Enriching

PARTNERSHIPS

2009 ANNUAL R E PORT

 In Memoriam

W ilfred Uytengsu, Sr.

October 6, 1927 - April 18, 2010

The Board of Directors, Officers and employees of Alaska Milk Corporation

pay tribute to their Founder and Chairman whose vision and acumen
guided the Company to becoming a leading consumer products company in
the Philippines. His work ethic and dedication were legendary and set the
standard for all to live up to. He was a pillar of Philippine industry, having
founded several other food companies as well as acquiring several others
abroad. He served on a number of corporate and philanthropic boards during
his long and accomplished career.

Mr. Uytengsu will be deeply missed but his memory will be etched in the
culture and memory of our Company forever.
Our
COMPANY
ALASKA MILK CORPORATION ( AMC ) is a leading
manufacturer of milk products in the Philippines. It has
established a strong brand heritage and recognition among
Filipino consumers with its liquid canned milk products,
marketed under the Alaska brand. In addition, the Company has
developed a strong competitive position in the powdered milk
category and a growing presence in the UHT ready-to-drink and
ready-to-use segments.
AMC began its corporate life in1972 as Holland Milk
Products, Inc., in partnership with Holland Canned Milk BV, a
dairy company in the Netherlands. Given the need to expand
production capacities, AMC tapped the capital market and
became a publicly listed company in the Philippine Stock
Exchange in 1995. To better manage its sales and distribution
efforts, AMC took over the operations of its exclusive distributor
in 1998. In 2007, AMC became even more dominant in the
liquid milk category by acquiring / licensing the liquid canned
milk products of Société Des Produits Nestlé S.A., which includes
the Carnation, Milkmaid, Alpine, Liberty and Krem Top brands.
For more than 35 years, AMC has been building its
relationship with its consumers and the Company’s memorable
tagline: “Sa sustansya at lasa, wala pa rin tatalo sa Alaska” (in
nutrition and taste, nothing beats Alaska), has both endeared it
to its loyal consumers and embodies AMC products’ consumer
value proposition. In recent years, AMC has leveraged the use
of its new portfolio of trusted brands in catering to the needs of
different market segments and to further expand market share.
AMC’s strong financial performance through the years,
amidst challenging economic environment, attests to its sound
business model. This is supported by AMC’s strong advocacy for
transparency and good governance.

Table of
CONTENTS
1 Financial Highlights • 2 Vision / Mission • 4 Business Portfolio • 6 Message from the Chairman • 8 Message from the
President & Chief Executive Officer • 11 Enriching Partnerships • 12 A Pasture of Love & Hope • 14 A Legacy of Quality &
Devotion • 16 A Lifetime of Togetherness • 18 A Life in Full Circle • 20 The Sweet Smell of Success • 22 Message from the
Chief Financial Officer • 24 Management’s Discussion and Analysis of Operations • 30 Corporate Governance • 32 Board of
Directors • 36 Management Committee • 38 Audit Committee Report • 40 Statement of Management’s Responsibilty •
41 Independent Auditors’ Report • 42 Balance Sheets • 43 Statements of Comprehensive Income • 44 Statements of
Changes In Stockholders’ Equity • 46 Statements of Cash Flows • 47 Notes to Financial Statements • 77 Corporate and
Shareholder Information
Financial
HIGHLIGHTS
in millions except per share data and ratios

2009 2008 Change

For the Year
Net Sales 10,580 9,968 6%
Income from Operations 1,889 464 307%
EBITDA1 2,241 789 184%
Net Income 1,409 291 384%

At Year-End
Total Assets 7,271 6,307 15%
Stockholders’ Equity 4,677 3,499 34%

Financial Ratios
Operating Margin 17.9% 4.7% +13.2% pts
Return on Sales 13.3% 2.9% +10.4% pts
Return on Equity 30.1% 8.3% +21.8% pts
Current Ratio 1.55 1.10 +0.45
Debt-to-Equity Ratio 0.55 0.80 -0.25

Per Common Share
Earnings per Share 1.59 0.32 +1.27
Cash Dividends 0.20 0.30 -0.10
1
Earnings Before Interest, Taxes, Depreciation and Amortization

2009 AMC Stock Price Performance Relative to PSEi

7.80
7.60
7.40
AMC
7.20
7.00
6.80
6.60
6.40
PSEi
6.20
6.00
5.80
5.60
5.40
5.20
5.00
4.80
4.60
4.40
4.20
4.00
3.80
3.60
3.40
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

* Index based on December 24, 2008 Phisix of 1,873 and AMC closing price of -P-3.70 per share

Alaska Milk Corporation Annual Report 2009 1

 Our
VISION
To be a leading consumer foods company with a diversified portfolio of consumer food brands and
products that are market leaders in their respective categories.
Our
MISSION
PRODUCT DEVELOPMENT
We will continue to build on the strengths
and competitive attributes of the ALASKA
brand and develop its full marketing potential.
We will develop new products and identify
market opportunities, mindful of our task to be
responsive to the ever changing and growing
needs of our consumers.
CUSTOMER SERVICE
Customer relationships are an integral part of
building the Alaska business. We aim to provide
our partners in trade the best and most efficient
service, making use of leading edge technology to
ensure timely product availability and accessibility.
We strive to know and understand our customers
fully to bridge the gap between what they need
and what we can offer.
QUALITY
Ultimately, the consumer whom we serve and
their level of satisfaction with our products
become our final judge and jury. We are
committed to deliver high quality milk and other
consumer food products from production to
consumption. We will respond to the call to
deliver high quality nutrition to every Filipino.
2 Enriching Partnerships
PEOPLE
We recognize that our people, the Alaska Team
Members, are one of our most important assets
and we are committed to promote their safety
and welfare. Their wealth of experience, ideas,
dedication and strong work ethic lay the foundation
for the Company’s continued success. It is our goal
as much as it is theirs, to pursue and reach their full
potential through continuing education, training,
and skills-enhancement programs. We challenge
each individual by providing the opportunity to
contribute to the Company’s endeavors.
PROFITABLE GROWTH
Growth that creates value for our shareholders
is paramount. We will deploy our resources on
investment opportunities that are within our core
competence and yield excellent returns relative to
its risks and which are consistent with our growth
objectives.
SOCIAL RESPONSIBILITY
We recognize our role in nation building by
promoting the protection of the environment and
taking part in various community-building projects
that help enhance and uplift the quality of life of
the underprivileged and the marginalized sectors of
our society.
The 2009 Ginang Alaska winners (L-R): Maria Yvette Bunao (Ginang Alaska Sariaya), Janeth Ureta (Ginang Alaska Roxas), Alda de Vera (Ginang Alaska
Baguio), Maricel Makino (Ginang Alaska Davao), and Navigail Cabahug (Ginang Alaska Cebu)

Today’s housewives are empowered by

their own choices and achievements.
At Alaska Milk Corporation, we share
their vision and passion in providing only
the best for their families and also for
themselves.

Alaska Milk Corporation Annual Report 2009 3

 LIQUID CANNED MILK
The Alaska brand has always
been associated with quality and
nutrition. The Company’s first
generation of milk products are
Alaska Evaporated Filled Milk and
Alaska Sweetened Condensed
Filled Milk. Collectively known as
the Classic Line, product usage has
since expanded from a nutritional
beverage to a multi-purpose
cooking ingredient. To address the
needs of the low-income earners
for more affordable products, the
Company also developed a Value
Line of evaporated and sweetened
condensed creamers in the market.
Priced competitively and with the
same Alaska seal of quality, Alaska
4 Enriching Partnerships
Evaporada and Alaska Condensada are
the perfect enhancers for various food
and beverage preparations. The Alaska
brand is the undisputed market leader in
both the Evaporated and Condensed Milk
Categories.
The Company has further
strengthened its core business by acquiring
/ licensing the liquid canned milk brands
of Société Des Produits Nestlé S.A. In
a deal signed on April 16, 2007, Alaska
Milk Corporation bought from Nestle the
Alpine, Liberty and Krem-Top brands,
including all trademark properties. Also
included in the deal is a long-term licensing
agreement for AMC to manufacture and
sell the Carnation and Milkmaid brands
for liquid canned milk products. Each of
these brands has a strong market position,
a loyal customer base and a brand name
associated with quality.
In line with the Company’s thrust of
providing affordable and quality products
to a greater number of consumers, an
economy brand was made available in
the market. Launched in 2009, Cow Bell
Condensada addresses the needs of a
growing price-conscious market.
Today, Alaska Milk Corporation has
a dominant position in the liquid milk
category, accounting for about 80% of
the market.
POWDERED MILK
The Company has successfully built
a solid position in the Powdered Milk
Category. With the heritage gained
by Alaska Liquid Milk, the Company’s
 Business
PORTFOLIO

F or over thirty five years, Alaska Milk Corporation has proven its worth as a company of
people driven by a passion to deliver unparalleled value to its consumers and customers
through its quality products and superior services. We take great pride in providing affordable
nutrition for families across the country under a portfolio of trusted brands.

Alaska Powdered Milk Drink, the most
nutritious powdered milk, has emerged as
the second leading brand in the market.
The successful “Growth Gap” Campaign
was instrumental in sustaining consumer
awareness on the benefits of drinking
milk, especially among school age
children where weight and height gained
during infancy progressively lessen over
the years until the child reaches puberty.
UHT READY-TO-DRINK MILK
In order to satisfy the broad array
of consumer tastes and preferences for
higher value-added products, Alaska
Milk also offers a complete line of Ultra-
Heat Treated (UHT) Ready-to-Drink milk
products to a more discriminating market:
Alaska Fresh Milk contains the essential
vitamins and minerals for healthy bones
and teeth. It also contains energy-
giving carbohydrates to suit the active
lifestyle of every member of the family.
Alaska Slim Milk, a 98% fat-free fresh
cow’s milk, suits the nutritional needs
of the weight and health conscious milk
drinkers. Alaska Slim has all the calcium
and minerals of regular milk, with less of
the fat. To encourage milk consumption
among children, a range of ready-to-drink
flavored milk drinks under the brand
names Alaska Choco! and Alaska Sweet
Milk! are likewise available in the market.
The latest addition to the Company’s
growing portfolio of products is Alaska
Yoghurt Drink, a ready-to-drink milk
naturally fermented with good bacteria
which promotes proper digestion. It
also has deliciously nutritious fruit
juices that tickle the taste buds.
Alaska Yoghurt Drink is available in
four exciting and refreshing flavors -
Strawberry, Blueberry, Green Apple
and Orange.
UHT READY-TO-USE PRODUCT
Alaska Crema All-Purpose Cream is
a result of the Company’s effort to
broaden its product portfolio in higher
value-added segments. Alaska Crema
enhances the taste of a variety of
food preparations, bringing gourmet
goodness at home.

Alaska Milk Corporation Annual Report 2009 5

 Message from the
Chairman

T
he past year was marked by substantive
accomplishments for Alaska Milk
Corporation. We made significant
progress towards our key strategic goal
of driving growth across key milk market
segments. We achieved strong financial performance for 2009
with a record net income of P1.4 billion, derived from a 6%
expansion in revenues alongside with the significant reduction
in major cost inputs.
Our accomplishments were all the more significant when
viewed against the operating environment in which these
were achieved. We have managed well despite the headwinds
posed by economic uncertainties, shrinking household incomes
and heightened industry competition. We have strengthened
our core by pushing sales and improving operational
efficiencies.
At the onset, we expected 2009 to be another challenging
year not only for your Company but for the entire business
environment brought about by the lingering effects of a
slowdown of world economies and declining consumer
sentiment. Notwithstanding the continued economic volatility
in the East and its repercussions on emerging countries, the
Philippines was able to avert a recession as domestic demand
held up on strong remittance inflows. Sustained remittances
from overseas Filipino workers (OFWs) likewise supported the
2.4% appreciation of the Peso in 2009 to close at P46.36 to
a US Dollar by year-end. Encouraged by the country’s sound
macroeconomic fundamentals, portfolio investment flows
steadily returned to the local equity market on improved
investor sentiment. The foregoing saw a 63% rise in the main
index value of the Philippine stock market at the end of the
year.
Consistent with our articulation of leading the growth in
the domestic milk market, we made substantial investments
in marketing and promoting our portfolio of products. We
have accelerated our efforts to ensure that Alaska Milk
products continue to offer excellent value. With that in mind,
fresh communication campaigns were rolled out in 2009 to
enhance the brands’ value propositions across their specific
markets. Supported by demand-generating initiatives, we have

6 Enriching Partnerships
 In many ways, the scope and importance
of our accomplishments made 2009
a transformative year for the
Company.
effectively reinforced our dominance in the liquid canned milk
category and have expanded our market share in the powdered
milk category. We have likewise gained significant inroads in
high-value segments, broadening the customer base of our
UHT line of ready-to-drink and ready-to-use products.
Cognizant of consumers’ need for affordable and new
product offerings, a new line of economy brand was launched
in the market. With Mindanao as a test market, Cow Bell
Condensada addresses the demands of the untapped segment
of low-income earners. In addition, new variants of Alaska
Yoghurt Drink were unveiled in the market.
We achieved significant improvements in efficiency both
in our operation and supply chain management. We have
intensified our efforts to improve our manufacturing reliability
and productivity, which enabled us to serve the growing
demand of the market for Alaska Milk products. In 2009,
capital expenditure was over P360 million, mostly for the
acquisition of new equipment to expand capacity. For 2010,
we have lined up various capital expenditure projects to further
upgrade the Company’s manufacturing facilities. While we
continue to make meaningful investments in our infrastructure
to further boost production capacities, we are taking a
disciplined approach in this effort to ensure that we align our
growth targets with the needs of the market.
In these challenging times, we remain focused on driving
the lowest possible costs across the organization without
compromising on the quality of our products and services. We
are ramping up on research and development efforts to improve
existing products, expand our product offerings and to better
respond to the rapidly changing dynamics of major cost inputs.
After a year of unprecedented volatile market trends,
global prices of agricultural commodities trailed lower in 2009
amid a slowdown of world economies. Skimmed milk powder
prices, in particular, declined dramatically from historic highs to
recent historic lows, as export demand for dairy commodities
eased. In addition, government intervention programs in
Europe as well as in the US allowed for the recovery in global
supply. This certainly bode well for our business which resulted
in a significant improvement in the Company’s margins.
Taking all these into consideration, Alaska Milk
Corporation became a stronger company in 2009. In many
ways, the scope and importance of our accomplishments made
it a transformative year for the Company. We ended the year
with a much stronger balance sheet, which will allow us to
seize market opportunities for a more sustainable growth in
the future. Our commitment to long-term shareholder value
creation remains resolute.
The long-term prospects for our business are promising
with the anticipated rebound in economies and growing
consumer enthusiasm. We are confident that we are dealing
with the challenges of a rapidly changing consumer market
head-on, with strategies born of experience and with the ability
to adapt in a focused manner. We have an enviable position
in the milk industry and as such, we are taking necessary
measures to grow the market so your Company can continue
to advance in the coming years. We are working closely
with our business associates to drive innovation; enhance
our production and distribution capabilities; and align our
branding, marketing and execution capabilities. In everything
we do, we will remain diligent in driving productivity across the
organization and focusing our resources to the highest-value
opportunities.
In closing, I would like to express my gratitude to our
board of directors who continue to play an invaluable role in
supporting and guiding our management through the years; to
our employees, for their focus, dedication and hard work that
enabled us to achieve a creditable performance in 2009; to our
business partners, for their support and shared commitment
in providing our consumers with the highest level of service;
and to you, our stockholders, for your continued trust and
confidence in our Company.
Wilfred Uytengsu, Sr.
Chairman of the Board
Alaska Milk Corporation Annual Report 2009 7
 Message from the
PRESIDENT &
CHIEF EXECUTIVE OFFICER

In the face
of pervasive
competition, we
executed our
business plans
in the most
astute manner,
producing solid
gains across a
range of metrics.

8 Enriching Partnerships
W e entered the year with a clear
resolve to steer the business
and overcome every barrier that
sought to limit the Company’s
growth as the world reeled
from the global financial crisis. Notwithstanding the
economic uncertainties and reduced consumer purchasing
power, 2009 proved to be a rewarding year for Alaska Milk
Corporation. In fact, by many measures, 2009 represented
the best in our Company’s history. Revenues for the year
grew 6% to a record-high of P10.6 billion on sustained
sales volume growth as well as improvements in our supply
chain management.
In the face of pervasive competition, we executed our
business plans in the most astute manner, producing solid
gains across a range of metrics – share of customer, market
share, profitability and cash flow. We also made significant
headway in our overall thrust to lead the growth of the
domestic milk market, anchored on nutrition, affordability and
availability of Alaska Milk products.
During the year, various sales and marketing initiatives
were undertaken to further strengthen and sharpen the Alaska
brand and all Company owned and licensed brands amid
changing consumer preferences and market trends. Dynamic
marketing campaigns were unveiled in 2009, communicating
the right messages and brand value propositions to key
markets. In addition, on-site consumer promotions and
extensive merchandising efforts drove demand for our
products as well as market share gains. Likewise, we advanced
our selling and category management capabilities by aligning
strategically with our trade partners which afforded us to
effectively execute our marketing programs and increase our
market presence.
These initiatives brought in solid sales volume gains,
buoyed by a strong consumer appetite for our core milk
products. Combined sales volume of the liquid canned
milk products grew mid-single digit driven by the successful
implementation of our strategic moves to defend our market
share, notwithstanding the proliferation of low-priced
imported brands.
The Company’s powdered milk business remained a bright
spot, with sales volume posting strong double-digit growth
even as the entire category contracted. Market share of Alaska
Powdered Milk Drink continue to expand, solidifying its position
as the second leading brand in the market. Similarly, combined
sales volume of our UHT business posted a modest growth rate
with the continued expansion of its customer base through
measures that spur consumption.
We remain committed and focused in generating new
revenue streams that will provide the impetus for stronger
growth going forward. Building on the success of our portfolio
of liquid canned milk products, an economy brand was
launched in the market. Cow Bell Condensada addresses the
needs of a growing price-conscious market, strengthening
further Alaska Milk’s leadership position in the sweetened
condensed milk category. In addition, new variants of Alaska
Yoghurt Drink were launched in 2009, providing consumer
more choices to meet their needs for products that can
contribute to a healthier lifestyle.
Our trading business, Kellogg’s ready-to-eat cereals,
continued to be a small part of the Company’s business.
Declining consumption patterns for premium-priced packaged
food products prompt us to re-evaluate the strategic benefit
of this partnership, taking into account the narrow margins
akin to a purely distribution arrangement. In the long run,
deploying our resources behind our own products / brands will
create more value for our business.
On September 26, 2009, we were adversely affected by
typhoon Ondoy and the entire plant in San Pedro, Laguna
when the wall of an adjacent factory collapsed. Despite our
contingency plans, we were overtaken by the worst flood in
the Greater Manila Area in over 40 years. Fortunately, all of our
employees and their families were unharmed. However, many
of them were displaced and some employees had to relocate
as their homes were destroyed. We quickly mobilized teams
of unaffected employees to help those who needed support
and granted financial assistance to the employees who were
badly affected. We were also impressed by the commitment
and dedication of our employees who worked diligently to
rehabilitate the plant and resume operations within a month.
Alaska Milk Corporation Annual Report 2009 9
 Not only have we made meaningful investments in
promoting our brands but also in the advancement of our
people. We recognize that key to our continued success as an
organization is the development of next generation leaders and
as such, great focus was put in training and skills-enhancement
programs to ensure that we have qualified leaders capable of
taking the Company to the next level.
We continue to harness the full potential and capabilities
of our investments in information technology in order to
improve the decision-making process across all levels of the
organization. We recognize that information technology plays
an important role in serving our markets and developing new
markets as it provides us the opportunity to get to know our
consumers better and faster.
From an operational perspective, we have enhanced
productivity measures and have driven greater efficiencies in
how we conduct daily business. We have intensified efforts to
make sure that our supply chain platform is well organized and
run as efficiently as possible, from procurement, production and
to distribution. Investments were made to boost production
capacity that, with the anticipated rebound in economies,
our Company will be at the forefront to meet and serve the
growing needs of consumers.
Cost management programs were likewise carried out
across the organization without affecting long-term value
creation. In almost every aspect, we have been relentless in
driving costs down, applying our best practices and eliminating
processes that do not add value to our business. We remained
focus on identifying opportunities to increase the productive
use of capital and operating resources to improve results. As
in the past, fiscal prudence has always served the Company
well especially during down cycles. Combined with a marked
reduction in our major cost drivers, net income ended the year
at a record of P1.4 billion or 13.3% of revenues.
With the significant improvement in profitability, combined
with lower working capital requirements, the Company turned
in strong cash inflows during the year. Cash balance at year-
end stood at P1.9 billion compared to P174 million in 2008.
This puts us in a position to pursue and capture opportunities
wherever consumer trends emerge. As the lifeblood of any
consumer products company, we are keenly aware that
innovation is a key tool for expanding the scale of our business.
Through a disciplined approach to innovation combined with
10 Enriching Partnerships
a broad and deep understanding around consumer segments
and market opportunities, we have developed an exciting line
of products scheduled for launch in 2010. With our track
record of producing high quality products that fulfil consumer
needs, we are confident that our new product offerings will
gain mass acceptance with the same enthusiasm that they have
consistently shown towards our current line of products and
brands.
We are pleased that our strong financial performance has
struck a responsive chord from investors. From a share price
of P3.70 per share at the start of the year, AMC share price
gained P3.40 per share or 92% to close at P7.10 at year end,
outperforming the 63% gain of the Philippine Stock Exchange’s
main index.
We are delighted to have been recognized by the
international business community for our efforts and
accomplishments in the areas of operational and financial
management. In a survey conducted by Finance Asia Magazine
among investors and analysts, Alaska Milk Corporation was
once again voted as the Philippines’ Best Small Cap Company
for 2009, a testament to the soundness and wisdom of our
business model.
We exited 2009 a far more resilient and agile Company
and we are entering 2010 with significant momentum. In spite
of our accomplishments this year, we maintain a healthy need
to continuously challenge our business model. We cannot be
complacent despite our achievements. We will continue to
drive growth by leveraging our brands to meet the changing
needs of our customers and consumers, better and faster than
our competition. As we set forth on our path to once again
double the business in the next five years, we are in a good
position to move forward with our clear strategic agenda – to
grow and protect value with sound governance.
Wilfred Steven Uytengsu, Jr.
President & Chief Executive Officer
T
he Philippines is a rich and diverse archipelago of more than 7,100 islands that boasts of
year-long festivals and traditions that are distinct. Each region serves as a home to native
delicacies or local products that show the fascination and passion of Filipinos for food. Be it in
the north or the south of the country, one can surely find some ingenious delicacy borne out of
passion for taste, resilience in adversity, dedication for service, value for communities and the
greatest regard for family values.
In these pages are some of the most notable stories of these delicacies – and their creators – that can be
found in certain islands of the Philippines. This is Alaska Milk Corporation’s tribute to them – to acknowledge their
value as customers and partners who make a difference in their own field of expertise and in the communities
they serve. Theirs are stories of products that have survived the taste and test of time. Products made nutritious
and more special by Alaska Milk products.
These are stories of perseverance and family bonds that prove to be life-changing and enriching. These
are stories that Alaska Milk Corporation hopes to enrich even more with its dedication for quality products and
commitment to the highest level of service and partnerships.

Alaska Milk Corporation Annual Report 2009 11

 BAGUIO CITY – Sister Guadalupe “Sr. Guada” Bautista of the Religious of Good Shepherd rarely
sits down once her day begins. As Local Coordinator, she untiringly oversees the different
aspects of operations amidst rows of fresh ube (purple yam) in various stages of production.
Behind these mounds of ube are young faces, intently going about their assigned chores,
oblivious to Sr. Guada’s presence.
The young workers, over 200 of them, are
students earning their way through college. They
come from the underprivileged and financially-
challenged indigenous families of the Cordillera
region. Theirs are the hands that peel, cut, grind,
cook and pack the ube jam that most Filipinos
enjoy from its immaculate glass bottles, perhaps in
less than a few minutes of gustatory delight.
In the midst of activities, silence is prescribed
in this sterilized environment that churns out
this heavenly treat. Every moment is dedicated
towards producing only the best from a place
everyone considers as their second home – a
haven for dreamers and believers like them, a
place known to many as Baguio’s Good Shepherd
Convent but more aptly called as Mountain Maid
Training Center (MMTC).
Located in the heart of the city, MMTC has
provided countless educational opportunities to
those who are in need, producing hundreds of
professionals in its 58 years of existence. For the
Sisters of the Good Shepherd, providing education
to the less privileged youth of the Cordillera has
opened a window of opportunity, assuring their
path to a brighter future. The thriving jam and
cookie livelihood project has made this advocacy
possible and sustainable. The store was definitely
not created primarily for business, as articulated
on the labels of the products: “You help send us
to college each time you buy our products.” It
was meant to augment resources for a growing
community.
It is quite a feat that MMTC
only started with a small clientele
of friends and neighbors in 1953.
From their first product, MMTC
has successfully expanded the
Mountain Maid brand line to
12 Enriching Partnerships
over sixty products to include a variety of cookies, a
selection of breads and fruit preserves. Owing to the
students’ and the Sisters’ perseverance and love for
what they do, the Center has earned its reputation and
their products became well known among locals and
visitors alike. Whether in peak or low season, faithful
customers make the trek up the road leading to the
Good Shepherd Convent in order to line up at the little
store to buy a jar or two of the sweet, creamy, violet
concoction the place has been famous for.
People always equate MMTC products with great
quality but what makes it special is the fact that every
sweet treats that come from the store is a product of
love and hope. Ube sourced from the finest farms is
prepared by the craftiest hands of workers – students
who only dreamed before of studying but now can
taste the joy of finishing a degree by taking control
of their future in a dignified way. It is incidental that
the nuns and these student workers make the most
divine ube jam this side of the Philippines. Sr. Guada
would say that Alaska Milk is what they have always
used in their products for 32 years. But what is most
valuable to remember is that every mouth-watering
confection is an outcome of talent, goodwill and sweat
of these Cordillera youth who believe that everything
they produce are steps towards the fulfilment of their
dreams for a brighter future.
Indeed, every product bought from MMTC not only
satisfies one’s sweet cravings but also fosters a culture
of caring by helping send Cordillera youth to college
through the Center’s work-study program. Within this
pasture, souls are nourished with love and hope;
lives are transformed to make a difference, that
someday, can ultimately contribute to the
transformation of our nation.
A Pasture of
LOVE & HOPE
Alaska Milk Corporation Annual Report 2009 13
 A Legacy of
QUALITY & DEVOTION
14 Enriching Partnerships
MALABON CITY – Denise “Deedee” Tabije keenly goes through her ingredients. A fire of
excitement flickers from her eyes as 21 stoves are simultaneously set up for cooking. She
stands close to one of the stoves inside the old kamalig (storage house) that serves as a kitchen
and fortress for devotion and impeccable quality of the best kakanin (native desserts) one can
find in urban Metro Manila – The Original Dolor’s Kakanin by Mommy’s Malabon Pride.

Devotion because for the past 80 years,
production for these delectable treats begins nightly
at 10 o’clock to ensure freshness of products the
following morning. Quality because ingredients
are never compromised: malagkit (glutinous rice)
from Palawan, rice from Bulacan, sugar from
Negros and Alaska Condensed Milk. “Whatever
is good, we should offer to our customers. We
never compromise,”Dolores “Aling Dolor” Santos
would often say. It is the same business philosophy
and secret recipe handed down through three
generations of women in their clan. Deedee should
have been armed with a scalpel in medical school to
follow the footsteps of her parents, both of whom
are physicians. Yet, here she is, empowered as a
descendant, continuing what her grandmother Dolor
started in the late 1930s.
Along the narrow street beside the Concepcion
Church, in the fishing town of Malabon, Aling Dolor
was bold enough to follow her dream. With a single
stove and sheer determination, Aling Dolor began to
thread the beginnings of her own legacy of colorful
native desserts like puto, ubeng halaya, kutsinta
and of course, the all-time favorite and best-seller,
sapin-sapin. Through passion, creativity and hard
work, it was no surprise that her home-made
delicacies eventually found their way
to the tables and hearts of eager
Filipinos. By word-of-mouth,
the popularity of these
delicacies spread over the
decades and beyond the
boundaries of Malabon,
elevating the humble
kakanin to an undeniable
hometown icon.
Amidst the activities
in the kitchen, Elenita
“Ellen” Jacinto, Deedee’s
aunt, oversees her niece’s every move. She ensures
that Deedee not only masters the process but also
feels the whole art and passion of cooking this truly
Filipino concoction. For someone who considers
cooking as a hobby, Ellen values the importance of
quality and taste. Values she claims were instilled
at a young age and acquired first-hand from the
master herself, her own Aunt Dolor. Having worked
for a bank for many years, Ellen knows too well the
importance of customer satisfaction. She states “As
long as you continue to offer the same quality or
better yet, improve further the taste of what you
have to offer, people will always come and patronize
your products.”
Not to be mistaken with the other Dolor’s in the
market, The Original Dolor’s Kakanin by Mommy’s
Malabon Pride remains true to the age-old tradition
of making kakanin. Aling Dolor passed away in
1997, but her dream and passion live on, through the
deft hands of Ellen and Deedee whose unwavering
faith in the vision and values of their resilient
matriarch remain guided by her memory and her
legacy.
With a strong commitment to quality, combined
with their great passion and love for cooking, the
heritage of Aling Dolor’s noble kakanin
will surely never wane. It will, as
these women have shown,
forever flow through the
blood, sift through the
ages and transcend
through many more
of their generations of
makers and believers on
these heavenly, candy-
colored creations.

Alaska Milk Corporation Annual Report 2009 15

 MANILA – Eugenia “Bong” Salazar gently tapped her index finger on the wooden table, her
eyes would shift to the door every now and then, expecting someone. She would have ordered
their favorite slices of cakes. Two cups of brewed coffee would just be perfect to complete the
meal on this laid-back afternoon. But this woman does everything with her man. She will
wait a little longer until he finally arrives.
A few minutes later, Rodolfo “Rod” Salazar
entered the establishment. Their eyes meet and
lock in a sweet gaze of being together. It hasn’t
really been a long time that they’ve been apart from
each other. In fact they were together at home that
morning, sharing breakfast. But love does indeed
make the heart grow fonder even for a fleeting
moment of separation. In the case of this loving
couple, everyday has been a lifetime of meaningful
and lasting moments spent with each other.
Rod and Bong are celebrating the sweetness
and goodness of their own business, right inside
one of the branches of Sugarhouse. One of Manila’s
well-loved bakeshops and coffee houses, Sugarhouse
has been in the industry for more than two decades
and has mastered every secret in the tradition of
baking cakes and pastries.
The first Sugarhouse store opened in 1983
on a 75 square meter lot in Makati that housed
a kitchen, bakery, display and dining area. With
its premiere selection of cakes, pastries and other
delectable dishes, the popularity of this unassuming
cake shop spread and had customers lining up for
their bestsellers – Cashew Toffee, Chocolate Truffle,
Blueberry Cheesecake, Strawberry Shortcake and the
ever-popular French Apple Pie.
The Salazar family was one of Sugarhouse’s
loyal customers. Thus, it was no surprise that they
took over the business in 2007 when the original
owners of Sugarhouse decided to sell. It is an
understatement to say that it was
a breeze to run an established
business with a strong product
line and loyal customer base. To
say the least, the Salazars found it
challenging to maintain the image
and reputation of this esteemed
establishment.
16 Enriching Partnerships
Taking a cue from their own marriage and family
experiences, Rod and Bong, know too well the value
of commitment. Love for this couple requires an
atmosphere of harmony, of give-and-take. They
know the value of that lesson to live it out in running
the affairs of the business.
True enough, the hard work and dedication paid
off. With the help of two of their five children, Rod
and Bong have all the support they need. Pebbles
Salazar-Santos, the eldest, handles the business’
support services while Peggy Salazar, the youngest,
is in-charge of store operations, marketing and
promotions. From the five stores they bought in
2007, Sugarhouse now boasts of 18 branches spread
all over the metro. The menu got better with new
varieties of cookies, breads, pastries, salads, soups,
sandwiches and other mouth-watering creations
joining the old-time favorites first sold in the original
Sugarhouse store. Indeed, the little cake shop has
come a long way.
Through all of its transformation, one thing
remains for Sugarhouse, its use of premium
ingredients. Sugarhouse takes care of an upscale
clientele with penchant for quality confections. These
are the customers who keep on coming back and
practically know their products. Milk is a vital base
for most of their creations. For Sugarhouse, Rod and
Bong quickly volunteer: “We use only Alaska Milk
products.”
Finally, when Rod and Bong had a chance to
sit down together, they ordered as Bong
imagined earlier. The cakes were
delicious and the coffee perfectly warm.
They gazed at each other’s eyes with
joy that only true love knows. And they
know, they will be spending more of
these simple yet wonderful celebrations
in Sugarhouse – together.
A Lifetime of
TOGETHERNESS
Alaska Milk Corporation Annual Report 2009 17
 ILOILO CITY – When it comes to Ilonggo delicacies, one name stands out, The Original Biscocho
Haus. Named after its first best-selling product, the biscocho (buttered toast), this hometown
bakeshop has become more than a purveyor of pasalubong (homecoming gift) but a must-
see place for visitors travelling to this province in Western Visayas. The store itself in Jaro,
characterized by its signature colored windows, antique cabinets and an assortment of
pastries spread out in wooden crates, has become part of the city’s iconography.

Biscocho Haus traces its humble beginnings in 1975
through the entrepreneurial skills of Mrs. Teresa J.
Guadarrama and her husband, the late Dr. Carlos L.
Guadarrama. What started as a home-based business
to support a growing family, Biscocho Haus has now
grown into a dozen branches spread all over the
province, offering more than just a pack of biscocho.
“The growing demand for variety inspired my parents
to come up with new products, most of which were
honed in the kitchens of the Guadarrama-Jalandoni
clans,” shares Jose Gerardo “Gerry” J. Guadarrama,
the sixth child in a brood of eight and current General
Manager and CFO of the family business. Indeed, aside
from biscocho, favorites now include butterscotch,
banana marble, piyaya and meringue to name a few
from the current line of about 40 bakery items.
The world opened for Gerry as far as his vision
and imagination could see. Enamored by his sense
of challenge and thirst for adventure, he took up a
Mechanical Engineering course at the University of
the Philippines in Diliman, his ticket he says out of
Iloilo. His dreams carried him farther away and with
the support of his family, he took up his M.B.A. at
the Santa Clara University, California, U.S.A. After
finishing his MBA degree in 1986, Gerry decided to
stay and pursue a career in California’s Silicon Valley.
The opportunities indeed were limitless where
he was. But in 2002, upon the prodding of his
mother to help straighten the family business, Gerry
packed up his things and returned home to Iloilo.
Equipped with the business acuity and financial
management expertise gained from
working in a corporate environment,
he painstakingly engineered the
transition of the family business into
a professionally-managed company –
improving processes and establishing a
system of internal controls.
Today, Biscocho Haus continues to capture the
taste of both local customers and visitors. Its products
continue to evoke nostalgic memories not only for
Ilonggos but for those who were fortunate enough to
sample any of Biscocho Haus’ sweet treats.
When asked about the secret behind Biscocho
Haus’ success, Gerry would always say that it is
their innovative approach to an otherwise simple
product. Their continued thrust towards maintaining
the quality and taste for every product make their
whole endeavour noteworthy, from their choice of
ingredients to the production process. He is also
quick to add that more importantly, their business is
built around a set of values inspired by his parents:
perseverance, hard work, fiscal discipline, community
service and generosity of spirit. This aligns perfectly
with their choice for Alaska Milk products. “When
we found out that the milk brand we previously
used was made in another country, we took the
initiative to look for an alternative milk brand that
is manufactured in the Philippines. It is our way
of supporting local industries as well as preserving
employment opportunities for Filipinos. We are glad
that Alaska Milk products fit the bill and the quality
is as good, if not better, than the foreign-made milk,”
Gerry concludes.
For someone who has travelled half-way around
the world only to come back to where his heart matters
more than anything else, Gerry has indeed reached full
circle. He now continues what his parents dreamed of
and further discovers that the world opened even wider
for him. For it is true, children who
value their parents will be blessed
with a lifetime of blessings. Like the
love and sweetness infused in every
Biscocho Haus product, Gerry could
happily enjoy where his heart and his
dream willed him to be – back home.

18 Enriching Partnerships
A Life in
FULL CIRCLE
Alaska Milk Corporation Annual Report 2009 19
 The Sweet Smell of
SUCCESS
20 Enriching Partnerships
DAVAO – A trip to this province in Mindanao is never complete if one does not get to sample
the King of Fruits, the durian. To eat durian is an acquired taste and its distinctive odor evokes
reactions from deep appreciation to intense disgust. This seems true for those who relish
eating the pale yellow flesh that has an appealing creamy custard-like texture with a sweet
taste that comes from the hard, prickly rind. While others would go to the extent of saying
they would rather die than smell the fruit’s infamous aroma.

Inside a store, tucked in a narrow side street
of a small village in Davao, Roberto “Boy” and his
wife Corazon “Baby” Saniel know too well that the
intoxicating scent of durian spells the sweetest taste of
success. Summer has just arrived and the heat was no
deterrent to the arrival of a tourist bus in this quaint
neighborhood. The couple warmly welcomes the
eager visitors who buy their famous durian-flavored
products for pasalubong to families and friends. It’s
one of those days when throngs of tourists flock to
this store – built on courage and persistence.
The story of this enterprise’s rise to popularity
started in 1948 when Boy’s grandmother, Abondia
“Lola Abon” D. Raakin made pastillas de leche
(condensed milk candies) as a source of livelihood.
“In her kitchen, she would mix with her ladle, six
cans of condensed milk and stir the mixture until
it became thick and sticky,” shares Boy, current
president of the family business. Once the mixture
cooled and hardened, she would flatten, slice into
bite-size pieces and wrap the pastillas in Japanese
paper. The candies were then put in baskets and
were sold from office to office. Soon enough, Lola
Abon’s candies were the talk of the town. When
one of her customers suggested that she put some
flavor in her candies, Lola Abon got the idea to use
durian since the fruit was indigenous to the province.
Thus, durian candy was born. With the success of
this home-based business, it was no surprise that
others followed suit and the candies
that trace its history in the kitchen of
an amiable grandmother are now a
veritable industry in Davao.
Boy, the eldest of six children,
said they never expected that the
specialty of their grandmother
would make it big in the industry
and will bring them such popularity.
Their success spurred many to
imitate their products. But none can
compare to the original. “The secret is in the milk,”
shares Boy. “When the original milk my grandmother
used for her recipe was no longer available in the
market, we looked for a replacement. We tested
Alaska Milk and it met our expectations. That was
twenty years ago and to this day, we still use Alaska
Milk products.”
Sixty years down the road, Lola Abon’s candies
evolved to other high-quality products such as
mangosteen candy, langka candy, turon de mani
and variations of the durian – yema, tart, macaroon,
pulvoron and ice cream to name a few. Boy credits
most of the product innovations to the ingenuity
of his siblings but is quick to add that it was the
foresight of their mother, Melor Raakin Saniel, who
gave them the inspiration to strive in the business.
As a loving tribute to a woman’s vision, Melor named
the enterprise after her own mother, Abondia. It
was also Melor who introduced the idea of various
packaging styles to conform to the needs of their
customers.
With two of the Saniel siblings based in Ireland,
Lola Abon’s Durian Candies, Inc. is now run by
Boy together with brothers, Rodolfo and Eduardo
alongside other family members. Their bond is as
strong as the blood ties that run in the family and as
profound as the compassion they have for the legacy
of their grandmother.
Old local folklore has it that the treasures of
Davao are guarded by fairies and mythical beings
who feed on durian. The elders
believe that where durian grows,
treasures abound. As the Saniel
clan continues to value the success
brought by their ancestor’s ingenuity
and faith in the humble durian, their
smiles will always be as sweet as the
candies in their store and as inviting
as the sparkle in their eyes, all for
our gastronomic delight.

Alaska Milk Corporation Annual Report 2009 21

 Message from the
ChIEF FINANCIAL OFFICER

I
am pleased to report that 2009 was a financially
rewarding year for Alaska Milk Corporation. The
financial strategies we implemented during the
year helped us to withstand the ill-effects of a
slowing global economy.
As contained in the messages of both our Chairman and
our President, 2009 was marked by record-high achievements
for the Company, in terms of revenues and net income.
Revenues for the year grew by 6% to P10.58 billion from
P9.97 billion in 2008 on account of higher sales volume.
Shelf off-take across the Company’s core milk products was
robust, underpinned by extensive advertising and promotional
activities combined with improvements in product availability.
Notwithstanding the growth in sales volume, cost of sales
fell by 14% to P6.82 billion from P7.90 billion in 2008 largely
due to the decline in the cost of production inputs, particularly
raw and packaging materials. The unit cost of imported
skimmed milk powder as well as locally-sourced sugar and
coconut oil fell from their peak levels a year ago alongside
global demand for agricultural commodities. Operating
expenses for 2009, on the other hand, went up by 17% to
P1.87 billion from P1.60 billion the previous year due to higher
distribution-related charges on higher sales volume as well
as heightened advertising and promotional spending to spur
consumer demand for Alaska Milk products.
We continued to manage the inherent risks to the
business. Given the volatility in the financial as well as
the commodity markets, we actively hedged part of the
Company’s US Dollar requirements for its import bills,
in tandem with its skimmed milk powder and tinplate
requirements. With the Philippine Peso gaining in value
against the US Dollar towards the end of the year, the
Company incurred foreign exchange losses on its US Dollar
currency-denominated assets. However, foregoing was
more than compensated for by the successes in commodity

22 Enriching Partnerships
 The financial strategies we
implemented during the year helped
us to withstand the ill-effects of a slowing
global economy.
hedging as the Company managed to secure forward supply a total of 14.8 million common AMC shares were reacquired in
contracts at advantageous prices. A one-time casualty loss 2009 for a total consideration of P62.4 million.
amounting to P156 million was incurred in 2009 attendant We ended the year with a stronger balance sheet, buoyed
to damages, mainly on inventories, caused by the September by a higher cash balance as well as concentrated efforts to
2009 flooding wrought by Typhoon Ondoy. reduce working capital through improvements in the collection
With the significant improvement in profitability and of accounts receivable and better management of inventory
reduced working capital requirements, the Company was able levels. Total assets stood at P7.27 billion from P6.31 billion
to fully pay all of its outstanding short-term bank loans in 2009, a year ago. The current ratio as of end-December 2009 was
which stood at P175 million as of end-December 2008. With 1.55:1.0 compared to year-ago current ratio of 1.10:1.0. Debt-
higher cash balance, the Company posted net interest income to-equity ratio, on the other hand, improved to 0.55:1.0 from
of P22.2 million for 2009, a turnaround from the P55.4 million 0.80:1.0 in 2008. The Company’s year-end cash balance for
net interest expense incurred in 2008. 2009, inclusive of short-term investments, stood at a healthy
The combination of a strong revenue growth and P1.9 billion.
significant decline in input costs translated to the Company Our focus now is to maintain a robust financial position
posting a record net income of P1.41 billion or 13.3% of net to maximize profitability and achieve growth targets moving
sales, from P291 million or 2.9% of net sales a year ago. The forward. We remain committed to strict adherence to
Company likewise benefitted from a reduced corporate income Philippine Financial Reporting Standards and consistent
tax rate of 30% from 35% the previous year. Net income for disclosures and full accountability, for the benefit of all our
the year is equivalent to a return-on-equity of 30.1% compared stakeholders, particularly the investing public.
to 8.3% a year ago.
We were able to fund our capital expenditure requirement
for 2009, which amounted to more than P360 million, largely
from internally generated cash. These capital expenditure
projects are aimed to boost manufacturing efficiency and
productivity to serve the growing needs of the market.
In 2009, Alaska Milk Corporation’s share price closed
strongly at P7.10 per share from P3.70 per share at the start of Joselito J. Sarmiento, Jr.
the year or a gain of 92%, outperforming the 63% gain of the Senior Vice President &
Philippine Stock Exchange’s main composite index. Gains in Chief Financial Officer
our share price reflect investors’ confidence in the Company’s
strong fundamentals and positive prospects for the domestic
economy in general. The Company’s market capitalization at
year-end amounted to P6.28 billion, 89% higher than year-
ago capitalization of P3.32 billion. As a demonstration of
management’s confidence in the intrinsic value of the business,

Alaska Milk Corporation Annual Report 2009 23


Management’s Discussion &
ANALYSIS OF OPERATIONS

D espite the lingering effects of the global recession and its disruptions on businesses
and lives worldwide, the Philippine economy managed to post a modest growth of
0.9% in 2009 driven in part by a robust consumer market. Domestic consumption
remained resilient during the year supported by a benign inflation environment and
sustained remittance inflows of Overseas Filipino Workers. Consumer spending for food and beverage,
in particular, expanded 4.4% year-on-year as food supply and prices stabilized following supply
disruptions and price aberrations in 2008.

The performance of the domestic milk market was mixed,
with the liquid canned milk category registering high-single
digit growth rate versus year-ago level, underpinned by
the growth of the economy brands. Retail consumption of
powdered milk, on the other hand, declined year-on-year,
weighed down by the contraction of the premium-priced full
cream segment. Competition in the industry remained intense,
with major players trying to outdo each other in terms of price
offers and advertising campaigns to gain market share and
eventually, win consumer loyalty.
Against this backdrop, Alaska Milk Corporation focused
on process improvements and operational discipline to build
on the previous year’s gains. The Company likewise continued
to differentiate itself from competition through advertising
campaigns that resonate with consumers, providing the impetus
for volume growth. Relationships with business partners were
also strengthened though joint business-building initiatives
and reinvention of selling capabilities, enabling Alaska Milk to
compete more effectively in the marketplace. As in the previous
years, the Company tightly managed costs and optimize available
opportunities in the market in an effort to spur profitability.
As a result of this resolute approach, Alaska Milk was able
to sustain its volume uptrend across key market segments.
Sales volume gains pushed revenues for the year higher, up
6% at P10.58 billion from P9.97 billion in 2008. However,
opportunity losses in the aftermath of Typhoon “Ondoy”
impeded sales volume growth, notably for the liquid canned
milk business. The flooding incident in the Company’s
manufacturing facility caused operations to cease temporarily
which resulted in disruptions in supply during a seasonally
strong fourth quarter.
Despite the temporary setback, combined sales volume
of the Company’s portfolio of liquid canned milk products
expanded year-on-year, driven by intensified and innovative
sales and marketing programs. These initiatives included
various tactical consumer and trade promotions as well
as exclusive on-premise selling activities in major accounts
especially during high-demand seasons, which enabled the
Company to solidify its market position in both the evaporated
and sweetened condensed milk markets.
Leading in this growth is Alaska’s portfolio of Value
Line products. Alaska Evaporada embarked on its biggest
and grandest annual summer festival yet in 2009 with its
“Halo-Halo at Samalamig Festival.” The campaign reinforced
Alaska Evaporada as the brand of choice among home-based
businesses and street-based food establishments, strengthening
further the brand’s mass appeal and leadership position in the
evaporated milk category.

24 Enriching Partnerships
Ms. Maricel Soriano, Philippine
movie and television celebrity,
believes in the importance of
providing superior nutrition and
sustenance to children. As a mother
herself, she has been promoting
the benefits of drinking Alaska
Powdered Milk Drink especially
during a child’s “growth gap” years
- which happens between the ages
of 4 to 12.

Alaska Milk Corporation Annual Report 2009 25

 Management’s Discussion &
ANALYSIS OF OPERATIONS

The “Ginang Alaska” event, a concentrated area With a growing consumer base, Alaska Crema All-Purpose
marketing effort for housewives in key provincial cities, was Cream performed strongly well in 2009, with sales volume
expanded into a nationwide brand-building effort. A new posting high double-digit growth, way ahead of the market.
tri-media campaign for the Alaska Classic Line was unveiled Cross-marketing promotions with the Company’s portfolio of
in 2009, highlighting the brand’s nutritional heritage with the liquid canned milk products were instrumental in generating
intent of creating a new generation of consumers—the young consumer trial and loyalty for the brand.
homemakers. Combined sales volume of the Company’s portfolio of
Extensive marketing initiatives were likewise rolled-out UHT ready-to-drink milk was soft, reflective of the general
for the acquired and licensed brands in an effort to re-establish contraction of the UHT milk segment. In order to improve
consumer awareness especially in its key markets. To capitalize the Company’s position in the flavored-milk segment, Alaska
on the regional appeal of the Alpine and Liberty line of Yamoo and Alaska Choco were consolidated into a single
liquid canned milks, localized campaigns were developed brand. In addition, new flavors of Alaska Yoghurt Drink were
for the brands. In addition, on-site consumer promotions launched in the market during the year, providing consumers
were executed to sustain demand and increase point-of-sale wider variety to meet their evolving taste preferences.
purchases amidst the influx of lower-priced imported brands. Sales volume of the Company’s trading business, Kellogg’s
The Carnation brand of liquid canned milk was re-positioned ready-to-eat cereals slipped during the year, compared to
in the market alongside a more competitive pricing strategy. year ago levels, due to the decline in consumer spending for
This move was supported by a series of television commercials branded premium-priced packaged food items. This was
as well as cooking show series that highlighted the brand’s largely attributed to the economic uncertainties that led to
multifarious culinary application. Similarly, to modernize the an increase in propensity to save among consumers, limiting
image and appeal of the Milkmaid brand, print advertisements purchases to essential goods.
in food and lifestyle magazines were carried out.
As consumers become increasingly price-sensitive
attendant to the appreciable rise in the cost of living and
shrinking household incomes, the Company launched Cow
Bell Condensada in 2009. Initially available in selected areas
in Mindanao, Alaska Milk plans to roll out Cow Bell to more
markets in 2010, in line with the Company’s thrust of providing
affordable and quality products to a greater number of
consumers.
Following efforts to improve availability and expand trade
coverage, sales volume of Alaska Powdered Milk Drink posted
strong double-digit growth rates, outperforming the category’s
contraction. Above-the-line marketing initiatives that included
a series of television commercials that promote health and
nutrition among children through regular drinking of milk
helped create awareness for the Alaska brand. In addition,
merchandising programs for both key accounts and downline
retail outlets translated in improved shelf off-take for the
brand as well as market share expansion. The staging of the
Alaska Power Camp, the Company’s sports development
program, and sponsorship of the highly successful
IronMan 70.3 Philippines likewise strengthened the
Alaska brand’s equity in sports.

26 Enriching Partnerships
12,000 2,000

1,889
1,800
10,580

10,000
1,600
9,968
9,082

1,400
8,000
1,200

6,000 1,000
5,921

950
5,410

800
4,000
600
514

400
464

2,000
348

200

0 0
05’ 06’ 07’ 08’ 09’ 05’ 06’ 07’ 08’ 09’

NET SALES OPERATING INCOME

(in million pesos) (in million pesos)

1,600

1,400
1,409

1,200

1,000

800
667

600

400
402
301

291

200

0
05’ 06’ 07’ 08’ 09’

NET INCOME
(in million pesos)

Phil Younghusband, football star,

joins Alaska Milk Corporation’s
advocacy in advancing the levels of
awareness for proper nutrition and
sports development among young
children for a healthier nation.

Alaska Milk Corporation Annual Report 2009 27

 Management’s Discussion &
ANALYSIS OF OPERATIONS

1.80 0.35 8,000

1.60 7,000

7,271
0.30

7,126
1.59

0.30

0.30

0.30
1.40
6,000

6,307
0.25
1.20
5,000

5,128
1.00 0.20

0.20

0.20
4,000

4,257
0.80 0.15
3,000
0.70

0.60
0.10
2,000
0.40
0.42

0.05
0.33

0.32

0.20 1,000

0 0 0
05’ 06’ 07’ 08’ 09’ 05’ 06’ 07’ 08’ 09’ 05’ 06’ 07’ 08’ 09’

EARNINGS PER SHARE CASH DIVIDEND PER SHARE TOTAL ASSETS AT YEAR-END
(in million pesos)

28 Enriching Partnerships
 Notwithstanding the growth in sales volume, costs of sales
for the year came in 14% lower at P6.82 billion from
year-ago cost of sales of P7.90 billion as the cost of primary
raw and packaging materials eased down from their peak levels
in 2008. Skimmed milk powder, a major cost component, fell
to a low of US$1,800 per metric ton during the year (from a
historic-high of US$5,000 per metric ton in 2008) owing to the
decline in global dairy demand. Combined with improvements
in production efficiencies, gross profit for 2009 surged to
P3.76 billion, P1.69 billion or 82% higher than year-ago gross
profit of P2.06 billion. Gross profit margin, on the other hand,
expanded to 35.5% from 20.7% a year ago.
Operating expenses for the year rose 17% to P1.87 billion
from P1.60 billion in 2008 due to higher distribution-related
charges attendant to increased sales volume. Operating
expenses likewise increased on the back of heightened trade
spending and marketing efforts in addition to higher advertising
and promotional investments to support volume growth and
drive consumer demand for Alaska Milk products. This brought
operating income for 2009 at P1.89 billion, 307% higher than
prior year’s operating income of P464 million. Operating margin
likewise jumped to 17.9% from 4.7% in 2008.
With improved profitability, combined with
lower working capital requirements, the
Company’s cash position improved
significantly, resulting to a net
interest income for the year of
P22.2 million, a reversal from
the P55.4 million net interest
expense incurred in 2008.
After considering foreign
exchange losses and lower
corporate income tax rate of
30% (from 35% a year ago)
net income for the year
surged to P1.41 billion or
13.3% of net sales from
P291 million or 2.9%
of net sales a year ago.
Earnings per share, in
turn, stood at P1.59 per
share compared to P0.32
per share in 2008.
Total assets as of
December 2009 stood
at P7.27 billion, P964 million higher than year-end December
2008 assets of P6.31 billion, due primarily to the increase in
cash balance attendant to increased profitability as well as lower
working capital requirements. Cash and cash equivalents,
including short-term investments, ended the year higher at P1.9
billion from P174 million a year ago.
Inventories of P1.15 billion was P792 million lower
compared to year-ago inventories of P1.94 billion as unit cost
of primary raw and packaging materials declined from their
peak levels in 2008. Also contributing to the decline is the
lower inventory levels of finished goods due to strong consumer
demand for Alaska Milk products.
Property, plant and equipment amounted to P1.52 billion
from P1.33 billion due to investments made during the year for
production capacity expansions.
Total liabilities went down to P2.59 billion from P2.81billion
in 2008 due to the lower import bills on the back of the decline
in global prices of skimmed milk powder. With the improvement
in cash position, the Company was able to fully pay all of its
short-term bank loans which amounted to P175 million as of
end-December 2008.
Total stockholders’ equity, on the other hand, increased to
P4.68 billion from P3.50 billion in 2008, primarily due
to the higher net income realized in 2009, net of
cash dividends declared of P177 million. During
the year, the Company re-acquired 14.8 million of
its common shares under its Share Buy-Back
Program for a total value of P62.4 million.
The Company’s current ratio as
of December 2009 was 1.55:1.0,
higher than year-ago current ratio of
1.10:1.0. Debt-to-equity ratio, on
the other hand, improved to 0.55:1.0
from 0.80:1.0 as of end-December
2008.
For five years, popular television
hosts and celebrity sisters Gelli
and Janice de Belen have shared
memorable advertising campaigns
with Alaska Milk Corporation. In
2009, they went on to celebrate
Alaska Evaporada’s biggest and
grandest annual summer festival
that continues to create excitement
all over the country.
Alaska Milk Corporation Annual Report 2009 29
 Corporate
GOVERNANCE
Alaska Milk Corporation acknowledges the importance of good
governance in carrying out its corporate mission of creating long-term
value to its shareholders and consumers.
The Company espouses the highest level of integrity, transparency
and accountability across all levels of the organization in the conduct
of its business. The Company’s policies and guidelines on governance
are principally contained in its Manual on Corporate Governance.
Through the Manual, Alaska Milk Corporation has likewise
adopted the Securities and Exchange Commission’s Corporate
Governance Self - Rating Form in evaluating the level of compliance
of the Company, its directors, officers and employees. In addition,
the Company constantly keeps its corporate governance provisions
under review to conform, where applicable, with leading practices and
principles.
The Board of Directors
The Company’s Board members have successful careers
in business, academe and public service. With their wealth of
experience, they add significant perspective and direction into how
management shapes and executes business strategies.
The Board is composed of ten (10) directors, six (6) of whom
are independent directors. The Company defines an independent
director as independent of management and free from any
business or other relationship with the Company which could
interfere with the exercise of independent judgment in carrying out
the responsibilities of a director.
In compliance with SEC Memorandum No. 16 Series of 2002
and with the Company’s Manual on Corporate Governance,
the Nomination Committee reviews the qualifications of all
directors nominated for election. In addition, all nominees for
independent directors possess all the qualifications and none of the
disqualifications prescribed under the Securities Regulation Code
Rule 38.
The directors are elected at each Annual Stockholders’
Meeting by stockholders entitled to vote in accordance with the
Company’s By-Laws. Each director holds office until the next
annual election and until his predecessor is duly elected; unless he
resigns from office, is incapacitated and is unable to carry out his
duties as director, or is removed prior to such election.
The Board members are given a per diem of P5,000 per
board or committee meeting. In addition, the Board members are
eligible for appropriate compensation based on their attendance
and the Company’s financial performance. The remuneration is
intended to provide a reasonable compensation to the directors in
recognition of their responsibilities and the potential liability they
assume as a result of the high standard of best practices required
of the Board as a body, and of the directors individually, under
the Securities and Exchange Commission promulgated Code of
Corporate Governance. Aside from the aforementioned, there are
no other arrangements under which any director of the Company
is compensated, whether directly or indirectly.
The total compensation paid to non-executive directors
for 2009 and 2008 amounted to P1.9 million and P4.8 million,
respectively.
In 2009, the Board held four (4) board meetings, one (1)
special meeting and one (1) organizational meeting. All directors
have individually complied with the Securities and Exchange
Commission’s (SEC) minimum attendance requirement of 50%.
To assist the Board in its function and to secure the Company’s
sustained competitiveness in a manner consistent with its fiduciary
responsibility, the Board has established four (4) committees with
oversight responsibilities as described in detail below.

Annual Stockholders’ Meeting,

Directors Regular Meeting Organizational Meeting & Percentage
Special Meeting

Feb 24 Aug 11 Nov 10 May 12

Wilfred Uytengsu, Sr. P P P P 100%
Antonio H. Ozaeta P P P P 100%
Wilfred Steven Uytengsu, Jr. P P P P 100%
Dr. Roberto F. de Ocampo A A P P 50%
Juan B. Santos P A P P 75%
Jose R. Facundo P P P P 100%
Grahame S. Tonkin P P P P 100%
Michael R.B. Uytengsu P P P P 100%
Atty. Ramon S. Esguerra P P P P 100%
Dr. Bernardo M. Villegas P P P P 100%

Legend: P - Present A - Absent

30 Enriching Partnerships
Audit Committee
The Audit Committee is composed of three (3) members
of the Board, two (2) of whom are independent directors. An
independent director chairs the Audit Committee. The Audit
Committee has oversight responsibility on financial management
functions, especially in the areas of financial reporting process
and internal controls.
Through the Committee, the Board is responsible for
overseeing the implementation of adequate internal control
procedures as well as the scope of audit engagement of the
Company’s external auditor – Sycip Gorres Velayo and Co.
Nomination Committee
The Nomination Committee is comprised of three (3) members
of the Board, two (2) of whom are independent directors. The
Nomination Committee is mandated by the Board to review
the qualifications of all members of the Board. All candidates
nominated to the Board are pre-screened to ensure that they have
all the necessary qualifications and none of the disqualifications as
set forth in the Company’s Manual on Corporate Governance.
Compensation Committee
The Compensation Committee is composed of three (3)
members of the Board, two (2) of whom are independent
directors. An independent director chairs the Compensation
Committee. The Compensation Committee is tasked to
review the Company’s remuneration structure as well as the
reasonableness of its incentive plans and compliance with all
statutory requirements.
Governance Committee
The Governance Committee is composed of three (3) members
of the Board, two (2) of whom are independent directors. An
independent director chairs the Governance Committee. The
Governance Committee is mandated to develop, maintain
and review the Company’s corporate governance policies and
procedures.
The Management Committee
The Company’s President and CEO is assisted by his senior
management team, collectively known as the Management
Committee, in the day-to-day operations of the business as well
as in the development and execution of business strategies. The
Management Committee meets regularly to discuss operating
performances, market and industry developments and plans of
actions in the attainment of corporate goals and objectives. In
addition, management provides the Board with information on
the results of operations of the Company on a quarterly basis.
Management is also required to prepare the financial statements
for each preceding calendar year in accordance with generally
accepted accounting standards in conformity with Philippine
Financial Reporting Standards. Management’s statement of
responsibility for the Company’s financial statements is included
in this annual report.

Board Committees
(As of December 31, 2009)

Directors Audit Nomination Compensation Governance

Committee Committee Committee Committee

Wilfred Uytengsu, Sr. (Chairman) Chairman Member

Antonio H. Ozaeta (Vice-Chairman)* Member Chairman
Wilfred Steven Uytengsu, Jr. Member
Dr. Roberto F. de Ocampo* Chairman
Juan B. Santos* Member Chairman
Jose R. Facundo* Member
Grahame S. Tonkin* Member
Atty. Ramon S. Esguerra Member
Dr. Bernardo M. Villegas* Member

*Independent Director

Alaska Milk Corporation Annual Report 2009 31

 Board of
DIRECTORS
WILFRED UYTENGSU, SR.
Chairman of the Board since 1994
• Former Chief Executive Officer of Alaska Milk
Corporation from 1994 to 2007
• Former Chairman and Chief Executive Officer
(1989 – 1998) and former President (1964 –
1989) of General Milling Corporation
• Former Board Member of Universal Foods
Corporation of Wisconsin, USA; Kuok
Philippine Properties, Inc. and Mandarin
Oriental Hotel, Manila
• Educated at Stanford University (B.S. Industrial
Engineering) and Indiana Tech (B.S. Chemical
Engineering)
32 Enriching Partnerships
ANTONIO H. OZAETA
Vice Chairman of the Board and Independent
Director since 1998
• President of Philippine Trust Company
(PHILTRUST Bank)
• Chairman of the Board of Directors of
Ancel Holdings Corporation, Magellan
Capital Holdings Corporation and Philippine
Commercial Capital, Inc.
• Board Member of PHILTRUST Bank and Insular
Life Assurance Co., Ltd.
• Former President and Chief Executive Officer
of Philippine Commercial International Bank
(PCIBank) and former Chairman of the Board
of Manila Electric Company (Meralco)
• Educated at the Ateneo de Manila University
(B.S. Economics), De La Salle University
(B.S. Business Administration) and Harvard
University (Masters in Business Administration)
WILFRED STEVEN UYTENGSU, JR.
Director since 1994
• President and Chief Executive Officer of
Alaska Milk Corporation
• President; GenOSI, Inc. and Jadestone
Investments LLC
• Past Chairman, Young Presidents’ Organization
• Awarded Philippines’ Entrepreneur of the Year
and Master Entrepreneur for 2007 by Ernst &
Young
• Former Executive Vice President and
Chief Financial Officer of General Milling
Corporation
• Educated at the University of Southern
California (B.S. Business Administration)
DR. ROBERTO F. DE OCAMPO
Independent Director since 1999
• Former Secretary of Finance of the Republic of
the Philippines
• Chairman of the Board of Advisors of the
RFO Center for Public Finance and Regional
Economic Cooperation
• Member / Advisory Board Member; Trilateral
Commission, BOAO Forum for Asia and the
Emerging Markets Forum
• Member of the Board of Trustees of Asian
Institute of Management
• Former President of Asian Institute of
Management
• Former Chairman and Chief Executive Officer
of Development Bank of the Philippines
• Educated at the Ateneo de Manila University
(A.B. Economics), University of Michigan
(Masters in Business Adminisration) and
London School of Economics (DDA – Fellow in
Developmental Administration)
Alaska Milk Corporation
JUAN B. SANTOS
Independent Director since 2007
• Former Secretary of Trade and Industry of the
Republic of the Philippines
• Board Member, Great Pacific Life Assurance
Corporation; First Philippine Holdings
Corporation and Pilipino Telephone
Corporation
• Consultant, Marsman Drysdale Group of
Companies
• Member, Board of Advisors of Coca Cola
Bottler Philippines, Inc. and East-West Seeds
Co., Inc.
• Member, Board of Trustees of St. Luke’s
Medical Center
• Former Chairman and President of Nestle
Philippines, Inc.
• Former Chief Executive Officer of Nestle
Group of Companies in Thailand and of Nestle
Singapore Pte. Ltd.
• Educated at the Ateneo de Manila University
(B.S. Business Administration) and took his
postgraduate degree at the Thunderbird
Graduate School of Management in Arizona,
USA
Annual Report 2009 33
 Board of
DIRECTORS
JOSE R. FACUNDO
Independent Director since 1994
• Adviser to and a Member of the Board of
Security Bank Corporation
• Board Member, Security Bank Corporation;
Siemens Philippines, Inc. and Aboitiz Power
Corporation
• Former President and Chief Executive Officer
of CityTrust, former President of BPI Capital
Corporation and former Senior Managing
Director of Ayala Corporation
• Former Chairman of the Philippine Clearing
House
• Educated at the Ateneo de Manila University
(Bachelor of Arts degree in Engineering)
and took post graduate studies in Statistics
at the University of the Philippines, and in
Engineering at the Technical University of
Munich
34 Enriching Partnerships
GRAHAME S. TONKIN
Independent Director since 1998
• Director, Food and Beverage Australia Ltd. and
Smythe Road Vintners Pty. Ltd.
• Chief Executive Officer of The Aboriginal
Foundation of South Australia
• Former Executive Director of Food South
Australia and former Managing Director of
Tarac Australia Pty. Ltd.
• Former Chief Executive Officer of Australian
Dairy Corporation and of Inchape, Asia Pacific
(Wines and Spirits)
• Qualified Accountant, Fellow CPA, Fellow
Chartered Secretary and Fellow of the
Australian Institute of Company Directors
MICHAEL R. B. UYTENGSU
Director since 1998
• President, Brookstone Holdings, Inc. (USA)
• Former investment banker at Salomon
Brothers (New York and Hong Kong)
• Obtained his Bachelor’s Degree in Business
from the University of Southern California
ATTY. RAMON S. ESGUERRA
Director since 2003
• Managing Partner, Esguerra & Blanco Law
Offices
• President of the Intellectual Property
Association of the Philippines, Inc. and
Director of the Integrated Bar of the
Philippines – Cavite Chapter
• Professional Lecturer, Graduate School of Law
of the Pamantasan ng Lungsod ng Maynila
• Former Undersecretary, Department of Justice
• Former Partner at Castillo Laman Tan
Pantaleon & San Jose Law Offices
• Former President of the Licensing Executives
Society of the Philippines
• Educated at the University of Santo Tomas
(A.B. Economics) and University of the
Philippines (Bachelor of Laws)
Alaska Milk Corporation
DR. BERNARDO M. VILLEGAS
Independent Director from 1999 to 2006,
Re-elected in 2008
• University Professor at the University of the
Asia and the Pacific and a Visiting Professor at
the IESE Business School in Barcelona, Spain
• Member, Board of Trustees of Insular Life and
Phinma Properties
• Former Senior Vice President of the University
of Asia and the Pacific
• Former Chairman of the Center for Research
and Communication
• Educated at De La Salle University (Bachelor’s
degrees in Commerce and the Humanities)
and Harvard University (M.A. in Economics
and Ph.D. in Economics)
Annual Report 2009 35
Management
COMMITTEE

WILFRED STEVEN UYTENGSU, JR. JOSELITO J. SARMIENTO, JR.

President & Chief Executive Officer Senior Vice President & Chief Financial Officer

FRANCISCO T. IDIAN AARON D. FULTON THOMAS NILSSON

Vice President, Sales Director, Plant Operations Director, UHT Operations

36 Enriching Partnerships
ARNOLD L. ABAD MA. BELEN M. FERNANDO SANTIAGO A. POLIDO
Vice President, Accounting & Controller Vice President, Marketing Vice President, Corporate Affairs &
Corporate Secretary

REYCELLE M. RODRIGUEZ ALFREDO B. JAVIER ANSELMA G. CABANTAN

Director, Materials Management Assistant Vice President, Internal Audit Assistant Vice President, Information Systems

Alaska Milk Corporation Annual Report 2009 37

Report of the
Audit Committee
The Audit Committee’s roles and responsibilities are defined in the Audit Committee Charter approved by the Board of Directors. It assists the Board
of Directors in fulfilling its oversight responsibility to the shareholders relating to the (i) integrity of the Company’s financial statements and its financial
reporting process; (ii) system of internal controls; (iii) risk management; (iv) performance of internal and external auditors; and (v) compliance with legal
and regulatory matters and other reporting standards.

In compliance with the Audit Committee Charter, we confirm that:

• An independent director chairs the Audit Committee;

• We had five (5) meetings during the year, which included executive sessions with the internal and / or independent auditors;

• We have reviewed and discussed the quarterly unaudited financial statements and the 2009 audited annual financial statements of Alaska
Milk Corporation (the Company), including Management’s Discussion and Analysis of Financial Condition and Results of Operations, with the
Company’s management and SyCip Gorres Velayo & Co. (SGV & Co.), the Company’s external auditor. These activities were performed in the
following context:

– Management is responsible for the preparation and fair presentation of the Company’s financial statements in accordance with Philippine
Financial Reporting Standards; and

– SGV & Co.’s responsibility is to express an opinion on the Company’s financial statements based on their audit conducted in accordance
with Philippine Standards on Auditing.

• We have discussed and approved the overall scope and the respective audit plans of the internal auditors and SGV & Co. We have also
discussed the results of their audits, the internal auditors’ assessment of the Company’s internal controls and the overall quality of the financial
reporting process;

• We have reviewed and approved all audit-related services provided by SGV & Co. to the Company;

• We have reviewed the reports of the internal auditors, where applicable, ensuring that Management is taking appropriate corrective actions
in a timely manner, including addressing internal control and compliance issues; and

• We have reviewed and discussed the adequacy of the Company’s enterprise-wide risk management process, including the nature of significant
risk exposures and the related risk mitigation efforts and initiatives. This activity was reviewed in the context that management is primarily
responsible for the risk management process.

38 Enriching Partnerships
Based on the reviews and discussions undertaken, and subject to the limitations on our roles and responsibilities referred to above, the Audit Committee

Financial Statements
recommends to the Board of Directors that the audited financial statements be included in the Annual Report for the year ended December 31, 2009 for
filing with the Securities and Exchange Commission. We are also recommending to the Board of Directors the re-appointment of SGV & Co. as Alaska Milk
Corporation’s external auditors for 2010 based on the review of their performance and qualifications.

March 4, 2010

Dr. Roberto F. de Ocampo

Chairman – Audit Committee

Jose R. Facundo Wilfred Steven Uytengsu, Jr.

Member Member

Alaska Milk Corporation Annual Report 2009 39

Statement of Management’s Responsibility
for Financial Statements
The management of Alaska Milk Corporation is responsible for all information and representations contained in the balance sheets as at December 31,
2009 and 2008 and the related statements of comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the
period ended December 31, 2009. The financial statements have been prepared in accordance with Philippine Financial Reporting Standards and reflect
amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality.

In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions
are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management
likewise discloses to the Company’s Audit Committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls
that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that
involves management or other employees who exercise significant roles in internal controls.

The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the Company.

SyCip Gorres Velayo & Co., the independent auditors appointed by the Board of Directors and stockholders, have audited the financial statements of the
Company in accordance with Philippine Standards on Auditing and have expressed their opinion on the fairness of presentation upon completion of such
audit, in their report to the Board of Directors and stockholders.

Wilfred Uytengsu, Sr. Wilfred Steven Uytengsu, Jr.

Chairman President & Chief Executive Officer

Joselito J. Sarmiento, Jr. Arnold L. Abad

Sr. Vice President & Chief Financial Officer Vice President – Accounting & Controller

40 Enriching Partnerships
Independent
Auditors’ Report
The Stockholders and the Board of Directors

Financial Statements
Alaska Milk Corporation

We have audited the accompanying financial statements of Alaska Milk Corporation, which comprise the balance sheets as of December 31, 2009 and
2008, and the statements of comprehensive income, statements of changes in stockholders’ equity and statements of cash flows for each of the three years
in the period ended December 31, 2009, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting
Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine
Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement.

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

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

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Alaska Milk Corporation as of December 31, 2009
and 2008, and its financial performance and its cash flows for each of the three years in the period ended December 31, 2009 in accordance with Philippine
Financial Reporting Standards.

SYCIP GORRES VELAYO & CO.

Ramon D. Dizon
Partner
CPA Certificate No. 46047
SEC Accreditation No. 0077-AR-2
Tax Identification No. 102-085-577
PTR No. 2087532, January 4, 2010, Makati City

March 31, 2010

Alaska Milk Corporation Annual Report 2009 41

Balance
Sheets
December 31
2009 2008
ASSETS

Current Assets
Cash and cash equivalents (Notes 5, 27 and 28) P857,054,066 P173,705,479
Short-term investments (Notes 6, 27 and 28) 1,044,563,465 –
Trade and other receivables - net (Notes 7, 27 and 28) 893,566,768 886,050,535
Inventories (Note 8) 1,153,181,393 1,945,375,831
Prepaid expenses and other current assets (Notes 27, 28 and 31) 33,263,909 40,741,731
Total Current Assets 3,981,629,601 3,045,873,576

Noncurrent Assets
Available-for-sale investments (Notes 9, 27 and 28) 2,556,403 2,556,403
Property, plant and equipment - net (Note 10) 1,515,257,935 1,334,705,512
Intangible assets - net (Note 11) 1,481,438,498 1,653,583,603
Deferred tax assets - net (Note 22) 197,984,388 154,315,533
Net pension assets (Note 21) 49,260,438 52,067,900
Other noncurrent assets (Notes 27, 28 and 31) 42,786,207 64,145,475
Total Noncurrent Assets 3,289,283,869 3,261,374,426

P7,270,913,470 P6,307,248,002

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities
Bank loans (Notes 12, 27 and 28) P– P175,000,000
Trade and other payables (Notes 13, 26, 27 and 28) 1,839,819,125 1,647,747,496
Acceptances payable (Notes 27 and 28) 560,124,762 813,638,150
Income tax payable (Note 27) 109,980,839 –
Dividends payable (Notes 15, 27 and 28) 52,097,499 141,254,062
Current portion of obligation under finance lease (Notes 26, 27 and 28) 4,019,227 2,545,959
Total Current Liabilities 2,566,041,452 2,780,185,667

Noncurrent Liability
Obligation under finance lease - net of current portion (Notes 26, 27 and 28) 27,465,248 27,916,850

Stockholders’ Equity (Note 27)

Capital stock (Notes 14 and 23) 968,074,878 967,094,878
Additional paid-in capital (Note 23) 118,361,998 110,590,145
Retained earnings (Note 15):
Appropriated for various capital investment projects and share buy-back program 1,625,000,000 1,625,000,000
Unappropriated 2,318,019,622 1,086,123,740
Treasury stock (Notes 14 and 15) (352,049,728 ) (289,663,278 )
Total Stockholders’ Equity 4,677,406,770 3,499,145,485

P7,270,913,470 P6,307,248,002

See accompanying Notes to Financial Statements.

42 Enriching Partnerships
Statements of
Comprehensive Income
Years Ended December 31
2009 2008 2007

Financial Statements
NET SALES P10,580,440,474 P9,967,757,268 P9,081,801,116

COST OF SALES (Notes 16 and 31) 6,821,522,353 7,903,815,821 6,694,637,711

GROSS PROFIT 3,758,918,121 2,063,941,447 2,387,163,405

Operating expenses (Note 17) (1,869,510,056 ) (1,599,921,570 ) (1,437,278,424 )

Casualty loss (Note 31) (156,536,291 ) – –
Foreign exchange gain (loss) - net (26,700,674 ) 13,985,346 16,615,622
Interest income (Note 20) 24,646,247 4,952,263 26,588,786
Interest expense on bank loans (Note 12) (2,453,962 ) (60,321,826 ) (5,595,854 )
Interest expense on obligation under finance lease (Note 26) (1,867,856 ) – –
Gain on disposals of property and equipment and investment properties 766,164 9,431,114 1,535,724
Rent income (Note 26) – 427,891 2,549,271
Dividend income and others (Note 9) 13,892 1,174,323 185,100

INCOME BEFORE INCOME TAX 1,727,275,585 433,668,988 991,763,630

PROVISION FOR (BENEFIT FROM) INCOME TAX (Notes 22 and 30)

Current 361,555,720 80,034,252 351,408,076
Deferred (43,668,855 ) 62,536,013 (26,729,528 )
317,886,865 142,570,265 324,678,548

TOTAL COMPREHENSIVE INCOME/NET INCOME (Note 2) P1,409,388,720 P291,098,723 P667,085,082

Earnings Per Share (Note 24)

Basic P1.5894 P0.3156 P0.7021
Diluted 1.5869 0.3153 0.7018

See accompanying Notes to Financial Statements.

Alaska Milk Corporation Annual Report 2009 43

Statements of
Changes in Stockholders’ Equity


Additional Capital
Capital Stock Paid-in Capital Investment
(Notes 14 and 23 ) (Note 23 ) Projects
Balance at December 31, 2008 P967,094,878 P110,590,145 P1,125,000,000
Net income – – –
Issuance of capital stock 980,000 – –
Stock option – 7,771,853 –
Acquisition of treasury stock – – –
Cash dividends - P0.20 a share – – –
Balance at December 31, 2009 P968,074,878 P118,361,998 P1,125,000,000

Balance at December 31, 2007 P966,204,878 P101,779,626 P745,000,000

Net income – – –
Issuance of capital stock 890,000 2,179,960 –
Stock option – 6,630,559 –
Acquisition of treasury stock – – –
Appropriations during the year – – 380,000,000
Cash dividends - P0.30 a share – – –
Balance at December 31, 2008 P967,094,878 P110,590,145 P1,125,000,000

Balance at December 31, 2006 P964,099,878 P91,888,714 P650,000,000

Net income – – –
Issuance of capital stock 2,105,000 9,084,659 –
Stock option – 806,253 –
Appropriations during the year – – 95,000,000
Cash dividends - P0.30 a share – – –
Balance at December 31, 2007 P966,204,878 P101,779,626 P745,000,000

See accompanying Notes to Financial Statements.

44 Enriching Partnerships
 Retained Earnings (Note 15)

Financial Statements
Appropriated Unappropriated

Share-buy-Back Treasury Stock
Program (Notes 14 and 15 ) Total
P500,000,000 P1,086,123,740 (P289,663,278 ) P3,499,145,485
– 1,409,388,720 – 1,409,388,720
– – – 980,000
– – – 7,771,853
– – (62,386,450 ) (62,386,450)
– (177,492,838 ) – (177,492,838)
P500,000,000 P2,318,019,622 (P352,049,728 ) P4,677,406,770

P200,000,000 P1,752,849,376 (P33,288,708 ) P3,732,545,172

– 291,098,723 – 291,098,723
– – – 3,069,960
– – – 6,630,559
– – (256,374,570 ) (256,374,570)
300,000,000 (680,000,000 ) – –
– (277,824,359 ) – (277,824,359)
P500,000,000 P1,086,123,740 (P289,663,278 ) P3,499,145,485

P200,000,000 P1,465,892,141 (P33,288,708 ) P3,338,592,025

– 667,085,082 – 667,085,082
– – – 11,189,659
– – – 806,253
– (95,000,000 ) – –
– (285,127,847 ) – (285,127,847)
P200,000,000 P1,752,849,376 (P33,288,708 ) P3,732,545,172

Alaska Milk Corporation Annual Report 2009 45

Statements of
Cash Flows
Years Ended December 31
2009 2008 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax P1,727,275,585 P433,668,988 P991,763,630
Adjustments for:
Depreciation and amortization (Note 19) 351,679,390 325,144,394 249,121,904
Casualty loss (Note 31) 156,536,291 – –
Interest income (Note 20) (24,646,247 ) (4,952,263 ) (26,588,786 )
Provision for pension (Note 21) 16,077,762 6,641,300 5,720,695
Unrealized foreign exchange loss (gain) 12,785,479 (10,033,080 ) (8,847,104 )
Provision for inventory obsolescence (Note 8) 7,500,000 7,500,000 7,500,000
Compensation expense from share-based payment (Note 23) 4,545,973 6,630,559 806,253
Interest expense on bank loans (Note 12) 2,453,962 60,321,826 5,595,854
Interest expense on obligation under finance lease (Note 26) 1,867,856 – –
Gain on disposals of property and equipment and investment properties (766,164 ) (9,431,114 ) (1,535,724 )
Dividend income (Note 9) (1,000 ) (885,100 ) (185,100 )
Income before working capital changes 2,255,308,887 814,605,510 1,223,351,622
Decrease (increase) in:
Trade and other receivables (60,980,990 ) (9,960,337 ) (269,774,839 )
Inventories 628,158,147 724,419,859 (1,756,285,207 )
Prepaid expenses and other current assets 7,477,822 56,664,434 (23,400,792 )
Increase (decrease) in:
Trade and other payables 192,393,454 296,918,730 422,267,411
Acceptances payable (239,752,067 ) (266,049,876 ) 366,131,856
Cash generated from (used for) operations 2,782,605,253 1,616,598,320 (37,709,949 )
Income tax paid (195,678,541 ) (213,733,218 ) (351,072,180 )
Net cash provided by (used in) operating activities 2,586,926,712 1,402,865,102 (388,782,129 )

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property, plant and equipment (Note 10) (360,944,916 ) (240,116,305 ) (318,314,055 )
Proceeds from disposal of property and equipment and investment properties 1,624,372 29,734,110 2,920,224
Decrease (increase) in:
Short-term investments (1,044,563,465 ) – 1,838,537,764
Other noncurrent assets 21,359,268 3,007,185 (7,377,357 )
Intangible assets – (11,652,923 ) (1,914,253,973 )
Interest received 20,176,744 5,872,693 40,211,796
Contributions to plan assets (Note 21) (13,270,300 ) (3,556,500 ) (13,414,000 )
Dividend received 1,000 885,100 185,100
Net cash used in investing activities (1,375,617,297 ) (215,826,640 ) (371,504,501 )

CASH FLOWS FROM FINANCING ACTIVITIES

Payment of dividends (266,649,401 ) (209,297,489 ) (261,337,793 )
Proceeds from (payments of) bank loans - net (175,000,000 ) (625,000,000 ) 800,000,000
Acquisition of treasury shares (Note 14) (62,386,450 ) (256,374,570 ) –
Proceeds from issuance of capital stock (Notes 14 and 23) 4,205,880 3,069,960 11,189,659
Interest paid (3,694,740 ) (61,386,673 ) (3,290,229 )
Net cash provided by (used in) financing activities (503,524,711 ) (1,148,988,772 ) 546,561,637

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (24,436,117 ) (683,937 ) (2,162,837)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 683,348,587 37,365,753 (215,887,830 )

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 173,705,479 136,339,726 352,227,556

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 5) P857,054,066 P173,705,479 P136,339,726

See accompanying Notes to Financial Statements.

46 Enriching Partnerships
Notes to
Financial Statements
1. Corporate Information

Financial Statements
Alaska Milk Corporation (the Company) was incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission
on September 26, 1994. The Company is primarily involved in the manufacture, distribution and sale of liquid, powdered and ultra-heat treated milk
products under the Alaska, Carnation, Liberty, Alpine and Milkmaid brands. The registered office address of the Company is 6th Floor, Corinthian
Plaza, Paseo de Roxas, Makati City.

The financial statements of the Company were approved and authorized for issuance by the Board of Directors (BOD) on March 31, 2010.

2. Basis of Preparation

The accompanying financial statements of the Company have been prepared on the historical cost basis, except for derivative instruments, which have
been measured at fair value.

The financial statements are presented in Philippine Peso, which is the Company’s functional and presentation currency under Philippine Financial
Reporting Standards (PFRS). All values are rounded to the nearest Philippine Peso, except when otherwise indicated.

Statement of Compliance
The accompanying financial statements have been prepared in compliance with PFRS. PFRS also includes Philippine Accounting Standards (PAS) issued
by the Financial Reporting Standards Council and Philippine interpretations from International Financial Reporting Interpretations Committee (IFRIC).

Changes in Accounting Policies and Disclosures

The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the following new and amended
standards and Philippine interpretations starting January 1, 2009, unless otherwise indicated:

New Standards and Interpretations

• PFRS 8, Operating Segments, effective January 1, 2009

• Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, effective July 1, 2008
• Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation, effective October 1, 2008
• Philippine Interpretation IFRIC 18, Transfer of Assets from Customers, effective July 1, 2009

Amendments to Standards

• PFRS 1, First-time Adoption of Philippine Financial Reporting Standards and PAS 27, Consolidated and Separate Financial Statements – Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or Associate, effective January 1, 2009

• PFRS 2, Share-based Payment: Vesting Conditions and Cancellations, effective January 1, 2009

• PFRS 7, Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments, effective January 1, 2009

• PAS 1, Presentation of Financial Statements, effective January 1, 2009

• PAS 23, Borrowing Costs (Revised), effective January 1, 2009

• PAS 32, Financial Instruments: Presentation and PAS 1, Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising
on Liquidation, effective January 1, 2009

• Improvements to PFRS (2008)

• Improvements to PFRS (2009), with respect to the amendment to the Appendix to PAS 18, Revenue

Alaska Milk Corporation Annual Report 2009 47

 The standards or interpretations that have been adopted and that are deemed to have an impact on the financial statements of the Company are
described below:

• PFRS 7, Financial Instruments: Disclosures, requires additional disclosures about fair value measurement and liquidity risk. 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, by class, for all financial
instruments recognized at fair value. In addition, reconciliation between the beginning and ending balance for level 3 fair value measurements is
now required, as well as significant transfers between levels in the fair value hierarchy. The amendments also clarify the requirements for liquidity
risk disclosures with respect to derivative transactions and financial assets used for liquidity management. The fair value measurement disclosures are
presented in Note 28 while the liquidity risk disclosures of the Company are not significantly impacted by the amendments.

• Revised PAS 1, Presentation of Financial Statements, separates owner and non‑owner changes in equity. The statement of changes in stockholder’s
equity will include only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, the standard
introduces the statement of comprehensive income, which presents all items of income and expense recognized in profit or loss, together with all
other items of recognized income and expense, either in one single statement, or in two linked statements. The revision also includes changes in titles
of some of the financial statements to reflect their function more clearly, although not mandatory for use in the financial statements. The Company
opted to present other comprehensive income in one single statement. Total comprehensive income is the same as the net income as the Company
has no other comprehensive income in 2009, 2008 and 2007.

Future Changes in Accounting Policies

The Company did not early adopt the following revised PFRS, improvements to PFRS and Philippine Interpretations that have been approved but are not
yet effective:

New Standards and Interpretations

• PFRS 3, Business Combinations (Revised), and PAS 27, Consolidated and Separate Financial Statements (Amended), become effective for annual periods
beginning on or after July 1, 2009. PFRS 3 (Revised) introduces a number of changes in the accounting for business combinations occurring after this
date that will impact the amount of goodwill recognized, the reported results in the period that an acquisition occurs, and future reported results.
PAS 27 (Amended) requires that a change in the ownership interest of a subsidiary be accounted for as an equity transaction. Therefore, such
transaction will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for
losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by PFRS 3 (Revised) and PAS 27 (Amended) will affect future
acquisition or loss of control of a subsidiary. PFRS 3 (Revised) will be applied prospectively, while PAS 27 (Amended) will be applied retrospectively
with a few exceptions.

• Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate, becomes effective for annual periods beginning on or after January
1, 2012. This interpretation applies to the accounting for revenue and associated expenses by entities that undertake the construction of real estate
directly or through subcontractors. The interpretation requires that when an agreement for the construction of real estate gives buyers only limited
ability to influence the design of the real estate and when the entity retains control and the significant risks and rewards of ownership of the work in
progress in its current state until the completed real estate is transferred, such agreement is for the sale of goods and revenue should be recognized
only when the criteria under PAS 18 Revenue, are met (i.e., at completion).

• Philippine Interpretation IFRIC 17, Distribution of Noncash Assets to Owners, becomes effective for annual periods beginning on or after July 1, 2009,
with early application permitted. It provides guidance on how to account for noncash distributions to owners. The interpretation clarifies when to
recognize a liability, how to measure it and the associated assets, and when to derecognize the asset and liability.

Amendments to Standards

• PFRS 2, Share-based Payment – Group Cash-settled Share-based Payment Transactions, becomes effective for annual periods beginning on or after January
1, 2010. It clarifies the scope and the accounting for group cash-settled share-based payment transactions.

• PAS 39, Financial Instruments: Recognition and Measurement – Eligible Hedged Items, becomes effective for annual periods beginning on or after July
1, 2009. It addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as hedged risk or portion in particular
situations. It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a
hedged item.

The Company does not expect the above new standards, interpretations and amendments to have an impact on the financial statements as they are
either not applicable to its current operations or has not entered into such transactions.

48 Enriching Partnerships
 Improvements to PFRS
The amendments to PFRS in 2009 were issued primarily with a view of removing inconsistencies and clarifying wording. The amendments are effective
for annual periods beginning on or after January 1, 2010, except when otherwise stated. The Company has not adopted the following improvements
and anticipates that the changes will have no material effect on its financial statements:

Financial Statements
• PFRS 2, Share-based Payment, 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, Business Combinations (Revised). The amendment is effective for annual
periods beginning on or after July 1, 2009.

• PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations, 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. The disclosure requirements of other PFRS only apply if
specifically required for such non-current assets or discontinued operations.

• PFRS 8, Operating Segments, clarifies that segment assets and liabilities need only be reported when those assets and liabilities are included in measures
that are used by the chief operating decision maker.

• PAS 1, Presentation of Financial Statements, provides that the terms of a liability that could result, at anytime, in its settlement by the issuance of equity
instruments at the option of the counterparty do not affect its classification.

• PAS 7, Statement of Cash Flows, explicitly states that only expenditure that results in recognizing an asset can be classified as a cash flow from investing
activities.

• PAS 16, Property, Plant and Equipment, replaces the term “net selling price” with “fair value less cost to sell”. The amendment is effective for annual
periods beginning on or after July 1, 2009.

• PAS 17, Leases, removes the specific guidance on classifying land as a lease. Prior to the amendment, leases of land were classified as operating leases.
The amendment now requires that leases of land are classified as either ‘finance’ or ‘operating’ in accordance with the general principles of PAS 17.
The amendments will be applied retrospectively.

• PAS 36, Impairment of Assets, clarifies that the largest unit permitted for allocating goodwill acquired in a business combination is the operating
segment, as defined in PFRS 8, Operating Segments, before aggregation for reporting purposes.

• PAS 38, Intangible Assets, clarifies that if an intangible asset acquired in a business combination is identifiable only with another intangible asset, the
acquirer may recognize the group of intangible assets as a single asset provided that the individual assets have similar useful lives. 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. The amendment is effective for annual periods beginning on or
after July 1, 2009.

• PAS 39, Financial Instruments: Recognition and Measurement, clarifies the following:

i. that 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.

ii. 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, and not derivative contracts where further actions by either party are still to be taken.

iii. 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.

• Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives, clarifies that it does not apply to possible reassessment at the date of acquisition,
to embedded derivatives in contracts acquired in a business combination between entities or businesses under common control or the formation of
joint venture. The amendment is effective for annual periods beginning on or after July 1, 2009.

• Philippine Interpretation IFRIC 16, Hedge of a Net Investment in a Foreign Operation, states that, in a hedge of a net investment in a foreign operation,
qualifying hedging instruments may be held by any entity or entities within the group, including the foreign operation itself, as long as the designation,
documentation and effectiveness requirements of PAS 39 that relate to a net investment hedge are satisfied. The amendment is effective for annual
periods beginning on or after July 1, 2009.

Alaska Milk Corporation Annual Report 2009 49

3. Summary of Significant Accounting Judgments, Estimates and Assumptions

The preparation of the Company’s financial statements requires management to make judgments, estimates and assumptions that affect the reported
amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainty about
these estimates and assumptions could result in outcomes that could require a material adjustment to the carrying amounts of the affected asset or
liability in the future.

Judgments
In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimations,
which have the most significant effect on the amounts recognized in the financial statements:

Functional Currency. The Company has determined that its functional currency is the Philippine Peso. It is the currency of the primary economic
environment in which the Company operates.

Lease Commitments - Company as Lessor. The Company has entered into various lease agreements as a lessor. The Company has determined, based
on the evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of the properties
and thus accounts for the contracts as operating leases.

Rent income amounted to P0.4 million and P2.5 million for the years ended December 31, 2008 and 2007, respectively.

Lease Commitments - Company as Lessee. The Company has entered into various finance and operating lease agreements as a lessee.

Under operating lease arrangements, management has determined that all the significant risks and benefits of ownership of the properties remain
with the lessor and thus accounts for the contracts as operating leases.

Rent expense amounted to P43.9 million, P43.4 million and P45.7 million for the years ended December 31, 2009, 2008 and 2007, respectively (see
Notes 25 and 26).

Under finance lease arrangement, management determined, based on the terms of the contract and substance of the transaction, that the Company
has acquired the economic benefits for the use of the leased asset for the major part of its economic life in return for entering into an obligation to
pay for that right an amount approximating, at the inception of the lease, the fair value of the assets and related finance charge. Accordingly, the
lease was accounted for as finance lease.

The carrying value of the packaging equipment held under finance lease and the corresponding finance lease obligation amounted to P24.5 million
and P31.5 million, respectively, as of December 31, 2009, and P26.2 million and P30.5 million, respectively, as of December 31, 2008 (see Note 26).

Estimates and Assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at balance sheet date that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimating Allowance for Doubtful Accounts. The Company maintains an allowance for doubtful accounts at a level considered adequate to provide
for potential uncollectible receivables. The level of allowance is evaluated by the Company on the basis of factors that affect the collectibility of
the accounts. The review is accomplished using a combination of specific and collective assessment. The factors considered in specific impairment
assessment are the length of the Company’s relationship with customers, customers’ current credit status based on known factors, age of the
accounts and other available information that will indicate objective evidence that the customers maybe unable to meet their financial obligations.
The collective impairment assessment is based on historical loss experience and deterioration in the market in which the customers operate. The
amounts and timing of recorded provision for doubtful accounts for any period would differ if the Company made different assumptions or utilized
different estimates.

Trade and other receivables, net of allowance for doubtful accounts, amounted to P893.6 million and P886.1 million as of December 31, 2009 and
2008, respectively (see Note 7).

Estimating Net Realizable Value of Inventories. The Company records a provision for excess of cost over the net realizable value of materials and supplies
whenever the value of materials and supplies becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels
or other causes. The lower of cost or net realizable value of inventories is reviewed on a monthly basis to reflect the accurate valuation in the financial
records. Materials and supplies identified to be obsolete and unusable are written off and charged as expense for the year.

The carrying values of inventories amounted to P1,153.2 million and P1,945.4 million as of December 31, 2009 and 2008, respectively (see Note 8).
The provision for the excess of cost over the net realizable value of inventories amounted to P7.5 million in 2009, 2008 and 2007. The amount is
included under “Cost of sales - raw materials and inventories used.”

50 Enriching Partnerships
 Estimating Useful Lives of Property, Plant and Equipment and Intangible Assets with Finite Useful Lives. The useful life of each of the Company’s property, plant
and equipment and intangible assets with finite useful lives is estimated based on the period over which the asset is expected to be available for use.
Such estimation is based on a collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated
useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or
commercial obsolescence and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially

Financial Statements
affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the
estimated useful life of any of these assets with finite useful lives would increase the recorded cost of sales and operating expenses and decrease
noncurrent assets.

In 2009, the Company changed the useful life of computer software license from 5 years to 3 years. The change in useful life resulted to recognition of
additional expense amounting to P4.6 million.

Property, plant and equipment, net of accumulated depreciation, amounted to P1,515.3 million and P1,334.7 million as of December 31, 2009 and
2008, respectively (see Note 10). Intangible assets with finite useful lives, net of accumulated amortization, amounted to P1,205.0 million and P1,377.1
million as of December 31, 2009 and 2008, respectively (see Note 11).

Intangible Assets with Indefinite Useful Life. Intangible assets are regarded to have an indefinite useful life when, based on an analysis of all relevant factors,
there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Company.

The carrying amount of trademarks with indefinite useful life amounted to P276.4 million as of December 31, 2009 and 2008 (see Note 11).

Impairment of Assets

• Trademarks with Indefinite Useful Life

The Company determines whether trademarks are impaired at least annually. This requires an estimation of the value in use of the trademarks.
Estimating the value in use amount requires management to make an estimate of the expected future cash flows from the trademarks and to choose
a suitable discount rate in order to calculate the present value of those cash flows. The relief-from-royalty-method was adopted in valuing the
trademarks using discount rates of 13.3% in 2009 and 9.4% in 2008. The royalty rate applicable for both years was 5%. Management’s estimates
of future cash flows are based on the most recent budgets/forecasts for a maximum of five years. Cash flow projections until the end of an asset’s
useful life are estimated by extrapolating the cash flow projections based on the financial budgets/forecasts using a growth rate for subsequent years.
This rate is steady or declining, unless an increase in the rate matches objective information about patterns over the products’ lifecycle. The growth
rate was zero.

No impairment loss was recognized in 2009, 2008 and 2007.

• Other Nonfinancial Assets

PFRS requires that an impairment review be performed when certain impairment indicators are present.

Determining the value of nonfinancial assets, which requires the determination of future cash flows expected to be generated from the continued use
and ultimate disposition of such assets, requires the Company to make estimates and assumptions that can materially affect the financial statements.
Future events could cause the Company to conclude that such assets are impaired. Any resulting impairment could have a material impact on the
financial condition and results of operations of the Company.

The preparation of the estimated future cash flows involves judgments and estimations. While the Company believes that its assumptions are
appropriate and reasonable, significant changes in these assumptions may materially affect the Company’s assessment of recoverable values and may
lead to future additional impairment charges.

No impairment loss was recognized in 2009, 2008 and 2007. The aggregate carrying value of property, plant and equipment and intangible assets
with finite useful lives amounted to P2,720.3 million and P2,711.8 million as of December 31, 2009 and 2008, respectively (see Notes 10 and 11).

Realizability of Deferred Tax Assets. The Company reviews its deferred tax assets at each balance sheet date and reduces the carrying amount to the extent
that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. The Company’s
assessment on the recognition of deferred tax assets is based on forecasted taxable income in subsequent periods.

Deferred tax assets amounted to P212.8 million and P172.9 million as of December 31, 2009 and 2008, respectively (see Note 22).

Alaska Milk Corporation Annual Report 2009 51

 Pension Benefits. The present value of the pension obligations depends on certain factors that are determined on an actuarial basis using a number
of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate, expected rate of return on plan
assets and salary increase rate. Actual results that differ from the Company’s assumptions are accumulated and amortized over future periods and,
therefore, generally affect the recognized expense and recorded obligation in such future periods.

The expected return on plan assets assumption is determined on a uniform basis, taking into consideration historical returns, asset allocation and
future estimates of long-term investment returns.

The Company determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present
value of estimated future cash outflows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the
Company considers the interest rates on government bonds that are denominated in the currency in which the benefits will be paid, and that have
terms to maturity approximating the terms of the related pension liability.

Other key assumptions for pension costs are based in part on current market conditions. Additional information is disclosed in Note 21.

While it is believed that the Company’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes
in assumptions may materially affect the Company’s pension obligations.

The Company has net cumulative unrecognized actuarial gain amounting to P10.9 million and P14.9 million as of December 31, 2009 and 2008,
respectively, and net cumulative unrecognized actuarial losses amounting to P13.6 million as of December 31, 2007. Net pension assets amounted
to P49.3 million and P52.1 million as of December 31, 2009 and 2008, respectively (see Note 21).

Share-based Payment. PFRS 2 requires the fair value of equity instruments granted to be based on market prices, if available, and to take into account
the terms and conditions upon which those equity instruments were granted. In the absence of market prices, fair value is estimated, using a
valuation technique to estimate what the price of those equity instruments would be on measurement date in an arm’s-length transaction between
knowledgeable, willing parties.

The valuation technique shall be consistent with generally accepted valuation techniques for pricing financial instruments, and shall incorporate all
factors and assumptions that knowledgeable, willing market participants would consider in setting the price.

Any changes in the option pricing model used and the inputs to that model, such as weighted average share price, historical daily volatility, expected
daily volatility, dividend yield, risk‑free interest rate risk and any other inputs to the model, including the method used and any other assumptions may
materially affect the Company’s value of equity-settled share options granted. The discussion on share-based payments is disclosed in Note 23.

Fair Value of Financial Assets and Liabilities. The Company carries certain financial assets and liabilities at fair value, which requires extensive use of
accounting estimates and judgments. Where the fair value of financial assets and financial liabilities recorded in the balance sheets cannot be
derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models
are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The
judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect
the reported fair value of financial instruments.

The fair values of financial assets and liabilities as of December 31, 2009 and 2008 are disclosed in Note 28.

Contingencies. The estimate of the probable costs for the resolution of possible claims has been developed in consultation with outside legal counsel
handling the Company’s defense in these matters and is based upon an analysis of potential results (see Note 31). Management and its legal counsel
believe that the Company has substantial legal and factual bases for its position and is of the opinion that losses arising from these legal claims, if any,
will not have a material adverse impact on the financial statements. There was no provision for contingencies in 2009, 2008 and 2007.

4. Summary of Significant Accounting and Financial Reporting Policies

Cash and Cash Equivalents

Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts
of cash with original maturities of three months or less from the date of acquisition and are subject to an insignificant risk of change in value.

Short-term Investments
Short-term investments include time deposits with original maturities of more than three months but less than one year.

52 Enriching Partnerships
 Financial Assets and Financial Liabilities

Date of Recognition. The Company recognizes a financial asset or a financial liability in the balance sheets when it becomes a party to the contractual
provisions of the instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is done using
settlement date accounting. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period

Financial Statements
generally established by regulation or convention in the market place.

Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in
case of an asset) or received (in case of a liability). The initial measurement of financial instruments, except for those designated at fair value through
profit or loss (FVPL), includes transaction cost.

The Company classifies its financial instruments in the following categories: financial assets and financial liabilities at FVPL, loans and receivables, held-to-
maturity (HTM) investments, available-for-sale (AFS) investments and other financial liabilities. The classification depends on the purpose for which the
instruments are acquired and whether they are quoted in an active market. Management determines the classification at initial recognition and, where
allowed and appropriate, re-evaluates this classification at every reporting date.

Determination of Fair Value. The fair value of financial instruments traded in active markets at 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. When current bid
and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a
significant change in economic circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation
techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and
other relevant valuation models.

Day 1 Difference. Where the transaction price in a non-active market is different from the fair value of other observable current market transactions
in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the
difference between the transaction price and fair value (a Day 1 difference) in the statements of comprehensive income, unless it qualifies for recognition
as some other type of asset. In cases where use is made of data which is not observable, the difference between the transaction price and model value
is only recognized in the statements of comprehensive income when the inputs become observable or when the instrument is derecognized. For each
transaction, the Company determines the appropriate method of recognizing Day 1 difference amount.

Financial Assets

Financial Assets at FVPL. Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition as at
FVPL.

Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives, including separated
embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instrument or a financial guarantee contract.
Gains and losses on investments held for trading are recognized in the statements of comprehensive income.

Financial assets may be designated by management at initial recognition as at FVPL, when any of the following criteria is met:

• the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing
gains or losses on a different basis; or

• the assets are part of a group of financial assets, financial liabilities or both which are managed and their performance are evaluated on a fair value
basis, in accordance with a documented risk management or investment strategy; or

• the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear,
with little or no analysis, that it would not be separately recorded.

The Company has no financial assets at FVPL as of December 31, 2009 and 2008.

Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are not entered into with the intention of immediate or short-term resale and are not designated as AFS investments or financial assets at
FVPL. Loans and receivables are carried at cost or amortized cost, less any impairment in value. Amortization is determined using the effective interest
method. Gains and losses are recognized in the statements of comprehensive income when the loans and receivables are derecognized and impaired,
as well as through the amortization process. Loans and receivables are classified as current assets when the Company expects to realize or collect the
asset within 12 months from balance sheet date. Otherwise, these are classified as noncurrent assets.

Alaska Milk Corporation Annual Report 2009 53

 Classified under this category are the Company’s cash and cash equivalents, short-term investments, trade and other receivables and receivable from
Manila Electric Company (Meralco), included under “Trade and other receivables” and “Other noncurrent assets” accounts in the balance sheets
(see Note 28).

HTM Investments. HTM investments are quoted nonderivative financial assets with fixed or determinable payments and fixed maturities for which
the Company’s management has the positive intention and ability to hold to maturity. Where the Company sells other than an insignificant amount
of HTM investments, the entire category would be tainted and reclassified as AFS investments. After initial measurement, these investments
are measured at amortized cost using the effective interest method, less impairment in value. Amortized cost is calculated by taking into
account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. Gains and losses are recognized
in the statements of comprehensive income when the HTM investments are derecognized or impaired, as well as through the amortization
process. Assets under this category are classified as current assets if maturity is within 12 months from balance sheet date and as noncurrent assets if
maturity is more than a year from balance sheet date.

The Company has no financial assets classified as HTM investments as of December 31, 2009 and 2008.

AFS Investments. AFS investments include equity and debt securities. Equity investments classified as AFS are those, which are neither classified as held
for trading nor designated at FVPL. Debt securities in this category are those which are intended to be held for an indefinite period of time and which
may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, AFS investments are subsequently measured at fair value with unrealized gains or losses recognized as other comprehensive
income in the AFS reserve until the financial asset is derecognized, at which time the cumulative gain or loss is recognized as an operating income, or
determined to be impaired, at which time the cumulative loss is recognized in the statements of comprehensive income as finance costs and removed
from the AFS reserve.

The Company evaluates its AFS investments on whether the ability and intention to sell them in the near term is still appropriate. When the Company
is unable to trade these financial assets due to inactive markets and management’s intent significantly changes to do so in the foreseeable future, the
Company may elect to reclassify these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the financial asset
meets the definition of loans and receivables and has the intent and ability to hold these assets for the foreseeable future or maturity. The reclassification
to HTM is permitted only when the entity has the ability and intent to hold the financial asset until maturity. For a financial asset reclassified out of the
AFS category, any previous gain or loss on that asset that has been recognized in other comprehensive income is amortized to profit or loss over the
remaining life of the investment using the effective interest method. Any difference between the new amortized cost and the expected cash flows is
also amortized over the remaining life of the asset using the effective interest method. If the asset is subsequently determined to be impaired then the
amount recorded in other comprehensive income is reclassified to profit or loss.

The Company’s investment in unlisted shares of stock is classified under this category (see Note 9). The Company acquired and holds the investment to
earn dividends. The Company also intends to dispose the investment when the need arises.

Financial Liabilities

Financial Liabilities at FVPL. Financial liabilities are classified in this category if these result from trading activities or derivative transactions that are not
accounted for as accounting hedges, or when the Company elects to designate a financial liability under this category. Gains and losses from fair value
changes of liabilities classified as at FVPL are recognized in the statements of comprehensive income.

Included in this category are the Company’s derivative liabilities, shown under “Trade and other payables” account in the balance sheets
(see Note 28).

Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the
liability. These include liabilities arising from operations or borrowings.

Financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the
effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs.

Gains and losses are recognized in the statements of comprehensive income when the loans and receivables are derecognized and impaired, as well as
through the amortization process.

This category includes bank loans, trade and other payables (excluding derivative liabilities and payable to government agencies), acceptances payable,
dividends payable and obligation under finance lease (see Note 28).

54 Enriching Partnerships
 Classification of Financial Instruments Between Debt and Equity
A financial instrument is classified as debt if it provides for a contractual obligation to:

• deliver cash or another financial asset to another entity; or

Financial Statements
• exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Company; or

• satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation
meets the definition of a financial liability.

Derivative Financial Instruments and Hedging

Freestanding Derivatives. The Company uses derivative financial instruments such as forward contracts to hedge the risks associated with foreign currency
fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which the derivative contract is entered into and are
subsequently re‑measured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Embedded Derivatives. An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract with
the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. The Company assesses whether
embedded derivatives are required to be separated from host contracts when the Company first becomes a party to the contract. An embedded
derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics
and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument
with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized
at FVPL. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be
required. As of December 31, 2009 and 2008, the Company does not have bifurcated derivatives.

Derecognition of Financial Assets and 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:

• the rights to receive cash flows from the asset have expired;

• the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third
party under a ‘pass-through’ arrangement; or

• the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the
asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks
and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in
the asset.

Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability and the
difference in the respective carrying amounts is recognized in the statements of comprehensive income.

Impairment of Financial Assets

The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. A financial asset or a group of
financial assets is deemed to be impaired, if and only if, there is objective evidence of impairment as a result of one or more events that occurred after
the initial recognition of the asset (an incurred loss event) and that loss event has an impact on the estimated future cash flows of the financial asset
or a group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group
of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter
bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows,
such as changes in arrears or economic conditions that correlate with defaults.

Alaska Milk Corporation Annual Report 2009 55

 Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been
incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest
rate computed at initial recognition).

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

In relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or
significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice.
The carrying amount of receivables is reduced through the use of an allowance account. Impaired debts are derecognized when they are assessed as
uncollectible.

The carrying amount of the asset shall be reduced through the use of an allowance account. The amount of the loss shall be recognized in the statements
of comprehensive income. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to
discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the
statements of comprehensive income. Loans and receivables together with the associated allowance are written off when there is no realistic prospect
of future recovery and all collateral has been realized or has been transferred to the Company. If, in a subsequent period, the amount of 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 by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in the statements of comprehensive
income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

Assets Carried at Cost. If there is objective evidence that an impairment loss has been incurred 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, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future
cash flows discounted at the current market rate of return for a similar financial asset.

AFS Investments. For AFS investments, the Company assesses at each balance sheet date whether there is objective evidence that an investment or group
of investments is impaired.

In the case of equity investments classified as AFS, this would include a significant or prolonged decline in the fair value of the investments below its cost.
“Significant” is to be evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below
its original cost. Where there is evidence of impairment, the cumulative loss which is measured as the difference between the acquisition cost and the
current fair value, less any impairment loss on that investment previously recognized in profit or loss, is removed from other comprehensive income and
recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment
are recognized directly as other comprehensive income.

In the case of debt instruments classified as AFS investments, impairment is assessed based on the same criteria as financial assets carried at amortized
cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current
fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income is based on the reduced carrying
amount of the asset and is accrued based on the rate of interest used to discount future cash flows for the purpose of measuring impairment loss.
The interest income is recorded as part of finance income. If, in a subsequent year, the fair value of a debt instrument increases and the increase can
be objectively related to an event occurring after the impairment loss was recognized in other comprehensive income, the impairment loss is reversed
through profit or loss.

Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheets if, and only if, there is a currently enforceable legal
right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This
is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the balance sheets.

Inventories
Inventories are valued at the lower of cost or net realizable value.

56 Enriching Partnerships
 Costs incurred in bringing each product into its present location and condition are accounted for as follows:

Finished goods – cost includes direct materials, labor and a proportion of

manufacturing overhead costs based on normal operating
capacity using standard costing; and

Financial Statements
Goods in transit, raw and packaging materials and – purchase cost using weighted average method.
spare parts, supplies and others

The net realizable value of finished goods is the estimated selling price in the ordinary course of business, less the estimated costs necessary to make the
sale. The net realizable value of goods in transit, raw and packaging materials and spare parts, supplies and others is the current replacement cost.

Property, Plant and Equipment

Property, plant and equipment, except land, is stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and amortization
and any accumulated impairment in value. Cost includes the cost of replacing part of property, plant and equipment if such cost meets the recognition
criteria. Land is stated at cost less any impairment in value.

The initial cost of property, plant and equipment consists of its purchase price, including import duties, taxes and any directly attributable costs necessary
in bringing the asset to its working condition and location for its intended use. Expenditures incurred after the item has been put into operation, such as
repairs, maintenance and overhaul costs, are normally recognized as expense in the period such costs are incurred. In situations where it can be clearly
demonstrated that the expenditures have improved the condition of the asset beyond the originally assessed standard of performance, the expenditures
are capitalized as additional costs of property, plant and equipment.

Depreciation and amortization are computed using the straight-line method over the following estimated useful lives of the assets:

Land improvements 20 years

Buildings and leasehold improvements 15 years or term of the lease, whichever is shorter
Machinery and equipment 10 years
Transportation equipment 3-5 years
Office furniture, fixtures and other equipment 3 years

The residual values, useful lives and method of depreciation and amortization of the assets are reviewed and adjusted, if appropriate, at each financial
year-end.

Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization is credited or charged
to current operations.

When each major inspection is performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if the
recognition criteria are satisfied.

Machinery and equipment under installation and machinery in-transit are stated at cost. These are not depreciated until such time that the relevant
assets are available for use.

Construction in-progress represents properties under construction and is stated at cost. This includes cost of construction, equipment and other direct
costs. Construction in-progress is not depreciated until such time that the relevant asset is completed and becomes available for use.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying
values may not be recoverable.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal.
Any gain or loss arising on derecognition of the asset, calculated as the difference between the net disposal proceeds and the carrying amount of the
asset, is included in the statements of comprehensive income in the year the asset is derecognized.

Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less
any accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding any capitalized development
costs, are not capitalized and expenditure is reflected in profit or loss in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite.

Research and Development Costs. Research costs are expensed as incurred. Development cost incurred on an individual project is carried forward when
its future recoverability can reasonably be regarded as assured. Any expenditure carried forward is amortized in line with the expected future sales from
the related project.
Alaska Milk Corporation Annual Report 2009 57
 License Brands, Trademarks and Computer Software License. The costs of license brands, trademarks and computer software license represent the purchase
price at the date of acquisition. The Company assessed the useful lives of license brands and computer software license to be finite. The Company
assessed the useful life of trademarks to be indefinite because they are expected to contribute net cash inflows indefinitely.

License brands and computer software license are amortized over the economic useful life of the assets and are assessed for impairment whenever
there is an indication that the assets may be impaired. The amortization period and the amortization method for license brands and computer software
license with finite useful lives are reviewed at least each financial year-end. Changes in the expected useful life or the expected pattern of consumption
of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated
as changes in accounting estimates. The amortization expense on license brands and computer software license are recognized in profit or loss in the
expense category consistent with the function of the intangible assets.

The amortization of license brands and computer software license is computed using the straight-line method over 10 years and 3 years, respectively.
The amortization for computer software license commences when the asset is available for use.

Trademarks with indefinite useful lives are not amortized but are tested for impairment annually, either individually or at the cash generating unit
level. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be
supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Gains and losses arising from derecognition of an intangible assets are measured as the difference between the net disposal proceeds and the carrying
amount of the asset and are recognized in the statements of comprehensive income when the asset is derecognized.

Impairment of Nonfinancial Assets with Definite Useful Lives

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual
impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the
higher of the asset’s or cash-generating unit’s fair value less costs to sell and value in use and is determined for an individual asset, unless the asset does
not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds
its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. The net selling price is the amount obtainable
from the sale of the asset in an arm’s-length transaction less cost to sell. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflow, the recoverable amount is determined for the cash-generating unit to which the
asset belongs. Impairment losses from continuing operations are recognized in the statements of comprehensive income in those expense categories
consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist
or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there
has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case,
the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have
been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statements
of comprehensive income as gain or loss unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase.
After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a
systematic basis over its remaining useful life.

Capital Stock
Capital stock is measured at par value for all shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in
equity as a deduction from proceeds, net of tax. Proceeds and/or fair value of considerations received in excess of par value, if any, are recognized as
additional paid-in capital.

Treasury Stock
Own equity instruments which are reacquired are deducted from stockholders’ equity. No gain or loss is recognized in the statements of comprehensive
income on the purchase, sale, issuance or cancellation of the Company’s own equity instruments. Any difference between the carrying amount and the
consideration is recognized in additional paid-in capital.

Revenue
Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of
revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:

Sales. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, which is normally upon delivery.
Sales returns and sales discounts are deducted from sales to arrive at net sales shown in the statements of comprehensive income.

Interest. Interest is recognized as the interest accrues, taking into account the effective yield on the related asset.

58 Enriching Partnerships
 Rent. Rent income is recognized on a straight-line basis over the term of the lease agreement.

Dividend. Revenue is recognized when the Company’s right as a shareholder to receive the payment is established.

Costs and Expenses

Financial Statements
Expenses included as part of cost of sales and operating expenses are recognized as incurred.

Leases
The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of
whether the 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.

Company as Lessee. Leases which transfer to the Company substantially all the risks and benefits incidental to the ownership of the leased item are
classified as finance leases and are recognized as assets and liabilities in the balance sheets at amounts equal, at the inception of the lease, to the
fair value of the leased property or, if lower, at the present value of minimum lease payments. Lease payments are apportioned between the finance
charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are
directly charged against income. Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the
Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the
lease term.

Leases which do not transfer to the Company substantially all the risks and benefits of ownership of the asset are classified as operating leases.
Operating lease payments are recognized as expense in the statements of comprehensive income on a straight-line basis over the lease term. Associated
costs, such as maintenance and insurance, are expensed as incurred.

Company as Lessor. Leases which do not transfer to the lessee substantially all the risks and benefits of ownership of the asset are classified as operating
lease. Lease income from operating leases is recognized as income in the statements of comprehensive income on a straight-line basis over the lease
term.

Share-based Payment Transactions

The key executives and members of management of the Company are granted options to purchase shares, subject to restrictions, terms and conditions
provided in the Executive Employee Stock Option Plan (EESOP).

The cost of equity-settled transactions, for awards granted after November 2002, is measured by reference to the fair value at the date on which they
are granted. The fair value is determined using an appropriate pricing model, further details of which are disclosed in Note 23.

The cost of equity-settled transactions is recognized with a corresponding increase in the stockholders’ equity, over the period in which the performance
and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (vesting date). The
cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period
has expired and the Company’s best estimate of the number of equity instruments that will ultimately vest. The amount reflected in the statements of
comprehensive income represents the movement in cumulative expense recognized as of the beginning and end of the period. No expense is recognized
for awards that do not ultimately vest.

Where the terms of an equity-settled transaction award are modified, the minimum expense recognized is the expense as if the terms had not been
modified, if the original terms of the award are met. An additional expense is recognized for any modification that increases the total fair value of the
share-based payment transaction, or is otherwise beneficial to the employee as measured at the date of modification.

Where an equity-settled award is cancelled, it is treated as if it vested on the date of cancellation, and any expense not yet recognized for the award
is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the employee are not met.
However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled
and the new award is treated as if it was a modification of the original award, as described in the previous paragraph. All cancellations of equity-settled
transaction awards are treated equally.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (see Note 24).

Pension Benefits
The Company has a funded, noncontributory defined benefit retirement plan administered by a Board of Trustees covering all permanent employees.
The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. This method
reflects service rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Pension expense
includes current service cost, interest cost, expected return on plan assets, amortization of unrecognized past service costs, recognition of actuarial gains

Alaska Milk Corporation Annual Report 2009 59

 (losses) and effect of any curtailments or settlements. Past service cost is amortized over a period until the benefits become vested. The portion of the
actuarial gains and losses is recognized when it exceeds the corridor (10% of the greater of the present value of obligation or market related value of
the plan assets) at the previous reporting date, divided by the expected average remaining working lives of active plan members.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation at balance sheet date and any actuarial gains
and losses not recognized, reduced by past service cost not yet recognized and the fair value at balance sheet date of plan assets out of which the
obligations are to be settled directly. If such aggregate is negative, 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 availed in the form of refund from the plan or
reductions in the future contributions to the plan.

If the asset is measured at 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 refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and
past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic
benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and
past service cost of the current period are recognized immediately. Similarly, net actuarial gains of the current period after the deduction of past service
cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset
is measured at 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 refunds from the plan or reductions in the future contributions to the plan. If there is no change or a decrease in the present
value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are
recognized immediately.

Foreign Currency Transactions

Transactions in foreign currencies are initially recorded at the functional currency rate at date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the functional currency rate of exchange at balance sheet date. All exchange rate differences,
including those arising on the settlement of monetary items at rates different from those at which they were recorded, are recognized in the profit or
loss in the year in which the differences arise, except for foreign currency differences arising from financial assets designated as cash flow hedge.

Taxes

Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to
the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at balance sheet
date.

Deferred Tax. Deferred tax is provided, using the balance sheet liability method, on temporary differences at balance sheet date between the tax bases
of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary
differences, except when the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss.

Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available
against which the deductible temporary differences can be utilized except when the deferred tax asset relating to the deductible temporary difference
arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting income nor taxable income or loss.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient
taxable income will be available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred tax assets are reassessed at each
balance sheet date and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax assets to be
recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled,
based on tax rates and tax laws that have been enacted or substantively enacted at balance sheet date.

Deferred tax relating to items recognized directly as other comprehensive income is not recognized in profit or loss. Deferred tax items are recognized
in correlation to the underlying transaction either in profit or loss or directly in other comprehensive income.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current tax liabilities and
the deferred taxes relate to the same taxable entity and the same taxation authority.

60 Enriching Partnerships
 Sales Tax. Revenue, expenses and assets are recognized, net of the amount of sales tax, except:

• where the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is
recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

Financial Statements
• receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of “Prepaid expenses and other current assets”
or “Trade and other payables” accounts in the balance sheets.

Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow
of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax
rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time is recognized as interest expense. Where the Company expects a provision to be
reimbursed, the reimbursement is recognized as a separate asset but only when the receipt of the reimbursement is virtually certain.

Contingencies
Contingent liabilities are not recognized in the financial statements. They are disclosed in the notes to financial statements unless the possibility of
an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed
in the notes to financial statements when an inflow of economic benefits is probable.

Events After Balance Sheet Date

Post year‑end events that provide additional information about the Company’s position at balance sheet date (adjusting events) are reflected in the
financial statements. Post year‑end events that are not adjusting events are disclosed in the notes to financial statements when material.

Earnings Per Share (EPS)

Basic EPS is calculated by dividing the net income for the year by the weighted average number of shares outstanding during the year.

Diluted EPS is computed by dividing net income by the weighted average number of shares outstanding during the year, adjusted for the effects of
dilutive stock options. Stock options are deemed to have been converted into shares on the date when the options were granted.

Operating Segments
For purposes of segment reporting, the Company does not have other reportable segments other than milk manufacturing. Milk and non-milk
products represent 99% and 1% of the total sales, respectively in 2009, 2008 and 2007.

5. Cash and Cash Equivalents

This account consists of:

2009 2008
Cash on hand and in banks P248,764,066 P80,170,479
Short-term deposits 608,290,000 93,535,000
P857,054,066 P173,705,479

Cash in banks earn interest at the respective bank deposit rates. Short-term deposits are made for varying periods of up to three months depending
on the immediate cash requirements of the Company, and earn interest at the respective short-term deposit rates.

Interest income earned on cash in banks and short-term deposits amounted to P18.4 million, P5.0 million and P25.3 million in 2009, 2008 and 2007,
respectively (see Note 20).

6. Short-term Investments

This account consists of investments in U.S. dollar time deposits with interest rates ranging from 1.25% to 2.40% in 2009. Interest income earned
from short-term investments amounted to P6.2 million in 2009 and P1.3 million in 2007 (see Note 20).

Alaska Milk Corporation Annual Report 2009 61

7. Trade and Other Receivables

This account consists of:

2009 2008
Trade P849,112,452 P805,533,107
Advances to suppliers 84,682,312 71,278,566
Non-trade 35,840,175 99,520,848
Others (see Note 25) 20,278,471 6,064,656
989,913,410 982,397,177
Less allowance for doubtful accounts 96,346,642 96,346,642
P893,566,768 P886,050,535

The terms and conditions of the above financial assets are as follows:

• Trade receivables are noninterest-bearing and are normally settled on a 30-day term.

• Advances to suppliers, non-trade and others are noninterest-bearing and are normally settled within the next financial year.

The movements in the allowance for doubtful accounts are as follows:

Individually Collectively
Impaired Impaired Total
At January 1, 2008 P38,885,957 P60,607,778 P99,493,735
Write-off – (3,147,093 ) (3,147,093 )
At December 31, 2008/2009 P38,885,957 P57,460,685 P96,346,642

8. Inventories

This account consists of:

2009 2008
At cost:
Finished goods P232,317,108 P475,549,473
Goods in transit 335,496,014 266,733,086
At net realizable value:
Raw and packaging materials 481,673,471 1,101,765,512
Spare parts, supplies and others 103,694,800 101,327,760
P1,153,181,393 P1,945,375,831

The cost of raw and packaging materials amounted to P515.1 million and P1,129.8 million as of December 31, 2009 and 2008, respectively. The cost
of spare parts, supplies and others amounted to P128.3 million and P123.8 million as of December 31, 2009 and 2008, respectively.

9. Available-for-Sale Investments

This account consists of investments in unlisted shares of stock. The shares are unquoted and there are no reliable sources of fair market values.
Consequently, the investments are stated at cost. Dividend income earned from these investments amounted to P0.885 million and P0.185 million
in 2008 and 2007, respectively. There was no dividend income earned in 2009.

62 Enriching Partnerships
10. Property, Plant and Equipment

This account consists of:

December 31, Disposals/ Transfers/ December 31,

Financial Statements
2008 Additions Retirements Reclassifications 2009
Cost
Land and land improvements P54,474,137 P– P– P– P54,474,137
Buildings and leasehold improvements 655,212,898 3,717,193 – 21,929,140 680,859,231
Machinery and equipment (see Note 26) 1,470,052,232 29,176,946 – 109,818,546 1,609,047,724
Transportation equipment 100,268,209 14,179,420 (13,720,050 ) – 100,727,579
Office furniture, fixtures and other equipment 113,658,348 4,319,300 (900,476 ) – 117,077,172
2,393,665,824 51,392,859 (14,620,526 ) 131,747,686 2,562,185,843
Accumulated Depreciation and Amortization
Land improvements 13,482,746 2,641,804 – – 16,124,550
Buildings and leasehold improvements 110,026,898 32,872,822 – – 142,899,720
Machinery and equipment 833,315,244 117,476,955 – – 950,792,199
Transportation equipment 64,828,334 19,009,922 (12,861,842 ) – 70,976,414
Office furniture, fixtures and other equipment 97,377,094 7,532,782 (900,476 ) – 104,009,400
1,119,030,316 179,534,285 (13,762,318 ) – 1,284,802,283
1,274,635,508 (128,141,426 ) (858,208 ) 131,747,686 1,277,383,560
Construction in-progress 25,925,651 34,539,581 – (38,689,555 ) 21,775,677
Machinery in-transit and under installation (see Note 26) 34,144,353 275,012,476 – (93,058,131 ) 216,098,698
P1,334,705,512 P181,410,631 (P858,208 ) P– P1,515,257,935

December 31, Disposals/ Transfers/ December 31,

2007 Additions Retirements Reclassifications 2008
Cost
Land and land improvements P43,596,309 P8,706,801 (P27 ) P2,171,054 P54,474,137
Buildings and leasehold improvements 328,016,247 147,030,376 (51 ) 180,166,326 655,212,898
Machinery and equipment 1,445,161,641 20,312,070 (523 ) 4,579,044 1,470,052,232
Transportation equipment 88,802,014 28,155,242 (16,689,047 ) – 100,268,209
Office furniture, fixtures and other equipment 106,667,888 6,722,716 (113 ) 267,857 113,658,348
2,012,244,099 210,927,205 (16,689,761 ) 187,184,281 2,393,665,824
Accumulated Depreciation and Amortization
Land improvements 11,294,185 2,188,561 – – 13,482,746
Buildings and leasehold improvements 84,905,915 22,659,008 – 2,461,975 110,026,898
Machinery and equipment 721,043,871 112,271,374 (1 ) – 833,315,244
Transportation equipment 65,463,204 15,202,766 (15,837,636 ) – 64,828,334
Office furniture, fixtures and other equipment 89,631,969 7,745,125 – – 97,377,094
972,339,144 160,066,834 (15,837,637 ) 2,461,975 1,119,030,316
1,039,904,955 50,860,371 (852,124 ) 184,722,306 1,274,635,508
Construction in-progress 166,964,942 21,260,183 – (162,299,474 ) 25,925,651
Machinery in-transit and under installation (see Note 26) 3,782,169 34,144,353 – (3,782,169 ) 34,144,353
P1,210,652,066 P106,264,907 (P852,124 ) P18,640,663 P1,334,705,512

There was no capitalized interest in 2009, 2008 and 2007.

11. Intangible Assets

This account consists of license brands and computer software license with finite useful life with total cost amounting to P1,649.4 million and
trademarks with indefinite useful life with cost amounting to P276.4 million as of December 31, 2009 and 2008. The accumulated amortization for
the license brands and computer software license amounted to P444.4 million and P272.3 million as of December 31, 2009 and 2008, respectively.
Amortization expense recognized amounted to P172.1 million, P164.1 million and P108.2 million for the years ended December 31, 2009, 2008 and
2007, respectively (see Note 19).

Alaska Milk Corporation Annual Report 2009 63

12. Bank Loans

The outstanding Philippine Peso-denominated short-term loans as of December 31, 2008 were settled during the first half of 2009. The loans bear
interest rate of 8.25%.

Interest expense, recorded under “Interest expense on bank loans” account in the statements of comprehensive income, amounted to P2.5 million,
P60.3 million and P5.6 million for the years ended December 31, 2009, 2008 and 2007, respectively.

13. Trade and Other Payables

This account consists of:

2009 2008
Trade P700,052,873 P771,039,186
Accruals for:
Selling and marketing expenses 701,309,055 590,780,054
Employee-related expenses (see Note 18) 194,279,807 100,702,260
Importation charges, royalty and other expenses 148,658,454 135,211,898
Payable to government agencies 74,123,906 31,082,876
Derivative liabilities (see Note 28) 404,382 514,571
Others 20,990,648 18,416,651
P1,839,819,125 P1,647,747,496

The terms and conditions of the above liabilities follow:

• Trade payables are noninterest-bearing and are normally settled on 60 days’ term.

• Accruals, payable to government agencies and other payables are normally settled within the next financial year.

• Derivative liabilities arise from forward contracts outstanding as at yearend (see Note 28).

14. Capital Stock

The composition of the Company’s capital stock is as follows:

Number of Shares
2009 2008 2007
Par value - P1
Authorized 1,000,000,000 1,000,000,000 1,000,000,000
Issued:
Balance at beginning of year 967,094,878 966,204,878 964,099,878
Issuance (see Note 23) 980,000 890,000 2,105,000
Balance at end of year 968,074,878 967,094,878 966,204,878

Treasury stock:
Balance at beginning of year 68,243,676 15,368,734 15,368,734
Acquisition 14,759,000 52,874,942 –
Balance at end of year 83,002,676 68,243,676 15,368,734

The issuance of capital stock pertains to shares issued under the Company’s EESOP.

The cost of shares held in treasury amounted to P352.0 million and P289.7 million as of December 31, 2009 and 2008, respectively, or an average
price of P4.24 a share as of December 31, 2009 and 2008.

64 Enriching Partnerships
15. Retained Earnings

Cash dividends declared amounted to P177.5 million, P277.8 million and P285.1 million in 2009, 2008 and 2007, respectively.

On May 12, 2009, the BOD approved the declaration of cash dividends of P0.20 per share, composed of a regular cash dividend of P0.05 per share,

Financial Statements
paid on June 30, 2009 to all stockholders of record as of June 5, 2009, and a special cash dividend of P0.15 per share, paid at P0.05 per share on
September 30, 2009, December 29, 2009 and March 30, 2010 to all stockholder of record as of September 7, 2009, December 3, 2009 and March
5, 2010, respectively.

On May 13, 2008, the BOD approved the declaration of cash dividends of P0.30 per share, composed of a regular cash dividend of P0.05 per share
and special cash dividend of P0.025 per share, paid on June 30, 2008 to all stockholders of record as of June 4, 2008, and another special dividend
of P0.225 per share, paid at P0.075 per share on September 30, 2008, December 29, 2008 and March 30, 2009 to all stockholders of record as of
September 5, 2008, December 3, 2008 and March 6, 2009, respectively.

On February 12, 2008, the BOD approved additional appropriations of P380.0 million, out of the Company’s retained earnings, for various capital
investment projects. A similar appropriation was made on May 8, 2007 amounting to P95.0 million.

On August 7, 2008 and November 11, 2008, the BOD approved additional appropriations of P100.0 million and P200.0 million, respectively, out of
the Company’s retained earnings, for the share buy-back program.

Consequently, the retained earnings account is restricted for the payment of dividends to the extent of P1,977.0 million and P1,914.7 million as of
December 31, 2009 and 2008, respectively, representing appropriations of P1,625.0 million as of December 31, 2009 and 2008, and the cost of
treasury stock amounting to P352.0 million and P289.7 million as of December 31, 2009 and 2008, respectively.

As of December 31, 2009, the Company’s unappropriated retained earnings is in excess of 100% of its paid-up capital. The Company intends to use
the excess retained earnings for future dividend declaration and business expansion.

16. Cost of Sales

This account consists of:

2009 2008 2007

Raw materials and inventories used P5,866,592,967 P7,059,557,980 P5,987,397,061
Personnel expenses (see Note 18) 331,074,957 290,751,637 245,824,408
Utilities 293,758,067 294,932,550 203,502,196
Depreciation (see Note 19) 128,878,885 125,035,662 110,572,454
Rent, repairs, maintenance and others 201,217,477 133,537,992 147,341,592
P6,821,522,353 P7,903,815,821 P6,694,637,711

17. Operating Expenses

This account consists of:

2009 2008 2007

Selling and marketing P1,172,994,473 P1,019,404,148 P910,970,663
Personnel expenses (see Note 18) 326,156,617 232,494,508 248,981,552
Depreciation and amortization (see Note 19) 222,800,505 200,108,732 138,549,450
Rent (see Notes 25 and 26) 23,662,156 30,529,962 35,684,324
Transportation and travel 21,623,809 23,674,024 18,306,699
Taxes and licenses 19,396,026 28,088,518 21,050,944
Utilities 9,130,349 9,294,338 8,917,644
Communication 7,738,145 8,210,411 8,167,391
Entertainment, amusement and recreation 2,366,657 2,274,006 2,253,907
Others 63,641,319 45,842,923 44,395,850
P1,869,510,056 P1,599,921,570 P1,437,278,424

Alaska Milk Corporation Annual Report 2009 65

18. Personnel Expenses

Personnel expenses consist of:

2009 2008 2007

Salaries, wages and employee benefits
(see Note 25) P626,567,089 P501,359,317 P480,098,140
Pension expense (see Notes 21 and 25) 16,077,762 6,641,300 5,720,695
Share-based payment transactions
(see Notes 23 and 25) 4,545,973 6,630,559 806,253
Trainings and others 10,040,750 8,614,969 8,180,872
P657,231,574 P523,246,145 P494,805,960

19. Depreciation and Amortization

This account is distributed as follows:

2009 2008 2007

Property, plant and equipment (see Note 10):
Cost of sales P128,878,885 P125,035,662 P110,572,454
Operating expenses 50,655,400 35,031,172 27,973,805
Investment properties -
Operating expenses (see Note 26) – 992,734 2,337,178
Intangible assets -
Operating expenses (see Note 11) 172,145,105 164,084,826 108,238,467
P351,679,390 P325,144,394 P249,121,904

20. Interest Income

This account represents income from the following sources:

2009 2008 2007

Cash in bank and short-term deposits (see Note 5) P18,402,507 P4,952,263 P25,315,616
Short-term investments (see Note 6) 6,243,740 – 1,273,170
P24,646,247 P4,952,263 P26,588,786

21. Pension Plan

The following tables summarize the components of net pension expense recognized in the statements of comprehensive income and the funded
status and amounts recognized in the balance sheets for the pension plan:

Net Pension Expense

2009 2008 2007

Current service cost P19,707,270 P17,915,700 P16,743,681
Interest cost on benefit obligation 37,152,740 25,816,800 23,961,427
Expected return on plan assets (40,782,248 ) (37,091,200 ) (34,984,413 )
Net benefit expense P16,077,762 P6,641,300 P5,720,695

Net Pension Assets

2009 2008 2007

Defined benefit obligation P410,228,026 P371,527,400 P372,739,549
Fair value of plan assets (470,344,174 ) (438,518,800 ) (414,273,710 )
(60,116,148 ) (66,991,400 ) (41,534,161 )
Unrecognized net actuarial gains (losses) 10,855,710 14,923,500 (13,618,544 )
Net pension assets (P49,260,438 ) (P52,067,900 ) (P55,152,705 )

66 Enriching Partnerships
 The changes in the present value of the defined benefit obligation are as follows:

2009 2008 2007

Defined benefit obligation, January 1 P371,527,400 P372,739,549 P342,306,100
Interest cost on benefit obligation 37,152,740 25,816,800 23,961,427

Financial Statements
Current service cost 19,707,270 17,915,700 16,743,681
Actuarial gains on obligations – (37,089,149 ) –
Actual benefits paid (18,159,384 ) (7,855,500 ) (10,271,659 )
Defined benefit obligation, December 31 P410,228,026 P371,527,400 P372,739,549

The changes in the fair value of plan assets are as follows:

2009 2008 2007

Fair value of plan assets, January 1 P438,518,800 P414,273,710 P388,715,700
Expected return on plan assets 40,782,248 37,091,200 34,984,413
Actuarial losses on plan assets (4,067,790 ) (8,547,110 ) (12,568,744 )
Contributions 13,270,300 3,556,500 13,414,000
Actual benefits paid (18,159,384 ) (7,855,500 ) (10,271,659 )
Fair value of plan assets, December 31 P470,344,174 P438,518,800 P414,273,710
Actual return on plan assets P36,714,458 P28,544,100 P35,162,231

The plan assets consist of the following:

2009 2008 2007

Cash in banks P11,057,794 P28,019,579 P826,452
Investments held for trading 150,484,581 103,129,551 112,696,201
Receivables 13,735,228 12,303,100 5,683,724
Investment properties 295,066,571 295,066,570 295,067,333
P470,344,174 P438,518,800 P414,273,710

The overall expected rate of return on plan assets is determined based on the market prices prevailing on that date, applicable to the period over which
the obligation is to be settled. These are reflected in the principal assumptions below.

The principal assumptions used in determining pension obligations of the Company’s plan are shown below:

2009 2008 2007

Discount rate 10% 10% 7%
Expected rate of return on plan assets 9.3% 9.3% 9%
Salary increase rate 8% 8% 7%

The amounts for current and previous periods are as follows:

2009 2008 2007 2006 2005

Fair value of plan assets P470,344,174 P438,518,800 P414,273,710 P388,715,700 P321,699,000
Defined benefit obligation (410,228,026 ) (371,527,400 ) (372,739,549 ) (342,306,100 ) (279,960,400 )
Surplus P60,116,148 P66,991,400 P41,534,161 P46,409,600 P41,738,600

The amounts of experience adjustments are as follows:

2009 2008 2007 2006 2005

Gain (loss) on experience adjustments on:
Pension obligation P– P37,089,149 P– P25,706,300 P–
Plan assets (4,067,790 ) (8,547,110 ) (12,568,744 ) 27,606,000 –

The Company expects to contribute P13.2 million to the fund in 2010. The expected benefit payments in 2010 amounted to P17.8 million.

Alaska Milk Corporation Annual Report 2009 67

22. Income Tax

The components of the Company’s net deferred tax assets are as follows:

2009 2008
Deferred tax assets:
Accrued expenses P137,489,367 P99,265,721
Allowance for:
Doubtful accounts 28,903,993 28,903,993
Inventory obsolescence 17,414,803 15,164,803
Unamortized portion of past service costs 23,404,358 29,431,476
Unrealized foreign exchange loss - net 4,011,997 –
Share-based payment 1,489,800 –
Deferred interest income 48,203 179,834
212,762,521 172,945,827
Deferred tax liabilities:
Pension assets (14,778,133 ) (15,620,370 )
Unrealized foreign exchange gain - net – (3,009,924 )
(14,778,133 ) (18,630,294 )
P197,984,388 P154,315,533

Accrued expenses mainly represent accruals for outside services and other expenses for which the related withholding taxes have not yet been
remitted by the Company to the Bureau of Internal Revenue.

The reconciliation between the statutory tax rates and the Company’s effective tax rates on income before income tax is as follows:

2009 2008 2007

Provision for income tax at
statutory income tax rate 30.00% 35.00% 35.00%
Income tax effects of:
Income tax holiday (10.77% ) (4.24% ) (2.13% )
Interest income subjected to final tax (0.43% ) (0.40% ) (0.94% )
Nondeductible interest expense 0.08% 0.21% 0.20%
Dividend income exempt from tax – (0.07% ) (0.01% )
Change in enacted tax rates and others (0.48% ) 2.38% 0.62%
Effective income tax rate 18.40% 32.88% 32.74%

In 2009, the corporate income tax rate was reduced from 35% to 30% in accordance with Republic Act No. 9337. The change in enacted tax rates
was considered in the computation of deferred income tax.

23. Share-based Payment

On February 12, 2002, the BOD approved the provisions of the EESOP, administered by a Committee, with the following terms:

Participants Key executives and members of management as recommended by the Committee to the BOD,
subject to restrictions, terms and conditions provided in the EESOP

Number of common shares available for EESOP 5% of the outstanding capital stock

Exercise price Not less than 90% of the average closing price of the Company’s stock as stated in the Philippine
Stock Exchange’s daily quotation sheet for the past 30 trading days immediately preceding the
date of grant
Vesting 1/3 on the effectivity of the grant, 1/3 after one year from the effectivity of the grant, and 1/3
after two years from the effectivity of the grant
Expiration After the lapse of the three-year duration of any grant

The BOD granted additional shares of 4,740,000 in 2008 for the EESOP with the same provisions as the previous EESOP. There have been no
cancellations or modifications to the EESOP in 2009 and 2008.

68 Enriching Partnerships
 Total expense arising from share-based payment amounted to P4.5 million, P6.6 million and P0.8 million in 2009, 2008 and 2007, respectively.

The following table illustrates the number and weighted average exercise price (WAEP) of and movements in share options:

2009 2008 2007

Financial Statements
Number WAEP Number WAEP Number WAEP
Balance at beginning of year 5,310,000 P4.31 2,160,000 P3.18 3,245,000 P3.08
Exercised during the year (see Note 14) (980,000 ) 4.29 (890,000 ) 3.45 (2,105,000 ) 3.09
Additional shares granted
during the year – 4,740,000 4.50 1,110,000 3.53
Expired during the year (510,000 ) 3.53 (700,000 ) 3.18 (90,000 ) 2.72
Balance at end of year 3,820,000 P4.50 5,310,000 P4.40 2,160,000 P3.18

Exercisable at end of year 2,240,000 P4.50 1,780,000 P4.31 895,000 P3.51

The options that have been exercised have an exercise price ranging from P3.53 to P4.50 in 2009 and P3.18 to P4.50 in 2008 and P2.72 to P3.53 in
2007. The average fair value of the shares as of the exercise dates was P6.34 in 2009, P5.15 in 2008 and P3.76 in 2007. Options not exercised from
the 2007 grant of 510,000 shares, 2005 grant of 700,000 shares and 2004 grant of 90,000 expired in 2009, 2008 and 2007, respectively.

The weighted average remaining contractual life for the share options outstanding is 1.5 years as of December 31, 2009.

The fair value of the option was determined using the option pricing model, taking into account the terms and conditions upon which the options
were granted. The dates of grant are May 5, 2008 and May 9, 2007.

The following table lists the inputs to the model used as of the grant date:
2008 2007
Dividend yield 5.76% 8.76%
Historical daily volatility 2.00% 2.00%
Risk-free interest rate risk 4.12% to 7.83% 3.87% to 5.59%
Expected daily volatility 2.00% 2.00%
Weighted average share price P5.21 P3.42

The expected life of the share options is based on historical data and current expectations and is not necessarily indicative of exercise patterns that
may occur. The expected daily volatility reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily
be the actual outcome.

24. EPS Computation

2009 2008 2007

(a) Net income P1,409,388,720 P291,098,723 P667,085,082
Number of shares issued and outstanding
at beginning of year 898,851,202 950,836,144 948,731,144
Weighted average number of shares issued
during the year 200,125 665,000 1,402,500
Weighted average number of treasury stock
acquired during the year (12,329,583 ) (29,193,535 ) –
(b) Weighted average number of shares outstanding
during the year 886,721,744 922,307,609 950,133,644
Adjustment for potential common shares:
Number of shares under the stock option
(see Note 23) 3,820,000 5,310,000 2,160,000
Number of shares that would have been issued at
fair value related to the exercise of
the stock option (2,421,127 ) (4,357,282 ) (1,826,809 )
(c) Weighted average number of shares issued
and outstanding adjusted for potential
common shares 888,120,617 923,260,327 950,466,835

Basic EPS (a/b) P1.5894 P0.3156 P0.7021

Diluted EPS (a/c) P1.5869 P0.3153 P0.7018

Alaska Milk Corporation Annual Report 2009 69

25. Related Party Disclosures

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the
other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common
significant influence.

Transactions with related parties include the following:

a. The Company has the following transactions with GenOSI, Inc. (GenOSI), Filius Fortus, Inc. (Filius) and Wentworth Development Corporation
(WDC), affiliates (companies with stockholders common to the Company):

Amount of
Transactions
Nature of Transactions Year During the Year Receivables*
GenOSI Sale of raw material 2009 P224,966 P125,408
inventories and share in 2008 378,548 57,512
corporate expenses 2007 81,480 –

Filius Cash advances 2009 P42,639 P42,639

2008 – –
2007 – –

WDC Rent and share in corporate 2009 2,275,718 22,196

expenses 2008 1,018,836 139,242
2007 34,540 4,503

* Included under “Trade and other receivables” account in the balance sheets.

b. The Company has two (2) ten-year lease agreements with WDC starting March 1, 2000 and September 22, 2009 for the lease of provincial office
space and a parcel of land, respectively. The annual lease payments for the whole term of the lease of provincial space amounted to P0.6 million
in 2009, 2008 and 2007. Rent expense for the parcel of land amounted to P0.3 million in 2009.

c. The Company leases the land where its manufacturing plant is situated from Alaska Milk Corporation Retirement Plan (AMC Retirement Plan) for
a period of 25 years starting November 9, 2004. The annual lease payments for the whole term of the lease amount to P15.6 million.

On January 1, 2006, the Company entered into another 25 years lease agreement with AMC Retirement Plan for the lease of land
adjacent to where the manufacturing plant is situated. The lease is renewable at the option of the Company. Rent expense amounted to
P13.2 million in 2009, 2008 and 2007.

d. The Company recognizes incentives to the members of the BOD, management and employees based on a certain percentage of operating income,
which amounted to P110.0 million in 2009, P27.0 million in 2008 and P54.5 million in 2007.

e. The compensation of key management personnel of the Company, by benefit type, follows:

2009 2008 2007

Short-term employee benefits P114,575,145 P86,279,910 P72,432,621
Post-retirement benefits 4,708,758 1,704,608 1,704,767
Share-based payments 2,014,890 2,115,148 240,263
P121,298,793 P90,099,666 P74,377,651

26. Agreements

License and Purchase Agreements

On April 16, 2007, the Company signed a license agreement with Société Des Produits Nestlé S.A. (Nestlé) granting the Company an exclusive license
to manufacture and sell Nestle’s Carnation and Milkmaid brands for canned milk products. Royalty expense is computed at 5% of net sales. On the
same date, the Company also acquired the liquid milk trademarks from Nestlé.

70 Enriching Partnerships
 Distribution Agreement
On August 18, 2005, the Company entered into a Distribution Agreement with Kellogg Asia Marketing, Inc. (Kellogg), designating the Company as
distributor of Kellogg products within the territory specified in the agreement. In consideration of the services rendered by the Company, Kellogg
shall pay the Company a fee equivalent to a certain percentage of the price list to trade as stated in the agreement.

Financial Statements
Lease Agreements

As Lessee

• The Company has a lease agreement with a third party for the lease of land and warehouse in Cainta, which expired on September 30, 2008. Rent
expense amounted to P6.2 million in 2008 and P8.8 million in 2007.

• The Company has lease agreements with various third parties for the lease of land and warehouse in different provinces for a period of one (1) year,
automatically renewable every year. Rent expense amounted to P6.8 million in 2009, P7.8 million in 2008 and P7.5 million in 2007.

• In 2009, the Company has cancellable lease agreements with third parties for the lease of pallets and a provincial warehouse for a period of more
than one (1) year. Rent expense amounted to P7.4 million in 2009.

• On October 23, 2007, the Company entered into a 7-year finance lease agreement with Tetra Pak Philippines, Inc. for a packaging equipment at a
total consideration of US$0.7 million or P33.9 million, discounted at 5.8% per annum based on treasury bill rate. Interest expense on obligation
under finance lease amounted to P1.9 million in 2009 and is included under “Trade and other payables” account in the balance sheets.

The packaging equipment was received on September 26, 2008 and was transferred to machinery and equipment from machinery in-transit
and under installation during the year. The related liability was shown as obligation under finance lease in the balance sheets amounting to
P31.5 million and P30.5 million as of December 31, 2009 and 2008, respectively. As of December 31, 2009, the future minimum lease payables
amounted to P4.2 million and P32.6 million are payable within one year and after one year but not more than five years, respectively.

As of December 31, 2009 and 2008, the carrying value of packaging equipment amounted to P24.5 million and P26.2 million, respectively.

As Lessor

• The Company leased a condominium property for a period of three (3) years until March 31, 2008. The lease was, however, pre-terminated on
February 29, 2008. Rent income amounted to P0.3 million in 2008 and P1.0 million in 2007.

• The Company had a lease agreement with a third party for the lease of a condominium property for a period of one (1) year until February 29,
2008. In 2008, the Company sold the condominium property. Rent income amounted to P0.2 million in 2008 and P1.5 million in 2007.

The Company has no lease agreements as lessor in 2009.

27. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments, other than derivatives, comprise cash and cash equivalents, short-term investments and bank loans.
The main purpose of these financial instruments is to finance the Company’s operations. The Company has other financial assets and liabilities such
as trade and other receivables, AFS investments, receivable from Meralco, trade and other payables, acceptances payable, dividends payable and
obligation under finance lease.

The Company also enters into forward currency contracts to manage the foreign currency risks arising from the Company’s operations and its sources
of finance.

The main risks arising from the Company’s financial instruments are foreign currency risk, credit risk, interest rate risk and liquidity risk. The BOD and
management review and agree on the policies for managing each of these risks and they are summarized below.

Foreign Currency Risk

The Company’s exposure to foreign currency risk pertains to foreign-currency denominated monetary assets and liabilities. The Company’s financial
position or performance can be affected by the movements in the P/US$ exchange rates.

Alaska Milk Corporation Annual Report 2009 71

 The following table shows the Company’s foreign currency-denominated monetary assets and liabilities and their Philippine Peso equivalents as at
December 31:
2009 2008
US$ PhP US$ PhP
Current financial assets:
Cash and cash equivalents $3,890,416 P179,737,219 $92,669 P4,403,631
Short-term investments 22,609,599 1,044,563,465 – –
Trade and other receivables 1,570,193 72,542,917 1,405,706 66,799,149
28,070,208 1,296,843,601 1,498,375 71,202,780
Current financial liabilities:
Acceptances payable 12,123,913 560,124,762 17,122,015 813,638,150
Obligation under finance lease (including noncurrent
portion and accrued interest) 681,482 31,484,475 641,052 30,462,809
12,805,395 591,609,237 17,763,067 844,100,959
Net financial assets (liabilities) $15,264,813 P705,234,364 ($16,264,692 ) (P772,898,179 )

In translating the foreign currency-denominated monetary assets and liabilities into Philippine Peso amounts, the exchange rates used were P46.20 to
US$1.00 and P47.52 to US$1.00, the Philippine Peso to U.S. Dollar exchange rates as at December 31, 2009 and 2008, respectively.

To manage foreign currency risks, stabilize cash flows and improve investment and cash flow planning, the Company enters into forward contracts aimed
at reducing and/or managing the adverse impact of changes in foreign exchange rates on operating results and cash flows.

The following table demonstrates the sensitivity to a reasonably possible change in US$ exchange rate, with all other variables held constant, of the
Company’s income before income tax and management incentive bonus (due to revaluation of monetary assets and liabilities). There is no impact on
stockholders’ equity other than those already affecting profit or loss:

Increase (Decrease) Effect on Income Before Income Tax

in P to US$ 1 and Management Incentive Bonus
2009 (P0.28) P4.3 million decrease
2008 0.19 3.1 million decrease

A movement in the opposite direction would have increased/decreased income before income tax and management incentive bonus by the same
amount. The decrease in P to US$ rate means stronger Philippine Peso against the U.S. Dollar while an increase in P to US$ rate means stronger US
Dollar against the Philippine Peso.

Credit Risk
The Company trades only with recognized, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are
subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Company’s exposure
to bad debts is not significant. The Company does not grant credit terms without the specific approval of the credit departments under the direction of
credit committee. Moreover, the credit committee regularly reviews the age and status of outstanding accounts receivable.

There are no significant concentrations of credit risk.

The Company’s exposure to credit risk arises from default of the counterparties, with a maximum exposure equal to the carrying amount of financial
assets of the Company, which comprise cash and cash equivalents, short-term investments, AFS investments, trade and other receivables and receivable
from Meralco.

As of December 31, 2009 and 2008, the aging analysis of the Company’s financial assets is as follows:

Neither Past
Due nor Past Due but Not Impaired
Impaired <30 Days 30-60 Days Impaired Total
Cash and cash equivalents P857,054,066 P– P– P– P857,054,066
Short-term investments 1,044,563,465 – – – 1,044,563,465
AFS investments 2,556,403 – – – 2,556,403
Trade and other receivables:
Trade 579,990,947 160,032,052 18,369,026 90,720,427 849,112,452
Advances to suppliers 84,682,312 – – – 84,682,312
Non-trade and others 50,492,431 – – 5,626,215 56,118,646
Receivable from Meralco* 3,296,039 – – – 3,296,039
  P2,622,635,663 P160,032,052 P18,369,026 P96,346,642 P2,897,383,383

72 Enriching Partnerships
 Neither Past
Due nor Past Due but Not Impaired
Impaired <30 Days 30-60 Days Impaired Total
Cash and cash equivalents P173,705,479 P– P– P– P173,705,479
AFS investments 2,556,403 – – – 2,556,403

Financial Statements
Trade and other receivables:
Trade 621,822,435 76,796,235 16,194,010 90,720,427 805,533,107
Advances to suppliers 71,278,566 – – – 71,278,566
Others 99,959,289 – – 5,626,215 105,585,504
Receivable from Meralco** 5,586,459 – – – 5,586,459
  P974,908,631 P76,796,235 P16,194,010 P96,346,642 P1,164,245,518
* Included under “Trade and other receivables” account in the 2009 balance sheet.
**Included under “Trade and other receivables” and “other noncurrent assets” accounts in the 2008 balance sheet.

As of December 31, 2009 and 2008, the credit quality of the Company’s financial assets is as follows:

2009
Neither Past Due Nor Impaired Past Due
High Grade Standard Grade or Impaired Total
Cash and cash equivalents P857,054,066 P– P– P857,054,066
Short-term investments 1,044,563,465 – – 1,044,563,465
AFS investments – 2,556,403 – 2,556,403
Trade and other receivables 482,788,190 232,377,500 274,747,720 989,913,410
Receivable from Meralco* – 3,296,039 – 3,296,039
P2,384,405,721 P238,229,942 P274,747,720 P2,897,383,383

2008
Neither Past Due Nor Impaired Past Due
High Grade Standard Grade or Impaired Total
Cash and cash equivalents P173,705,479 P– P– P173,705,479
AFS investments – 2,556,403 – 2,556,403
Trade and other receivables 676,356,422 116,703,868 189,336,887 982,397,177
Receivable from Meralco** – 5,586,459 – 5,586,459
P850,061,901 P124,846,730 P189,336,887 P1,164,245,518
* Included under “Trade and other receivables” account in the 2009 balance sheet.
**Included under “Trade and other receivables” and “other noncurrent assets” accounts in the 2008 balance sheet.

High grade receivables are from key accounts and wholesalers who are highly reputable, progressive and consistently pay before their maturity dates.
Standard grade receivables are from other key accounts and medium‑sized customers that normally pay within their due dates, while those with past
due or impaired accounts are from customers who exceed their credit terms.

Cash and cash equivalents and short-term investments are considered high grade as management deals only with top banks in the Philippines. All other
financial assets were assessed by management as standard grade as these are realized within the normal terms.

Interest Rate Risk

Interest rate risk arises on interest‑bearing financial instruments recognized in the balance sheets. The Company ensures that all interest‑bearing loans
and borrowings are either short-term or made at a fixed rate of interest.

As of December 31, 2008, the Company’s bank loans have floating interest rates but payable within one month after the balance sheet date. Hence,
the Company is not sensitive to interest rate changes.

Liquidity Risk
The Company’s exposure to liquidity risk pertains to difficulty in raising funds to meet obligations associated with financial liabilities.

The Company’s objective is to maintain a balance between continuity and flexibility through the use of internally generated funds and banks. The
Company regularly evaluates its projected and actual cash flow information and continuously assess conditions in the financial markets.

The Company’s financial instruments, which have maturity of less than 12 months and used to meet its short term liquidity needs, are cash and
cash equivalents and short-term investments amounting to P1,901.6 million as of December 31, 2009 and cash and cash equivalents amounting to
P173.7 million as of December 31, 2008.

Alaska Milk Corporation Annual Report 2009 73

 The tables below summarize the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments as of
December 31:

2009
Less Than 3 to
On Demand 3 Months 12 Months Over 1 Year Total
Trade and other payables* P– P1,605,537,880 P160,157,339 P– P1,765,695,219
Acceptances payable – 560,124,762 – – 560,124,762
Dividends payable – 52,097,499 – – 52,097,499
Obligation under finance lease (including current portion) – – 4,019,227 32,589,403 36,608,630
P– P2,217,760,141 P164,176,566 P32,589,403 P2,414,526,110
*Excluding payable to government agencies amounting to P74.1 million, which is not considered as a financial liability.

2008
Less Than 3 to
On Demand 3 Months 12 Months Over 1 Year Total
Bank loans P– P175,429,688 P– P– P175,429,688
Trade and other payables* – 1,546,729,924 69,934,696 – 1,616,664,620
Acceptances payable – 813,638,150 – – 813,638,150
Dividends payable 67,413,840 73,840,222 – – 141,254,062
Obligation under finance lease (including current portion) – – 2,708,640 34,945,951 37,654,591
P67,413,840 P2,609,637,984 P72,643,336 P34,945,951 P2,784,641,111
*Excluding payable to government agencies amounting to P31.1 million, which is not considered as a financial liability.

Capital Management
The primary objective of the Company’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.

The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital
structure, the Company may adjust the dividend payment to shareholders, payoff existing debts, return capital to shareholders or issue new shares.
No changes were made in the objectives, policies or processes during the years ended December 31, 2009 and 2008.

The Company monitors its capital gearing by measuring the ratio of debt to total stockholders’ equity. Debt includes bank loans, trade and other
payables, acceptances payable, dividends payable and obligation under finance lease. The Company’s policy is to keep the gearing ratio at 70:30. As
of December 31, 2009 and 2008, the Company’s ratios of debt to total stockholders’ equity are 35:65 and 45:55, respectively.

Details are as follows:

2009 2008
Bank loans P– P175,000,000
Trade and other payables 1,839,819,125 1,647,747,496
Acceptances payable 560,124,762 813,638,150
Dividends payable 52,097,499 141,254,062
Obligation under finance lease (including current portion) 31,484,475 30,462,809
Total debt (a) 2,483,525,861 2,808,102,517
Total stockholders’ equity 4,677,406,770 3,499,145,485
Total debt and stockholders’ equity (b) P7,160,932,631 P6,307,248,002

Gearing ratio (a/b) 35% 45%

28. Financial Assets and Liabilities

Fair Value of Financial Instruments

The following tables set forth the carrying values and estimated fair values of financial assets and liabilities, by category and by class, recognized as
of December 31, 2009 and 2008:

74 Enriching Partnerships
 2009 2008
Carrying Value Fair Value Carrying Value Fair Value
Financial assets:
Loans and receivables:
Cash and cash equivalents P857,054,066 P857,054,066 P173,705,479 P173,705,479

Financial Statements
Short-term investments 1,044,563,465 1,044,563,465 – –
Trade and other receivables 893,566,768 893,566,768 886,050,535 886,050,535
Receivable from Meralco (including current portion)
(see Note 31) 3,296,039 3,296,039 5,586,459 6,185,903
2,798,480,338 2,798,480,338 1,065,342,473 1,065,941,917
AFS investments 2,556,403 2,556,403 2,556,403 2,556,403
P2,801,036,741 P2,801,036,741 P1,067,898,876 P1,068,498,320

Financial liabilities:
Financial liabilities at FVPL - derivative liabilities (see Note 13) P404,382 P404,382 P514,571 P514,571
Other financial liabilities:
Bank loans – – 175,000,000 175,000,000
Trade and other payables* 1,765,290,837 1,765,290,837 1,616,150,049 1,616,150,049
Acceptances payable 560,124,762 560,124,762 813,638,150 813,638,150
Dividends payable 52,097,499 52,097,499 141,254,062 141,254,062
Obligation under finance lease (including current portion) 31,484,475 30,082,729 30,462,809 26,897,149
P2,408,997,573 P2,407,595,827 P2,776,505,070 P2,772,939,410
* Excluding payable to government agencies amounting to P74.1 million and P31.1 million as of December 31, 2009 and 2008, respectively, the amounts of which
are not considered as financial liabilities. The balance also excludes derivative liabilities amounting to P0.4 million and P0.5 million as of December 31, 2009 and
2008, respectively, the amounts of which are considered as financial liabilities at FVPL.

Cash and Cash Equivalents, Short-term Investments, Trade and Other Receivables, Bank Loans, Trade and Other Payables, Acceptances Payables and Dividends
Payable. The carrying values of these financial assets and liabilities approximate their fair values primarily due to the short-term nature of these financial
instruments.

AFS Investments. AFS investments consist of unquoted shares of stock. Consequently, the investments are carried at cost.

Receivable from Meralco. Receivable from Meralco pertains to Meralco refund as disclosed in Note 31. The fair value is estimated based on the discounted
value of future cash flows using the applicable rate for similar type of instruments. Due to its short-term nature, the carrying value of the receivable
approximates its fair value in 2009. The fair value in 2008 is based on the present value of future cash flows discounted using prevailing market rates
of 7.3% to 7.7%.

Obligation under Finance Lease. The estimated fair value is based on the discounted value of future cash flows using applicable rates for similar types of
instruments. Discount rates used were 5.4% to 7.6% and 7.9% to 9.5% as of December 31, 2009 and 2008, respectively.

Fair Value Hierarchy

The following table sets forth the following financial instruments measured at fair value as of December 31, 2009:

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

• Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

• Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

• Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

Level 1 Level 2 Level 3 Total

Financial Liability:
Financial liabilities at
FVPL - derivative liabilities (see Note 13) – P404,382 – P404,382

There were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements during
the year.

Derivative Instruments
The Company uses short-term forward contracts to manage its foreign currency exposure arising from importations.

Alaska Milk Corporation Annual Report 2009 75

 As of December 31, 2009 and 2008, the Company has outstanding buy US$/sell P forward transactions with total notional amount of US$385,000
at a forward rate of P47.30:$1.00 and US$9,450,000 at an average forward rate of P47.68:$1.00, respectively. The net negative fair values of the
outstanding forward contracts as of December 31, 2009 and 2008 are P0.40 million and P0.51 million, respectively. The fair values are based on
counterparty valuation.

The movements in fair value of derivative instruments follow:

2009 2008
Balance at beginning of year P514,571 P2,025,720
Net changes in fair value during the year [included in “foreign exchange gain (loss)”
account in the statements of comprehensive income] (4,001,715 ) (21,818,920 )
Fair value of settled contracts 3,891,526 20,307,771
Balance at end of year P404,382 P514,571

29. Notes to Statements of Cash Flows

Noncash Transactions
In 2008, the principal noncash transactions under investing activities pertain to the acquisition of packaging equipment through a finance lease
(see Note 26) and the reclassification of the condominium property from investment properties to property, plant and equipment (see Note 10).

30. Board of Investments

On September 7, 2006, the Board of Investments (BOI) approved the Company’s application for registration of its Anhydro Plant 2 Project as a pioneer
project under the Executive Order No. 226, also known as the Omnibus Investments Code of 1987. The registration entitles the Company to certain
tax and other incentives. The Certificate of Registration was issued by the BOI on January 10, 2007.

On December 19, 2006, the BOI approved the Company’s appeal for the grant of a 6-year income tax holiday (ITH) incentive, which the Anhydro
Plant 2 Project is entitled to as a pioneer project. The ITH incentive will start in May 2007 or the actual start of the Project’s commercial operations,
whichever is earlier.

Total tax incentives availed in 2009, 2008 and 2007 amounted to P185.9 million, P18.4 million and P21.1 million, respectively.

31. Other Matters

Refund from Meralco

As a customer of Meralco, the Company expects to receive a refund for some of its previous billings under Phase IV of Meralco’s refund scheme.
Under the Meralco refund scheme, the refund may be received through postdated checks or as a fixed monthly credit to bills with cash option. The
Company intends to recover the amount through fixed monthly credit to bills with cash option, starting 2006 up to 2010. In 2006, the Company
recognized a receivable from Meralco amounting to P12.6 million, net of unearned interest income of P3.6 million and income from the refund of
P12.6 million (included in “Cost of sales”). The receivable was discounted using an effective interest rate of 11.7%.

The current portion of the receivable, included in “Trade and other receivables,” amounted to P3.1 million and P2.5 million, net of unearned
interest income of P0.2 million and P0.4 million, respectively, as of December 31, 2009 and 2008. As of December 31, 2008, the portion expected
to be recovered beyond one year amounting to P3.1 million, net of unearned interest income of P0.2 million, is included under “Other noncurrent
assets”.

As of December 31, 2009 and 2008, interest income earned, which is charged against cost of sales amounted to P0.4 million and P0.7 million,
respectively.

Casualty Loss
The Company incurred casualty losses amounting to P156.5 million due to damages in inventories and equipment caused by Typhoon Ondoy which
hit the country in September 2009.

Lawsuits
The Company is either a defendant or plaintiff in several civil cases primarily involving collection of receivables and labor cases. Based on the
representation of the Company’s external legal counsel, management is of the opinion that the resolution of such cases will not have a material
adverse effect on the Company’s financial position and results of operations.

76 Enriching Partnerships
Corporate &
Shareholder Information
Corporate Office
Alaska Milk Corporation
6/F Corinthian Plaza
121 Paseo de Roxas, Makati City
Philippines
Tel. Nos.: (632) 840-4500
(632) 840-5921 to 39
Fax No. : (632) 894-4929
Corporate website: www.alaskamilk.com.ph
Production Facilities
San Pedro Complex
Magsaysay Road
San Pedro, Laguna, Philippines
Tel. Nos.: (632) 847-8001 to 10
Fax No. : (632) 808-2424
Legal Adviser
Esguerra & Blanco Law Offices
4/F S&L Building
Dela Rosa corner Esteban Streets
Legaspi Village, Makati City, Philippines
Independent Auditors
Sycip Gorres Velayo & Co.
6760 Ayala Avenue
Makati City, Philippines
Transfer Agent / Shareholder Services
Securities Transfer Services, Inc.
Ground Floor, Benpres Building
Exchange Road corner Meralco Avenue
Pasig City, Philippines
Tel. Nos.: (632) 490-0060
Fax No. : (632) 631-7148
Investor Relations
6/F Corinthian Plaza
121 Paseo de Roxas, Makati City
Philippines
Tel. Nos.: (632) 840-4500
(632) 840-5921 to 39
Fax No. : (632) 894-4929
E-mail: investorrelations@alaskamilk.com.ph
Stock Listing
Philippine Stock Exchange
Ticker Symbol: AMC
6/F Corinthian Plaza, 121 Paseo de Roxas
Makati City, Philippines

For inquiries, please contact:

Tel. Nos: (632) 840.4500, 840.5921 up to 39
Fax: (632) 894.4929
www.alaskamilk.com.ph