19.332.378 234.187.357 308.558.051.561 Deferred revenue 11.905.966 Proceeds from sale of property and equipment 14.703.970.913.854) 35.335 3.624.010.375 2005 40.700.259 35.639.006.799 477.655 Increase (decrease) in: Accounts payable and accrued expenses 180.207) 2.000) 26.000.759 418.400.524 (26.439 (33.408 (15.196.254.944 329.880.175.564 (6.500 2.634.507 346.285.069.364.639) Additions to software and other program costs (286.873.528) 3.950.000 (61.203.757.734) 115.307.240) (32.858.368 Gain on write-off of long outstanding liability Provision for doubtful accounts 9.386 5.000) Net cash from financing activities 10.902.375 CASH AND CASH EQUIVALENTS AT END OF YEAR 448.226.116) 2.064 312.858 4.442 Adjustments for: Depreciation and Amortization 203. & 2005 December 31 2009 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax 230.158.254) Loss on refund of deposit Operating income before working capital changes 468.287.421 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (362.821) 49.000 415.847.536) 7.000 125.855 31.646.712.330 43.880.085) (3.037.225 217.823 12.789 4.386 Interest expense 26.272) Deductions from (additions to) goodwill assets & other noncurrent (11.336.165.944 2006 47.327 7.012.768.737.817 25.788.741.852) CASH FLOWS FROM FINANCING ACTIVITIES Availments of bank loans 510.458 2.760.750 (220.268) (426.500 686.766 25 .310.719.854. 2009.PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Consolidated Statement of Cash Flows For The Year Ended December 31.000.566 Loss on Impairment of goodwill 4.170.753 (3.053.000.168) Income taxes paid (68.709 5.731 5.413 (20.378 124.000.000.324.393.238 33.310.000.663 1.675) Amortization of deferred revenue on exclusivity contract (3.708.200.957 149.991 4.842) (32.840 (3.346 (4.758 (248.700.837) (51.046.138.934) (39.021.359 539.000 Payments of: Bank loans (500.810 Amortization of Deferred revenue on finance lease (1.310.000.475.879) 2.129.168.449.776 (20.292 296.965) (218.887) (30.654.906 Decrease (increase) in: Receivables 1.000 (45.531 22.565.183) Collection of lease receivable 2.670 (35.571.233.267.006 159.238 1.867.000) (460.582.000) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 133.717.495.908) (3.609 204. 2006.401.000) (236.547 356.792.053) Other current liabilities 31.976) 1.730 264.536 Amortization of deferred lease expense 1.417.691) (3.095.000.841 Interest paid (27.766 329.532.000) 45.194.660.940.873.000 (35.738 928.957) (22.417 Accounts written off Loss from typhoon 3.987.529.906 322.611.356 57.839.709) (24.257.186.361 1.993.530) (27.750 204.527.327.945) (4.913.126 1.585.023 16.053.000) (36.000 688.644.727.

26 . Ortigas Avenue. 1982.. 706 and 713 stockholders. Ltd. an investment holding company incorporated in Malaysia. 2007. The Group is also engaged in the management. 2008. development. exchanging or otherwise dealing in all kinds of consumer needs or requirements and in connection therewith. acquiring. Authorization for Issuance of Financial Statements The 2009. 2007. buying. 2009. The ultimate parent of the Group is President Chain Store Corporation incorporated in Taiwan. 2008 and March 6. merchandising.41% of the shares are widely held. 724. the Company has 717.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CORPORATE INFORMATION AND OPERATIONS AND AUTHORIZATION FOR ISSUANCE OF FINANCIAL STATEMENTS Corporate Information Philippine Seven Corporation was incorporated in the Philippines and registered with the Securities and Exchange Commission (SEC) on November 29. respectively. Republic of China. The registered office address of the Company is 7th Floor. storages. The Company and its subsidiaries are primarily engaged in the business of retailing. selling. February 4. operating or maintaining warehouses. Mandaluyong City. holding. The Company is controlled by President Chain Store (Labuan) Holdings. 703. 2006 and 2005. The remaining 43. respectively. distributing. The Columbia Tower. marketing. 2009. The Company has its primary listing on the Philippine Stock Exchange. 2010. warehousing. sale. 2008. trading. exporting. 2007 and 2006 consolidated financial statements were authorized for issue by the Board of Directors on February 12. delivery vehicles and similar or incidental facilities. As of December 31. exchange. franchising. importing. February 12. which owns 56. and holding for investment or otherwise of real estate of all kinds.59% of the Company’s outstanding shares.

have been prepared in compliance with Philippine Financial Reporting Standards. which are carried at fair value and revalued amount. which is the Company’s functional and presentation currency. Changes in Accounting Policies The adoption of PAS 32: Financial Instruments: Disclosure and Presentation.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND FINANCIAL REPORTING PRACTICES Basis of Preparation The consolidated financial statements have been prepared under the historical cost basis. which were prepared for submission to the SEC. except for available-for-sale financial assets and land. and PAS 39 on January 1. which represents the amounts of amortization of deferred lease expense and accretion of interest income from the inception of the lease. Leases. 2005 resulted to the adjustment of the va lue of the Group’s refundable security deposits to reflect measurement of these amounts at amortized cost using the effective interest rate method. 2005 decreased by P412. The consolidated financial statements are presented in Philippine Peso. The deferred lease expense is amortized using the straight-line method over the term of the lease in accordance with PAS 17. 27 . Statement of Compliance The consolidated financial statements.842. The difference between the nominal amounts and the present values of the refundable security deposits are recognized as deferred lease expense in the consolidated balance sheets. Retained earnings as of January 1. respectively.

when appropriate. Group Plans and Disclosures. except that the Group has made changes in accounting policies resulting from adoption of the amendments to existing standards and Philippine Interpretation International Financial Reporting Interpretations Committee (IFRIC) interpretation. cumulative amortization recognized in accordance with PAS 18.Actuarial Gains and Losses. the Group did not change its accounting for actuarial gains and losses but has included the additional disclosures required by the amendment. Financial guarantee contracts are recognized initially at fair value and generally re-measured at the higher of the amount determined in accordance with PAS 37. Provisions. amended to recognize all exchange differences arising from a monetary item that forms part of the net investment in a foreign operation in a separate component of equity in the financial statements regardless of the currency in which the monetary item is denominated.The accounting policies adopted are consistent with those of the previous year. The following are the adoptions of interpretations or amendments to existing Philippine Accounting Standard which became effective beginning January 1. and the amount initially recognized less. revised to include in its scope the treatment of financial guarantee contracts by the issuer. The Effects of Changes in Foreign Exchange Rates. Contingent Liabilities and Contingent Assets. provided that the transaction is denominated in a currency other than the functional currency of the entity entering into the transaction and that the foreign currency risk will affect profit or loss. Revenue. 2006 that has an effect on the consolidated financial statements of the Company:  Philippine Accounting Standard 19. Financial Instruments: Recognition and Measurement.  PAS 39. PAS 39 is also amended to restrict the use of the option to 28 . Included in the amended PAS 39 is the approval of qualifying the foreign currency risk of a highly probable intragroup forecast transaction as the hedged item in financial statements.  PAS 21. Employee Benefits .

introduces new disclosures to improve the information about financial instruments. maturity profile of the financial liabilities (Note 31) and sensitivity analyses as to changes in interest (Note 31). aging of past due but not impaired financial assets (Note 31). including specified minimum disclosures about credit risk. where applicable. the requires the following additional disclosures: (a) an entity’s objectives. the consequences of such noncompliance.designate any financial asset or any financial liability to be measured at fair value through profit or loss. as well as sensitivity analysis to market risk. (b) quantitative data about what the entity regards as capital. (c) whether the entity has complied with any capital requirements. provides guidance in determining whether arrangements contain a lease to which lease accounting must be applied. liquidity risk and market risk. credit quality of financial assets (Note 31).  Philippine Interpretation IFRIC 4. policies and processes for managing capital. The adoption of the above amendments and interpretation has no material effect on the Group’s consolidated financial statements. Determining Whether an Arrangement Contains a Lease. Presentation of Financial Statements: Capital Disclosures. Additional disclosures required by the standard were included in the consolidated financial statements. 2007 that has an effect on the consolidated financial statements of the Company:  PFRS 7. Financial Instruments: Disclosures. These disclosures included the presentation of rollforward of allowance for impairment on loans and receivables (Note 5). and (d) if it has not complied. The following are the adoptions of interpretations or amendments to existing Philippine Accounting Standard which became effective beginning January 1. It requires the disclosure of qualitative and quantitative information about exposure to risks arising from financial instruments. Additional disclosures required by the amendment were included in the consolidated financial statements (Note 32).  Amendment to PAS 1. 29 .

 Philippine Interpretation IFRIC 9. Financial Instruments: Disclosures .Reclassification of Financial Assets The following are the adoptions of interpretations or amendments to existing Philippine Accounting Standard which became effective beginning January 1. the revised standard separates owner and non-owner changes in equity.Group and Treasury Share Transactions. Amendments to PAS 39. In addition. 2008 that have an effect on the consolidated financial statements of the Company: Adoption of these changes in accounting policies did not have any significant effect to the Group:      Philippine Interpretation IFRIC 11. the standard introduces the statement of comprehensive 30 . The following are the adoptions of interpretations or amendments to existing Philippine Accounting Standard which became effective beginning January 1. and. The Limit on a Defined Benefit Asset. Service Concession Arrangements. establishes that the date to assess the existence of an embedded derivative is the date an entity first becomes a party to the contract . Re-assessment of Embedded Derivatives. PFRS 7. Financial Instruments: Recognition and Measurement. Philippine Interpretation IFRIC 14. Minimum Funding Requirement and their Interaction. The consolidated statement of changes in equity includes only details of transactions with owners. The adoption of this interpretation did not have a significant impact on the consolidated financial statements. 2009 that have an effect on the consolidated financial statements of the Company:  PAS 1. PFRS 2 . PAS 19. with nonowner changes in equity presented in a reconciliation of each component of equity. Presentation of Financial Statements (Revised). Philippine Interpretation IFRIC 12. with re-assessment only if there is a change to the contract that significantly modifies the cash flows.

reconciliation between the beginning and ending balance for level 3 fair value measurements is now required. The Group has elected to present a single consolidated statement of comprehensive income. The adoption of this standard resulted to additional disclosures presented in Note 34. either in one single statement. The information reported would be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. the amendments to PFRS 7. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and financial assets used for liquidity management. This standard is only applicable to an entity that has debt or equity instruments that are traded in a public market or that files (or is in the process of filing) its financial statements with a securities commission or similar party.  PFRS 8 Operating Segment replaced PAS 14. Financial Instruments: Disclosures require additional disclosures about fair value measurement and liquidity risk. it presents all items of recognized income and expense.  PFRS 7 Amendments . In addition. Segment Reporting. for all financial instruments recognized at fair value. The adoption of this revised standard resulted to the presentation of income and expense items that are classified as comprehensive income in the consolidated statement of comprehensive income. and adopts a full management approach to identifying. Such information may be different from that reported in the consolidated balance sheet and profit or loss and the company will provide explanations and reconciliations of the differences. by class. as well as significant transfers between levels in the fair value hierarchy. The fair value measurement disclosures and the liquidity 31 . or in two linked statements. measuring and disclosing the results of an entity’s operating segments.Improving Disclosures about Financial Instruments. Fair value measurements related to items recorded at fair value are to be disclosed by source of inputs using a three level fair value hierarchy.income.

Presentation of Financial Statements Assets and liabilities classified as held for trading in accordance with PAS 39 are not automatically classified as current in the consolidated balance sheet. Plant and Equipment Replaced the term ‘net selling price’ with ‘fair value less cost to sell’.  PAS 16. There are separate transitional provisions for each standard. Proceeds of such sales are subsequently shown as revenue. to be consistent with PFRS 5 and PAS 36. Improvements to PFRS adopted by the Group starting January 1. primarily with a view to removing inconsistencies and clarifying wording. 32 . all of its assets and liabilities will be classified as held for sale under PFRS 5. the cash receipts from rents and subsequent sales are all shown as cash flows from operating activities. The features to consider are whether the entity (a) has primary responsibility for providing the goods or service. and (d) bears the credit risk. (c) has discretion in establishing prices. (b) has inventory risk. Items of property. Non-current Assets Held for Sale and Discontinued Operations When a subsidiary is held for sale. The adoption of the following amendments resulted in changes in accounting policies but did not have any impact on the consolidated financial statements of the Group .  PAS 1. Revenue The amendment adds guidance (which accompanies the standard) to determine whether an entity is acting as a principal or as an agent.  PAS 18. are transferred to inventory when rental ceases and they are held for sale. plant and equipment held for rental that are routinely sold in the ordinary course of business after rental. Impairment of Assets. Property. Cash payments on initial recognition of such items. even when the entity retains a non-controlling interest in the subsidiary after the sale.  PFRS 5. the International Accounting Standards Board issued its first omnibus of amendments to certain standards.risk disclosures which are not significantly impacted by the amendments are presented in Note 30. 2009 In May 2008.

 PAS 28. An investment in an associate is a single asset for the 33 . The difference between the amount received and the discounted amount is accounted for as a government grant. Contingent Liabilities and Contingent Assets.  PAS 19. The revenue recognition policy has been updated accordingly. therefore it is effective immediately and retrospectively. Amendments to plans that result in a reduction in benefits related to future services are accounted for as a curtailment. Revises the definition of ‘short-term’ and ‘other long-term’ employee benefits to focus on the point in time at which the liability is due to be settled. Investment in Associates If an associate is accounted for at fair value in accordance with PAS 39. The revision deletes the reference to the recognition of contingent liabilities to ensure consistency with PAS 37. Revises the definition of ‘return on plan assets’ to exclude plan administration costs if they have already been included in the actuarial assumptions used to measure the defined benefit obligation.  PAS 23.The amendment specifies no transitional provisions. Accounting for Government Grants and Disclosures of Government Assistance Loans granted with no or low interest rates will not be exempt from the requirement to impute interest. PAS 20. only the requirement of PAS 28 to disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or repayment of loans will apply. The Group has assessed its revenue arrangements against these criteria and has concluded that it is acting as principal in all arrangements. Employee Benefits Revises the definition of ‘past service costs’ to include reductions in benefits related to past services (‘negative past service costs’) and to exclude reductions in benefits related to future services that arise from plan amendments. Provisions.the interest expense calculated using the effective interest rate method calculated in accordance with PAS 39. Borrowing Costs The definition of borrowing costs is revised to consolidate the two types of items that are considered components of ‘borrowing costs’ into one .

only the requirements of PAS 31 to disclose the commitments of the venturer and the joint venture. income and expense will apply. additional disclosure is required about the discount rate.  PAS 31. Financial Instruments: Recognition and Measurement Changes in circumstances relating to derivatives . this is a change in circumstance. as well as summary financial information about the assets. not a reclassification. Therefore.  PAS 36.  PAS 39. if ever. Intangible Assets Expenditure on advertising and promotional activities is recognized as an expense when a company either has the right to access the goods or has received the services. consistent with disclosures required when the discounted cash flows are used to estimate ‘value in use’. plant and equipment as being an example. Impairment of Assets When discounted cash flows are used to estimate ‘fair value less cost to sell’.specifically derivatives designated or re-designated as hedging instruments after initial recognition . Advertising and promotional activities now specifically include mail order catalogues. The revision deletes references to there being rarely. Financial Reporting in Hyperinflationary Economies The amended PAS 29 revises the reference to the exception that assets and liabilities should be measured at historical cost.  PAS 29. persuasive evidence to support an amortization method for finite life intangible assets that results in a lower amount of accumulated amortization than under the straight-line method.purpose of conducting the impairment test.are not reclassifications. When financial assets are reclassified as a result of an insurance company changing its accounting policy in accordance with paragraph 45 of PFRS 4. in accordance with PAS 39.  PAS 38. Interest in Joint Ventures If a joint venture is accounted for at fair value. any impairment test is not separately allocated to the goodwill included in the investment balance. Insurance Contracts. rather than implying that it is a definitive list. It removes the reference to a ‘segment’ 34 . liabilities. such that it notes property. thereby effectively allowing the use of the unit of production method.

 PAS 40. 2009. the accounting for transaction costs. Agriculture It removes the reference to the use of a pre-tax discount rate to determine fair value. Changes affect the valuation of non-controlling interest. Investment Properties The amendment revises the scope (and the scope of PAS 16) to include property that is being constructed or developed for future use as an investment property. Where an entity is unable to determine the fair value of an investment property under construction. the Group does not expect the adoption of these new and amended PFRS and Philippine Interpretations to have a significant impact on the consolidated financial statements. the investment under construction will be measured at cost until such time as fair value can be determined or construction is complete. 2009 The Group will adopt the following standards.  PFRS 3: Business Combinations (Revised) introduces significant changes in the accounting for business combination occurring after July 1. Interpretations. Instead. and Amendments to Existing Standards Effective Subsequent to December 31. thereby allowing use of either a pre-tax or post-tax discount rate depending on the valuation methodology used. the initial recognition and subsequent measurement of a contingent 35 . but expects to be able to determine its fair value on completion.when determining whether an instrument qualifies as a hedge and also requires use of the revised effective interest rate (rather than the original effective interest rate) when re-measuring a debt instrument on the cessation of fair value hedge accounting. The revision also removes the prohibition to take into account cash flows resulting from any additional transformations when estimating fair value. cash flows that are expected to be generated in the ‘most relevant market’ are taken into account. Except as otherwise indicated.  PAS 41. New Accounting Standards. interpretations and amendments to existing standards enumerated below when these become effective.

Share-based Payment The amendment clarifies that the contribution of a business on formation of a joint venture and combinations under common control are not within the scope of PFRS 2 even though they are out of scope of PFRS 3.  PFRS 2. Statement of Cash Flows Explicitly states that only expenditure that results in a recognized asset can be classified as a cash flow from investing activities.consideration and business combinations achieved in stages.  PFRS 8. the reported results in the period that an acquisition occurs and future reported results. The disclosure requirements of other PFRSs only apply if specifically required for such noncurrent assets or discontinued operations. at anytime. These changes will impact the amount of goodwill recognized. in its settlement by the issuance of equity instruments at the option of the counterparty do not affect its classification.  PFRS 5. Leases 36 . Presentation of Financial Statements The improvement clarifies that the terms of a liability that could result.  PAS 17.  PAS 7. Business Combinations (Revised). Improvements to PFRS to be adopted by the Group starting January 1.  PAS 1. Non-current Assets Held for Sale and Discontinued Operations It clarifies that the disclosures required in respect of noncurrent assets and disposal groups classified as held for sale or discontinued operations are only those set out in PFRS 5. Operating Segment The revision clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures that are used by the chief operating decision maker. 2010 The Group has not yet adopted the following amendments and anticipates that these changes will have no material effect on the consolidated financial statements.

 PAS 38. The amendment now requires that leases of land are classified as either ‘finance’ or ‘operating’ in accordance with the general principles of PAS 17.Clarifies that the largest unit permitted for allocating goodwill.  PAS 39.Clarifies that if an intangible asset acquired in a business combination is identifiable only with another intangible asset. Prior to the amendment. Reassessment of Embedded Derivatives 37 .Removes the specific guidance on classifying land as a lease. acquired in a business combination. Intangible Assets . and (c) that gains or losses on cash flow hedges of a forecast transaction that subsequently results in the recognition of a financial instrument or on cash flow hedges of recognized financial instruments should be reclassified in the period that the hedged forecast cash flows affect profit or loss. (b) that the scope exemption for contracts between an acquirer and a vendor in a business combination to buy or sell an acquiree at a future date applies only to binding forward contracts.Clarifies that (a) a prepayment option is considered closely related to the host contract when the exercise price of a prepayment option reimburses the lender up to the approximate present value of lost interest for the remaining term of the host contract.  PAS 36. and not derivative contracts where further actions by either party are still to be taken.  Philippine Interpretation IFRIC 9. is the operating segment as defined in PFRS 8 before aggregation for reporting purposes. leases of land were classified as operating lease.. the acquirer may recognize the group of intangible assets as a single asset provided the individual assets have similar useful lives. The amendment will be applied retrospectively. It also clarifies that the valuation techniques presented for determining the fair value of intangible assets acquired in a business combination that are not traded in active markets are only examples and are not restrictive on the methods that can be used. Impairment of Assets . Financial Instruments: Recognition and Measurement .

to embedded derivatives in contracts acquired in a business combination between entities or businesses under common control or the formation of joint venture.Clarifies that it does not apply to possible reassessment at the date of acquisition. respectively. Hedge of a Net Investment in a Foreign Operation . The Company owns 100% of SSHI's common shares. balances and unrealized losses are eliminated unless cost cannot be recovered. including the foreign operation itself. Basis of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions. (CDI). SSHI’s capital stock. as long as the designation. These preferred shares which accrue and pay guaranteed preferred dividends and are redeemable at the option of the holder (Note 16) are recognized as a financial liability in accordance with PFRS. documentation and effectiveness requirements of PAS 39 that relate to a net investment hedge are satisfied. The financial statements of the subsidiaries are prepared for the same reporting year as the Company. qualifying hedging instruments may be held by any entity or entities within the group. using uniform accounting policies. in a hedge of a net investment in a foreign operation. 38 . Bank of the Philippines Islands-Asset Management and Trust Group (BPI-AMTG). which is divided into 40% common shares and 60% preferred shares are owned by the Company and by Philippine Seven Corporation-Employees Retirement Plan through its trustee. Philippine Interpretation IFRIC 16. which. gives the Company control over SSHI.States that. The company owns 100% of Convenience Distribution Inc.. together with common key management. Subsidiaries are those entities in which the Company has an interest of more than one half of the voting rights or otherwise has power to govern the financial and operating policies through interlocking directorships such that substantial benefits from the subsidiaries’ activities flow to the Company.

All regular way purchases and sales of financial assets are recognized on the trade date (the date that the Group commits to purchase the assets). the fair value of the consideration is estimated as the sum of all future cash payments or receipts. The classification depends on the purpose for which the financial assets and financial liabilities were acquired. highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from the date of acquisition and that are subject to an insignificant change in value. held-to-maturity (HTM) financial assets. where allowed and appropriate. except for financial instruments measured at fair value through profit and loss. re-evaluates this designation at every financial reporting date. Financial Assets 39 . If such market prices are not readily determinable. Financial Instruments The Group recognizes a financial asset or a financial liability in the consolidated balance sheet when it becomes a party to the contractual provisions of the instrument. Financial liabilities. are classified as either financial liabilities at FVPL or other financial liabilities. loans and receivables or AFS financial assets. discounted using the prevailing market rates of interest for similar instruments with similar maturities.Cash and Cash Equivalents Cash includes cash on hand and in banks. Transaction costs are included in the initial measurement of all financial assets and liabilities. Management determines the classification of its investments at initial recognition and. Cash equivalents are short-term. The Group classifies its financial assets as financial assets at FVPL. Financial assets and financial liabilities are recognized initially at fair value. on the other hand. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Fair value is determined by reference to the transaction price or other market prices.

or the assets are part of a group of financial assets. Financial assets classified in this category are designated as at fair value through profit or loss by management on initial recognition when the following criteria are met: first. the economic characteristics and risks of the embedded derivative are not closely 40 . An embedded derivative is separated from the host financial or non-financial asset contract and accounted for as a derivative if all of the following conditions are met: first. in accordance with a documented risk management or investment strategy. or both financial assets and financial liabilities. which are managed and their performance is evaluated on a fair value basis. or the financial instrument contains an embedded derivative. except those derivatives designated and considered as effective hedging instruments. Financial assets at fair value through profit or loss are recorded in the consolidated balance sheet at fair value. with little or no analysis. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and those designated upon initial recognition as at fair value through profit or loss. Interest earned is recorded in interest income. Changes in fair value are accounted for directly in profit or loss. the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis. The Group assesses whether embedded derivatives are required to be separated from the host contracts when the Group first becomes a party to the contract. that it would not be separately recorded. Derivatives are also categorized as held for trading. Re-assessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.a. or when the right of the payment has been established. while dividend income is recorded in other income according to the terms of the contract. unless the embedded derivative does not significantly modify the cash flows or it is clear. The Group has not designated any financial asset as at fair value through profit or loss.

and lastly. Assets under this category are classified as current assets if maturity is within twelve months from the balance sheet date and noncurrent assets if maturity is more than a year. Loans and receivables are carried either at cost or amortized cost in the consolidated balance sheet. the hybrid or combined instrument is not recognized as financial assets at fair value through profit or loss. b. The Group has not designated any financial asset as HTM. Amortization is determined by using the effective interest rate method.related to the economic characteristic of the host contract. c. Embedded derivatives that are bifurcated from the host contracts are accounted for as financial assets at fair value through profit or loss. Held-to-maturity financial assets Held-to-maturity (HTM) financial assets are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities wherein the Group has the positive intention and ability to hold to maturity. a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. HTM assets are carried either at cost or amortized cost in the consolidated balance sheet. 41 . Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. these are classified as noncurrent assets. receivables and deposits. Changes in fair values are included in the consolidated statement of income. The Group’s loans and receivables consist of cash and cash equivalents. Loans and receivables are included in current assets if maturity is within twelve months from the balance sheet date. The Group has no outstanding embedded derivatives. second. Otherwise. Amortization is determined using the effective interest rate method.

and may be sold in response to liquidity requirements or changes in market conditions. As of December 31. These financial assets are classified as noncurrent assets unless the intention is to dispose such assets within twelve months from the balance sheet date. 2009. the Group’s AFS financial assets consist of unquoted investments in preferred shares of a public utility company included as part of “Goodwill and other noncurrent assets” in the consolidated balance sheets.d. Financial liabilities at fair value through profit or loss Financial liabilities at FVPL include financial liabilities held-for-trading and those designated upon recognition at FVPL. Available-for-sale financial assets Available-for-sale (AFS) financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. Financial liabilities classified under this category are designated by management on initial recognition when the following criteria are met: the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the liabilities or recognizing gains or losses on them on a different basis. or both financial assets and financial liabilities. Financial assets may be designated at initial recognition as AFS if they are purchased and held indefinitely. Financial liabilities are classified as held-fortrading if they acquired for the purpose of selling in the near term. Changes in the fair value of such assets are accounted for in stockholders’ equity until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in stockholders’ equity is recognized in the consolidated statement of income. 2008 and 2007. The Group designated its noncurrent investments in marketable securities as available-for-sale financial assets as of December 31. which are managed and their performance is evaluated on a fair 42 . Available-for-sale assets are carried at fair value in the consolidated balance sheet. 2006. or the liabilities are part of a group of financial liabilities. Financial Liabilities a.

discounted using the prevailing market rates of interest for similar instruments with similar maturities. 2007 other financial liabilities of the Group also include long-term debt and deposits from sub-lessees. The liabilities are recognized initially at fair value and are subsequently carried at amortized cost. in accordance with a documented risk management or investment strategy. with little or no analysis. Day 1 Profit 43 . Determination of Fair Values Fair value is determined by reference to the transaction price or other market prices. cumulative redeemable preferred shares as of December 31. Changes in fair value are accounted for directly in profit or loss. The Group has not designated any financial liability as at FVPL. Financial liabilities at fair value through profit or loss are recorded in the consolidated balance sheet at fair value. Interest incurred is recorded in interest expense. discount and any directly attributable transaction costs. As of December 31. b. or the financial instrument contains an embedded derivative. unless the embedded derivative does not significantly modify the cash flows or it is clear. accounts payable and accrued expenses. taking into account the impact of applying the effective interest rate method of amortization (or accretion) for any related premium. Other financial liabilities This category pertains to financial liabilities that are neither held for trading nor designated as fair value through profit or loss upon the inception of the liability. These include liabilities arising from operations. If such market prices are not readily determinable. 2009. that it would not be separately recorded. The Group’s other financial liabilities consist of bank loans.value basis. other current liabilities. the fair value of the consideration is estimated as the sum of all future cash payments or receipts.

the Group recognizes the difference between the transaction price and fair value (a Day 1 profit) in the consolidated statement of income unless it qualifies for recognition as some other type of asset. or to realize the asset and settle the liability simultaneously. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the consolidated balance sheet if.e. Financial assets carried at amortized cost If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred. For each transaction. Impairment of Financial Assets The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. In cases where use is made of data which is not observable. and only if. the effective interest rate computed at initial recognition). the amount of impairment loss is measured as a difference between the financial asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market. the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. the Group determines the appropriate method of recognizing the day 1 profit. The carrying amount of the asset 44 .. there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis.

shall be reduced through the use of an allowance account for impairment loss. The amount of loss is recognized in the consolidated statement of income. The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for financial assets that are not individually significant. Objective evidence includes observable data that comes to the attention of the Group about loss events such as but not limited to significant financial difficulty of the counterparty, a breach of contract, such as a default or delinquency in interest or principal payments, probability that the borrower will enter bankruptcy or other financial reorganization. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in the group of financial assets with similar credit risk and characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continue to be recognized are not included in a collective assessment of impairment. The impairment assessment is performed at each balance sheet date. For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of such credit risk characteristics such as customer type, payment history, past-due status and term. Loans and receivables, together with the related allowance, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If, in subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

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

Financial assets carried at fair value If an available-for-sale financial asset is impaired, an amount comprising the difference between its cost (net of any principal payment) and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from the stockholders’ equity to the consolidated statement of income. In case of equity securities classified as AFS financial asset, objective evidence would include a significant or prolonged decline in the fair value of the financial assets below its cost or where other objective evidence of impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The Group treats “significant” generally as 20% or more of the original cost of investmen t, and “prolonged” as greater than 6 months. In addition, the Group evaluates other factors, including normal volatility in share price for unquoted equities. Impairment losses on equity investments are not reversed through the consolidated statement of income. Increases in fair value after impairment are recognized directly in stockholders’ equity. Reversals in respect of equity instruments classified as available-for-sale are not recognized in the consolidated statement of income. Reversals of impairment losses on debt instruments are recognized in the consolidated statement of income if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income.

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In case of debt securities classified as AFS financial asset, impairment is assessed based on the same criteria as financial assets carried at amortized cost. . Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss. Such accrual is recorded as part of “Interest income” in the statement of income. If, in subsequent year, the fair value of a debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income. Interest continues to be accrued at the original effective interest rate on the reduced carrying amount of the asset.

Derecognition of Financial Assets and Financial Liabilities Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: first, the rights to receive cash flows from the asset have expired; second, 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 third party under a ‘pass-through’ arrangement; lastly, the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all risks and rewards of the asset, but has transferred control of the asset. Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

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and the difference in the respective carrying amounts is recognized in the consolidated statement of income. Where an existing financial liability is replaced by another from the same lender on substantially different terms. including lease or use of property. Inventories Inventories are stated at the lower of cost or net realizable value (NRV). 48 . or the terms of an existing liability are substantially modified. Output value-added tax Output VAT pertains to the 12% tax due on the sale of merchandise and lease or exchange of taxable goods or properties or services by the Group.Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. Cost of warehouse merchandise is determined using the current cost method. Under this method. such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. whichever is shorter. from a VAT-registered entity. The Group is using the retail method in measuring the cost of its store merchandise inventory. NRV is the selling price in the ordinary course of business. Value-added Tax (VAT) Input value-added tax Input VAT is the 12% indirect tax paid by the Group in the course of the Group’s trade or business on local purchase of goods or services. cost is determined using the average gross profit and is reviewed on a regular basis to ensure that it approximates actual costs. Value added tax on capital goods are spread evenly over the useful life or 60 months. less the estimated cost of marketing and distribution.

The initial cost of property and equipment consists of its purchase price. Revenue. except for land. the excess shall be carried over to the succeeding month or months. the expenditures are capitalized as an additional cost of the assets. If the input VAT exceeds the output VAT. Once the property and equipment are received. the excess shall be paid by the Group. Expenditures incurred after the assets have been put into operations. expenses and assets are recognized net of the amount of VAT. taxes. the asset is recognized together with the corresponding liability. subject to certain tax laws.If at the end of any taxable month the output VAT exceeds the input VAT. are carried at cost less accumulated depreciation and amortization. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance. including import duties. Land is carried at revalued amount less any impairment in value. The revalued amount is determined by a professional qualified independent appraiser. Property and Equipment Property and equipment. 49 . and any directly attributable costs of bringing the asset to its working condition and location for its intended use. The difference between cost and revalued amount or the revaluation increment in land goes to stockholders’ equity. Advances to Suppliers Advances to suppliers are down payments for acquisitions of property and equipment not yet received. net of tax. such as repairs and maintenance and overhaul costs. Input VAT on capital goods may at the option of the Group be refunded or credited against other internal revenue taxes. are normally charged to operations in the period in which the costs are incurred. and any impairment in value.

Software and Program Cost Software and program costs. 3 to 5 years for office furniture and equipment and transportation equipment. The assets’ residual values. ranging from 5 to 10 years. whichever is shorter.Construction in progress is stated at cost. Leasehold improvements are amortized over the estimated useful lives of the improvements. less accumulated amortization and any impairment in value. Amortization is computed on a straight-line method over their estimated useful life of five years. 50 . 5 to 10 years for store furniture and equipment. Depreciation is computed on a straight-line method over the estimated useful lives of the assets as follows: 10 to 12 years for buildings and improvements. period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment. are shown as part of "Goodwill and other noncurrent assets" in the consolidated balance sheet. and. both the cost or revalued amount and the related accumulated depreciation and amortization and any impairment in value are removed from the accounts and any resulting gain or loss is recognized in the statement of income. It ceases at the earlier of the date that it is classified as investment property or noncurrent asset held-for-sale and the date the asset is derecognized. These are carried at cost. or the term of the lease. 3 years for computer equipment. which are not specifically identifiable and integral to a specific computer hardware. estimated useful lives and depreciation and amortization method are reviewed periodically to ensure that the residual values. When assets are retired or otherwise disposed of. This includes cost of construction and other direct cost. The revaluation increment in stockholders’ equity relating to the revalued asset sold is transferred to retained earnings. Depreciation and amortization commences once the assets are available for use. Construction in progress is not depreciated until such time the relevant assets are completed and put into operational use.

Impairment of Property and Equipment and Software and Program Costs The Group assesses at each balance sheet date whether there is an indication that a nonfinancial asset may be impaired. the depreciation charge 51 . the asset’s recoverable amount is its value-in-use. the asset is considered impaired and is written down to its recoverable amount. For goodwill. net of depreciation. the asset’s recoverable amount is the land’s net selling pric e. the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. Where the carrying amount of an asset exceeds its recoverable amount. Impairment losses. If that is the case the carrying amount of the asset is increased to its recoverable amount. After such reversal. in which case. If any such indication exists. unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. which may be obtained from its sale in an arm’s length transaction. If such indication exists. An assessment is made at each balance sheet date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. Such reversal is recognized in the consolidated statement of income. the recoverable amount is estimated. That increased amount cannot exceed the carrying amount that would have been determined. or when annual impairment testing for an asset is required. unless the asset is carried at revalued amount. are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset. For land. In assessing value in use. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. had no impairment been recognized for the asset in previous years. the reversal is treated as a revaluation increase. if any. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset. the Group makes an estimate of the asset’s recoverable amount.

franchise and service agreements. net of transaction cost. less any residual value. included in “Goodwill and other noncurrent assets” in the consolidated balance sheet. Deposits include rent deposits for lease. Impairment is determined for goodwill by assessing the recoverable amount of the cashgenerating unit or group of cash-generating units to which the goodwill relates. Impairment losses relating to goodwill cannot be reversed in future periods. Where the recoverable amount of the cash-generating unit or group of cash-generating units is less than the carrying amount of the cash-generating unit or group of cash-generating units to which goodwill has been allocated. Goodwill is reviewed for impairment. annually or more frequently. These deposits are recognized at cost and can be refunded or applied to future billings. on a systematic basis over its remaining useful life. Deposits Deposits are amounts paid as guarantee in relation to non-cancelable agreements entered into by the Group. represents the excess of the cost of an acquisition over the fair value of the businesses acquired. Following initial recognition. Goodwill Goodwill. Cumulative Redeemable Preferred Shares Cumulative redeemable preferred shares that exhibit characteristics of a liability is recognized as a financial liability in the balance sheet. an impairment loss is recognized. goodwill is measured at cost less any accumulated impairment losses. The corresponding dividends on those shares are charged as interest expense in the statement of income. The Group performs its annual impairment test of goodwill annually. if events or changes in circumstances indicate that carrying value may be impaired.is adjusted in future periods to allocate the asset’s revised carrying amount. 52 .

When shares are issued for a consideration other than cash. the shares shall be measured either at the fair value of the shares issued or fair value of the liability settled. No gain or loss is recognized in the statement of income on the purchase. When the shares are sold at premium. sale. The Group has assessed its revenue arrangements against the criteria enumerated under PAS 18 and concluded that it is acting as principal in all arrangements. In case the shares are issued to extinguish or settle the liability of the Group. Deferred revenue is recognized over the life of the revenue contract or upon delivery of goods or services.Deferred Revenue Deferred revenue is recognized for cash received for income not yet earned. When the Group issues more than one class of stock. the difference between the proceeds and the par value is credited to the “Additional paid-in capital” account. a separate account is maintained for each class of stock and number of shares issued. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. The following specific recognition criteria must also be met before revenue is recognized: 53 . Treasury Stock Treasury stock is stated at acquisition cost and is deducted from equity. whichever is more reliably determinable. Capital Stock Capital stock is measured at par value for all shares issued. the proceeds are measured by the fair value of the consideration received. issue or cancellation of the Group’s own equity instruments.

Franchise revenue is recognized in the period earned. 4.1. Expenses are recognized in profit or loss upon utilization of the service or when they are incurred. 6. Other Comprehensive Income Other comprehensive income comprises items of income and expense (including items previously presented under the statement of changes in equity) that are not recognized in profit or loss for the year in accordance with PFRS. Commission on services is recognized upon the sale of consigned goods. Revenue from merchandise sold is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer. 5. returns. Actuarial gains and losses are recognized as income or expense when 54 . In case of marketing support funds. Retirement Benefit Retirement benefits cost is determined using the projected unit credit actuarial valuation method. 7. Revenue is measured at the fair value of the consideration received. 2. 3. Revenue from dividends is recognized when the Group’s right to receive the payment is established. Rental income is accounted for on a straight-line basis over the lease terms of ongoing sub-leases. Revenue of marketing is recognized when service is rendered. Cost and Expenses Recognition Cost is recognized in profit or loss at the point of sale. Interest income is recognized as it accrues based on effective interest rate method. rebates and sales taxes. excluding discounts. revenue is recognized upon achievement of the minimum purchase requirement of the suppliers. Franchise fee is recognized upon execution of the franchise agreement and performance of initial services required under the franchise agreement.

if lower. Lease payments are apportioned between the interest income and reduction of the lease receivable so as to achieve a constant rate of interest on the remaining balance of the receivable.the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of the plan assets as of that date. The net retirement obligation is the aggregate of the present value of the retirement obligation and actuarial gains and losses not recognized reduced by past service cost not yet recognized and the fair value of the plan assets out of which obligations are to be settled directly. Past service cost is recognized as an expense in the consolidated statement of income on a straight-line basis over the average period until the benefits become vested. 55 . at the present value of the minimum lease payments. Operating lease payments are recognized as an expense in profit or loss on a straight-line basis over the lease term. If such aggregate is negative. past service cost is recognized immediately. If the benefits are already vested following the introduction of. the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refund from the plan or reductions in the future contributions to the plan. or changes to the plan. Interest income is recognized directly in profit or loss. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Leases Finance leases—which transfer to the lessee substantially all the risks and benefits of ownership of the asset—are capitalized at the inception of the lease at the fair value of the leased property or.

or d) there is a substantial change to the asset. or c) there is a change in the determination of whether fulfillment is dependent on a specified asset. construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets.The determination of whether an arrangement is. A reassessment is made after inception of the lease only if one of the following applies: a) there is a change in contractual terms. unless the term of the renewal or extension was initially included in the lease term. Where a re-assessment is made. or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. and the date of renewal or extension for scenario b. c or d above. or b) a renewal option is exercised or extension is granted. other than a renewal or extension of the arrangement. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Exchange differences arising from translation of foreign currency monetary items at rates different from those at which they were originally recorded are recognized in the consolidated statement of income. Foreign Currency-Denominated Transactions Transactions in foreign currency are initially recorded at the exchange rate at the date of transaction. All other borrowing costs are expensed in the period they occur. Outstanding foreign currency-denominated monetary assets and liabilities are retranslated using the applicable exchange rate at balance sheet date. Borrowing Costs Borrowing costs directly attributable to the acquisition. lease accounting shall commence or cease from the date when the change in circumstance gave rise to the re-assessment for scenarios a. 56 .

Deferred income tax. deferred income tax liabilities are recognized except when the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. however. With respect to investments in other subsidiaries.Income Tax Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and. Deferred income tax assets are recognized for all deductible temporary differences and carryforward benefits of unused net operating loss carryover (NOLCO) and excess of minimum corporate income tax (MCIT) over regular corporate income tax (RCIT) to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of unused NOLCO and MCIT over RCIT can be utilized. Deferred income tax liabilities are recognized for all taxable temporary differences. at the time of transaction. associates and interests in joint ventures. associates and interest in joint ventures. affects neither the accounting profit nor taxable profit or loss. Deferred income tax liabilities are not provided on non-taxable temporary differences associated with investments in domestic subsidiaries. 57 . Deferred income tax relating to items recognized directly in the stockholders’ equity and not in the consolidated statement of income. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date. Deferred income tax Deferred income tax is recognized on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

the effect of stock dividends. if any. In determining both the basic and diluted earnings per share. excluding treasury shares and adjusted for the effects of all potential dilutive common shares. renting of properties and 58 . excluding treasury shares. is accounted for retroactively. based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. The Group considers the store operation as its primary activity and only business segment. Segment Reporting Operating segments are components of an entity for which separate financial information is available and evaluated regularly by management in deciding how to allocate resources and assessing performance. Earnings (Loss) per Share Basic earnings per share is calculated by dividing the income or loss for the year attributable to common shareholders by the weighted average number of shares outstanding during the year. Deferred income tax assets and deferred income tax liabilities are offset.The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax assets to be utilized. Franchising. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled. Diluted earnings per share is calculated by dividing the net income or loss for the year attributable to common shareholders by the weighted average number of shares outstanding during the year. if any.

If the effect of the time value of money is material. Contingent assets are not recognized in the consolidated financial statements but disclosed when an inflow of economic benefit is probable. Provisions Provisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a result of a past event. When the Group expects a provision or loss to be reimbursed. where appropriate. Where discounting is used. net of any reimbursement. the asset and the related income are recognized in the consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Events after the Balance Sheet Date 59 . Contingencies Contingent liabilities are not recognized in the consolidated financial statements. The expense relating to any provision is presented in the consolidated statement of income. If it has become virtually certain that an inflow of economic benefits will arise. the increase in the provision due to the passage of time is recognized as interest expense. (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and (c) a reliable estimate can be made of the amount of the obligation. Contingent assets are assessed continually to ensure that developments are appropriately reflected in the consolidated financial statements. provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and. the reimbursement is recognized as a separate asset only when the reimbursement is virtually certain and its amount is estimable. the risks specific to the liability.commissioning on bills payment services are considered an integral part of the store operations.

Determination of Functional Currency Based on the economic substance of the underlying circumstances relevant to the Group. which have the most significant effect on the amounts recognized in the consolidated financial statements. It is the currency that mainly influences the revenue.Post year-end events that provide additional information about the Group’s position at the balance sheet date (adjusting events) are reflected in the consolidated financial statements. estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates and Assumptions The preparation of the consolidated financial statements in accordance with PFRS requires management to make judgments. Future events may occur which can cause the assumptions used in arriving at those judgments. Use of Significant Accounting Judgments. on initial recognition as a financial asset. 1. The effects of any changes will be reflected in the consolidated financial statements of the Group as they become reasonably determinable. The judgments. liability or equity instrument in accordance with the substance of the 60 . estimates and assumptions to change. costs and expenses of the Group. estimates and assumptions used in the consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of balance sheet date. Judgment In the process of applying the Group’s accounting policies. . apart from those involving estimations. management has made the following judgments. Classification of Financial Instruments The Group classifies a financial instrument. Post year-end events that are non-adjusting events are disclosed in the notes to the consolidated financial statements when material. or its components. 2. The Peso is the currency of the primary economic environment in which the Group operates. the functional currency of the Group has been determined to be the Peso.

loans and receivables and AFS financial assets.073 and P72. are classified as financial liabilities at FVPL and other financial liabilities. c.944. As such. re-evaluates this classification at every balance sheet date.266. Operating Lease as Lessor The Group entered into property subleases on its leased properties. liability or equity instrument.777 in 2006 and 2005. The Group’s financial instruments include loans and receivables. Operating Lease as Lessee The Group entered into various property leases. where allowed and appropriate.contractual arrangement and the definitions of a financial asset. HTM financial assets.189.985. As such. Financial liabilities. Accrued rent as of December 31. The Group determined that its lessors retain all the significant risks and rewards of these properties which are leased out on operating leases (Note 27). 2006 and 2005 amounted to P69. rather than its legal form. AFS financial assets and other financial liabilities (Note 30). 61 . 3. the lease agreement was accounted for as a finance lease (Note 27). the lease agreements were accounted for as operating leases (Note 27). where it has determined that the risks and rewards related to the properties are retained with the lessors.314 and P259. Finance Lease as Lessor The Group entered into a sale and leaseback transaction with an armored car service provider where it has determined that the risks and rewards related to the armored vehicles leased out will be transferred to the lessee at the end of the lease term. on the other hand.266. Financial assets are classified as financial assets at FVPL. respectively (see Note 20). governs its classification in the consolidated balance sheet. b. respectively (see Note 12). The substance of a financial instrument. The Group determines the classification at initial recognition and. Classification of Leases a. Rent expense amounted to P265.

2006 and 2005 amounted to P1. respectively (see Note 22). Estimates The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities follow: 1. Valuation techniques include net present value techniques.889. For all other financial instruments not listed in an active market.739. Moreover. judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required.Rent income amounted to P39. When current bid and asking prices are not available. Impairment of Loans and Receivables The Group reviews its loans and receivables at each reporting date to assess whether a provision for impairment should be recognized in its consolidated statement of income or loans and receivables balance should be written off. respectively (see Note 13). options pricing models.354 and P462.771. comparison to similar instruments for which market observable prices exist. and other relevant valuation models.382. Such estimates are based on assumptions about a number of factors and actual results may differ.211 in 2006 and 2005. Note 30 presents the fair values of the financial instruments and the methods and assumptions used in estimating the fair values. the fair value is determined by using appropriate valuation techniques.745 and P35. Unearned rent as of December 31. Determination of Fair Value The fair value for financial instruments traded in active markets at the balance sheet date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions). without any deduction for transaction costs. management evaluates 62 . resulting in future changes to the allowance. the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. In particular. 2.

014 and P628.107. the financial health of the investee and the industry and sector performance like changes in operational and financial cash flows. 2009. The Group treats “significant” generally as 20% more of the original cost of investment. 2007.948.541 as of December 31. 3. In addition to specific allowances against individually significant loans and receivables.069.070. the normal volatility in the share price. 63 .448.843. Impairment of AFS Financial Assets In determining the fair values of financial assets. 2005.174. P502. although not specifically identified as requiring a specific allowance. have a greater risk of default than when originally granted. The determination of what is “significant” or “prolonged” requires judgment.939 as of December 31.739.008. 2006. P7.798.980 and P10. and ‘prolonged’ greater than 6 months. payment history.507 in 2008. 2008 and 2009. Allowance for impairment on loans and receivables amounted to P10. Provision for impairment amounted to P9.474. Any indication of deterioration in these factors can have a negative impact on their fair value. respectively. There was no provision for impairment in 2005.507.238.678 in 2007 and P2. past due status and term. P346. 2008. respectively (Note 5). the Group also makes a collective impairment allowance against exposures which.327 in 2009. P7. probability that the borrower will enter bankruptcy or other financial re-organization. a breach of contract. The carrying value of loans and receivables amounted to P73.113. This takes into consideration the credit risk characteristics such as customer type. P454. P503.740.481.the presence of objective evidence of impairment which includes observable data that comes to the attention of the Group about loss events such as but not limited to significant financial difficulty of the counterparty.498 in 2006 (Note 5).903. P8. such as a default or delinquency in interest or principal payments. management evaluates the presence of significant and prolonged decline in the fair value of share price below its cost. 2007 and 2006.

2007.227.973.849 and P331. 2009. 2009. P800. While management believes that the assumptions made are appropriate and reasonable. 4.553. P1.556.622 and P804. 2006 and 2005 (Notes 10 and 30).819. The carrying value of property and equipment and software and program costs amounted to P1. 2008.652. The carrying value of inventories amounted to P415.430. P1. status and recoverability of realizable value of inventories. respectively (Note 8).072. Based on as of December 31. 2006 and 2005.235.339 as of December 31.255. The estimates are based on a number of factors.453.2006 and 2005. significant changes in these assumptions may materially affect the assessment of recoverable values and may lead to future impairment charges. Impairment of Property and Equipment and Software and Program Costs The Group determines whether items of its property and equipment and software and program costs are impaired on an annual basis. 2008 and 2007. 2008 2007. 2009. This requires an estimation of the value in use of the cash-generating units to which the assets are allocated. Estimation of Useful Lives of Property and Equipment The Group estimated the useful lives of its property and equipment based on a period over which the assets are expected to be available for use. Property and equipment. 6.526.693 2009. P858.575 as of December 31.The carrying value of AFS financial assets amounted to P2.314. No impairment losses were recognized in 2009.339 and P714.244. P323. No provisions for decline in inventory value were recognized in 2009.329. P852. 64 . Decline in Inventory Value Provisions are made for inventories whose NRV are lower than their carrying cost.385.446.082. respectively (Note 6).926.504 as of December 31.158. 5.671 and P339. 2007. amounted to P1.041. This entails estimation of cost of completion and costs necessary to make the sale.125. 2007 and 2006. 2008. 2007 and 2006 respectively (Notes 8 and 10). the age. The preparation of the estimated future cash flows in determining value in use involves significant judgment and estimation. 2008. net of accumulated depreciation and amortization. 2006 and 2005. 2008.458.752.

715. 65 . 2008.178.950. No impairment losses were recognized in 2009 and 2007. no impairment loss needs to be recognized in 2006 and 2005. expected rate of return on plan assets and salary increase rates.183. 13. 7. there were no indicators of impairment in the Group’s nonfinancial assets. 2008. 2007.611. This requires an estimation of the value-in-use of the cash-generating units to which the goodwill is allocated. 2007.567. The Group’s unrecognized net actuarial losses amounted to 15. generally affect the recognized expense and recorded obligation in such future periods. while impairment loss recognized on goodwill amounted to P4. discount rates per annum.412.982. among others. Estimating the value-in-use amount requires management to make an estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying value of goodwill amounted to P65.698 and 11. Estimation of Retirement Benefits The determination of the obligation and retirement benefits is dependent on management’s assumptions used by actuaries in calculating such amounts.643. 2006 and 2005. Those assumptions are described in Note 25 and include.892 as of December 31.524 as of December 31. no impairment loss needs to be recognized in 2009. 2009 and 2008 and P70. 2007. Actual results that differ from the Group’s assumptions are accumulated and amortized over future periods and therefore. 15. 8. Impairment of Goodwill The Group determines whether goodwill is impaired at least on an annual basis. While the Group believes that the assumptions are reasonable and appropriate.574 as of December 31. respectively (Note 25).368 in 2008 (Note 10). 2006 and 2005.management’s assessment. 2006 and 2005. goodwill is fairly stated. significant differences in the actual experience or significant changes in the assumptions may materially affect the retirement obligations. respectively (Note 10). Based on management’s assessment. thus. thus.

Management has determined based on business forecast of succeeding years that there is enough taxable profit against which the recognized deferred income tax assets will be realized. 2006 and 2005.929.841 and P22.734 638.899 as of December 31. 2009.782.754. Cash equivalents are made for varying periods up to three months depending on the immediate cash requirements of the Group and earn interest at the respective cash equivalent rates. Realizability of Deferred Income Tax Assets Deferred income tax assets are recognized for all temporary deductible differences to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized.873.689 in 2009.766 Cash in banks earn interest at the respective bank deposit rates. P39.598. Further details about the assumptions used are disclosed in Note 25.827. 2009 and 2008.583. 9.645 P 204. Receivables 66 . respectively (Note 28).667.251.979. Cash and Cash Equivalents 2009 Cash on hand and in banks Cash equivalents P432.408.357 as of December 31.633 in 2007 (Notes 24 and 25).880.516. 2006 and 2005.128.737 as of December 31.364.075 610.888 2008 P 314.300 P 329. P41.900. respectively (Note 25) and P26.700.387.994 15.894 P 448.720.357 2007 P 308.888.701 in 2008 and P 7.123.310. 5. P8.The Group’s net retirement obligations amounted to P55.830.623 P 314.008.106 P 308.375 2005 P 197.463 and P77. The Group’s recognized deferred income tax assets amounted to P51. 4.944 2006 P 328.617.838 622. P54.241. Retirement benefits cost amounted to P21.363. P35. 2008. 2007.121 6.902.

Current portion of lease receivable is net of unearned interest income amounting to P332.000 2.  Store operators .023.745.278.617.051 80.650.773 1.248 – 938.905. salary loans and cash shortages from stores which are charged to employees.317.564 – 1.542 – – – 1.101 783.174 P 145.000 3.(Note 26) Receivable from Social Security System Others Less allowance for impairment P69.653 2006 P 40.050 2.439. Receivables from suppliers are non interest-bearing and are generally on 30-90 days’ terms.671 76.948 P 140.638 2005 P 54.750. Rent .140.536 – 3.276.2009 Suppliers Franchisee Employees Rent Lease receivable-current(Note 27) Notes receivable-current(Note 10) Insurance claims Store operators Deposits Due from Philippine Foundation Inc.436 and P465.402 – – 53.477 – 12.484 6. 67 .740.404 1.099 150.215.982.508. Employees .012 4.481.265 154.170.232 – – 4.093.989.085. annual volume discount and commission income from different service providers.513 2007 P 48.pertains to receivables from sublease agreements with third parties.193 – – – – 4.449 7.216 – 4.784.162 6.441 P 73.980 P 72.489.906.739.321 – – – 957.487 – 1.843.008 The classes of receivables of the Group are as follows:  Suppliers .187.pertains to the advances given to third party store operators under service agreements (Note 33).800.    Franchisee .985.755.430.260 – 4.137.854.033 – 2.429. respectively.248 4.663 6.628.105 2008 P 61.883 – 7.687 8.882 16.251 as of December 31.620.984.pertains to car loans.246.939 P 47.688.756.594.053 10.507. 2009 and 2008.408 57.009.633 7.060. which are based on an agreed fixed monthly rate or as agreed upon by the parties.604.577 10.702 81.572 2.098.875.372.185 5.519 6.pertains to receivables from the Group’s suppliers for display allowances.890 50.pertains to receivables for the inventory loans obtained by the franchisees at the start of their store operations.864 323.

263.Notes receivable pertains to the remaining secured.987 2.939 Total P 7.637) P 7. Movements in allowance for impairment are as follows: 2009 Suppliers Beginning balance Provision for the year(Note 20) Write-off Recovery of bad debts Ending balances P6.041) – P 7.135.605.327 (7.678 (3.300) P 10.787.212) (113.133 (719.019.745 and the fair value of the mortgaged armored vehicles in favor of the Group amounting to P4.939 346.114.987 P 719.300 Others P 2. In March 2007. the difference between the outstanding balance of the notes receivable of P11.948 2008 Suppliers Beginning balance Provision for the year(Note 20) Write-off Ending balances P7.313) P 8.300) P 3.637) P 7.843.041 7.300 (6.987 – – P 719.135.027 (976.498 P 10.740.507 (6.535.019.605.069.678 (3.326) P 6.952 346.253) (113.864 and bears interest at 8%. The settlement of notes receivable through mortgage did not result in the recognition of any gain or loss.000 was written off (Note 17).985.581.041 Others P 719.798.308.441 2.396.980 7.114.174 9. The allowance for impairment pertains to suppliers and others accounts.934.133 2.605.457.349.740.648 Total P 8.511 P 9.987 Total P 7.183.987 2006 Suppliers Beginning balance Provision for the year(Note 20) Ending balances P7.993 Others P 719.739.980 68 . In 2006.604. receivable from an armored car service provider for stolen collections amounting to P19.133 2007 Suppliers Beginning balance Provision for the year(Note 20) Write-off Ending balances P9.604.535.952 Others P– 719.507.069.441 2. the armored car service provider settled its outstanding account with the Group by transferring the ownership of its mortgaged armored vehicles in favor of the Group under a sale and leaseback finance lease arrangement (Note 27).507.987) P 2.993 4.787.739.135.903.174 Total P 10.374 (5.

742 1.097.009.935.229.762 1.445.383.464.900 P 69.392 2008 P 66. net of 1.358.722 164.866. resulting from the revaluation was credited to “Revaluation increment in land” account presented under the stockholders’ equity section of the consolidated balance sheets.867.108.975.481.224.815 1. nine of the Company’s stores were devastated by the typhoon “Ondoy”.975.880 1.122.320 23.436.519.818.867 – – 1.425.473 P 35.993. the Group revalued its land with cost amounting to 39.973.468. as determined by a professional qualified independent appraiser.926.998 P 59.331.238 P 331.291.954 – 1.724 1.075.732 16.163.751 2.460.419 P 415.015 – 1.266 151.555.225 P 339.193.611.6.479 1.083 875. 69 .212 3. Properties and Equipment On February 5.252 180.605 – 650.838 15.907 1.556. The appraised value was determined using the market data approach. The appraisal increase of 3.617 1.285. 2007.849 P 180.308 5.102 2006 P 31.770 – 1.243 7.510 1.653. On September 26.581. The Company recognized loss from the said typhoon amounting to P3.384.613 4.714.895.138 P 336.385 P 184.652.045.940 12.495.205.585.671 P 175.914 9.864 at appraised value of 44.947.555 1.481 11.682.330 – 9.860 2008 2007 2006 2005 7.105.833 8.171.337.713 P 174. which represents the net book value of the property and equipment destroyed by the typhoon as of that said date.504 P 172.241 tax.584 1.340 957.259.250. Prepayments and Other Current Assets 2009 Deferred input value-added tax (VAT) Creditable withholding taxes Advances to suppliers Prepaid rent Advances for expenses Supplies Deferred lease-current(Note 10 and 27) Prepaid uniform Prepaid taxes and licenses Others P88.160 163.253 4.481.440 2.401 – 7. 2009.178 2007 P 43.986 P 117.847.157.803.276.077.544 – 44.161.365 1.038.368.173.449. Inventories 2009 At cost(Note 19): Warehouse merchandise and others Store merchandise P235.387 2005 P 11.292 P 323.897. wherein the value of the land is based on sales and listings of comparable properties registered within the vicinity.485.096.557 139.928 11.000.

2009 and 2008.940 and P444.262. as of December 31. P472.Fully depreciated property and equipment that are still being used in operations amounted to P498. 2007 and 2006.992. respectively.531.529.619. Movements in property and equipment are as follows: 70 .

858.726 (51.631.631.172 52.677.000 Total P 1.586.385.075.594 – – 106.000 – – – 44.227.821 919.582.934 P 127.991.886 45.887 62.481.882.744.352.934 30.962.656 237.994 1.821 Land Costs/Revalued Amount Beginning balances Additions Disposals Reclassifications Ending balances Accumulated Depreciation and Amortization Beginning balances Depreciation and amortization(Note 20) Disposals Reclassifications Ending balances Net Book Values – – – – – P 44.959.628) 34.991.342 (19.201.053.112.196.458) 15.442) (436.213 – – 55.477.586.543 341.146.053.303.135 (8.457) – 279.773.041.043 125.905.465) (5.873.685 2.358.723) – 2.752 P 479.363.870.131.937) 5.678.268 Transportation Equipment P 26.2009 Buildings and Improvement P 106.335 96.000 Total P 1.481.072.530 Construction in Progress P 15.837.465 (20.771 (102.000) – 26.230 – – 20.901.570.085) 358.696.987.473 – – – – – P 43.372.614 179.660 284.835.755.264.552.659 P 9.000 – – – 44.179.275 632.483.694 (54.859.873.210.341 4.915 P 72.509.082.651 36.387.609.273.131 53.497.788 P 314.602.083.509 109.189 Construction in Progress P 25.000 P44.393.063) 919.631.057 P 352.328.933) 117.723 P 1.851 61.430 2008 Buildings and Improvement P 104.870.611 158.976 713.902.788 46.502.994 Computer Equipment P 180.711 (20.056.132 782.477.481.630 10.234 Store Furniture and Equipment P 713.917 14.000) 16.655.745.075.085 170.468.889 P 11.352.891.855 P 171.481.653) 436.377) 144.363.222 Leasehold Improvements P 492.095.056.393.843 55.090 307.000 P44.611 Office Furniture and Equipment P 240.420.401 – – – – P 15.688 (4.255 P 51.390.959.318.400.663.659 3.180 (14.413 16.802.091 Office Furniture and Equipment P 272.349 – – 162.100.133.703.244.377.745 117.974 (250.745.623 23.990 (79.538 1.552) – 1.543) 838.461.663.499.669.934.434.701 – 49.481.150.186 (54.189 53.611.772 415.497.708.639.134) – 272.568 73.210 (53.655.657) – 1.442) (13.939) 284.546.097.887 Land Costs/Revalued Amount Beginning balances Additions Disposals Reclassifications Ending balances Accumulated Depreciation and Amortization Beginning balances Depreciation and amortization(Note 20) Disposals Ending balances Net Book Values – – – – P 44.667.481.082.549 (19.377.132 Store Furniture and Equipment P 566.344.870) 224.557 P 1.884 (8.634 Computer Equipment P 214.736.371.006 (86.568 P 406.319 201.303.640 – – 31.635.046.153 49.210.334 (4.814) 306.765.994 5.887 826.029.575 Leasehold Improvements P 599.595.718 (76.508.222 19.997.227.461.549.329 71 .133.566 P 97.991.042 5.198.851 Transportation Equipment P 25.552.275) 43.406.795.209 – (34.966.527 (4.864.979 306.677.042 P 56.656.549.860.366.251) – 214.353 – – 234.653) 13.339 144.102 – – 106.206.489 (4.482 599.115.566 44.000 (250.557 203.950 40.886 362.344.

827.604 P 92.748 3.793 10.100.531) – 125.864 Total P 1.599 40.526.660 14.986 – – 11.582 240.971.116.424.481.000) – – 25.301.818 550.071) 237.950 P 84.710 (220.720 58.368) 33.440.982.146.279.385.225.366.341 P 59.985.864 – – – 39.670.957.179.497.117.666 Construction in Progress P 11.114.479 P 800.573.142.866.834) – 22.449 75.481.150.172 P 258.821) 4.799) (1.555) 449.206.490.685 P 10.570.061 (7.538 40.987.890 139.450 – – 45.729.499.729) 191.908 269.776) – (22.489.263 46.722 5.158 Accumulated Depreciation and Amortization Beginning balances Depreciation and amortization(Note 20) Disposals Reclassifications Ending balances Net Book Values 2006 Buildings and Improvement P 104.357 87.891 4.630 Land Costs/Revalued Amount Beginning balances Additions Disposals Revaluation increment Reclassifications Ending balances P39.406.630 – – – – – P 25.866.896.106) (2.077.755 23.509 191.311.680.018 (20.818 63.000 – – – – – P 44.251) – 826.951) – 22.436 (1.174.000) – 19.458.479 159.866.028 Transportation Equipment P 19.715.131) 33.864 – – 4.201.991 492.614.793 11.858.538 – – – – 104.142.491.082) – 96.582) 180.638 (42.953) (83.977 75.673.264 21.647 Store Furniture and Equipment P 411.720 P 257.999.299 17.411 – 62.117.428.773 38.711.994 11.491.794) 108.659 Leasehold Improvements P 390.538 36.932.510.732.911.206.595.299) 42.415 Computer Equipment P 123.864 P39.891 P 63.305.828 104.534.933.017.197.245.974.201 (24.772 692.339 72 .181 Leasehold Improvements P 449.341.066.071 307.070.818 224.604 26.309 Computer Equipment P 161.688.421 (16.264 P 110.016 69.305.131 69.928 (2.614 P 852.378 2.603.599.721.746.189 Transportation Equipment P 15.622 P 217.476.246.378 P 7.000 Total P 1.865.585.468) (75.563 (473.099 (11.085.265.197 Store Furniture and Equipment P 487.622 46.991) 566.386 (25.660 Land Costs/Revalued Amount Beginning balances Additions Disposals Reclassifications Ending balances Accumulated Depreciation and Amortization Beginning balances Depreciation and amortization(Note 20) Disposals Reclassifications Ending balances Net Book Values – – – – – P 39.047) – 1.117.339.987.450 (5.250 (12.751.800.319 269.326 – – 11.623 P 115.049.458) 219.745.678.291) 161.582) 1.428 (225.387.492.277.696.260) – (22.865.492.757.599.046.639 (43.729 (8.2007 Buildings and Improvement P 104.843 P 254.071 (2.847 248.201 (4.297.421 17.198.453 26.934) – 692.688.400.653 (43.248.890 (5.799.385.890 66.693.089 41.366.476 487.614.099.263 19.866.199.136 – 44.732.491.154 154.544 – 1.453 93.933.385.056) (1.857) (10.970 – – – 25.238.336.147 Office Furniture and Equipment P 219.071.357 224.579 (24.259 (12.651 108.670.297.143.360 44.870.136 – 1.634.307 – – 14.711.729.660 – – – – – P 11.608.052 1.170 Construction in Progress P 117.896.735 Office Furniture and Equipment P 180.238.674 10.339.

154 P 714.515 20.328.833.804 – – 1.782.903.440.488) 123.2005 Buildings and Improvement P 110.198 2006 P 81.674 Land Costs/Revalued Amount Beginning balances Additions Disposals Reclassifications Ending balances Accumulated Depreciation and Amortization Beginning balances Depreciation and amortization(Note 20) Disposals Reclassifications Ending balances Net Book Values – – – – – P 39.328.223.205) 5.470 2007 P 87.818.793.695.757.835 67.996 P 113.016 – (2.033 2008 P 97.115.309 P 151. Deposits 2009 Rent(Note 27) Utilities Supplies Refundable Others P116.206 – – 15.610.879 P 132.719.815.083.741.383.860) 12.491.702.085.299 35.184 46.144) 36.087.462.738 – 752.297.971.449 189.783 – 10.325 38.108.052 P 5.333.751 124.634 – – (6.360 P 187.773 31.693 9.441.173 (41.977 101.343 49.305.385.000 224.943.374 – (1.695.164 15.665 9.413.756 390.755 P 77.864 Total P 1.958.307 944.980.518) 1.866.710.671 (4.531.670 Computer Equipment P 58.757.787 39.326.646 – 9.461 411.090 43.877 224.265.932.114.835) – 550.398.453.766.646 19.748 P 67.064) 979.534 (988.211.143.182) 3.421 P 86.845.901.311.103) (816.697) 2.745 – – 10.203 (5.254 (3.516 3.679 21.180.847 450.292.029 73 .497.196 93.126.258.674 – – – – – P 117.962 22.866.649.314.734.473.089 Office Furniture and Equipment P 142.578 3.968.639 (29.364) (1.159 Construction in Progress P 1.486.792.511.873.722 – 493.736 14.992) (90.267 (884.249 3.367 21.446.376 2005 P 84.107.908.815.864 – – – 39.887 139.366.819.748.864 P39.217 (5.732.986.238 (24.979 2.668 Transportation Equipment P 11.645.876 4.284.753.628.769.534.818 P 250.556 220.018 Leasehold Improvements P 374.866.879 P 110.285 (14.722 9.335) 104.710 P 107.944.089 83.830 66.987.700) 117.131.212) 180.866.020.096) 19.551 Store Furniture and Equipment P 348.140.024.

689.821 2006 P 21.862.131 20. respectively.195 22.687.877 958.240.060 2008 P 18.635.392.045.250 in 2006 and 2005.060) P 10.299) P 9.516 The amortized cost of refundable security deposits included under Rent of Deposits as of December 31.336 21.615 – (1.508. respectively.516 243.162 (876.938 – (18.299 2007 P 2.000) (16.981) P 16.578 2007 P 7.615) P 9.389) P 21.438.454 Movements in unamortized discount are as follows: 2009 Beginning balance Additions Amortization Refunded Ending balance P17.045.689.240.016) – P 17.127.299 235.Rent Deposits on rent are computed at amortized cost as follows: 2007 Face value of security deposits Less unamortized discount P108.591.724 897.877 – – (17.979 2008 P 26.682.832.188 and P7.835.440.694 (1.314.529 (519.516 P 81.240.521.737) P 22.326. Refundable Refundable deposits on rent are computed at amortized cost as follows: 2009 Face value of security deposits Additions Refunded Unamortized Discount P26.348 (987.515 2006 P 103.689.710.606) (177.189.821 P 87.591.686.615 74 .425 and P1. Interest income on accretion of the value of the refundable security deposits amounted to P912.835.740.756.679 Movement in unamortized discount is as follows: 2007 Beginning balance Addition Amortization Ending balance P22.446.415 16.214) – P 18.414 (825.521.521. 2006 and 2005 amounted to P9.

314.477 2.178.455 3.575 3.695 – 4. The pre-tax discount rate applied to cash flow projections is 10.023 – 10.265.314. the Group purchased the leasehold rights and store assets of Jollimart Philippines Corporation (Jollimart) for a total consideration of P130.572 2008 P 65. The recoverable amount of the goodwill was estimated based on the value-in-use calculation using cash flow projections from financial budgets approved by senior management covering a five year period.575 3.453. Goodwill and Other Noncurrent Assets 2009 Goodwill Deferred lease-net of current portion Garnished accounts Software and program cost-net Notes receivable-net of current portion Lease receivable-net of current portion AFS financial assets Others P65.359 P 101.300.265. 2006 and 2005 as management assessed goodwill to be fairly stated.010.524 11.10.611. Key assumptions used in value-in-use calculations:  Sales and cost ratio 75 .295 2.600.877 Goodwill On March 22.892 – – 1.087.464 – 3.892.945 2007 P 70.567.920.311.269.765.892 14. which resulted in the recognition of impairment loss on goodwill amounting to P4. 2009 and 2008.648 8.088 P 197.761.647 P 199.892 – – 3.178.587.000 – – 12.539.834.095. the Group has closed one and nine stores.058. The excess of the acquisition cost over the fair value of the assets acquired was recorded as goodwill amounting to P70.178.27% in 2009. As of December 31.880 1.22% in 2008. out of the 35 stores it purchased from Jollimart.132 – 6.423 – 6. 2006 and 2005.178.190 – 6. respectively.778.314.681.319.000.471.567.584.524 13.811 2005 P 70.000. 10.756 P 100.368 in 2008.856.575 4. The cash flows beyond the five-year period are extrapolated using a 3% growth rate in 2009 through 2005 that is the same as the long-term average growth rate for the retail industry.114 2006 P 70. No impairment losses were recognized in 2009 and 2007. and 9. 2004.477.715.239 6.00% in 2007.041 2.052 10.601 P 107.

810) – 16.866 1.  Discount rates Discount rates reflect management’s estimates of the risks specific to the CGU.577. yield on a 10-year Philippine zero coupon bond as of valuation date.529 (1.70.586 Software and Program Cost Movements in software and program cost are as follows: 76 .702.425.Sales and cost ratio are based on average values achieved in the three years preceding the start of the budget period.479.479.519.418) 13.714. the following are considered: average high and low range of average bank lending rates as of year-end.475.253.577.765.718. Annual inflation and rate of possible reduction in transaction count were also considered in determining growth rates used.361) – 14.794 1.388 1.902.742 P 11. company relevered beta and alpha risk.749 – (1.693 (1.00% of sales per annum. market risk premium.660.058.064) – 17.023 2007 P 17. Deferred Lease Deferred lease pertains to day 1 loss recognized on refundable deposits on rent. In computing for its WACC.00% .  Growth rate estimates Rates are based on average historical growth rate. Movements in deferred lease are as follows: 2009 Beginning balance Additions Amortization(Note 27) Refunded Ending balance Less current portion Noncurrent portion P14.186.132 2006 P 18.749 1. which is amortized on a straight-line basis over the term of the related leases.348 (1.866 243.955.761.365 P 13.280 P 16.388 235. These are increased over the budget period for anticipated efficiency improvements. Management computed for its weighted average cost of capital (WACC).955.524) (150.401 897.052 2008 P 16. Sales are projected to increase by two to three percent per annum while the cost ratio is set at 68.719.617 P 14.

6.788. Amortization of P280. A new software was acquired with acquisition cost amounting to P4.214.085 286.000 – 14.60% to 77 .053.757. payable in lump sum in 2009 and 2008 with annual interest rates ranging from 4.085 – 14.536 2.662 3.778. ES1/Super Logistics. These are carried at cost less any impairment loss.085 2008 P 7.489.000 280.435. AFS Financial Assets AFS financial assets include unquoted investments in preferred shares of a public utility company.75% to 8.47% to 8.000. which pertains to the estimated fair value of mortgaged armored vehicles in favor of the Group.000.000 6.464 2006 P 16. 11.226.426.798 1.036) 280.2009 Cost Beginning balance Acquisition Write-off Ending balance Accumulated amortization Beginning balance Amortization(Note 20) Write-off Ending balance Net Book Values 3.000 3.000 1.037.010.423 2007 P 4.728 – 6.200.435.200. 8. with acquisition cost of P16.426.60% in 2007.200.000 P 3.000 – 7. 7.036) 4.90% to 5.536 P 6.200.920.500.105. Notes Receivable Notes receivable pertains to the long-term portion of a secured.50% in 2009.238 (16.330.780.330.036 4.536 – 1. Bank Loans Bank loans represent unsecured Peso-denominated short-term borrowings from various local banks.000 15.302. receivable from an armored car service provider for stolen collections bearing interest at 8%.780.985.390 P 8.780.126 – 3.780. became fully depreciated in 2006 and was written off during the same year.095. The remaining balance was written off in 2006 (see Note 18). if any. Outstanding balance of the notes receivable amounts to P4.000 The Group’s old inventory management software.000 (16.214.662 P 10.085 1.050.000 was recognized in 2006.695 P14.60% in 2008.

533 P 610. 2007 and 2006.497.666.364.000 (281.395.139 1.355.564.320 1.000) P 340. respectively (Note 12).351.073 10.020.167 7.041 1.100 1.418. P24.194 2.417.825. P31.8.222.053.700.359 and P1.125 – 1.257 69.227.000.584 P 848.913 2006 P 493. Accounts Payable and Accrued Expenses 2009 Trade payable Rent(Note 27) Employee benefits Utilities Advertising and promotion Outsourced services Security services Bank charges Interest(Note 27) Others P864.121.110 as of December 31. Other Current Liabilities 78 .264 7.937 in 2005 (Note 21).927.767 2007 P 475. Interest payable amounted to P641.609.292.000) P 404.015 85.070.702.794 4.359 5.978.701.000) P 375.616.760.970 22.729.108.342.000.054.700.129.000.098.630.381.000 (500.889. Movements in bank loans are as follows: 2009 Beginning balance Availment Payments Ending balance P330.897 2.694.960 73.809.908.000 510. P35.055 in 2008. P985.005 P 1.000 688. P1.000 415.333.228 1.043.60% to 11.689 15.049.972 6.000 (460.922.028 20.000.700.852.120 1.100.563 13.938.000 2008 P 375.000 2007 P 404.616.011 12.605 2008 P 697.422 26.000.000 Interest expense from these bank loans amounted to P26.886 2.80% in 2006 and from 8.722 11.476 1.838.00% in 2005 which are repriced monthly based on market conditions.437 in 2009.242.648 P 556.000.000.957 2005 P 432.000) P 330.000 (717.655 in 2007.796.820.110 8. 2008.400.148 in 2006 and P27.115.027.305 P 582.000 1.000.266 9.489 – 2.985.981 17.410 7.748.668 5.465.797 18.161.288.697 – 2.000.906 10.683 80.244 2.697 72.027.678.000.000 446.143.070.000 2006 P 240.488 10. 2009.944.000.764.365 11. 12.400.700 985.

917 13.000.223 – 3.236.913.310.660 – 175.67% for the first 24 months.000 28.672 10.2009 Non-trade accounts payable Deposits from sublessees Payable to franchisee Withholding taxes Retention payable Unearned rent Interest payable Service fees payable Royalty(Note 26) Payable to contractors Current portion of deferred revenue on: Exclusivity contract(Note 17 and 33) Finance lease(Note 17 and 27) Output VAT Others(Note 26) 3.151.753.669 1.875 38.458 P 83. Long-term Debt 2007 Unsecured long-term promissory notes with local banks Unsecured long-term promissory notes with various parties under escrow agency agreement with a local bank Secured long-term promissory notes with a local bank: Less current portion of long-term debt – – 6.655 1.870 2005 P 31.252.433 4.310.986 P 163.719.972 2007 P 62.006.000 P6.508.637 6.151 10.858 55.500.060.500.320 – 6.391 P 119.068 – 12.733 6. 79 .247.065.370 – – – 5.000 93.690 1.500.000 2005 P 32.719 – – – 6.747.540.991 – – 11.812.000.960 15.500.322 5.703 – – 11.129 P 111.963 53.054 2008 P 46.458.163.691 1.500.221 – – 6.932.779.129.309.980 P138.592 2006 P 62.151 3.000 125.118.649.902.967.276. the rate thereafter shall be at the prevailing lender rate.721.711.000 Unsecured long-term promissory notes with local banks: Interest is at a fixed rate of 11.000 P 32.000 P– 65.290 462.856 25.500.659 – 2008 P 120.946 P 119.332 10.081 14.699 10.000.000 6.112 1.720.867 11.904.635. The principal is payable in equal monthly installments starting on the sixth month.382.586. Deposits Payable 2009 Franchisees Service agreements Rent P70.500.796 15.038.534.885.354 546.898.494.000.237 P 174.500.549.460 – – 13. until March 2007.181.295.233 10.929.000 6.012.844.913.099.646 15.934.282.000 P– – – 6.729.717 P 211.739 691.404 – – – 9.500.326 – – 18.208 9.447 – – – 9.000 2006 P 6.671.897 6.

50% for three years.977 in 2006 (Note 21). 2000 which provides that the dividend shall be determined by the BOD of SSHI using the prevailing market conditions and other relevant factors. the rate thereafter shall be at the prevailing lender rate. until December 2006.000 in 2007. 2002.522 in 2007 and 205. Full settlement of the loan amounted to 6. 16. The loan is guaranteed by PCSC. The guaranteed annual dividends shall be calculated and paid in accordance with the Shareholder’s Agreement dated November 16. payable in equal monthly installments starting on the sixth month after the lending date until March 2007 with fixed interest rate of 11. Further. BPI-AMTG. Secured long-term promissory notes with a local bank: Interest is at a fixed rate of 10. the date when the 25% of the subscription on preferred shares have been paid.67% for the first 24 months. in SSHI’s net assets pertaining to preferred shares. PSC-ERP is entitled to an annual “Guaranteed Preferred Dividend” in the earnings of SSHI starting April 5. represent the share of PSC-ERP through its trustee. in accordance with the Corporation Code. which are redeemable at the option of the holder. payable in equal monthly installments starting on the sixth month. Guaranteed preferred dividends included as part of “Interest expense” in the consolid ated statements of 80 . the preferred shareholder shall not participate in the earnings of SSHI except to the extent of guaranteed dividends and whatever is left of the retained earnings be declared as dividends in favor of common shareholders.Unsecured long-term promissory notes with various parties under escrow agency agreement with a local bank: Interest rates range from 10.500. Interest expense from these long-term debts amounted to 45. Long-term debt in 2007 and 2006 consists of unsecured noncurrent promissory notes with a local bank.50% to 11% payable at lumpsum on May 2006. Cumulative Redeemable Preferred Shares Cumulative redeemable preferred shares.

348 Deferred Revenue on Exclusivity Contract Movements in deferred revenue on exclusivity contract are as follows: 2009 Beginning balance Collection(Note 33) Amortization(Note 33) Less current portion Ending balance P7.786. 2009 and 2008.310.151 P 3.856.197 2007 P– 6. P546.comprehensive income amounted to P412. the SEC approved the registration of the following: 81 .913.320 in 2005 (Note 21).151 3. 1998. P366.348 – P 4.348 1.476.827.380 and P424.046 2008 P 5.913.381 3.690 P– 2008 P– 11. 17.786.166.381 – (3.476.197 3.913.499 1.690) 7.827.856.856.046 – P 1.887 2007 P 4.753 (764.151 P 1.691) 3.197 1. Equity On January 9.800 as of December 31.476. respectively.310.913.310.310.913.166.240 in 2007.151 P 4.476. Deferred Revenue 2009 Deferred revenue on finance lease Deferred revenue on exclusivity contract P1.348 Deferred Revenue on Finance Lease Movements in deferred revenue on finance lease are as follows: 2009 Beginning balance Addition Less amortization(Note 27) Less current portion P4.550.348 – 1.913.660 in 2006 and P691.476.499 – (1.690 P 7. P424.046 2008 P 3.690 3.151) 4.079.071 (3.741.690 18.166.310.691 P 3.913.254) 5.800 in 2008.380 in 2009. Interest payable included under “Accounts payable and accrued expenses” in the consolidated balance sheets amounted to P412.

432.500 shares with the Philippine Stock Exchange (PSE).720. 1998.882 warrants.000 shares for private placement both at an offer price of P4.000 24.882 5-year warrants with attached 4% perpetual income bonds.382. On June 13.288.40 per share. Moreover.902.300.732 per share resulting in an additional paid-in capital of P13. on September 28.882 warrant units) Initial public offering Private placement 166.000 was credited to “Additional paid-in capital”. 2000.a. b. The 122.500 with the PSE and delisted the corresponding 122.720.200 treasury shares or a total of 30.720. Net proceeds generated from the offering amounted to P288.250 common shares consist of: Outstanding common shares (including underlying shares for the 122. consisting of 47.000 common shares.091 is presented as deduction against additional paid-in capital in the consolidated statements of changes in stockholders’ equity.300 common shares to be taken from unissued portion of the authorized capital stock and 12.250 47.938.900.382. 2000.720. The 237. Employee Stock Purchase Plan 82 .492. upon the actual exercise of the warrants and purchase of the Optional Shares.250 On February 4. the BOD approved a resolution authorizing the issuance of the Group’s shares (“Optional Shares”) for the exercise of the 122.500 shares pursuant to their registration with the SEC. the Group listed the 30.556.000. The excess of the net proceeds over the cost of common shares amounting to P216. Consequently. the Group offered for sale 71.000.500 were issued at a price of P1.382.000. The excess of cost over re-issue price of treasury shares amounting to P27.882 warrants with attached 4% perpetual income bonds consisting of 18.000 shares for public offering and 24. all of the Group’s warrants were exercised and the corresponding shares of 30. the Group was authorized to list the 30. During the period September 15 to 25.444. 2000.938.000 237.

000 shares and a maximum number of shares with a purchase price equivalent to 1 ½ months basic salary or. the Group has the right to vote the pledged shares until full payment of the loan. who have rendered at least two years of service to the Group as of December 31. On July 16. at least 2/3 of the Company’s stockholders approved the stock declaration corresponding to 10% of the outstanding common shares and the issuance of 26.977.250 shares were withdrawn by the employees and returned to the Group and accounted for as treasury shares. Record date of entitlement is August 14. 1996.097. 997.The Group has an Employee Stock Purchase Plan (ESPP) which allows all full-time and regular employees.722 common shares.252.000 shares were subscribed by the employees under the ESPP and the unsold shares were taken by the lead underwriter as part of the offering to the public. the Company’s BOD approved the recommendation for a stock dividend declaration corresponding to 10% of the outstanding common shares of the Company of 237. 2009. In 1998. up to 3 months basic salary. In 2001. 2009. On the stock purchase date.200 common shares (Note 28). in the case of a manager. and the participants have the right to receive all cash dividends.40 per share. but stock dividends shall be held in escrow until full payment of loan. On June 25. 83 . On June 18. 2008.722 common shares with par value of P1 amounting to P26. Each eligible employee can purchase a minimum of 1.097.200 shares or equivalent of 26. to purchase the Group’s shares in the offering at a purchase price of P4.725.000 shares or equivalent of 23. the Company’s BOD approved the recommendation for a stock dividend declaration corresponding to 10% of the outstanding common shares of the Company of 260.722.097. 2009. 686.

543 14.632.200.152.097.219.467 259.769.926.050.116 339.155 3.210.044.587.419.874.622 14.897.860 P3.652. Cost of Merchandise Sales 2009 Merchandise inventory.788.990 2008 P323.978 23.571.439.921 3.249.522 259.926.556.634.250 23.648.385 4.003 179.549 26.052 – 2.531.206 272.699 265.919 14. light and water Rent(Note 27) Outside services(Note 33) Personnel costs(Note 24 and 25) Depreciation and amortization Management fee(Note 33) Advertising and promotion Royalties(Note 26) Trucking services Taxes and licenses Repairs and maintenance Supplies Warehousing services Transportation and travel Entertainment.121 47.410 43.175.655 9.679 2.239 21.960.123.426.822 3.914 45.498 3.386 83.417 25.182 54.597.799.597 67.851.251.871 48.105.663.176 39.172 2008 237.046.728 36.245.On July 17.165 336.593.355 44.277 2005 P303.661 415.341.483.511.715.182.785 39.447.174 63. 2008.017.849 3.443.215 285.528 5.194.219.407 P1.604.480.240 20.816 124.556.925.634.504 3.973. Movement in the number of shares issued and outstanding: 2009 Beginning balance Issuance of stock dividend Ending balance 261.879 56.469.264.621.933 54.673 55.126 26.225 51.671 P4.722 287.456 57.959.725.477 2006 P336.406.387.138.276 4.622 24.731 2007 P331.167 3.634.742 325.227 7.259 82.798.002 316.827 P1.663 42.507 3.915 2.951 3.055 P1.787.082 2006 P315.700 250.906.581.938.576.142.200 common shares with par value of P1 amounting to P23.556.852 20.768 3.327 5.959.742 64. at least 2/3 of the Company’s stockholders approved the stock declaration corresponding to 10% of the outstanding common shares and the issuance of 23.763.238 63.678 4.718 – 73.438. General and Administrative Expenses 2009 Communication.316 1. Record date of entitlement is August 15.171 159.408 53.812.900 2007 P327.469.224.266.947 95.450 26. 2008.814.326 323.084 336.385 P3.539.122.736.035.639.903.152.118.919 70.663.639.441.329 2008 P331.303 67.445.613.504 P3.734.865 1.009.777 58.860 3.772 51.200 261.281 68.725.181.712.827.248 4.368.267 16.757.006 – 54.849 P3.971.557.248.532.852 32.901.683.534.267 4.784 203.391.295.385.193. ending P339.312.534 32.960 – 16.193.260 – 33.536 19.425 53.000.388 50.249.987.160 2005 P318.466.761.255 299.558 154.050.685.529 20.247 2.709 21.781 331.811.100 336.526.522.082.122. beginning Net purchases Less merchandise inventory.019.458 19.886.973.470 44. amusement and recreation Accounts written off Inventory losses Provision for impairment of receivables Dues and subscription Insurance Amortization of software and program costs Others P371.077.371.515 36.568.290.668.189.945 3.211.659.039 346.684 4.837.965 P1.439.738 31.611.858.127.891 – 10.909.580.425.500.905.344 50.053.307.386.186.725.867.940 259.214.509 60.010.069.008.450 19.432.825.634.925.314 61.424 – 9.935 62.789 9.776 2.458.682 84 .831 P2.199.

810 3.720.207 2008 2007 2006 2005 24.628 22.606 P 4.963.703.847.21.237 5.716 P 336.957 – 1.635.760.228.527.148 205.054 95.307.128.347.304 825.889.455 32.215 2007 P 44.702. Marketing Income 2009 Display charges Promotions Marketing support funds(Note 33) P119.085.026 6. Retirement Benefits The Group maintains a trusted.397.051 2006 P 56.613.574. Normal retirement date is the attainment of age 60 and completion of at least five years of service.680.003 2007 P 195.421 37.041 21.392.578 1.958.901.406.785 P 27.180.463.522 366.977 546. non-contributory defined benefit retirement plan covering all qualified employees.251 987.660.161.913.618.603 4.096 P 1.908.413.937 5.800 P 25. Interest Expense 2009 Interest on: Bank loans Long-term debt(Note 33) Guaranteed preferred dividends P26.457.502. Interest Income 2009 Interest on: Bank deposits Finance lease(Note 27) Accretion of refundable deposits P3.023 2008 2007 2006 2005 23.216. 7641 multiplied b y the years of service.278.214 P 4. Personnel Costs 2009 Salaries and wages Employee benefits Retirement benefits cost(Note 25) P167.947 44.855 P 31.055 – 424.171 2006 P 210.739.708 2005 P 68.508.088 465.240 P 31.115.782.166 P 136.990.326 84.816 120.250 P 3.558 2005 P 210.332.561 P 97.908 P 2.254.994.364 22.194.918 P 82.945 P 2.618 22.839.543 8.590 7. 85 .633 P 316.817 P 24.056 8.516.331 P 2.860 2008 P 76.550.792.387.509 P 96.211.070.766 691.479.016 P 4.948 113.154 1.186.425 P 2.837 121.979.816 25.840.417 P 35.380 P 26. Normal retirement benefits are equal to the employee’s retirement pay as defined in Republic Act No.512.304.738 614.376 P 336.655 45.437 – 412.701 P 250.336.929.401.784 2008 P 157.148.712.246 83.079 P 236.980 22.906 – 912.320 P 33.660 P 35.573.689 P 285.482.211.

211 4.716 Total P 3.025 (1.353.477.191.284.845 CDI P 128.522 (675.135) 464.985 140.398 P 6.313) 480.208.229.649.719) P 129.705 2005 Current service cost Interest cost Expected return on plan assets Net actuarial losses (gains) Net retirement benefits cost PSC P 1.000 P 4.538) 552.011 CDI P 146.069 P 21.The following tables summarize the components of net retirement benefits cost recognized in the consolidated statements of income and the funding status and amounts recognized in the consolidated balance sheets: a.633 Total P 4.385) 452.282 (50.376 Total P 2.791 (643.243) 265.591.797) 265.020.468) 15.950 (554.848 386.202 (1.994.347.991 P 1.979.003 (41.673.337.204 (585.467.008 2007 PSC Current service cost Interest cost Expected return on plan assets Net actuarial losses (gains) Net retirement benefits cost P 3.842 P 6.864) 45.433 (42.215 4.128.880 4.159 P 7.981.000 P 4.042.724) 45.554) – P 485.622 21.074.364.531 Total P 1.597) (88.693 CDI P 124.720.884) (89.321 135.201 (543.033 (584.814.239) P 147.689 86 .501 379. Net retirement benefits cost 2009 PSC Current service cost Interest cost Expected return on plan assets Net actuarial losses Net retirement benefits cost P345.140) – P 461.882 3.877.144 2006 CDI P 165.917) 436.819 P 8.710 2008 PSC Current service cost Interest cost Expected return on plan assets Net actuarial losses (gains) Net retirement benefits cost P 4.823 (54.383 (597.526.532 4.758 (59.100 P 8.489 PSC Current service cost Interest cost Expected return on plan assets Net actuarial losses (gains) Net retirement benefits cost P 1.367 3.346.754 1.842 P 5.379 4.511.479.078 P 20.632.979 CDI P 146.959.653.197) 391.435.867 3.789.804 (726.868 20.701 Total P 492.

437.447 d.551.698 P 26.539 13.326 2005 P 30.478.715.346.008.584.880 4.651.505 46.888. P22.326 6.774 (2.968) (249.804 (4.673.787 2005 P 10.567.601.839.992 492.447 2.974 Actual return on plan assets amounted to P485.601.383 (1.215 4.764) P 6.022) P 55.979 P 52.412. P19. P197.601.363 in 2007 and P49.501.202) (79.180.682.982 in 2006 for PSC and P32.303.950.768) 68.613.841 2005 P 40.667.532 4.366 (3.838.674.643) P 35.838.123 2008 P 58.402 2006 P 46. P259. Changes in present value of the retirement obligations are as follows: 2009 Beginning balances Current service cost Interest cost Benefits paid Actuarial losses (gains) Ending balances P58.637.714) P 58.382 in 2009.954.291.151.104.992 2007 P 46.867 3.976 P 46.464) P 6.875 in 2006 for CDI and P744.501.768) 2.151.839.391) P 67.222.385 2.982) P 30.401 (10.475) P 6.612 51.437.700.839) P 7.010 P 6.042.637 1.072 (4.259 59.370 in 2007.473 11.968) 9.889 4.505 585.902.864 – (4.b.447 6.145 (3.632. The overall expected rate of return on plan assets is determined based on the market prices prevailing on the date applicable to the period over which the obligation is to be 87 .025 (4.183. and P661.477.567.259 2008 P 6.389.695) P 6.827.612.889 6.637.568 7.791 (2.437.675 P 40.165 in total for PSC and CDI in 2005.797 2.505 2006 P 263 6. Changes in the fair value of net plan assets are as follows: 2009 Beginning balances Expected returm on plan assets Contribution Benefits paid Actuarial losses (gains) Ending balances P6.364.066.889 2006 P 40.180.303.612 2007 P 6.087) 2.214) P 7.682.789.437.877) P 6.404 7.180. Net retirement obligations recognized by the Group are as follows: 2009 Present value of retirement obligations Less fair value of net plan assets Unfunded retirement obligations Unrecognized net actuarial gain (loss) Net retirement obligations P67.543.899 c.612 597.137.164 in 2009.500 1.202) (11.787 2005 P 243 6.779 in 2008.601.674.122.337.326 3.551.384 (15.140.346.197 3.787 40.004 (10.974 34.311 (4.303 6.501.574 P 22.992 6.612 2007 P 292.622 21.881 in 2008.559) P 6.647.222.501.737 2007 P 52.113.520) P 6.613.919) (76.450.115.621.380 (15.787 726.303 (1.974 Breakdown of the Group’s net plan assets are as follows: 2009 Cash in bank Investments in equity securities and trust and mutual funds Liabilities P162 7.674.251 (12.682.072.686.204 (3.919) (305.637.637.087) (506.567.404 2008 P 52.259 2008 P 1.814.047.974 643.551.505 2006 P 6.135 3.701 (1.

303.81% 6. respectively.713 (857.794.086) Total P 67.00% 2009 Number of employees Discountper annum Expected annual rate of return on plan assets Salary increase rate 20 10.00% 6.048 (305. to their defined benefit plan in 2010.716) Total P 58.90% 10.315.788 6.145 (13.000.165.753) CDI P 4.000.008 55.00% 2008 19 32.settled.543.00% 5.00% 5.440 7.512) (69.124) (10. There has been no significant change in the expected rate of return on plan assets.006.251 4.002 11.06% 9.636) (79.432 (21.839) 2008 PSC Present value of retirement obligations Fair value of net plan assets Unfunded retirement obligations Experience loss adjustments on retirement obligations Experience loss adjustments on plan assets P 54.180.000 in 2007 and 2008 and P6.13% 10.86% 11.432 (12.31% 9.00% 5.616 (283.438.612 51.259 59.000 and P100.00% 5.260.045 46.00% Amounts for the current and prior periods are as follows: 2009 PSC Present value of retirement obligations Fair value of net plan assets Unfunded retirement obligations Experience gain adjustments on retirement obligations Experience loss adjustments on plan assets P62.00% 5.204 471.380 2.475) 88 .00% 2007 795 8.174. The principal assumptions used in determining net retirement benefits cost for the Group’s plan are as follows: PSC 2009 Number of employees Discountper annum Expected annual rate of return on plan assets Salary increase rate 699 10.869 3.00% 2006 22 7.00% CDI 2007 19 8.178.000.335 2.360.56% 9.00% 5.57% 10.69% 6.702. The Group had planned to contribute P4.01% 5.28% 9.404 7.00% 2005 26 11.00% 2008 742 37.682.864.743 47.621.759) CDI P 4.00% 5.841.501 in 2009 to its defined benefit plan.00% 2005 1.532.964 504.579.00% 6.992 6. PSC and CDI expect to contribute P4.458.00% 2006 826 8.637.

719 – Total P 40.787 40.580 1.889.501. In accordance with the agreement.978 462.579. U.322.900) Total P 52. the Group pays.853.543 (449.784.282. Inc.889 6.754 (9.207 38.326 6.567. directly or indirectly through one or more intermediaries.186 5.674.179 – Total P 46.567 6. Transactions between related parties are accounted for at arm’s length prices or on terms similar to those offered to non-related entities in an economically comparable market.261 595.312 44.539 (3.139. Significant transactions with related parties consist of: a.943) PSC Present value of retirement obligations Fair value of net plan assets Unfunded retirement obligations Experience gain adjustments on retirement obligations P 44. the other party or exercise significant influence over the other party in making financial and operating decisions.432 31.900) 2005 PSC Present value of retirement obligations Fair value of net plan assets Unfunded retirement obligations Experience gain adjustments on retirement obligations P 37. (SEI).212.892.551.437.039.686.777. directors or its stockholders.750.384 2.911 6.842. This grants the Group the exclusive right to use the 7-Eleven System in the Philippines.193 1.601.A. Such relationships also exist between and/or among entities which are under common control with the reporting enterprise.759 462.066.964.599 2.521) 2006 CDI P 1.113.426.2007 PSC Present value of retirement obligations Fair value of net plan assets Unfunded retirement obligations Experience gain adjustments on retirement obligations Experience loss adjustments on plan assets P 50.S. among 89 .134) CDI P 3.360 (3.269.473 (9.422) 26.179 (477.542 2.447 6.134) CDI P 1.579.964.872.785 (94.636) (28. a related company organized in Texas. or between and/or among the reporting enterprises and their key management personnel.505 46.974 34.674.072. Licensing agreement of the Group with Seven Eleven. Related Party Transactions Related party relationships exist when one party has the ability to control.

035.225 and P47. royalty fee to SEI based on a certain percentage of monthly gross sales net of gross receipts tax. d. 2007.784 356. a foundation with common key management of the Group.223 .282.597.281. Expense recognized on rental of post-mix machines amounted to P3.614. P24. In 2006.634.673. 2009 and 2008.357. consisting of non-interest bearing advances pertaining primarily to salaries.451.896 2. c. b.192 P 17. Amount due to PFI included under others in “Other current liabilities” amounted to P18. April.356 2007 P 18.719 .091. wherein SEI will waive a maximum amount of USD 10.152. P5.726 358. P54. The Group pays the latter 5% of sales from the said machines. Amounts due from PFI amounted to P323. P9. 2006 until January 31.710 376. the Group and SEI entered into a Store Renovation Agreement (Agreement).711.441 – P 20. Royalty fees recorded by the Group amounted to P70.477 and P53.151. 2007.966 2008 P 15. 2008.others. (PFI). Payments shall be made quarterly before the 20th day of January.000 royalty fee per 7-Eleven Store renovated from February 1. respectively.659.572 447.256. P175.587 2.386.337 2006 P 18. 2008.073 P 34.719.479.351 90 .906.343 in 2005. 2005.304 507.583.138.183 1. P62. July and October.112 as of December 31.164.2009.447 and P6. respectively.650 as of December 31 2008.470 in 2009.288. respectively. Royalty payable included under “Other current liabilities” amounted to P6.563 P 19. PSC has transactions with Philippine Foundation Inc.971.752. taxes and other operating expenses initially paid by PSC for PFI.104.651 2005 P 14.512 294. 2007. 2006 and 2005. Rental of post-mix machines from PCSC for three years until June 30.883 as of December 31.118 P 16.671. Royalty fees are paid on a monthly basis. 2006 and 2005. Compensation of key management personnel are as follows: 2009 Short-term employee benefits Post-employment benefits Other long-term benefits P32.

977 in 2007.401.448.556. P36. P569.752.616.5% to 3. Certain agreements provide for the payment of rentals based on various schemes such as an agreed percentage of net sales for the month and fixed monthly rate.715 P 292. P1.470.295 in 2006 and P1.236 34.103. Leases a. Of the total rent expense.024 in 2009.418.436 in 2005.790.221.151 in 2008.014.777.560 in 2007.654 12. The Group has various lease agreements with third parties relating to its store operations.066.587.800 – P 1.640.829 in 2008. Rental expense related to these lease agreements amounted to P295. P236.502. The Group has various sublease agreements with third parties which provide for lease rentals based on an agreed fixed monthly rate or as agreed upon by the parties.323 in 2009.531 220.737 164.265.319 17. Amortization of deferred lease expense amounted to P385.957 2008 P 69.794. The approximate annual minimum sublease payments expected to be received under its existing sublease agreements are as follows: 2009 Within one year After one year but not more than five years More than five years P623.745 in 2006 and P35.564 in 2006 and P534.466 126.174.338.498.157.379 2006 P 13. P39. The approximate annual minimum rental payments of the Group under its existing lease agreements as of December 31.095 91 .887.441 – P 25.068 P 251.360 P 72.280 1.585 in 2007.211 in 2005.438 P 365.385 in 2005 pertains to contingent rent of some stores based on percentage ranging from 1.286.081.280 in 2006 and P237.0% of store sales. P1.766 in 2009.337. P663. P39.679. P478.889.316.531 2008 P 669. 2006 are as follows: 2009 Within one year After one year but not more than five years More than five years P58.771.192 in 2007.059. P1.701 7.054.648.360.790 P 191.27.515 1.529 b.124 2007 P 83.529 2006 P 94. Rental income related to these sublease agreements amounted to P52.578 174.008. P811.802 in 2009.908 in 2005.739 45.449.560 50.046 2007 P 25.861 in 2008. P231.643 in 2008. P242.338.531 – P 2.731 714.964.747.130.

631.371 P 284. 2007 and 2006 and P13. 2006 are as follows: 2009 Within one year After one year but not more than five years More than five years Total P20.250 in 2007 and P1.554 2007 P 19.812.307 P 265.516.000.680.925.493 182.318 P 325.789 in 2005.697. In March 2007.240 in 2009. Unguaranteed residual values accruing to the Company amounted to P300. 2008.815.440 130.181.922 2006 P 18. The security deposit related to the previous lease contract amounting to P5. 2008 and 2006.153 in 2005.430.716. d.515. Future minimum lease payments under this lease as are as follows: 92 . CDI entered into a 15-year operating lease contract for the lease of its warehouse starting November 1.512.819.572.138.000 related to the lease contract in 2005.994 110. PSC entered into a five-year sale and leaseback finance lease agreement with an armored car service provider.640.730 in 2006 and P2. 2005.358.812 113. Amortization of deferred lease expense amounted to P1.336 102. 2005 was refunded to the Group in January 2006.806.148 in 2005.258 CDI also has other various short-term operating leases.399 P 307. after the expiration of its previous five-year lease contract on November 30.c.626.189 154. Related rent expense amounts to P3. The approximate annual minimum rental payments of the Group under its existing lease contract as of December 31. The Group paid security deposits amounting to P20.703. P545.500 in 2009.000.030 105. The lease has no terms of renewal and no escalation clauses.604 204.213.090.559 2008 P 19. Rent expenses related to these lease agreements amounted to P22.454. 2005. The lease is subject to an escalation rate of 7% every after two years starting on the third year of the lease.000 as of December 31.

635 2.014 5.430.041 2007 P 2.864.770. which is to be amortized on a straight-line basis over the term of the lease.273.187. Related interest income amounted to P465.477 6.183 5.490.932 7. 2008 and 2007. P3. The sale and leaseback finance lease arrangement resulted in the recognition of “Unearned interest income” amounting to P6.753.020.197 and P4.453.802.183 5.000 4.500.782.782.686 10. Unearned interest income as of December 31.700 8.856.043.536 P 3.346 8.2009 Within one year After one year but not more than five years Total minimum lease payments Less amounts representing finance charges Present value of future minimum lease payments Less unearned interest income Less current portion P2.251 in 2009.289 2. Amortization of deferred revenue amounted to P1.000 7. respectively.802.265.564 P 4.248 P 6.536 P 3.041 2.131.980 upon inception of the lease.550.617.520.477 2008 P 2. Income Tax 93 .453.430.374.295 2006 P 2.453.564 P 4.032. 2008 and 2007 amounted to P566. The unearned interest income is to be amortized over five years.770.831 1.014 5.041 2007 P 3.500 – 9.586.477 2008 P 2.273.151 in 2009 and 2008 and P764.000 11.211 8.295 Collection of lease receivable amounted to P2.014 – 10.959.500 7.453.646.317. Present value of lease payments as of December 31 is as follows: 2009 Within one year After one year but not more than five years Total minimum lease payments Less current portion Present value of future minimum lease payments P2.248 P 6.476. 28.430. 2009.000 in 2007.211 and P1.770.020.187.000 566. Deferred revenue amounted to P1.166.265.217.317. which is the term of the agreement.831 1.434.212.310.154 in 2008 and P347.500 in 2009 and P2.212.265.041 8.600.187.000 9.843. P1.770.041 2.959 6. 2009.348 as of December 31.317.289 Difference between the present values of the minimum lease payments at the date of lease inception against the carrying value of the finance leased asset resulted in a deferred revenue on finance lease amounting to P6.500 in 2008 and P840.500 1.289 11.564 4.289 2.346 P 8.365.217.887.020.600.254 in 2007.883 in 2007. P614.082 10.453.617.000 – 7.032.248 6.700 1.046.

270.700.402 28.773 – 2.190 42.205 – 422.043.683 (1.782.642 2.782. 2009 and 2008 and P1.954 9.887 and P173.078 – 39.959 – 37.384.278.857 P 37.557.094 – 487.084.115) P 60.661.706 80.357 25. P314.453.183 – – 61.646.703 – 5. 2003 and 2004.263 161.816 P 17.774 – 2.310.513 – – 2.253.956.026.137 4.666.292 10.506.980) P 41.944.015 438.994 – 606.281 – 366.002.224.708.551 97.008.695.513 P 54.455.301 incurred in 2002.387.583.895 P 77.521 P 46.667.463 – 2. which was recognized only in the consolidated financial statements amounting to P1.535 263.415 145.849 – 627.The components of the Group’s provision for income tax are as follows: 2009 Current: RCIT MCIT Final tax on interest income Deferred P80.516 24.321 – 2.516 39.666.617 81.541 8. 2008 and 2007 pertains to taxable temporary difference on revaluation increment in land of SSHI .498.546 The Group’s deferred income tax liability as of December 31.738.348.768 P 41.094 – 3.676.052 2.512 – 51.857 – – 2.038 1.429.895 – – 2.318 3.716.677.391 – 2.466 (6.823 – 39.598.617 25.084.617 41.819.843 7.363 Deferred tax liabilities: Deferred lease expense Unamortized capitalized interest Unamortized discount on purchase of refundable deposit Accrued rent income 3.785 2005 P 42.464.336 483.425 P 26. were applied against taxable income in 2005.203.252 P– 2008 P– 2007 P– 2006 P 17.625.659 – 2. respectively.735 – 436.912 207. The Group’s NOLCO amounting to P37.792.247.148 62.800 41.411. 94 .554 – 1.780 419.398 P 62.667.966 2008 2007 2006 2005 The components of the Company’s and CDI’s net deferred income tax assets are as follows: 2009 Excess of MCIT over RCIT Deferred tax assets: Accrued rent Net retirement obligations Unamortized discount on refundable deposit Allowance for impairment on receivables Deferred revenue on exclusivity agreement Unamortized past service cost Unamortized discount on receivable Unamortized foreign exchange loss Unearned rent Other accrued expenses 24.893.502.214 223. 2007.284 (773.625.107 553.544.259.948 as of December 31.191 56.976 25.068) P 75.184 1.174.201 – 541.748.314 – 2.378.040.241 as of December 31.842 – 1.008.363 51.583.991 18.867) P 27.883 (2.241.614.161 – 212.227 16.682.304 P 28.779 – 932.392.240.622.283.540.977.777 – 121.843 P 39.387.675.870 10.945.181.

664 1.882.271 (25.785) P– 2006 P 42.398 – (327.506) (487.000 24.495) (365.283.830.304 – 274.353.083 2007 P 34.486) P 17.372 136.317 – – 1.000 6.188 – – – 432.551 216.268.734 – – – – – 7.072.212.610.911.283.040.382.157 136.206) 6.790.161 Provision for income tax computed at statutory income tax rate Adjustments for: Nondeductible expenses: Inventory losses Interest expense and others Loss from typhoon Donation expense Impairment loss on goodwill Expired MCIT Others Nontaxable income: Cash dividend from a domestic corporation Bank interest income Other income Interest income on accretion Effect of change in tax rate in 2009 Effect of change in tax rate in 2005 Provision for income tax (2.392) (1.478 11.455.283.802.429. which became effective on November 1.542. 2007.369 – 490.966 3.546 Applied P 18.547 – P 60.389 P 42.740. 9337.737 1.786 2006 P 16. 2006 and 2005.979 – – 5.807.801 – 319.893.653.995) – (578.761 Balance P– 17. Republic Act (RA) No.416.785 – P 17.816 – 274.026.613.416.701) – – – P 75.349 – – P 27.818 2005 P 13.673 Provision for income tax is computed at statutory income tax rate of 30% in 2009 and 35% in 2008.110) (2.509.599 P 26.915.666.768 – (365.809) (74. The reforms introduced 95 .722 2.The Group’s MCIT available for deduction from future RCIT payable are as follows: Year incurred 2003 2004 2005 MCIT P18.700.192 5.000) (313.114.181 – 3.000 – – – 3.283.742) P 41.785 The reconciliation of the provision for income tax computed at the statutory income tax rate to provision for income tax shown in the consolidated statements of comprehensive income follow: 2009 P71.292.948 – – – – 541.459 985. 2005.335.306. amended various provisions in the 1997 National Internal Revenue Code.389 P 25.062 – 2008 P 50.845.785 Available until 2006 2007 2008 Movements in excess of MCIT over RCIT available for deduction from future RCIT payable is as follows: 2007 Beginning balance Applied Ending balance P17.283.662.022.785 (17.408 3.

with a reduction thereof to 33% beginning January 1.000 P 0.250 237.761. On November 21.412 237. 9337 included the increase in the RCIT rate from 32% to 35% beginning November 1. 2006. 2-2007 to implement the provisions of the said law.250 287.23 2006 P 20. the amendment shall apply to the quarterly VAT returns to be filed after the effectivity of RA No.000 P 0.651 287. the President signed into law RA No.250 260. effective on July 7. This law. 2006.252. the excess input tax shall be carried over to the succeeding quarter or quarters. Based on this regulation.144.252.06 96 .54 2008 P 84.790.250 686.32 2007 P 54. 2009. The Department of Finance through the Bureau of Internal Revenue issued RR No.138 237.651 261.252. Basic/ Diluted Earnings per Share Net income b. The Group did not avail the OSD for the computation of its taxable income in 2009 and 2008. 29. 2005.000 P 0.172 686. 2006. Less weighted number of shares held in treasury (b-c) d. 9361 except VAT returns covering taxable quarters ending earlier than December 2006. may now elect to claim standard deduction in an amount not exceeding 40% of their gross income.250 237.977. except for nonresident foreign corporations. 2009. 9337 also provided for the increase in unallowable interest rate from 38% to 42% beginning November 1.074. provides that if the input tax. 9361 which amends Section 110 (B) of the Tax Code. Basic/Diluted Earnings per share 2009 P155.250 686. RA 9504.200 P 0.271.938. Weighted average number of shares issued c.250 686.450 686. the President upon recommendation of the Secretary of Finance approved the 2% increase in VAT rates effective February 1.938. inclusive of the input tax carried over from the previous quarter exceeds the output tax. Corporations.938. 2008 allows availment of optional standard deductions (OSD). 2006.828. 2005.08 2005 P 13. with a reduction thereof to 30% beginning January 1. which became effective on December 13. Weighted average number of shares outstanding (a/d) e. On January 31.922 P 0.760.092 237.663.by RA No.250 237. RA No.

the basic earnings (loss) per share are equal to the diluted earnings (loss) per share as of those dates.450 to 287. and cash and cash equivalents. accounts payable and accrued expenses. available-for-sale financial assets. 2007. Financial Instruments The Group’s principal financial instruments comprise of bank loans.097.250 to 261. the Group’s policy that no trading in financial instruments shall be undertaken. The following table summarizes the carrying value and fair value of the Group’s financial assets and financial liabilities per class as of December 31: 97 .761. and other current liabilities. The Group does not have potentially dilutive common shares as of December 31.663. 30.The Group’s outstanding common shares as of December 31.725.663. 2006 and 2005. 2008. The calculation of basic/diluted earnings per share for all periods presented has been adjusted retrospectively. 2009 increased from 261.200 common shares approved on June 18.450 as a result of stock dividend issuance equivalent to 23. 2009. refundable security deposits and other assets. It is.938.172 as a result of stock dividend issuance equivalent to 26. and has been throughout the year under review. The main purpose of these financial instruments is to finance the Group’s operations. the Group’s outstanding common shares increased from 237. 2009. which arise directly from its operations. The Group has various other financial assets and liabilities such as receivables. As of December 31.722 common shares approved on July 16. 2008. Thus. 2008.

137.187.129.000.223 6.825.590 50.609 P432.968.131.880.180.354 2.476.2009 Carrying Value FINANCIAL ASSETS Loans and Receivables Cash and cash equivalents Cash Cash equivalents Receivables: Suppliers Franchisee Employees Rent Current portion of lease receivable Insurance claims Store operators Deposits Due from Philippine Foundation Inc.888 61.497.000 864.424 3.236.297 P 330.722 2.116 P 432.000.682.041 1.659 13.331.300 98 .326 15.000 864.494.994 15.314.689 15.929.906.242.000.194 2.185 5.537.880.237 147.678.683 – 26.194 2.766.373.405.972 6.118.477 9.370 – 5.766 6.584 848.402 – – 53.131.773 1.879 37.000.377.797 18.132 145.000.630 76.105 22.053.734 638.180.717 184.825. Others Deposits Utilities Refundable Others Other noncurrent assets-lease receivable Total Loans and Receivables AFS Financial Assets TOTAL FINANCIAL ASSETS FINANCIAL LIABILITIES Other Financial Liabilities Bank loans Accounts payable and accrued expenses: Trade payable Rent Employee benefits Utilities Advertising and promotion Outsourced services Security services Bank charges Interest Others Other current liabilities: Non-trade accounts payable Retention payable Service fees payable Royalty Others Cumulative redeemable preferred shares TOTAL FINANCIAL LIABILITIES P 340.573.646 11.053.000 P 1.533 6.039.724.007 938.410 7.897 2.951 2.292.938.688.108.666.929.071 4.288.753.678.292.000 P 1.671.575 P 635.830.014 2.053.541 2.783 10.513 21.237 147.129.477 628.575 P 507.149.609 P 340.989.328.852.355.552.049.094.000 697.767 120.395.033 – 2.045.000 P 1.575 P 630.000 1.005 946.794 4.439.355.373.989.248 4.439.683 – 26.776.630 76.689 15.448.314.000.733 6.327 504.326 15.402 – – 53.623 314.733 6.590 50.719.883 5.451 140.979 2.309 38.894 448.734 638.671.012.153 22.991 11.854.820.132 145.865.137.612 1.242.994 15.038.755.701.333.748.103 6.236.162 6.464 633.015 85.719.476.659 13.038.668 5.526 Fair Value 2008 Carrying Value Fair Value P 314.794 4.265.905.050.797 18.248 4.497.015 85.584.041 1.688.572 2.584 848.139 1.009.894 448.905.668 5.743.185 5.763.100 1.783 14.404 1.991 11.300 P 330.906.767 120.009.843.094.314.572 2.241.012.972 6.005 946.041 502.000 P 1.717 184.682.477 9.776.370 – 5.646 9.623 314.852.426 6.701.020.100 1.377.703 15.049.830.743.446 4.000.968.357 55.879 35.766.426 6.395.183 138.703 15.045.748.020.883 5.000.888 61.183 138.011 12.364.333.764.006.494.364.575 P 504.357 55.410 7.897 2.223 6.248 938.981 17.883.212.533 6.981 17.589 P 314.043.900.764.118.773 1.317.970 22.451 140.006.820.864 323.272 21.578 3.666.755.970 22.453.753.108.043.238.326.139 1.314.033 – 2.331.011 12.000 697.864 323.564 1.241.309 35.140.314.162 6.000 1.404 1.464.900.288.

700 985.487 1.065.604.897 6.617.488 10.381.003 55.375 40.246.760.760.985.434.208 – 9.365 11.700.000.694.163.720.000.190.033 2.023.729.462.913 – 62.027.244 2.458.604.364.693.000 475.007.489 2.027.176.880 P 328.000 P 1.747.533 610.251.121.170.190.668 57.536 – 3.635.227.377 – 494.249 89.000 475.489 2.458.575 P 506.098.633 20.050 3.487 1.314.944.630.163.000 P 1.342.534.314.575 P 504.174.699 6.856.484 6.879 111.694.957 6.958.300 329.475 6.000.073 10.003 55.669 175.577 21.906 10.592 98.101 – 4.651.120 1.848.700 985.879 110.938.120 1.620.125 1.027.944.827 99 .635.747.381.421.508.838 622.000.216 – 4.753.000 P 1.575 P 505.722 11.722 11.295 503.904 P 328.364.101 – 4.447 9.333.314.886 2.985.564.897 6.429.784.107.600.838 622.873.246.000 493.359 5.300 329.653.938.404 9.060.875.000 107.174.669 175.305 582.912 2.645 P 308.151.222.411.882 16.729.070 2.037.000 107.000 3.060.858 10.630.2007 Carrying Value FINANCIAL ASSETS Loans and Receivables Cash and cash equivalents Cash Cash equivalents Receivables: Suppliers Franchisee Employees Current portion of lease receivable Current portion of notes receivable Insurance claims Receivable from Social Security System Others Deposits Utilities Rent Others Other noncurrent assets-lease receivable Total Loans and Receivables AFS Financial Assets TOTAL FINANCIAL ASSETS FINANCIAL LIABILITIES Other Financial Liabilities Bank loans Accounts payable and accrued expenses: Trade payable Rent Employee benefits Utilities Advertising and promotion Security services Bank charges Interest Others Current portion of long-term debt Other current liabilities: Non-trade accounts payable Withholding taxes Retention payable Royalty Output VAT Payable to franchisee Others Deposits from sub-lessees Cumulative redeemable preferred shares TOTAL FINANCIAL LIABILITIES P 375.129 111.385.193 – 4.125 1.784.542 1.106 308.958.620.490.534.804 89.073 10.446.089.484 6.433 11.151.411.720.533 610.227.257 69.257 69.228 1.418.434.433 11.719 6.037.098.508.244 2.944 48.404 9.616.710.000 P 1.222.351.050 3.729.305 582.372.365 11.753.901.957 6.075 610.081 – 502.110 8.198 3.886 2.229 1.000 62.333.827 P 404.051 80.065.980 P 375.792.351.500.051 80.679 4.872.729.699 6.978.780 – 3.944 48.000.608 P 404.429.000.488 10.592 98.449 107.500.305 2.193 – 4.106 308.672 10.858 10.314.121.075 610.572 503.906 10.902.460 13.054.700.000.575 P 496.792.960 73.342.804 87.418.475 6.215.447 9.215.375 40.208 – 9.100.875.515 1.536.754.110 8.873.980 Fair Value 2006 Carrying Value Fair Value P308.672 10.719 6.329 2.913 – 62.251.902.023.668 57.000 62.449 115.960 73.542 1.088.564.129 111.249 81.616.867 6.372.867 6.228 1.000 3.653.121.460 13.877 20.100.901.359 5.651.577 21.000 493.000.054.754.534.383 4.216 – 4.978.882 16.

167 7.985.221 6.047.184.809.129.898.276.264 7.481.000 31.319.500.465.265.028 20.068 12.net of current portion Cumulative redeemable preferred shares TOTAL FINANCIAL LIABILITIES P 240.000.098.265.697 2.697 72.000 6.476 1.655 1.697 72.645 204.143.295.586.644 P 240.504.766 73.000.276.739 691.284 P 197.000 6.648 556.408.404 6.322 5.070.645 204.320 1.648 556.047.838.028 20.963 53.391 119.391 119.000 P 1.319.190 293.922.266 9.310.247.000.000 432.885.221 6.320 1.266 9.563 93.649.563 93.127.342 100 .081 32.000.766 73.913.008 9.290 462.112 1.000 432.000 31.112 1.898.739 691.809.121 6.880 P 297.060.320 6.081 32.985.649.060.902.065 6.310.278.000.278.880 P 300.000.2005 Carrying Value Fair Value FINANCIAL ASSETS Loans and Receivables Cash and cash equivalents Cash Cash equivalents Receivables Deposits Refundable security deposits Other noncurrent assets-lease receivable Total Loans and Receivables AFS Financial Assets TOTAL FINANCIAL ASSETS FINANCIAL LIABILITIES Other Financial Liabilities Bank loans Accounts payable and accrued expenses: Trade payable Rent Employee benefits Utilities Advertising and promotion Security services Bank charges Interest Others Current portion of long-term debt Other current liabilities: Non-trade accounts payable Deposits from sublessees Withholding taxes Retention payable Unearned rent Interest payable Royalty Payable to contractors Output VAT Others Long-term debt.068 12.008 7.264 7.101 6.644 P197.440 6.121 6.322 5.902.838.465.190 291.922.481.143.000 P 1.282.070.408.500.549.549.167 7.129.796.282.320 6.098.476 1.295.885.290 462.697 2.643.655 1.796.963 53.247.

AFS financial assets The fair value of unquoted AFS financial assets is not reasonably determinable.41% to 8. and 5.69%. 5. respectively.73% to 9.86% to 7. Refundable deposits The fair value of deposits is determined by discounting the sum of future cash flows using the prevailing market rates for instruments with similar maturities as of December 31.57% 6. 101 .51%. 2007 and 2006 ranging from 4.63%. respectively. balances are presented at cost.52%. Lease receivables The fair value of lease receivable is determined by discounting the sum of future cash flows using the prevailing market rates for instruments with similar maturities as of December 31. 6. 2009. the fair value of cash and cash equivalents. Utility and other deposits The fair value of utility and other deposits approximates its carrying value as it earns interest based on repriced market conditions.98% to 6. Bank loans and Lon-term debt The carrying value approximates fair value because of recent and monthly repricing of related interest based on market conditions.61% and 4. accounts payable and accrued expenses and other current liabilities approximates their carrying amount as of balance sheet date. 2009 2008. and 2007 which is 5. 2008.97%. receivables (except for lease receivables). thus.Fair Value Information Current financial assets and financial liabilities Due to the short-term nature of the related transactions.

Cumulative redeemable preferred shares The carrying value approximates fair value because corresponding dividends on these shares that are charged as interest expense in profit or loss are based on recent treasury bill rates repriced annually at yearend. liquidity risk and interest rate risk. The Group deals only with counterparty duly approved by the BOD. Financial Risk Management Objectives and Policies The main risks arising from the Group’s financial instruments are credit risk. 2009 and 2008. The BOD reviews and approves policies for managing each of these risks and they are summarized below. the Group has no financial instrument measured at fair value. The receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to impairment is managed to a not significant level. Fair value Hierarchy As of December 31. Credit Risk Credit risk is the risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an obligation. 31. The following table provides information regarding the maximum credit risk exposure of the Group as of December 31: 102 .

212.773 1.630 76.767.968.623 622.309 35.560 118.753.575 2.854.755.216 – 4.766.688.098.052 8.754.864 323.633 20.804 87.248 – 938.946 P 505.575 6.150.979 2.434.901.373.904 The following table provides information regarding the credit risk exposure of the Group by classifying assets according to the Group’s credit ratings of debtors: 103 .873.738.577 21.446.317.617.101 – – 4.451 140.515 – 1.879 35.714 308.985.679 – 4.170.037.477 6.453.449 107.314.578 3.894 638.105 22.012.402 – – 53.905.300 356.838 P 328.193 – – – 4.132 145.075 15.246.487 – 1.041 3.314.788 P 307.066.106 610.883 5.575 2.140.645 P 496.439.882 16.131.091 P 308.879 110.326.429.033 – 2.462.743.372.080.784.848.377 4.421.248 4.364.215.2009 Cash and cash equivalents: Cash in bank Cash equivalents Receivables: Suppliers Franchisee Employees Rent Current portion of lease receivable Notes receivable Insurance claims Store operators Deposits Due from Philippine Foundation Inc.050.051 80.314.620.542 – – – 4.428.792.929.314.385.513 21.000 3.914.875.071 55.616 5.009.249 81.162 6.045.572 2.575 P 538.103 48. Others Deposits Utilities Rent Refundable Others Other noncurrent assets: Lease receivables-net of current portion AFS financial assets 2008 2007 2006 P340.646 – 9.580.718 57.295 – 2.137.564 – 1.251.265.198 40.187.484 6.536 – 3.314.783 – 10.906.870 2.944 329.314.600.180.666 P 117.375 61.958.590 50.477 9.710.989.185 5.404 1.575 2.060.

879 35.158 P– – – 9.736 2008 Past Due or Neither Past Due nor Impaired Impaired High Grade Standard Grade Cash and cash equivalents: Cash in bank Cash equivalents Receivables: Franchisee Suppliers Employees Current portion of lease receivable Insurance claims Due from Philippine Foundation Inc.979 2.114.133 12.575 6.477 2.278.071 4.755.150.864 323.890 50.050 21.578 3.623 118.066.052 P 180.309 35.131.906.879 35.248 4.650.080.453.317.688.906.035 22.009.580.2009 Past Due or Neither Past Due nor Impaired Impaired High Grade Standard Grade Cash and cash equivalents: Cash in bank (excluding cash on hand) Cash equivalents Receivables: Suppliers Franchisee Employees Rent Current portion of lease receivable Insurance claims Store operators Deposits Due from Philippine Foundation Inc.894 356.103 6.899 P– – – – 51.773 1.317.180.929.052 P 548.894 356.041 2.666 15.560 – – – – – – – – – – – – – – – – – – P 356.404 1.564 1.751.402 53.162 6.212.580.071 4.905.616 P 109.428.968.755.248 938.314.491.646 9.477 9.033 2.018 – – – – – – – P 12.309 35.055.989.114.185 61.623 118.979 2.968.929.671 5.025.439.314.751.769 P– – – – 9.187.009.905.248 4. Others Deposits Utilities Refundable Others Other noncurrent assets: Lease receivable AFS Financial Assets P117.753.766.233.099 150.477 2.671.989.560 P– – – 59.856.314.265 154.265.714 76.308.314.187.773 1.783 10.575 6.033 2.428.520 50.578 3.091 638.575 8.767.041 2.162 6.185 – – – – – – 76.477 12.352 5.572 2.442.373.984.326.326.131.135.080.766.594.370 – – – – – – – – 3.687 21.508.404 1.120 104 .479.132 65.150.783 10.137.439.185 – – – – – – – P 195.989.560 69.308.319 – – – – 2.452 – – – – – – – P 12.979.646 9.836.265.018 Total P 340.864 323.452 Total P 117.053 22.572 2.666 15.066.753.714 76.616 P 316.564 1.883 5.050.103 6.080.767.091 638.314.212.402 53.489.453.314.575 8.137.451 138.248 938.050.883 7. Others Deposits Utilities Refundable Others Other noncurrent assets: Lease receivable AFS Financial Assets P340.648 12.688.

129.901.575 P 137.196.718 57.075 610.216 – – – – – – P 30.536 3.542 4.364.784.838 622.577 21.2007 Past Due or Neither Past Due nor Impaired Impaired High Grade Standard Grade Cash and cash equivalents: Cash in bank (excluding cash on hand) Cash equivalents Receivables: Suppliers Franchisee Employees Rent Current portion of lease receivable Insurance claims Store operators Deposits Due from Philippine Foundation Inc.434.050.010. Others Deposits Utilities Rent Others Other noncurrent assets: Lease receivable AFS Financial Assets P308.600.879 110.873.364.216 – – – – 30.375 – – – – – – – – – – – – P 329.446.542 4.575 2.645 2006 Past Due or Neither Past Due nor Impaired Impaired High Grade Standard Grade Cash and cash equivalents: Cash in bank (excluding cash on hand) Cash equivalents Receivables: Suppliers Employees Insurance claims Notes receivable Others Deposits Utilities Rent Others Other noncurrent assets: AFS Financial Assets P328.385.474.215.449 107.244 20.914.848.364.958.901.952.060.402 – – – – – – – – 719.216 4.870 P 505.547 P 186.633 20.070.617.434.372.536 3.462.421.323 P 10.295 2.193 – – – 3.900.361 21.300 329.377 2.875.106 308.314.875.372.010.462.075 610.098.389 – – – – 647.051 80.106 308.620.216 Total P 328.417.314.377 2.314.313 P– – – 30.249 81.792.679 4.484 6.710.000 4.037.267.251.987 9.904 105 .958.804 87.944 39.375 40.101 3.515 1.575 2.323 – 647.575 5.251.774.804 87.770.882 16.480 – – – – – – – – – 39.098.480 – – – – – – – P 348.873.196.101 3.170.575 5.710.429.050.000 4.000 4.400.718 27.754.193 – – – 4.944 48.385.314.215.314.375 P– – – 10.037.246.449 107.198 2.515 1.989 P– – – 9.985.792.314.838 622.484 6.010.424 P– – – – 16.487 – 1.198 3.985.064 70.300 329.446.879 110.575 P 496.972 2.617.249 81.679 4.712 Total P 308.487 – 1.429.754.

Receivables . The Group has the custody of the franchisees’ cash.135.353.588 – P 1.588 P 1.133 P 12.040.349 P 1.018 61 to 90 days > 90 days Total Past Due or Impaired Total 2008 Aging analysis of financial assets past due but not impaired 31 to 60 days Receivables: Suppliers Others P 1. Receivables from the franchisees are classified as high grade since collections are automatically obtained from the franchisees’ holding account.349 – P 108.041 2. deposits and other noncurrent assets are classified as standard grade since these pertain to receivables considered as unsecured from third parties with good paying habits.648 P 12.308.740.satisfactory pertains to receivables from existing and active suppliers while unsatisfactory pertains to receivables from those suppliers that are have already ceased their business operations.233 – P 980.979.233 P 3. Receivables excluding receivables from the franchisees.133 P 8.174 P 9.605.907.843.308.based on the nature of the counterparty and the Group’s internal rating system.070 P 7.374.844 P 108. The credit quality of the financial assets was determined as follows: Cash and cash equivalents. Financial assets of companies that have the apparent ability to satisfy its obligations in full.370 3.278 P 6.374.070 – P 1.353.877 P 60.319 2. The following table provides the analysis of financial assets that are past due but not impaired and past due and impaired: 2009 Aging analysis of financial assets past due but not impaired 31 to 60 days Receivables: Suppliers Others P1.751.114.737.442.844 – P 60.300 3.457 – P 1.737.648 P 10.040.877 – P 1.452 61 to 90 days > 90 days Total Past Due or Impaired Total 106 .948 P 9.907.278 – P 3. deposits and AFS financial assets .535.135.The Group uses the following criteria to rate credit quality as follows: Class High Grade Standard Grade Description Financial assets that have a recognized foreign or local third party rating or instruments which carry guaranty/collateral.457 P 980.

211.712 Current portion of lease receivable 163.980 P 9.124 P 2.323 719.507.993 – 719. the Group regularly evaluates projected and actual cash flow information and continuously assesses conditions in the financial markets for opportunities to pursue fund raising initiatives.292 – P 16.056.295 P 397.787.261 – P 508. To cover for its financing requirements.062 61 to 90 days > 90 days Total Past Due or Impaired Total 2006 Aging analysis of financial assets past due but not impaired 31 to 60 days Receivables: Suppliers Others P 1.560 – P 1.560 P 2.772.313 P 24.987 P 10.124 – – P 397.030.502.987 P 7.010.502.739.251 – P 1.234.229 719.425 P 16.034 484.425 – P 2.290.323 – P 2.277 – P 19.292 P 19.952 719. the Group intends to use internally generated funds and sales of certain assets.732 P 7.417.987 P 10. The table below summarizes the maturity profile of the financial assets of the Group: 107 . The Group seeks to manage its liquidity profile to be able to finance its capital expenditures and service its maturing debts.2007 Aging analysis of financial assets past due but not impaired 31 to 60 days Receivables: Suppliers Others P 1.677.609.216 61 to 90 days > 90 days Total Past Due or Impaired Total There are no significant concentrations of credit risk within the Group.050.019. As part of its liquidity risk management program.211. Liquidity Risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial instruments.277 P 9.987 P 30.402 647.409 647.056.234.939 P 29. These initiatives may include drawing of loans from the approved credit line intended for working capital and capital expenditures purposes and equity market issues.

089 Deposits Utilities – Refundable – Others – – Other noncurrent assets: Lease receivable-net of current portion – AFS Financial Assets – – P 462.575 8.248 Rent 4.444 Deposits Utilities – Refundable – Others – – Other noncurrent assets: Lease receivable – AFS Financial Assets – – P 584.162 Employees 6.783 10.265.834.314.149.009.805.575 P 2.033 Rent 1.314.688.241.241 Franchisee 50.575 Total P 432.567.880.135.906.575 Total P 314.033 1.314.623 314.623 314.548 P– – – – – – – – – – – – – – – – – – – 2.767.994 P– – – 7.609 P– – – – – – – – – – – – – – 22.773 1.766.162 6.133 12.753.929.879 35.212.883 5.793 160. – Others 9.477 – 4.065.805.187.579 P– – – – – – – – – – – – 21.180.009.773 – – 323.062 1.635.103 6.326.671 82.968.041 P 41.314.453. – Others 3.314.372.453.503.906.053 22.755.439.903.864 Due from Philippine Foundation Inc.166 5.668 21.099 150.900.502 Insurance claims – Store operators 1.834.879 35.241.979 2.564 1.489.397 Franchisee 82.453.929.883 2.579 – – – – – – – P 12.314.071 4.660 147.607.616 P 518.314.317.212.980.477 P 39.314.064 Receivables: Suppliers 61.600.477 12.688.994 15.332 2008 More than three Three months or months to one More than one More than five less year year to five years years Cash and cash equivalents: Cash Cash equivalents P 314.649 – – – 1.205.905.833.575 6.659.900.600.648 14.864 323.702.653.314.144 P– – – – – – – – – – – – – – – – – 2.572 Current portion of lease receivable 534.166 Employees 5.314.783 10.404 Deposits 1.994 69.880.050.372.278.575 2.753.585.361 Insurance claims – Due from Philippine Foundation Inc.071 4.646 9.734 638.572 2.472 2.894 432.131.890 50.402 53.041 2.041 – 6.472 Current portion of lease receivable 657.477 2.968.309 35.575 2.248 4.265.404 1.050.052 P 641.248 938.2009 More than three Three months or months to one More than one More than five less year year to five years years Cash and cash equivalents: Cash Cash equivalents P432.477 3.578 3.900.308.402 53.578 3.274 – – – 1.755.439.713.984.734 638.643.326.580.575 P 2.979 2.265.744 Receivables: Suppliers 54.309 35.766.357 61.137.905.994 15.446 108 .103 6.477.900.887 938.451 136.650.609 – – – – – – – P 14.137.131.357 P– – – 7.894 432.646 9.

108.118.237 147.333.The table below summarizes the maturity profile of the financial liabilities of the Group based on remaining undiscounted contractual obligations: 2009 Three months or less More than three months to one year More than one year to five years Total Bank loans Accounts payable and accrued expenses: Trade payable Employee benefits Utilities Advertising and promotion Outsourced services Security services Bank charges Interest Others Other current liabilities: Non-trade accounts payable Retention payable Service fees payable Royalty Others Cumulative redeemable preferred shares P 100.897 4.129.038.326 15.194 2.825.000 P 342.410 7.701.185.000 15.825.355.659 – P 1.006.053.043.292.053.733 6.972 6.733 – 13.852.719.053.000.494.000 P 1.292.049.794 5.497.748.141.666.807.767 – – – – – – P 848.041 1.678.683 26.703 15.108.991 11.015 85.020.364.223 6.000 P 6.764.852.236.810.139 1.500 864.767 – P 421.972 6.701.481.678.094.000.395.223 6.000.778 – – – – – – – – – – – 120.426 6.288.682.682.820.764.671.167 – – – – – – – – – – 138.043.049.981 17.395.703 15.194 2.981 17.000.659 13.183 – – – 6.659 – 6.683 26.311 P– – – – – – – – – – – – – – – – 6.139 1.991 11.410 7.236.689 1.364.897 4.041 1.457.970 22.689 1.175 Three months or less P 244.408.000.668 2.000 P 6.797 18.000 15.370 5.011 12.767 120.242.234.005 946.005 946.719.100 1.344.423.671.934 – – – – – – – – – – – – – – – – – 6.717 184.109 2008 More than three months to one year Total Bank loans Accounts payable and accrued expenses: Trade payable Rent Employee benefits Utilities Outsourced services Advertising and promotion Security services Interest Bank charges Others Other current liabilities: Non-trade accounts payable Retention payable Royalty Others Cumulative redeemable preferred shares P– 697.807.494.778 697.668 2.370 5.000 P 1.794 5.118.000.038.043.288.820.012.584 848.326 15.012.011 12.533 6.000 More than one year to five years P 344.020.717 177.355.719.333 864.015 85.237 147.078 109 .767 P 342.129.242.970 22.748.666.333.497.183 138.049.533 – P 490.584 848.100 1.374.797 18.006.

978.342.000 P 1.222.458.960 73.447 9.100.747.000 475.591 P– – – – – – – – – – – – – – – – – – 98.700 985.747.027.003 55.760.897 6.222.447 9.533 610.867 6.460 13.729.957 P 375.151.359 5.433 11.699 4.564.630.719 6.944.129 111.672 10.508.228 1.720.753.488 10.000.979 2006 Three months or less More than three months to one year More than one year to five years Total Bank loans Accounts payable and accrued expenses: Trade payable Rent Employee benefits Utilities Advertising and promotion Security services Bank charges Interest Others Current portion of long-term debt Other current liabilities: Non-trade accounts payable Withholding taxes Retention payable Royalty Output VAT Payable to franchisee Others Deposit from sub-lessees Cumulative redeemable preferred shares P– 493.533 610.858 10.000.616.244 2.121.333.121.151.120 1.913 62.986 107.460 13.906 10.592 98.508.351.694.635.986 107.729.000 62.913 P 375.672 10.129 111.222.000 493.747.720.978.902.653.434.190.902.110 8.228 1.489 2.897 6.489 2.342.000.630.351.592 – – P 486.365 11.227.700 985.694.722 11.564.208 9.000.886 2.669 175.721.534.488 10.000.508.381.475 6.753.257 69.000 – – – – – – – – – – 6.858 10.760.404 9.000.227.938.000 P 61.938.699 4.418.906 10.000.404 9.669 175.729.653.000 – – – – – – – – – – 62.434.653.867 P 375.616.722 11.027.208 9.500.418.938.721.000.073 10.604.2007 Three months or less More than three months to one year More than one year to five years Total Bank loans Accounts payable and accrued expenses: Trade payable Rent Employee benefits Utilities Advertising and promotion Security services Bank charges Interest Others Other current liabilities: Non-trade accounts payable Withholding taxes Retention payable Royalty Output VAT Others Deposit from sub-lessees Cumulative redeemable preferred shares P– 475.257 69.125 1.110 8.381.729.475 P 375.500.827 110 .635.073 10.000.305 582.120 1.458.886 2.359 5.960 73.000 P 104.054.000 62.475 6.433 11.000 P 1.163.000.867 6.054.957 – – – – – – – – – – – P 610.365 11.174.003 – – P 518.719 6.913 – – – – – – – – – P 582.163.634.305 582.534.003 P– – – – – – – – – – – – – – – – – – – – 55.333.065.065.125 1.244 2.944.957 6.

000 11.500.300.000. The Group’s fa ir value and cash flows interest rate risk mainly arise from bank loans with floating interest rates.50%-11.50% P 125.000 (3.60% – – 2007 P 375.60% – – 2006 P 404.000 4. with all other variables held constant. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument.000 6.000 (3.000. Internally generated funds coming from its cash generating units and from its franchising business will be used to pay off outstanding debts and consequently reduce the interest rate exposure.000.75%-8.80% P 6.400.000) 100 -100 111 .90%-5.400. The Group is expecting to substantially reduce the level of bank loans over time.000 8.67% 10.50%-8.300.50% – – 2008 P 330.000) Increase/ Decrease in Basis Points 2008 Effect on Income Before Income Tax P 3.67% Interest of financial instruments classified as floating rate is repriced at intervals of 30 days. The maturity profiles of financial instruments that are exposed to interest rate risk are as follows: 2009 Due in less than one year Rate Long-term debt Rate P340.000 2005 P 240. The following table demonstrates the sensitivity to a reasonably possible change in interest rates. The other financial instruments of the Group that are not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk.60%-8.000.500.700. of the Group’s income before income tax (through the impact on floating rate borrowings): 2009 Increase/ Decrease in Basis Points Bank loans-floating interest rate 100 -100 Effect on Income Before Income Tax P3.000 6.40%-9.Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.000 8.

663.938. 2008 and 2006 and 35% in December 31.705.782.940 P 2. the Group manages dividend payments to shareholders.037 196. The Group manages its capital structure by keeping a net worth of between 30% and 50% in relation to its total assets.070.037 61.246 P 589. In the light of changes in economic conditions.000.037 326.610. pay-off existing debts.638.289 P 1.423.246 P 904.000 (2.933 33% 2008 P 261.246 P 609.037 136.151 P 1. 2009.525.951 33% 2007 P 237.699 751. return capital to shareholders or issue new shares. Capital Management The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value.264.250 293.921.591 P 2.525.250 293.923.172 293.923. The Group considers equity contributed by shareholders as capital.2007 Increase/ Decrease in Basis Points Bank loans-floating interest rate 100 -100 Effect on Income Before Income Tax P 2.672.000 (4.503 33% 2005 P 237.837 2.761.525. The Group’s net worth ratio is 33% as of December 31.250 293.248 667.561.000.309.659. 32. The Group mainly uses financing from local banks.047.525.881.923.938.246 P 748. 2009 Capital stock Additional paid-in capital Retained earnings Less cost of shares held in treasury Total assets Net worth P287.595.397 2.923.037 81.533.805.185.923.616.018 592.305 2. 2007.611.938.246 P 664.450 293.628 907.525.098.881. policies and processes during the year.535 2. No changes were made in the objectives.047.000) Increase/ Decrease in Basis Points 2006 Effect on Income Before Income Tax P 4.795 36% 112 .827.110 612.242.710.186 2.000) 100 -100 There is no other impact on the Group’s equity other than those already affecting the profit or loss.059 P 1.859 35% 2006 P 237.675.

307.355.170.  The Group has an agreement with its phone card supplier effective January 1. respectively.828.213. In consideration thereof. Management fee amounted to P83.931.051. 2005. the store operator is entitled to a management fee based on a certain percentage of the store’s gross profit and operating expenses as stipulated in the service management agreement.718.130. P152.576 in 2008.632. P65. the Group earns commission on the sale of phone cards based on a certain percentage of net sales for the month and a fixed monthly rate. 2006 and 2005.454. P83. Under the arrangement. Under the agreement.513 in 2009.  The Group has service management agreements with third parties for the management and operation of certain stores. The agreement includes a one-time franchise fee payment and an annual 7-Eleven charge for the franchisee. for a period of 5 years starting retroactively on January 24.387.229 in 2009 and P103. 2005. Inc. P21. 2006 and 2005. 2007.882. respectively.278.355 in 2007. Commission income amounted to P22. 2007. and franchise revenue for the 7Eleven charge amounted to P215. During the term of the agreement. 2000.248. Service fee included under outside services as shown as part of “General and administrative expenses” in the consolidated statements of income amounted to P109.389.394 in 2009.274 .635.460.531 in 2008.924.431 in 2009.  The Group entered into a Marketing Support and Exclusivity Agreement with San Miguel Pure Foods Group.387.404 and P31.401.387 in 2005. 2006 and 2005.224 in 2007. respectively.663 and P63.738 in 2007. P35.848. Franchise fee amounted to P32. P215. P51.33.795. Significant Agreements  The Group has various store franchise agreements with third parties for the operation of certain stores. P21. the Group is required to purchase a minimum 113 . (SMPFC) on June 23.248.601. the Group is appointed as SMPFC’s exclusive distributor for the covered products. 2008. 2008.976 and P26. which is equal to a certain percentage of the franchised store’s gross profit.093. P28. P82. P82.785 in 2006 and P37.454.

operate and/or franchise its 7-Eleven stores in CPI service stations. all existing branches of 7-Eleven shall exclusively carry Selecta ice cream products.989.690 in 2008. 2007.913. The agreement is for a period of three years starting October 1. Income from exclusivity contract included under “Other income” in the consolidated statement of income amounted to P3. which shall have a full term of three years and which will be co-terminus with the SFA. Inc. the Retailers will sign a Store Franchise Agreement (SFA) with the Group. to be amortized over three years.000 in June 2005 which was recognized as marketing income in the consolidated statement of income.741. that service station will be replaced with another mutually acceptable service station site.000 to support the sale of the covered products. the Group received a total consideration of P11.  The Group has entered into an exclusivity agreement with Unilever RFM Ice Cream.989. the Company has already opened 25 Retailers franchised stores. In June 2008.071 in relation to the agreement. on October 1. Upon acceptance of the Retailers of the LOF. wherein the Group will give the Retailers of these service stations a Letter Offer to Franchise (LOF) 7-Eleven stores. Upon the effectivity of the agreement. If LOF is not accepted by one of the 22 original service stations identified. CPI will execute an updated Caltex Retail Agreement with each of the 22 service station Retailers.volume of 19. The agreement further stipulates that SMPFC shall grant the Group marketing support funds aggregating P19. Upon signing of the MOA. 114 . and 7-Eleven should not carry any other ice cream product including similar or parallel products.564 metric tons of the covered products. 2009. Both parties have identified 22 CPI service stations. The Group received marketing support funds amounting to P19. 2009. (CPI) on August 6.  The Group has entered into a Memorandum of Agreement (MOA) with Chevron Philippines. 2010. As of December 31.691 in 2009 and P3.913. Inc. 2007 and shall continue in force and effect until December 31. wherein CPI has granted the Group as authorized co-locator for a full term of three-years to establish.

500.913.648.224 3. franchise revenue.033. Full settlement of the loan amounted to P6.240 P6.323 22. the rate thereafter shall be at the prevailing lender rate.186.572.207 – 4.793.708 39.107 2008 2007 2006 2005 115 .731 3.784 4.621 96.491 204.398 P 155.271.251.224.710.092 5.779.264.655.351.820.988.567.935.206.905.455.026.173 P 5.124 230. rent income.482.839. commission income and interest income.332.731.654.378 26.407.921.816 P 20.688.745 28.952.482 47.277 3.151 21.138 P 1.790.283.412.839.771.927.113 58.429.257.477 3. Segment Reporting The Group considers the store operations as its only business segment based on its primary business activity.051 39.581.735.557.488 303.534.170.040.894 25.651 P 2.304 P 54.364 35.685.977 21.659.990 3.882.718 1.838.703.144.792.639. 34.969.901 35.988 6.457.386 1.848.855. payable in equal monthly installments starting on the sixth month after the lending date until March 2007 with fixed interest rate of 11.516 5.213.322.049 75.909.764 P 1.795 P 1.847.893.574.074.726.566.886.526.142 236.902 6.831.627.885.380 82.331 – 4.760.131.675 32.958. The store operations derive its revenues from the products and services in merchandise sales.829.252.860 52.855 4.053.611.401.444 33.441 147.082. Long-term debt in 2007 consists of unsecured noncurrent promissory notes with a local bank.67% for the first 24 months.186.417 – 6.513 4.063 P 4.130.879.997.211 37.523.901. renting of properties and commissioning on bills payment services are considered an integral part of the store operations.502.352 124. Interest expense from these long-term debts amounted to P45.945 35.553 97.023 – 27.531 4.259 1.271.027.116 159.558.419 60.186 P 4.199.675.966 P 13.815.828.889.736 4.608.390 P 4.442 41.217.587.387 3.215 36.210 154.255.715.383 P 1.785 2.371.527.911.457.802.000 in 2007.635.146.929.933 P 1. marketing income.198.951 P 1.913 5.924.908 27.092 P 1.645 5.825 96.785 – 11.760.767 144.185.070.006 1.211.562.265.260 4.572.046.512.738.502.908 17.447 203. The segment’s relevant financial information is as follows: 2009 REVENUE Revenue from merchandise sales Franchise revenue Marketing income Rent income Commission income Interest income Other income EXPENSES Cost of merchandise sales General and administrative expenses: Depreciation and amortization Others Interest expense Impairment loss on goodwill Other expense INCOME BEFORE INCOME TAX PROVISION FOR INCOME TAX SEGMENT PROFIT SEGMENT ASSETS SEGMENT LIABILITIES 8.773.238 1.368 6.817 179.680.412 P 1.611 26.651 P 2.880.634.855.522 in 2007.378.727.661 136. Franchising.204 250.696 31.769.729 40.768 P 84.

Management and its legal counsel believe that the liability. lessors claiming for lease payments for the unexpired portion of the lease agreements in cases of pre-termination of lease agreements. the outcome of which are not presently determinable.985.35.000. these cases are either pending in courts or under protest. which was transferred to the Group in settlement of an outstanding receivable from an armored car service provider. claims arising from store operations and as co-respondents with manufacturers on complaints with the Bureau of Food and Drugs. This was subsequently transferred back to the latter after entering into a sale and leaseback transaction under a finance lease agreement. Further.097. 116 .725. Note to Consolidated Statements of Cash Flows The principal non-cash transaction of the Group under financing activities pertains to the issuance of stock dividends amounting to P26. among others.200 in 2008. employees suing for illegal dismissal. that may result from the outcome of these litigations and claims will not materially affect their financial position or financial performance. the principal non-cash transaction of the Group under investing activities pertains to the disposal of transportation equipment with undepreciated cost of P4. if any. specific performance and other civil claims. 36. back wages and damage claims. In 2007.722 in 2009 and P23. All such cases are in the normal course of business and are not deemed to be considered as material legal proceedings. Contingencies The Group is a party to various litigations involving.

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& 2005 December 31 2009 2008 2007 2006 REVENUE FROM MERCHANDISE SOLD 100% 100% 100% 100% COST OF MERCHANDISE SOLD 72. 2009.83% 0.58% 1.061% TOTAL COMPREHENSIVE INCOME 2.004% 0.55% 33.82% Other Revenue Franchise Revenue 5.52% 1.30% 118 .80% 0.24% 1.44% OTHER COMPREHENSIVE INCOME Appraisal increase in value of land .13% 3.02% -0.06% Other Income 0.10% -0.84% 0.04% 4.52% Other Expenses excluding Interest Expense Loss from Typhoon 0.38% 69.10% 0.12% 0.45% 30.63% 7.35% 1.08% 0. 2008.28% 2.44% 0.47% 0.58% 1.67% 0.59% 0.08% 0.62% Interest Income 0.16% 0.net of deferred income tax liability 0.62% 0.58% NET INCOME 2.80% Interest Expenses 0.08% 0.54% 27.06% Effect of changes in tax rate in 2009 0.05% Unrealized Foreign Exchange Loss 0.99% 33.58% 1.77% 28.02% 0.08% 5.18% 0.85% 0.10% 0.39% 0.86% Commission Income 0.78% 0.67% GROSS PROFIT 27.59% 0.09% Loss on Sale of Property and Equipment 0.PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Common-Size Consolidated Income Statement For The Year Ended December 31.40% 1.26% 3.04% 1.41% 0.97% 1.62% deferred income tax liability -0.78% Provision for Income Tax Current 1.24% 0.09% 0.33% 0.56% 1.33% Operating Expenses 33.14% 0.02% 0.03% Impairment Loss on Goodwill 0.00% 0.46% 72.86% 8.08% 0.23% 71.14% 2.20% Marketing Income 3.004% 0.17% 0.62% 30.04% 33.21% 0.63% 4.04% -0.24% INCOME BEFORE INTEREST & INCOME TAX 4.60% 1.92% 2.02% 0. 2007.99% 34.44% 2005 100% 69.74% 0.56% 1.54% 10.44% 0.97% 6.11% 0.30% 0.004% 0.36% 0.78% Rent Income 0.01% 0.37% 0.11% 0.11% Other Expenses 0.01% 0.87% 0.64% 0. 2006.

430.037 61.018 119.671 174.795 119 .898.938.222.184.252.111.888.833 649.010.933 2.511 26.940.825.158 110.951 308.856.000 610.037 136.902.328 1.123 1.458.586.895 3.736 237.513 339.592 1.628 83.102 775.587.899 6.000 136.246) (2.447 287.617.700.384.653.250 293.609.983 330.031 589.398 211.921.888.227.715.967.957 335.913 2.383.105 415.766 73.037 196.921.188 910.383 204.874.000.200.081 1.360.081 670.008 336. 2007.525.938.955.860 35.525.481.302.059 2.264.525.567.838.244.525.508.561.198 37.475 30.773.078.000 32.732 755.556.172 293.000 119.614.048 1.401 77.070.000.revaluation incremental on land Cost of held Treasury Total Stockholders' Equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2006 2005 448.904 800.131.033 46.450 293.178 918.070.693 18.008.649.934.866 54.074.842 65.767 25.877 2.892 30.000.043.464 1.082.310.217.795 340.811 1.375 404.837 32.131.677 1.873.000 848.947.923.866 174.524 41.246) (2.638 331.710.000 61.129 1. & 2005 December 31 2009 2008 2007 ASSETS Current Assets Cash and cash equivalents Receivables .838.975.616.512.283.000 7.520.net of current portion Total Noncurrent Liabilities Total Liabilities Stockholders' Equity Capital Stock .802.328.246) (2.761.677 329.923.602.375 47.229.947.000.668.659.383 1.000 1.999.477 620.849 69.841 6.652.211.037 10.737 1.264.605 38.532.056 1.972 1.193.100.470 39.000.830.000 582.500.384.504 59.246) (2. 2008.110 240.710.net Inventories Prepayments and other current assets Total Current Assets Noncurrent Assets Property and Equipment Deposits Deferred Lease Expense Deferred Income Tax Assets Goodwill Other Noncurrent Assets Total Noncurrent Assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Current Liabilities Bank Loans Accounts Payable and Accrued Expenses Income Tax Payable Current Portion of Long-Term Debt Other Current Liabilites Total Current Liabilities Noncurrent Liabilities Long-Term Debt .392 1.923.695.511 1.000 556.938.385 117.904.185.402 1.544.116 261.178.000 22. 2009.609.667.895 2.140.421 1.524 35.309.877 1.072.944 72.526.000.072.876.276.435.041.700.675.923.829.129.887 133.211.880.007.208.723 623.079.479 1.498.463 197.357 145.880 81.P1 par value Additional Paid-In Capital Unrealized gain on available-for-sale financial assets Retained Earnings Other Component of Equity .185.923.329 132.531.242.638.718.854.529.827.605 375.835 667.770.449.345.008.098.035.383.958.339 17.598.277 592.250 293.193 93.352 237.525.433 1.653 323.027.000 1.354.519.898.518 2.070.357 199.225.115.485.250 293.870 111.738.926.467 714.222 1.870 1.659.net of current portion Deposits Payable Net Retirement Obligations Deferred Income Tax Liability Cumulative Redeemable Preferred Shares Deferred Revenue .430 151.052.181.218.037 326.500.000.246) 907.200 237.238.567.951 1.009.305 (2.938.675.684 6.387 768.663.980 1.888 140.699 98.486 752.241 6.659 70.046 184.179.486.253.000.000.453.876.364.548 852.646 35.054 55.948 6.000 163.241 6.229.462.825 1.899 1.248 3. 2006.973.378.933 314.000.563 304.PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Consolidated Balance Sheet December 31.774 65.841 1.

2008 BALANCES AS OF DECEMBER 31.50% -0.24% 100.25% 13.10% 12.20% 26. 2004 Effect of change in accounting for refundable security deposits BALANCES AS OF JANUARY 1.14% 21.70% 1.64% 3.50% -0.03% 32.BALANCES AS OF DECEMBER 31.33% 10. 2005 BALANCES AS OF DECEMBER 31.47% -0. 2005 Net income for the year BALANCES AS OF DECEMBER 31. 2007 Issuance of stock dividends Total comprehensive income for the year BALANCES AS OF DECEMBER 31.00% 88.39% -0.47% 0.67% 2.38% 18.09% -3. 2006 Total comprehensive income for the year BALANCES AS OF DECEMBER 31.87% 31.17% 20.32% -0.34% 8.25% 3.84% 17.00% 95.97% 39.07% 8.97% 1.16% 100.85% 0.36% 0.00% 47.78% 47. 2006 BALANCES AS OF DECEMBER 31. 2008.66% -2.32% 0.36% 35.25% 3.07% 97.00% 120 . 2006.32% Total 97.15% 11.10% 40.64% 35.44% -0.33% 100.36% 38.00% 91. 2005 Unrealized gain on available-for-sale financial assets during the year Total income recognized directly in equity Net income for the year Total income for the year BALANCES AS OF DECEMBER 31.70% 49.25% 100.00% 82.78% -0. 2009 PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Common-Size Consolidated Statement of Changes in Stockholders' Equity For The Year Ended December 31.94% 0. 2008 Issuance of stock dividends Total comprehensive income for the year BALANCES AS OF DECEMBER 31.74% -0.87% 17.43% 0.64% 31.35% 38.79% 28.35% 40.66% 100.40% 0. 2007 BALANCES AS OF DECEMBER 31.03% 2.82% 2.70% 1. 2007.70% 1.33% 39.78% 8.36% 9.44% -0.45% 0.35% 49.50% -0.06% 1. & 2005 Unrealized Revaluation Additional Gain on AFS Retained Increment on Capital Stock Paid-In Capital Financial Assets Earnings Land 40.03% 0.16% 35.39% -0.03% 49.00% -0.33% 43.70% 3.15% 34.00% - Treasury Stock -0.32% 43.36% 0. 2009.70% 32.00% 3.76% 11.

93% -7.93% 0.76% 4.57% 8.44% -17.63% 62.40% 151.00% 121 .18% -4.67% 0.63% 37.00% Loss on refund of deposit 0.46% Income taxes paid -15.00% 0.00% 0.67% 106.46% Amortization of deferred lease expense 0.89% -10.73% 0.00% 1.18% 83.91% -6.49% Interest received 0.02% Inventories -16.44% 56.87% -1.00% 100.29% -0.80% 222.00% Proceeds from sale of property and equipment 0.53% 1.57% -10.42% Deposits payable 8.81% Amortization of deferred revenue on exclusivity contract -0.18% -1.02% -9.00% Provision for doubtful accounts 2.89% 13. 2009.33% -1.22% 17.00% 0.57% 1.32% 19.74% 135.03% Amortization of Deferred revenue on finance lease -0.18% Loss on Impairment of goodwill 0.40% -108.56% 1.54% Accounts written off 0.00% 4.07% Interest expense 5.90% 118.84% 1.98% 6.36% -21.13% 101.68% 46.03% 129.83% -72.79% Net cash flow from investing activities -86.00% 0.06% 0.80% 15.91% 0.35% -70.11% 171.77% 61. 2008.30% -16.00% 0.04% 1.81% 1.00% 0.00% 0.86% -16.09% -232.00% 0.23% -14.51% Payment of refundable security deposit 0.70% 0.14% 13.32% 95.00% 0.13% Long-term debt 0.77% Collection of lease receivable 0.78% 76.07% Net cash from operating activities 114.30% 0.63% 131.24% 0.88% 12.27% Deferred revenue 0.98% 0.25% 0.40% -146.37% Decrease (increase) in: Receivables 0.62% 0.34% -12.09% 106.00% Cash generated from operations 135.68% -6.96% 31.55% 75.52% -2.73% 0.69% 0.89% Interest paid -6.43% Net cash from financing activities 2.18% 2.00% -2.00% Gain on write-off of long outstanding liability 0.77% 97.33% 92.44% 113.50% 1.29% -11.70% Other current liabilities 7.97% -29. 2006.96% 1.22% 0.00% 0.09% 0.34% 0.02% -1.02% CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment -80.00% 0.86% -13.PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Common-Size Consolidated Statement of Cash Flows For The Year Ended December 31.60% 0.42% -0.10% -36.94% 1.10% Additions to software and other program costs -3.88% 0.00% 0.08% -1.11% 0.90% 16.00% 0.42% 1.28% 0.00% Deductions from (additions to) deposits -3.00% 0.00% 3.51% 17.00% 0.52% 0.00% Loss on sale of property and equipment 0.43% 45.00% 100.98% 73.69% -73.74% -75.86% CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 70.27% 2.89% 0.00% 0.00% 100.84% -1.00% Interest Income -1.74% -131.00% 0.00% -0.00% 2.89% -115.61% CASH FLOWS FROM FINANCING ACTIVITIES Availments of bank loans 113.13% -26.05% 51.59% -16.00% 2.00% 0.00% -9. & 2005 December 31 2009 2008 2007 2006 2005 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax 51.00% 0.00% 100.37% -26.25% 0.73% NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 29.00% Deductions from (additions to) goodwill assets & other noncurrent -2.95% -4.69% Prepayments and other current assets -12.00% Net pension liabililities 4.41% -10.72% 13.00% Operating income before working capital changes 104.07% 21.33% 0.00% 2.06% 0.95% 2.00% 0.00% Amortization of software 0.28% 0.00% 0.43% 57.32% 0.36% -85.68% 0.90% 8.92% 0.93% -8.07% 1.06% 0.78% -135.00% 0.07% -7.21% 10.00% Loss from typhoon 0.00% 0. 2007.52% 0.93% -7.16% 14.46% 0.56% 0.15% Increase (decrease) in: Accounts payable and accrued expenses 40.66% 0.16% 98.10% -0.00% 0.05% 10.90% Adjustments for: Depreciation and Amortization 45.29% Payments of: Bank loans -111.86% CASH AND CASH EQUIVALENTS AT END OF YEAR 100.

122 .

97 36.62 2.61 2.97 31.Liquidity Ratios Current Ratio Quick Ratio Cash Ratio Solvency Ratios Debt Utilization Ratios Debt Ratio Debt-Equity Ratio Coverage Ratios Times Interest Earned Ratio Times Fixed Charges Earned (Fixed-Charge Coverage Ratio) Asset Quality (Assset Utilization or Asset Activity) Ratios Inventory Turnover Days Sales in Inventory (Average Age of Inventory) Asset Turnover Fixed Asset Turnover Ratio 2005 64% 28% 20% 2005 64% 182% 220% 114% 2005 9.79 6.42 2006 65% 37% 28% 2006 66% 196% 231% 111% 2006 9.92 123 .58 33.65 37.87 30.79 11.05 4.67 2.78 11.42 5.65 5.82 2.81 5.78 2007 72% 36% 29% 2007 64% 181% 405% 123% 2008 67% 33% 23% 2008 67% 201% 433% 132% 2009 73% 36% 28% 2009 67% 199% 972% 144% 2007 2008 2009 10.53 2.

Profitability (Earnings) Ratios Net Profit Margin ( Return on Sales - ROS) Gross Profit Margin Return on Assets (ROA) Return on Stockholders' Equity (ROE) Earnings per Share Cash Flow per Share Growth Ratios Total Assets Total Liabilities Total Shareholders' Equity Sales Net Income Market Performance (Market Value) Ratios Price-Earnings Ratio Book Value per Share

2005 0% 31% 1% 2% Php 0.06 63% 2005

2006 0% 30% 1% 3% Php 0.08 137% 2006 11% 14% 5% 1% 46%

2007 1% 29% 3% 9% Php 0.23 112% 2007 3% -1% 9% 7% 172%

2008 2% 28% 4% 12% Php 0.32 201% 2008 21% 25% 13% 10% 54%

2009 3% 28% 6% 57% Php 0.54 189% 2009 19% 19% 21% 11% 85%

2006 2007 2008 2009 2944% 1385% 603% 926% PhP 2.49 PhP 2.61 PhP 2.81 PhP 3.01 PhP 3.16

2005

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125

A. MINISTOP of Robinson’s Convenience Stores, Inc. (RCSI) Mini-Stop is one of the major competitors of PSC. It started as a wholly-owned subsidiary of Jusco Co., Ltd. In Japan and established in the Philippines in December 2000 with the vision of becoming the leader in the convenience store industry. It establishes high standards of quality and maintains wide product lines to satisfy customer preferences top with impeccable services, a product of motivation and intensive training, by store personnel. What makes it unique from other convenience stores in the Philippines is that it offers in-store prepared food products, and with dinein corner along with comfortable sitting facility, customers now take pleasure of indulging the store’s freshly-prepared fast food. Every Mini-Stop store has a key component in its daily operations which is technology. Distinct group of activities has its own system and one of which is the Point of Sales System (POS). POS, an integrated and convenient point of sales solution developed by Fujitsu Limited Japan, provides real time sales figure any time, be it every day. Another system is Merchandise System (MD), an ordering tool that helps manage the shelf space ad stock replenishment and includes management of the store’s merchandise inventory cost and retail. Other technology systems of Mini-Stop include the Platinum System. It is a stable software used for both accounting and financial management. The system also helps in the purchases and inventory management of the Robinsons Distribution Center, Inc. (RDCI). The last system is the Exceed System, the most advanced tool in warehousing system. It provides an efficient warehousing and logistics operation of RDCI. The system is significant in order and location management, replenishment, cycle counting, inventory control, dispatch, and merchandise visibility. Setting up smaller backrooms and minimal stocks are possible for the stores with the support of responsive logistics.

126

safe medicines and other products offered closer to the public with considerable prices. and the consistent compliance of the 20% discounts to senior citizens. 127 .B. it has integrated value-added facilities and services in many of its drugstores. Mercury Drug started as a small drugstore in Bambang. Moreover. and it will always pursue its commitment to satisfy the needs of its customers whose trust and loyalty has allowed Mercury Drug to continue its service to the nation. whoever could they be and wherever may be. As a sign of gratitude to the people. are due to the millions of customers who continuously trust and patronize the drugstore chain. MERCURY DRUG CORPORATION Mercury Drug Corporation is a wholly-owned subsidiary of Mercury Group of Companies. including company-owned and franchised stores.000 people. Mercury Drug will continue on considering opportunities to further enable customers to have more easy access to quality and safe medicines in the years to come. it now offers basic household commodities such as food. It also owes its achievements to the professionals and dedicated staff of each store. The growth and success that Mercury Drug achieved with its vast network of over 700 stores nationwide. Now. Apart from selling pharmaceutical products as it was before. it is more committed in introducing improved services to better serve customers farther and wider. Mercury Drug guarantees to consistently bring quality. totaling to about 9. Among those services are the “Suki” card which is a customer program. Inc. health and personal care products and others for the convenience of its customers. Manila.

128 .

It goes to show that the company would not be able to pay its short term obligations through liquidating its current assets if there are any immediate needs in the future.It is seen that the trend of each of the liquidity ratios has relatively little fluctuations and are within its range in most years. The company has alr eady made a good credit name. incase of immediate needs of paying short-term Liquidity Ratios 80% 70% Ratio Values in Percentage 60% 50% 40% 30% 20% 10% 0% 2005 2006 2007 Years 2008 2009 Current Ratio Quick Ratio Cash Ratio obligations. However. But it is clearly seen that current ratios are higher compared to the quick and cash ratios. this does not show an incapability of the company’s ability to pay its creditors. 129 .

It is also a good sign that the companies debt ratios is below 100% which means that is has a safety cushion for paying debts if ever the company would ever be bankrupt in the future. the company would be able to pay fixed charges in a range of 1%-45%. this is due to the continuous increase of the income before income taxes and the decrease of the interest expense of the company. Also being constant within the range of 100%-145%. the company is very less risky. The debt-equity ratios ON the other hand are relatively within the 200% level which means that they are more debt financed. 130 .Solvency Ratios 1200% 1000% Debt Ratio 800% Debt-Equity Ratio 600% Times Interest Earned Ratio 400% Times Fixed Charges Earned (Fixed-Charge Coverage Ratio) Ratio Values in Percentage 200% 0% 2005 2006 2007 Years 2008 2009 Times interest earned ratio drastically increases. Since it is increasing.

Aside from the aforementioned above.00 25.00 10.00 35.00 Ratio Values 20.00 15.Asset Quality (Assset Utilization or Asset Activity) Ratios 40. It started to drop after 2006 because of increased cost of goods sold which is due to more inventories sold. being a merchandising firm explains the low asset turnover and low fixed asset turnover ratios since they are not the one making almost all of their goods or products.00 5.00 30. thus inventory turnover ratio rose up during the said year. it is evident according to the results of its day’s sales in inventory that they stock their inventories longer than other types of business. 131 .00 2005 2006 2007 Years 2008 2009 Inventory Turnover Days Sales in Inventory (Average Age of Inventory) Asset Turnover Fixed Asset Turnover Ratio Being a merchandising company.

The net profit margin of the company is showing ratios within the range of .Gross profit margins are relatively the same for the years computed but it is quite obvious in the graph that they are slightly decreasing because the increase in gross profit does not correspond proportionately to the increase of its sales. 132 . we could find that the expenses the company has are overwhelming that it makes the income so minimal.1%-.ROS) Gross Profit Margin Return on Assets (ROA) 100% Return on Stockholders' Equity (ROE) Cash Flow per Share 50% 0% 2005 2006 2007 Years 2008 2009 why the ratios are also relatively the same. the company had a continuous increase in sales and profit for the 5 years which is also Profitability (Earnings) Ratios 250% 200% Ratio Values in Percentage 150% Net Profit Margin ( Return on Sales .5% but despite this. Having these ratios.

30 Earnings per Share Php0.50 Php0.40 Peso Values Php0. it is also the reason why the earnings per share is increasing. 133 . return on equity is increasing for the same reason that the income is increasing. Lastly. Also mentioned earlier. It can be noted that the company had their highest cash flow from operations during the year 2008.10 Php2005 2006 2007 Years 2008 2009 As mentioned above that the company continuous to increase in its profits.60 Php0.20 Php0. The high and low of the ratios of the cash flow per share is mainly due to the fluctuations in the cash flow from operations of the company. the company does not need to work so much using their assets that’s why the return on assets are low.Earnings per Share Php0.

fluctuating net income are due to fluctuations of their expenses especially other expenses. Growth Ratios 200% 180% 160% 140% Ratio Values in Percentage 120% 100% 80% 60% 40% 20% 0% 2005 -20% 2006 2007 Years 2008 2009 Total Assets Total Liabilities Total Shareholders' Equity Sales Net Income 134 . Lastly. Increasing sales are mainly due to more franchises and more effective marketing strategies. Fluctuations of the total shareholders’ equity are due to the issuance and repurchase of its stocks.The causes of the increase-decrease of the total assets are due to the buying and selling of its assets. While fluctuations on total liabilities are just because of their normal operations and they either borrow money or pay their debts.

Price-earnings ratio on the other hand had a continuous decrease from 2006 to 2008 but it was able to increase by 2009 which is mainly due to the abrupt change in the market prices.00 PhP0.50 PhP2005 2006 2007 Years 2008 2009 Book Value per Share Book value per share is increasing which is good because it implies that there is an increasing value of net assets assigned to common stockholders.50 PhP1.Market Performance (Market Value) Ratios PhP3.50 PhP3. Price-Earnings Ratio 3500% Ratio Values in Percentage 3000% 2500% 2000% 1500% 1000% 500% 0% 2005 2006 2007 Years 2008 2009 Price-Earnings Ratio 135 .00 Peso Values PhP2.50 PhP2.00 PhP1.

136 .

2007.Consolidated Income Statement For The Year Ended December 31. & 2005 December 31 2009 2008 2007 2006 REVENUE FROM MERCHANDISE SOLD 11% 9% 7% 1% COST OF MERCHANDISE SOLD 12% 11% 10% 1% GROSS PROFIT 11% 6% 1% 0% Operating Expenses 15% 6% 4% 5% Other Revenue Franchise Revenue 21% 23% 38% 152% Marketing Income 74% 39% 18% -15% Rent Income 43% -8% -1% 12% Commission Income 4% -3% -23% -24% Interest Income 16% -5% 59% -25% Other Income 98% -33% 40% 18% 31% 30% Other Expenses excluding Interest Expense Loss from Typhoon Unrealized Foreign Exchange Loss -32% -21% -25% 18565% Impairment Loss on Goodwill -100% Loss on Sale of Property and Equipment -100% 313% -96% -69% Other Expenses -10% -100% -56% -26% 934% -90% -60% INCOME BEFORE INTEREST & INCOME TAX 51% 33% 54% 12% Interest Expenses 5% -20% -12% 6% Provision for Income Tax Current 30% 49% 46% 55% deferred income tax liability 180% 189% -57% -122% 24% 46% 53% 0% NET INCOME 85% 54% 172% 46% OTHER COMPREHENSIVE INCOME Appraisal increase in value of land .36% 46. 2006.07% 46. 2009.13% 187. 2008.net of deferred income tax liability 0% 0% 0% 0% Effect of changes in tax rate in 2009 0% 0% 0% 0% 0% 0% 0% 0% TOTAL COMPREHENSIVE INCOME 84.39% Average number of shares outstanding 10% 10% 0% 0% BASIC/DILUTED EARNINGS PER SHARE 68% 40% 172% 46% 2005 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 137 .PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Annual Growth Rates .

net Inventories Prepayments and other current assets Total Current Assets Noncurrent Assets Property and Equipment Deposits Deferred Lease Expense Deferred Income Tax Assets Goodwill Other Noncurrent Assets Total Noncurrent Assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Current Liabilities Bank Loans Accounts Payable and Accrued Expenses Income Tax Payable Current Portion of Long-Term Debt Other Current Liabilites Total Current Liabilities Noncurrent Liabilities Long-Term Debt .00% 0.49% 7.22% 53.68% -46.35% -93.57% -0.09% 834.00% 0.60% 7.21% -35.00% 0.00% -14.49% 20.57% -6.40% 17.00% 0.38% 17.47% 48.98% 2. 2008.44% -100.00% 0.40% -1.97% 0.63% 0.25% 2.00% 0.00% 0.00% 0.56% 27.89% 29.17% 45.00% 65.34% 21.48% -4.00% 12.13% -100.81% 47.12% 22.00% 0.00% -7.07% -30.51% 68.00% 0.45% 0.62% 19.17% 14.96% 0.00% 0.44% -2.net of current portion Total Noncurrent Liabilities Total Liabilities Stockholders' Equity Capital Stock .20% 10.63% 0.97% -30.54% 1.08% 314.94% -7.00% 0.26% 12.00% 0.00% 0.00% 0.00% 0.60% -31.01% 36.98% 2.89% 20.48% 14.00% 0. & 2005 December 31 2009 2008 2007 ASSETS Current Assets Cash and cash equivalents Receivables .57% 18.73% 10.42% -6.76% 13.00% 0.00% -100.26% 18.00% 25.00% 0.74% 0.00% 17.00% 0. 2006.00% 0.00% 0.00% 32.68% 725.41% 4.00% 5.80% 19.26% -84.50% 67.00% 0.66% 7.09% -9.00% 0.85% 68.00% 0.61% 55.00% 44.78% 0.59% 0.net of current portion Deposits Payable Net Retirement Obligations Deferred Income Tax Liability Cumulative Redeemable Preferred Shares Deferred Revenue .00% 0.10% -15.00% 0.37% 18.97% 0.64% 13.94% 61.00% 44.00% -100.00% 0.43% 0.63% 20.PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Annual Growth Rates .90% 10.63% 9.74% 138 .67% 16.00% 20.07% 5.07% 0.07% 3.00% 0.04% 15.29% 0.48% 109.00% 0.P1 par value Additional Paid-In Capital Unrealized gain on available-for-sale financial assets Retained Earnings Other Component of Equity .42% 9.00% 0.00% 0.00% 0.00% 0.66% -1.00% 0.00% 0.05% -4.76% 6.03% -12. 2009.27% 67.80% 18.69% 12.00% 0.78% 25.Consolidated Balance Sheet December 31.97% 12.00% 15.61% 61.00% -73.78% 38.21% -2.00% 0.63% 22.00% 5.00% 0.00% 0.17% 0.revaluation incremental on land Cost of held Treasury Total Stockholders' Equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2006 2005 42.71% 19.00% 18.97% 5.00% 0.79% 9.00% 20. 2007.

2009 PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Annual Growth Rates . 2008 Issuance of stock dividends Total comprehensive income for the year BALANCES AS OF DECEMBER 31.00% 0. 2006 Total comprehensive income for the year BALANCES AS OF DECEMBER 31.97% 32.39% 46.00% 0.07% 9.87% 65.97% 10. 2004 Effect of change in accounting for refundable security deposits BALANCES AS OF JANUARY 1.00% - Treasury Stock 0.00% 9.00% 0. 2008.00% 0.49% 53.00% 0.66% 84.96% 7. & 2005 Unrealized Revaluation Additional Gain on AFS Retained Increment on Capital Stock Paid-In Capital Financial Assets Earnings Land 0.00% 0. 2005 Unrealized gain on available-for-sale financial assets during the year Total income recognized directly in equity Net income for the year Total income for the year BALANCES AS OF DECEMBER 31.39% 32. 2009.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 84. 2005 Net income for the year BALANCES AS OF DECEMBER 31.00% 0.36% 20.13% 12.00% 0.66% 12.69% 7.18% 67.BALANCES AS OF DECEMBER 31.71% 139 .97% 9.00% 0.00% 0. 2005 BALANCES AS OF DECEMBER 31.00% 0.39% 5.00% 0. 2008 BALANCES AS OF DECEMBER 31.00% 0.69% 0.50% 10.00% 0.00% 0.00% 0.00% 0.20% 3.00% 0.42% 187.48% 9.00% 0.00% 0.00% 0.Consolidated Statement of Changes in Stockholders' Equity For The Year Ended December 31.00% 2. 2007.70% 44. 2006 BALANCES AS OF DECEMBER 31.00% 0.00% 9.97% 0.07% 46.00% 0.50% 44.00% 0.49% 67.00% Total 0.00% 29.97% 172.00% 0.00% 0.00% 0. 2006.00% 0.48% 46. 2007 BALANCES AS OF DECEMBER 31. 2007 Issuance of stock dividends Total comprehensive income for the year BALANCES AS OF DECEMBER 31.

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2007. 2009.PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Trend Analysis .Consolidated Income Statement For The Year Ended December 31. 2006. & 2005 December 31 2009 2008 2007 2006 REVENUE FROM MERCHANDISE SOLD 132% 118% 108% 101% COST OF MERCHANDISE SOLD 137% 123% 111% 101% GROSS PROFIT 119% 107% 101% 100% Operating Expenses 134% 117% 110% 105% Other Revenue Franchise Revenue 517% 427% 348% 252% Marketing Income 244% 140% 101% 85% Rent Income 146% 102% 111% 112% Commission Income 58% 56% 58% 76% Interest Income 131% 113% 119% 75% Other Income 281% 200% 169% 130% Other Expenses excluding Interest Expense Loss from Typhoon Unrealized Foreign Exchange Loss 7505% 10971% 13937% 18665% Impairment Loss on Goodwill Loss on Sale of Property and Equipment 0% 5% 1% 31% Other Expenses 44% 49% 0% 44% 31% 42% 4% 40% INCOME BEFORE INTEREST & INCOME TAX 346% 228% 172% 112% Interest Expenses 78% 75% 93% 106% Provision for Income Tax Current 436% 336% 226% 155% deferred income tax liability -76% -27% -9% -22% 279% 225% 154% 100% NET INCOME 1132% 612% 398% 146% Average number of shares outstanding 121% 110% 100% 100% BASIC/DILUTED EARNINGS PER SHARE 936% 557% 398% 146% 2005 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 141 . 2008.

15% 61.80% -8.97% 0. 2007.08% 221.00% 0.00% 0.05% -100.21% 51.00% 0.00% 0.12% 90.00% 0.00% 0. & 2005 December 31 2009 2008 2007 2006 ASSETS Current Assets Cash and cash equivalents Receivables .00% 0.00% 202.78% 12509% -100.00% 0.71% 27.00% 5.00% 0.00% 0.80% 18.43% 0.05% -4.01% 36.74% 142 .08% -31.00% 53.26% 12.45% 0.97% 5.net of current portion Total Noncurrent Liabilities Total Liabilities Stockholders' Equity Capital Stock .33% 37.00% 0.00% 0.92% 2.39% 19.72% 106.00% 0.00% 0.30% 50.Consolidated Balance Sheet December 31.42% 13.63% 1.00% 0.83% 32.20% 10.00% 0.00% 0.30% 31.00% 0.00% 0.00% -48.55% 13.68% -84.07% 28.07% 5.43% -3.79% -49.22% 57.00% 0.00% 0.00% 391.revaluation incremental on land Cost of held Treasury Total Stockholders' Equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2005 119.00% -51.61% 37.19% 20.00% 0.25% 4.07% -30.18% -1.81% 122.00% 0.00% 0.74% 0.54% 42.35% -93.63% 97.00% 434.00% 0.00% 50.00% 0.96% -100.32% -100.00% -6.49% 8413.67% 84.71% -79.71% 53.00% 0. 2006.90% 10.00% 77.98% 27.99% -46.38% 17.94% 9.00% 0.00% 145.00% 41.17% 0.68% 54.13% 60.92% 232.82% 810.23% 3.66% -1.00% 0.00% 0.17% 56.21% -35.00% 0.66% 18.72% 81.00% 0.89% -100.26% 68.00% 0.37% 19.73% 10.00% 0.58% 63.50% 52.26% 68.79% 20.66% -40. 2009.00% 0. 2008.56% 13.00% 32.44% 33.75% 51.16% 0.27% 67.net of current portion Deposits Payable Net Retirement Obligations Deferred Income Tax Liability Cumulative Redeemable Preferred Shares Deferred Revenue .net Inventories Prepayments and other current assets Total Current Assets Noncurrent Assets Property and Equipment Deposits Deferred Lease Expense Deferred Income Tax Assets Goodwill Other Noncurrent Assets Total Noncurrent Assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Current Liabilities Bank Loans Accounts Payable and Accrued Expenses Income Tax Payable Current Portion of Long-Term Debt Other Current Liabilites Total Current Liabilities Noncurrent Liabilities Long-Term Debt .22% 6.00% -100.00% 0.00% 0.22% 63.00% 0.P1 par value Additional Paid-In Capital Unrealized gain on available-for-sale financial assets Retained Earnings Other Component of Equity .00% 0.80% 6.63% 9.00% 0.25% 71.00% 0.00% 0.00% -40.77% -100.40% -1.PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Trend Analysis .00% 0.13% 23.99% 0.

89% 320.93% 514% 27. 2004 Effect of change in accounting for refundable security deposits BALANCES AS OF JANUARY 1.00% 0.00% 0.00% 0. 2007 BALANCES AS OF DECEMBER 31.00% 0.39% 32.39% 46.00% 0.17% 53.00% 0.39% 46.00% 0.97% 20.71% 187.00% 0. 2007.00% 0.00% 0.22% 15.00% 0.00% 0. 2006 BALANCES AS OF DECEMBER 31.07% 46.55% 30.39% 5.00% 2. 2006 Total comprehensive income for the year BALANCES AS OF DECEMBER 31.00% 0. 2005 BALANCES AS OF DECEMBER 31.60% 1032.BALANCES AS OF DECEMBER 31.39% 46.81% 315.00% 0. 2006.98% - - 143 . 2005 Unrealized gain on available-for-sale financial assets during the year Total income recognized directly in equity Net income for the year Total income for the year BALANCES AS OF DECEMBER 31.00% 0.00% 0.00% 0. 2009. 2009 PHILIPPINE SEVEN CORPORATION AND SUBSIDIARIES Trend Analysis .35% 1032.00% 0. 2007 Issuance of stock dividends Total comprehensive income for the year BALANCES AS OF DECEMBER 31.00% 0.00% 0. & 2005 Unrealized Revaluation Additional Gain on AFS Retained Increment on Capital Stock Paid-In Capital Financial Assets Earnings Land 0. 2005 Net income for the year BALANCES AS OF DECEMBER 31.00% 0.Consolidated Statement of Changes in Stockholders' Equity For The Year Ended December 31.00% 0.00% 9.00% 0.00% 0.00% 0.94% 0.00% 0.00% 0.00% 0.97% 9. 2008 BALANCES AS OF DECEMBER 31.00% 0.24% 13. 2008 Issuance of stock dividends Total comprehensive income for the year BALANCES AS OF DECEMBER 31.00% 0.00% 0. 2008.00% 0.20% 5.97% 71.00% 0.62% 298.00% Total 0.17% 0.00% 29.00% 0.00% 0.45% 512% 221.00% - Treasury Stock 0.00% 0.45% 122.

San Miguel Food Shop 1% Market Share (as of December (2009) Ministop 27% 7-Eleven 44% Mercury Self-Serve 28% It is also hard to compare the company to other retailing company or its major competitors since the 7-Evelen is the only company of its nature which does not form part of any other businesses. As also seen in the trend analysis. With this. the company really is growing not just in terms of its profits but the company as a whole which can be noted visibly in the growths of its assets in the past five years. As a result of the great increase in its net income it can also give the stockholders that earning per share is increasing which means good in their part. San Miguel Food Shop and the Mercury Drugs Self -Serve.It can be noted that the company really had their hands in maximizing their profits. we also searched the movement of market prices of the company’s stocks and it shows that the company had been increasing. although there were slight decreases yet is it still increasing. unlike the Ministop of Robinsons. Profits really reach the highest growth among all of the company’s financial quantities. we can say that the company recently has 144 . But furthermore the net income has the most clear and visible increase from 2005 up to 2009. Aside from all these.

Aside from all of the aforementioned above. probably. 7-Eleven also had the largest market share compared to its known competitors. will still be in the coming future since they have been developing new ways of marketing and management. 145 .an advantage over their competitors and.

146 .

Philippine Seven Corporation being the leader in its industry had promising figures in their annual financial statements as well as computed financial ratios. In spite of the growing competition in convenience store (“C -Store”) businesses. Through the 5-year analysis.Through our analyses. Much of the success of the company was due to the strengthening of franchise selection process and market development plan. The company is fully committed in meeting their obligations. the financial performance of the company for the past five years has been showing favorable results not only to the shareholders but the other stakeholders of the company as well. And not only that. Earnings per Share which plays a major role in the maximization of wealth in the company had been very much increasing for the past 5 years. we can say that there has been a favorable growth as evidenced by the increase in revenues and decrease in expenses and as also depicted by complimentary solvency. margin and customer count in partnership with suppliers. Bulk of the said amount 147 .0 million. liquidity. the Corporation maintains its leadership in the industry having 43% market share as of the current year being analyzed with Mercury Self Service next in line with just 28%. The company took steps to facilitate expansion in new and traditional markets to expedite growth. These ratios informed stakeholders about different facets of the company’s finances and operations that ultimately caused it to prosper. profitability and market performance ratios. The increase in sales was brought about by the leap in marketing and merchandising strategies. Collaboration with suppliers was needed to provide the company with high quality products that are more marketable and thus are very much profit-making. There were programs implemented that supported corporate and franchise stores and programs that boost sales. The company had been seeking development and persisting with a commitment for capital expenditures in 2010 that amounts to P615. Qualitative factors played roles in the business performance as a whole. Continuous improvement was also evident through the positive changes in terms of quantitative data.

acquisition of store and computer equipment. 148 . Financing of the capital expenditures will come mainly from internal funds.will be spent on construction of new stores. we can say that Philippine Seven Corporation is satisfactory in terms of performance and strives to continue to be the promising leader in the C-Store industry. with all the input obtained and investigated. Thus.

149 .

In its vision to be an emerging retailer in the industry, Philippine Seven Corporation gains advantage through people, technology, widely recognized brand, and economies of scale so as to achieve customer satisfaction and to maintain a leadership position in the C-store industry. In relation to accomplish such, here are some of the company’s future prospects:  PSC is considering that available working capital sources and operating activities will provide funds to finance capital expenditures and operating costs. Working capital sources are obtained largely from cash flows provided by retailing operations and franchises, and from borrowings extended by banks under a revolving credit.  Mostly, the company’s commitments for capital expenditures revolve around expansion – the construction of new stores and renovations that are expected to be funded by borrowings and increase in cash flows, if such is needed.  The company is expecting to have 1,000 more stores by 2013 and to put up one or two in Cebu.  PSC anticipates in decreasing its level of debt, particularly from bank loans with floating interest rates, to reduce its exposure to interest rate risk. Consequently, outstanding debts will be paid using the funds generated internally from its franchising business and cash generating units.  The Corporation will continue to strengthen its franchising activities including franchise selection process, and to implement its market development plan.  In collaboration with its suppliers, the company shall continue to supply high quality and fresh products that are more profitable and saleable. Moreover, it is also willing to adopt alternative approaches in promotions, pricing, and product mix to ensure that PSC sales will be steady despite unfavorable economic situations and to not just be able to cope but to maintain profitability during these uncertain times.  Mr. Paterno, the acting President and CEO of PSC, said that the company is considering e-commerce as a new system in selling.

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Having been able to know the nature and the standing of the company, the group recommends the following:

 Since the company is serving on-the-go customers, they must offer faster service at the lowest reasonable prices with the highest quality.

 Also for them to maintain their market share, they should be more innovative when it comes to their services offered and products being sold. For example, creating more trademark products which are unique and has an appeal to their customers. It is important to attract customers and offering new and attractive products is one way of achieving it.

 Wider product differentiation is also a good move for the company to improve. Increase suppliers with varied products. Such as, more toiletries, medicines, and other needs of the customers which are not yet offered in their stores at present.

 Since the increase in their profits are caused greatly by continuous improvement and franchising, the company could do research and delevopment in these aspects. Such as, looking for a better franchising strategy, which is the major source of their revenue. However, doing so, the company should always be careful to protect their company name and not allow franchising to people who are not eligible enough to carry out the good name of the company.

 For a better impression to the industry, the company should continue maximizing its shareholders’ wealth - which is basically their main goal. One way of increasing shareholders’ wealth is by increasing in profits by which the earnings per share could also increase.

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its product quality and customer satisfaction. Thus. Products from their suppliers are usually bought by masses. We feel that it will not cost the company too much of what they are earning and it will also set a goodexample not only to other successful companies. Because th company is merchandising in nature. but as well as to human beings in the future.  For its environmental concerns. it will mold the company to be environmental-friendly. Through this. they can use paper bags instead of plastic bags in their transactions to the end customers.  In their normal operation. cartons and the like which are not sold to the customers can be sold to junk shops. giving these scraps to them can help those people earn a living. containers. and these children must not waste their potentials in being future leaders. or even donated to the people who don’t have work.  Being aware of the poverty occuring in the country. Despite of 7-eleven’s past projects. has a great potential in recycling. This would not benefit only to the environment itself. it is still important that a for-profit company should always try to reach out helping hands to the citizens. the group suggests that they create their own small learning center for unfortunate children. 153 . In addition. but as well as the government. which is retailing. We believe that small beginnings can end up to great endings. stores like 7-eleven. the best way to gain or increase it profits is to minimize or have a good control of the fluctuations of the expenses without damaging the operations of the company.

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to Prof. Without the knowledge and perseverance He had given to us we would not be able to finish this paper in due time.  Fifth. Leonard Vince Araneta for letting us borrow their laptops. Betty Jane Martinez. our Lord Jesus Christ who is the source of everything.We would like to thank the following who gave not just their financial support but also moral and material:  First and foremost. Mr.  Fourth. We really thank you a lot for! God speed! 158 . Ardie Jose Estrada nad Mr.  Third.  Lastly to our friends and classmates who pressured us to finish this paper on time and of course their moral support to us. who gave us this project. to the Villamil Family who welcomed us in their humble home in order for us to be safe and comfortable in the making of this paper. to our parents who never fail to understand our sleepless nights and most of all giving us all our financial needs especially for this paper.  Secondly. Although this was a hard task yet we learned so much as we go along.