2017 annual report (sec form 17- a)

SEC No. : PW00000216File No. : ___

MABUHAY VINYL CORPORATION 3

rd Floor, Philamlife Building

126 L. P. Leviste St. Salcedo Village, Makati City

817-8971 to 76 (Telephone Numbers)

816-4785 / 894-5325 (Fax Numbers)

01 January to 31 December

(Calendar Year Ending)

2017 ANNUAL REPORT (SEC Form 17- A) (Form Type)

For The Calendar Year Ended December 31, 2017 (Period Ended Date)

of 24 MVC 2017 Annual Report (SEC Form 17-A)

13. Aggregate Market Value of the Voting Stock held by Non-Affiliates of the Registrant

Total Outstanding Shares (as of Dec. 31, 2017) 661,309,398

Less: Shareholdings of Affiliates of MVC (Stockholders owning at least 5% of the capital stock and companies represented in the Board)

1) Tosoh Corp. 581,785,835 2) Mitsubishi Corp. 39,679,999 621,465,834

Shareholdings of Non-Affiliates 39,843,564

Average Market Value of MVC Shares 3.30

Aggregate Market Value of the Voting Stock

held by Non-Affiliates P131,483,761

DOCUMENTS INCORPORATED BY REFERENCE: NONE

PART I - BUSINESS

A. Description of Business

(1) Business Development Mabuhay Vinyl Corporation (MVC or the “Company”) was incorporated and duly registered with the Philippine Securities and Exchange Commission (SEC) as a rubber shoe manufacturer on July 20, 1934 under the name Mabuhay Rubber Corporation, and subsequently reorganized in 1960 to engage in chemical and PVC resin manufacturing. On October 10, 1966, the corporate name Mabuhay Vinyl Corporation was adopted. In 1984, the Board of Directors (BOD) of the Company approved the amendment of its Articles of Incorporation to extend the corporate life of the Company, which expired on July 20, 1984, for another 50 years up to July 20, 2034. The amended Articles of Incorporation was approved by the SEC in the same year. In 2001, the Company underwent a major business realignment when it decided to exit from the PVC business and focus on the chlor-alkali business. Subsequently, the Company expanded its chlor-alkali capacity (IEM Project); the plant started commercial operations in October 2003.

On 13 December 2006, MVC started implementation of its Ion Exchange Membrane (IEM2) Phase 2 Project. MVC is the only chlor-alkali producing company in the Philippines and caters to the industrial and household markets. The IEM2 Plant was placed into commercial operation on 25 August 2008. On 26 November 2008, a landholding company under the corporate name, MVC Properties, Inc. (MPI or the “Subsidiary”) was registered with the SEC. MVC transferred/assigned ownership of the land assets of the Company to MPI in exchange for shares of stocks. MPI started commercial operations on the last quarter of 2009 with the issuance of the related TCTs in its name. The Company and MPI (subsidiary) entered into a contract of lease whereby MPI leases its parcels of land to the Company for a period of 10 years, commencing on October 1, 2009. To improve production efficiency and output, the Company completed the upgrade of its Liquid Chlorine Refrigeration Plant in 2015 and replaced its storage tanks in 2017. On the other hand, replacement and recoating of Ion Exchange Elements and Membranes was started in 2016 and completed in 2017. To ensure efficient operation of its IEM plants, the Company regularly replaces and recoats its Ion Exchange Membranes and Elements as necessary.


The principal products of the Company are caustic soda and chlorine derivatives which form about 99% of the total revenues of the Company. Competition in the sale of caustic soda and liquid chlorine basically comes from imported materials brought in by traders and indentors in Metro Manila and neighboring industrial provinces. For hydrochloric acid, competition comes from two (2) fertilizer manufacturers utilizing another process. Sodium hypochlorite, on the other hand, is produced by two (2) other manufacturers. Competition is principally based on price and quality of products. The Company believes that it can provide a competitive price and comply with customer specifications which allow the Company to compete effectively in the local market. The Company’s clientele are diverse in such a way that the business is not dependent on any single customer. All sales contracts are short term in nature and rarely exceed one year in duration. Majority are usually on a per delivery basis. Nevertheless, higher import cost affects the pricing of the Company’s products but adverse effects is mitigated considering its leading position as both an importer and manufacturer. Income from storage tank rentals also contributed to the Company’s profits in 2014 to 2016. The Company uses salt as raw material. In 2017 and 2016, the Company purchased salt from Marubeni Corporation. In 2015, Mitsubishi Corporation was chosen to supply the Company’s salt requirement after it had submitted the most competitive proposal. The Company leases warehouse and depot facilities in major ports of entry. The products are transported to the depots via specialized shipping vessels then to customers’ warehouse via trucks contracted by MVC. As part of the regular maintenance and compliance with regulatory requirements, the Company’s 3 chemical tankers undergo periodic drydocking works. Most marketing research is done by in house personnel or with the cooperation of prospective principals/investors with minimal cost on the part of the Company. The Company incurred minimal amounts for research and development activities, which do not amount to a significant percentage of revenues. Required permits were secured by the Company from the Philippine Drug Enforcement Agency (PDEA) for the manufacture, storage and handling of hydrochloric acid. The Company has secured the required permits and clearances from the Department of Environment and Natural Resources (DENR)to operate all of its facilities. Implementation of the environmental laws particularly Republic Act (R.A.) 6969, as implemented by DENR Administrative Order (DAO) 29 cost MVC about P1.0 million annually.


Total Number of Full Time-Employees (As of December 31, 2017):

No CBA With CBA Total

Rank and File 14 69 83

Supervisors 36 15 51 Managers and Top Management 16 0 16

Total 66 84 150

It is expected that there will be minimal hiring for the ensuing year covering the replacement of retired or resigned employees. Except for a 15-day Christmas bonus when the financial condition of the Company allows, there is no other incentive arrangement with CBA-covered rank and file employees. CBA-covered supervisory employees are covered by a Performance Incentive Plan in addition to the 15-day Christmas bonus. For non-unionized employees, a separate incentive is in place based on performance with bonuses ranging from zero to 120% of a month’s pay. The major risks involved in the Company’s business as well as the measures being undertaken by the Company to manage such risks are as follows:

Major Risks Measures Undertaken 1. Price risk for caustic soda MVC imports more caustic soda and set local production at its allowable

minimum level in times of low prices. MVC maximizes caustic soda production when price of imported caustic soda is high.

2. Production loss due to breakdown of a major equipment

All the critical equipment has been identified; inventory of vital spare parts are maintained at sufficient levels. Contacts with concerned suppliers and technical people have been established.

3. Property loss due to accident Have identified all possible safety hazards, installed appropriate safety equipment, strict implementation of safety rules, adequate insurance coverage like fire, machinery breakdown, comprehensive general liability, industrial all risk, and life.

B. Description of Property

The following properties are owned by the Group:

• Iligan Plant

The Group’s main plant is located at Assumption Heights, Iligan City, Lanao Del Norte . Among the manufacturing facilities in the Iligan Plant are the Ion-Exchange Membrane Plants 1 and 2, Sodium Hypochlorite plant, product storage facilities, and Industrial Salt bulk storage yard (with a capacity of 30,000 MT), which are all in good operating condition. All machineries and equipment installed in the facilities of the Company were covered by a Mortgage Trust Indenture (MTI) with BDO as trustee to secure the Company’s 5-year term loan with the Bank of the Philippine Islands for P350 Million on January & March 2008. The loan partly financed the retrofitting project (IEM2) of its Diaphragm Cell Plant in Iligan City. The Mortgage Participation Certificate was cancelled upon full payment of the loan in January 2013.

• Sta. Rosa Plant

The property is located inside the Laguna Technopark in Biñan, Laguna. It has a highly automated 20,000 MTPY Sodium Hypochlorite production facility. This plant is equipped with adequate storage facilities and a 250 kilovolt-amperes (KVA) standby diesel-power generator owned by the Group.


The following properties are leased by the Group:

Property Location Renewal Option

Head office with 2 parking slots Makati City Subject to mutual agreement of both parties

BBTI depot BBTI extension lot

Bauan, Batangas -do-

Can be renewed for another 10 years subject to mutual agreement

Mandaue depot Mandaue City Subject to renegotiation

Pulupandan depot Negros Oriental Subject to renegotiation

Davao depot

Davao City Subject to renegotiation. Lessee shall notify lessor in writing at least thirty (30) days prior to the expiration of the original term.

The Group has allocated funds for the acquisition or rehabilitation of the following properties in 2018:

a. Construction and acquisition of Storage tanks

To improve inventory management and consistently meet customer requirements, P40.0 Million was budgeted for the construction of Caustic soda storage tanks in Batangas while P15.0 Million was budgeted for the purchase of FRP Storage tanks for the Iligan plant.

b. Purchase of liquid chlorine cylinders

P11 Million was budgeted for the acquisition of liquid chlorine cylinders.

c. Refurbishment of Bipolar Elements

P7.6 Million was budgeted for the refurbishment of the Bitac and N-Bitac Bipolar Ion Exchange Elements to increase production efficiency.

d. M/T Snoopy I dry docking P7.3 was budgeted for the dry docking cost of Snoopy II to comply with regulatory requirements.

C. Legal Proceedings

1. Case Title : MVC vs. Lee Won Industries, Inc. Nature : Collection of sum of money in the amount of P1,228,541.60 Progress/Status : For resolution of ex-parte motion to set case anew for examination of judgment

debtor.

Possible Gain/Loss : Same as amount involved 2. Case Title : MVC vs. Manugas/Acero Nature : Recovery of excess separation benefits Progress/Status : After granting MVC’S Petition, the Supreme Court remanded the case to the Court of

Appeals to properly dispose the substantial issues specifically the recovery of separation benefits which were improperly paid by MVC. The case awaits resolution from the Court of Appeals.

Possible Gain/Loss : P508,662.61 3. Case Title : In Re: Petition for Corporate Rehabilitation of PRI/NPIC, Land Bank of the Philippines

(Petitioner) Nature : Corporate Rehabilitation Progress/Status : Case suspended due to pendency of case at the Supreme Court. Land Bank filed

motion to convert proceedings into liquidation proceedings. Still pending at the Supreme Court.

Evaluation : There is no assurance that MVC’s claim could be recovered since MVC is an unsecured creditor vis-à-vis all other creditors who are secured.

Possible Gain/Loss : P25,921,775.65 4. Case Title : MVC vs. Steel Corporation of the Philippines

RTC Branch 3, Batangas City Nature : Claim from a company presently under Liquidation Proceedings Progress/Status : An Out-of-Court-Restructuring Agreement (OCRA) was signed on 27 March 2015,

MVC has received five payments from Steel Corporation. The fifth payment of


Php98,130.82 was received on 31 October 2017. Evaluation : Payment shall be made in eight (8) equal semi-annual amortizations payable in

arrears starting at the end of the 6th month of the first year from the effectivity date of the OCRA.

Possible Gain/Loss : P294,392.46 (remaining balance of 3 payments) 5. Case Title : MVEU-FDLO, Darwin Campugan et. al. vs. Wilsim Painting & Construction and MVC Nature : Labor Case Progress/Status : MVC filed an appeal with National Labor Relations Commission (NLRC) which

resulted in the reversal of the Labor Arbiter’s ruling. The NLRC ruled that Wilsim is an independent contractor and is solely liable to the money claims. The union elevated the case to the Court of Appeals. The Court of Appeals sustained the NLRC. The union filed a petition before the Supreme Court where the case is still pending as of date.

6. Case Title : Underpayment of Night Differential on Special and Regular Holidays

ROX Case No. RO10-CV-2015-10-0086-G Nature : Complaint by the Union re underpayment of night shift differential (NSD) on special

and regular holidays

Progress/Status : This pertains to the inspection conducted by Senior Labor Laws Compliance Officer (LLCO) Felixberto L. Labor at Mabuhay Vinyl Corporation (MVC) and his findings of “Underpayment of Night Shift Differential on Special and Regular Holidays” by MVC. MVC, on the other hand, denied the findings of LLCO since its computation of night premiums is in accordance with the specific provision of the Collective Bargaining Agreement (CBA), which is more than what the DOLE Handbook requires. Regional Director Raymundo Agravante issued two (2) conflicting decisions wherein one decision ordered the transmittal of the records to National Conciliation and Mediation Board (NCMB) and the other to submit the computation of claims of all workers on work performed during regular and special holidays covering the period September 16, 2012 to September 16, 2015. The Company’s counsel filed a Manifestation before the Regional Director of receipt of the conflicting decisions. The Regional Director has not taken any action.

7. Case Title : MVEU-FDLO vs. MVC re: extra one day holiday pay

CA G. R. SP-07592-MIN VA Case No. AC-209-RB 10-0107-05-2016

Nature : This pertains to the recent correction made by Mabuhay Vinyl Corporation (MVC), after it discovered the erroneous payment by MVC of an extra one day, whenever an employee works on his rest day or on special and legal holidays and on unworked legal holidays, in view of the absence of any valid basis thereto either by deliberate company grant, the Collective Bargaining Agreement (CBA), or by the Labor Code; thus, beginning January 1, 2016, the company discontinued the payment of the extra (1) one day pay.

Progress/Status : The Voluntary Arbitrator decided the case against the Company. The Company elevated the case to the Court of Appeals. After the filing of the required pleadings, a decision was rendered by the Court of Appeals reversing the decision of the Voluntary Arbitrator and affirming the validity of the action of the Company discontinuing the payment of extra one day. The Union filed a motion for reconsideration but was subsequently denied by the Court of Appeals on February 15, 2018.

8. Case Title : Dandasan vs. MVC

NLRC Case No. SRAB X-08-20389-17 Nature : Labor Case

Progress/Status : On 23 July 2017, a power dip caused the shutdown of the Liquid Chlorine Plant as well as the two (2) Ion Exchange Membrane Plants (IEM 1 & 2). Both IEM plants


were restarted on 24 July 2017. During initial inspection, it was determined that the data recorder of the Liquid Chlorine Plant was damaged by the incident. However it was ascertained after further evaluation that the plant was safe to operate despite the defective recorder. The LCP Senior Operator, Dandasan, was instructed by both the Shift Manager and Shift Supervisor to restart operations but he refused to comply citing that the data recorder was damaged. He was charged and found guilty of Insubordination and a two (2) day suspension was sanctioned by the company. Dandasan filed a case for Illegal Suspension with the NLRC after serving the suspension. Position paper and Sur-Rejoinder has been prepared and submitted by the Company to the NLRC. The case is awaiting decision by the Labor Arbiter.

PART II – SECURITIES OF THE REGISTRANT

(A) Market Price, Dividend and Related Stockholder Matters

(1) Market Information

The principal market of Mabuhay Vinyl’s common equity is the Philippine Stock Exchange (PSE) where it was listed last February 05, 1997. The offering price was at P1.90 per share. The high and low sales prices by quarter for the last two (2) years are as follows:

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter

Market Price 2016 2017 2016 2017 2016 2017 2016 2017 2018

High 4.78 5.50 6.70 4.19 5.50 3.66 4.45 4.00 3.90

Low 2.00 3.42 3.00 3.40 3.15 3.10 3.50 2.93 3.00

The price as of April 11, 2018 (latest practicable trading date) is P3.33.

(2) Holders

There are approximately 2,296 holders of common shares of the Company as of 31 March 2018.

Top 25 Stockholders (As of 31 March 2018)

STOCKHOLDER

NATIONALITY

NUMBER OF SHARES

PERCENT OF OWNERSHIP

1. Tosoh Corporation Japanese 317,779,029 48.053%

2. Tosoh Corporation Japanese 264,006,806 39.922%

3. Mitsubishi Corporation Japanese 22,260,000 3.366%

4. Mitsubishi Corporation Japanese 17,419,999 2.634%

5. PCD Nominee Corporation (Filipino) Filipino 12,280,709 1.857%

6. Dennis T. Villareal Filipino 1,203,300 0.182%

7. William Lines, Inc. Filipino 1,050,000 0.159%

8. Santiago Sr. Tanchan Filipino 765,730 0.116%

9. Gonzalo Puyat & Sons, Inc. Filipino 585,169 0.088%

10. MultiFarms Agro-Industrial Filipino 336,000 0.051%

11. J E L P Real Estate Development Corporation Filipino 300,000 0.045%

12. Wilfredo C. Tecson Filipino 300,000 0.045%

13. Yang Songbo Chinese 300,000 0.045%

14. F. C. Roque Agro-Industrial Filipino 255,092 0.039%


STOCKHOLDER

NATIONALITY

NUMBER OF SHARES

PERCENT OF OWNERSHIP

15. Kenneth T. Gatchalian Filipino 250,000 0.038%

16. Ana Beatriz R. Medrano and/or Victoriano S. Medrano, Jr. Filipino

250,000

0.038%

17. Ma. Consuelo R. Medrano and/or Victoriano R. Medrano, Jr. Filipino

250,000

0.038%

18. FGU Insurance Corporation Filipino 243,000 0.037%

19. Jacinto U. Tiu Filipino 219,493 0.033%

20. Victoneta Investment Corporation Filipino 213,931 0.032%

21. PCD Nominee Corporation (Non-Filipino) Other Alien 198,601 0.030%

22. Ricardo Paras Filipino 197,823 0.030%

23. Felicito H. Tiu Filipino 186,000 0.028%

24. Gilbert Liu Filipino 180,000 0.027%

25. Vicente Tiu Filipino 178,568 0.027%

Total 641,355,850 96.983%

(3) Dividends

Dividend Information on the Two Most Recent Fiscal Years No dividends were declared as of March 2018. Below is a summary of the dividends declared for the years ended December 31, 2017 and 2016:

Date of Declaration Date of Record Dividend rate Dividend per share

April 28, 2016 May 27, 2016 5% 0.05 April 27, 2017 May 26, 2017 7% 0.07

The cash dividend declaration does not require the approval of the stockholders. There are no restrictions that limit the payment of dividends on Common Shares. There is no recent sale of unregistered or exempt securities.

PART III - FINANCIAL INFORMATION A. Management’s Discussion and Analysis or Plan of Operation

Management’s Discussion and Analysis The following table shows the consolidated financial highlights of the Company for the years then ended December 31, 2017, 2016 and 2015:

As of December 31 ( In Thousands)

2017 2016 2015

Income Statement Data

Total Revenues P2,173,256 P1,678,722 P1,455,321

Gross Profit 569,932 484,070 415,555

Operating Income 148,928 145,611 101,248

Net Income (Loss) * 126,772 128,037 86,234

Total Resources 1,932,457 1,783,039 1,633,549 * See page 10, Changes in Operating Results (2017 vs. 2016)


Revenues in 2017 increased compared to 2016 due to higher sales volume and selling price during the year. Higher revenues were partially offset by higher cost of importation and production as well as higher foreign exchange rates. Strong demand for liquid caustic soda in the Asian region coupled with tight supply resulting from poor chlorine demand pushed imported caustic soda price to record high levels. Management focused on increasing caustic soda production from its Iligan Plant while managing the impact of high importation cost in its trading business. Cash management was improved with excess cash from operations invested on short-term placements resulting in interest income amounting to P5.41 Million. Other income from logistics services and custom-tailored environmental services amounted to P29.90 Million.

KEY PERFORMANCE INDICATORS (Note: Mabuhay Vinyl Corporation and its Subsidiary, MVC Properties, Inc.)

Dec. 31, Dec. 31, Dec. 31, 2017 2016 2015

1. Liquidity a. Quick ratio - capacity to cover its short-term obligations using only its most

liquid assets.

[(cash + cash equiv. + A/R) / current liabilities] 4.28:1 5.67:1 5.38:1 - Forecasted ratio 3.62:1 4.93:1 4.59:1 -Remarks: The quick ratio for the period is higher than forecast due to lower

current liabilities to suppliers.

b. Current ratio - capacity to meet current obligations out of its liquid assets.

(current assets / current liabilities) 5.94:1 6.98:1 7.50:1

- Forecasted ratio 4.83:1 6.85:1 6.80:1 -Remarks: The current ratio for the period is higher than forecast due to lower

current liabilities to suppliers.

2. Solvency a. Debt to equity ratio - indicator of which group has the greater representation

in the assets of the Company. (long-term debt / equity) 0.00:1 0.00:1 0.00:1

- Forecasted ratio 0.00:1 0.00:1 0.00:1 - Remarks: There is no exposure to long term debt.

2. Profitability a. Net profit margin - ability to generate surplus for stockholder

(net income / sales) 6% 8% 6%

- Forecasted ratio 5% 5% 5% - Remarks: The Company’s Net Profit Margin target was met.

b. Return on equity - ability to generate returns on investment of stockholders.

(net income / stockholders equity) 8% 8% 6%

- Forecasted ratio 7% 6% 6% - Remarks: The Company’s Return on Equity forecast was achieved.


Dec. 31, Dec. 31, Dec. 31, 2017 2016 2015

3. Leverage b. Debt to total asset ratio - the proportion of total assets financed by creditors.

(total debt / total assets) 0.14:1 0.14:1 0.12:1

- Forecasted ratio 0.15:1 0.11:1 0.10:1 - Remarks: Debt to asset ratio was lower than forecast due to higher liabilities.

c. Asset to equity ratio - indicator of the overall financial stability of the

Company. (total assets / equity) 1.17:1 1.17:1 1.15:1

- Forecasted ratio 1.18:1 1.12:1 1.11:1 -Remarks: The Company is financially stable and is capable of internally

financing its obligations.

4. Interest Rate Coverage Ratio a. Interest rate coverage ratio - measure of the company’s ability to meet its

interest payments (earnings before interest and taxes / interest expense) 0.00:1 0.00:1 0.00:1

- Forecasted ratio 1,586:1 478.01:1 234.43:1 -Remarks: The Company has no exposure to long-term debt.

2017 COMPARED TO 2016 Current Assets. Cash and cash equivalent decreased by P140.6M due to higher cost of imported caustic soda, payments for capital expenditures as well as payment of dividends to shareholders. P292.1 million of the cash balance was invested in short-term money market placements. Trade and other receivables increased by P127.5M due to higher sales. Increase in the value of Inventories of P130.9M is mainly due to purchase of imported caustic soda net of sale of finished goods and normal depletion of materials to produce caustic soda and its co-products. Other current assets increased by P6.4M due to advances made to suppliers for purchase of various equipment.

Available for sale financial assets consist of quoted and unquoted equity instruments and golf shares. No sale of available for sale financial assets was made during the year. Increase in the AFS financial asset is due to the increase of its fair value.

Decrease in the value of Property, plant and equipment - at cost is primarily due to the depreciation of the assets net of the acquisitions and disposals during the year.

Land, at appraised value increased by P29.4M due to revaluation increment recognized resulting from the increase in the fair value of the land.

Increase in the Other noncurrent assets is due to long term notes receivable extended to third parties.

Current Liabilities. Trade and other payables increased by P49.7M due to purchases of inputs and accruals made for distribution and administrative expenses. Movement in the Retirement benefits payable reflects the accrual of current year expenses for future retirement net of the retirement fund contributions for the year.

Increase in the Deferred income tax liabilities - net is mainly due to the tax effect of the revaluation of land, provision for contingencies, reversal of excess allowance for doubtful accounts, movement on the allowance for inventory losses and other temporary tax differences.

Changes in Operating Results Gross Margin decreased from 29% to 26% due to higher import and production cost. Nevertheless gross profit on sale of goods increased by P85.9M due to higher sales volume. Operating expenses increased due to higher distribution cost derived from higher volume sales, higher repairs and provision made for contingencies. Interest and financing charges increased by P0.03M due to slightly higher bank charges. Financing charges are composed of bank charges and accretion of asset retirement obligation. Other income decreased by P4.2M due to lower revenues from spent caustic treatment.


2016 COMPARED TO 2015 Current Assets. Cash and cash equivalent increased by P199.9M due to higher revenues and other income and cash set aside for payment of importation. P436.3 million of the cash balance was invested in short-term money market placements. Trade and other receivables increased by P24.5M due to higher sales. Decrease in the value of Inventories of P78.9M is mainly due to sale of finished goods and normal depletion of materials to produce caustic soda and its co-products and delay in the importation of caustic soda. Other current assets increased by P20.0M due to higher input taxes from purchases and importations as well as tax credits recognized from sale of investment property.

Available for sale financial assets consist of quoted and unquoted equity instruments and golf shares. No sale of available for sale financial assets was made during the year. Increase in the AFS financial asset is due to the increase of its fair value.

Decrease in the value of Property, plant and equipment - at cost is primarily due to the depreciation of the assets net of the acquisitions and disposals during the year.

Investment properties decreased by P35.1M due to sale of the property.


Increase in the Other noncurrent assets is due to long term notes receivable extended to a third party net of amortization of software cost for the year.

Current Liabilities. Trade and other payables increased by P18.8M due to purchases of inputs and accruals made for distribution and administrative expenses. Movement in the Retirement benefits payable reflects the accrual of current year expenses for future retirement net of the retirement fund contributions for the year.

Increase in the Deferred income tax liabilities - net is mainly due to the tax effect of the revaluation of land, reversal of excess allowance for doubtful accounts, movement on the allowance for inventory losses and other temporary tax differences.

Changes in Operating Results The increase in the sales volume and selling prices was offset by higher cost of production and importation. As a result, gross profit on sale of goods increased by P25M but Gross margin remained at 29%. Gross profit from sale of property contributed P43.5M. Operating expenses increased by due to higher sales volume. Interest and financing charges decreased by P0.4M due to lower bank charges. Financing charges are composed of bank charges and accretion of asset retirement obligation. Other income increased by P19.6M due to increase in revenues derived from spent caustic treatment services. Interest income increased by P1.5M due to higher interest earned from short-term money market placements. 2015 COMPARED TO 2014 Current Assets. Cash and cash equivalent increased by P51.9M due to higher revenues and other income. P290.6 million of the cash balance was invested in short-term money market placements. Trade and other receivables increased by P18.4M due to higher sales. Increase in the value of Inventories of P8.8M is mainly due to purchase of imported caustic soda net of sale of finished goods and normal depletion of materials to produce caustic soda and its co-products. Other current assets increased by P5.6M due to higher input taxes from purchases and importations.

Available for sale financial assets consist of quoted and unquoted equity instruments and golf shares. No sale of available for sale financial assets was made during the year. Decrease in the AFS financial asset is merely due to the decrease of its fair value.

Decrease in the value of Property, plant and equipment is primarily due to the depreciation of the assets net of the acquisitions and disposals during the year.


Increase in the Other noncurrent assets is due to deposits paid to a supplier net of amortization of software cost


for the year.

Current Liabilities. Trade and other payables decreased by P0.5M due to settlement of liabilities to suppliers. Movement in the Retirement benefits payable reflects the accrual of current year expenses for future retirement net of the retirement fund contributions for the year.

Increase in the Deferred income tax liabilities - net is mainly due to the tax effect of the revaluation of land and reversal of excess allowance for doubtful accounts.

Changes in Operating Results Net sales increased by P3.5M due to higher sales volume. However, selling prices decreased compared to prior year due to intense competition in the domestic market and excess supply in the international market. Higher production volume and improvements in production efficiency contributed to lower production cost resulting to a 29% Gross Margin in 2015. Operating expenses decreased by 5% due to lower cost of diesel and delivery costs. Interest and financing charges decreased by P0.1M since the Company has no outstanding loans. Financing charges are composed of bank charges and accretion of asset retirement obligation. Other income increased by P0.6M due to increase in revenues derived from spent caustic treatment services. Interest income increased by P2.5M due to higher interest earned from short-term money market placements.

There are no known trends, events or uncertainties that have material impact on liquidity. Nevertheless, Management still continues to pursue intensive collection efforts to reduce accounts receivables and improve cash management. The Company is involved in legal proceedings, tax and/or regulatory assessments. The estimate of the probable costs for the resolution of possible claims against the Company has been developed in consultation with outside counsel handling the Company’s defense in these matters and is based upon an analysis of potential results. The inherent uncertainty over the outcome of these matters is brought about by the differences in the interpretation and application of the laws and rulings. The Company, in consultation with its external counsels, does not believe that these proceedings will have a material adverse effect on the consolidated financial statements. There are no material off-balance sheet transactions, arrangements, obligations and other relationships of the Company with unconsolidated entities or other persons created during the reporting period. The Company continues to spend for regular capital expenditures to improve the reliability of manufacturing plants and depots. With no known trends, events or uncertainties, 2018 sales is projected to be at P2.459 Billion. Material changes on line items in the financial statements are included in “Management’s Discussion and Analysis” above (refer to pages 10-13). The financial condition or results of operations of the Company are not affected by any seasonal change. B. Information on Independent Accountant and Other Related Matters

The Company’s external auditor is the auditing firm of SyCip Gorres Velayo & Co. (SGV). The same auditing firm is being recommended by the Board, based on the recommendation of the Audit Committee composed of Dr. Jose O. Juliano (Chairman), Tetsuro Hachimura, Renato N. Migriño, and Atty. Barbara Anne C. Migallos, subject to stockholders’ approval, for re-appointment as the Company’s external auditor for the fiscal year 2018, for a fee of P700,000 (exclusive of VAT and out-of-pocket expenses). a. The Audit committee evaluates proposals based on the quality of service, commitment for deadline and fees.

The committee may require a presentation from each proponent to clarify some issues. b. SyCip Gorres Velayo & Co. (SGV), represented by its engagement partner, Ms. Catherine E. Lopez, is the

external auditors of the Company for the most recently completed year 2017. Pursuant to SRC Rule 68 (3) (b) (iv) of the Amended Implementing Rules and Regulations of the Securities Regulation Code (SRC) (re:


rotation of external auditors), the Company has not engaged Ms. Catherine E. Lopez for more than five years.

c. Representatives of SyCip Gorres Velayo & Co. are expected to be present during the stockholders’ meeting. The representatives will have the opportunity to make statements if they desire to do so and will be available to respond to appropriate questions from the security holders.

d. During the two (2) most recent fiscal years or any subsequent interim period, the independent auditor has not resigned nor was dismissed or has declined to stand for reappointment after the completion of the current audit.

e. The aggregate annual external audit fees billed for each of the last two (2) fiscal years for the audit of the registrant’s annual financial statements or services that are normally provided by the external auditor are as follows: For the year 2016 - P795,800 (billed and paid in 2017) For the year 2017 - P770,000 (accrued and paid as of February 2018)

f. The above audit fees are inclusive of the following: (a) audit, other assurance and related services by the External Auditor that are reasonably related to the performance of the audit or review of the Company’s financial statements (P700,000); and (b) All Other Fees, including estimated out of pocket expenses accrued by the Company as of February 2018 (P70,000).

g. The Company has engaged SyCip, Gorres, Velayo & Co. to handle the open tax assessment of MVC for the years 2008 and 2012. Total fees billed and paid by MVC related to this service for the year 2017 and 2016 amounted to P323,235 and P521,707, respectively.

The Audit Committee has the function of assessing the independence and professional qualifications of the external auditor, in compliance with the requirements under applicable law, rules and regulations; reviewing the performance of the external auditors; and recommending to the Board of Directors the appointment or discharge of external auditors as well as reviewing and approving audit related and non-audit services to be rendered by external auditors. Prior to the commencement of the audit, the Audit Committee shall discuss, review and recommend with the external auditors the nature, scope and fees of the audit, and ensure proper coordination, if more than one audit firm is involved in the activity to secure proper coverage and minimize duplication of efforts.

PART IV – MANAGEMENT AND CERTAIN SECURITY HOLDERS

(A) Directors, Executive Officers

(1) Directors

There are seven (7) members of the Board, two (2) of whom are independent directors. The term of office of each member is one (1) year; they are elected at the annual stockholders’ meeting to hold office until the next succeeding annual stockholders’ meeting and until his/her successor is elected and qualified. A director who is elected to fill any vacancy holds office only for the unexpired term of his predecessor. The following are the current members of the Board of Directors:

1. Tetsuro Hachimura 2. Edwin Ll. Umali 3. Jose O. Juliano – Independent Director 4. Barbara Anne C. Migallos 5. Renato N. Migriño – Independent Director 6. Takayuki Nakamura 7. Yoshiaki Uenishi

1. TETSURO HACHIMURA - 53, Japanese Graduated from Waseda University, Japan, Faculty of Sociology Positions held: Chairman of the Board [Sept 2015 to present] and Director since July 2013 of Mabuhay Vinyl Corporation; Director since July 2013 of Tosoh Polyvin Corporation (TPC); President [July 2013 to present] Philippine Resins Industries, Inc.; [June 2009] Plas-tech Corporation, General Manager, Compound Sales; [June 2003] Tosoh Corporation, Tokyo Head Office; Manager, Synthetic Rubber [April 1987] Tosoh Tokyo Head Office.


2. EDWIN LL. UMALI - 62, Filipino

B.S. in Industrial Management Engineering, minor in Mechanical Engineering, De La Salle University Positions held: President and Chief Operating Officer since 1999 and Director since 1997 of Mabuhay Vinyl Corporation; Director [1999-2001, 2003, 2005, 2007, 2009, 2011, 2013, 2015, 2017] Tosoh Polyvin Corporation; Chairman [2011 to present] New Golden Mix Feeds Corporation; Trustee [2010 to present] Philippines-Japan Economic Cooperation Committee; Director [2006 to March 2014] Federation of Phil. Industries; Member [2002 to present] Philippine Business for Social Progress Luzon Regional Committee; Director [1996-2009] Chemical Industries Association of the Philippines (SPIK); Member [1996 to present] Management Association of the Philippines-MAP; EVP & COO [1996-1999] Mabuhay Vinyl Corporation; President [1999-2001] Chemical Industries Association of the Philippines (SPIK); Director [2000-2001] Phil. Resins Industries Inc.; Adviser [1996] Phil. Plastics Industries Association.

3. JOSE O. JULIANO - 85, Filipino B.S. Agriculture, University of the Philippines; MS in Chemistry, Louisiana State University, USA, Ph.D in Chemistry, University of California, USA; Post-doctorate, Department of Physics, Indiana University, Bloomington, Indiana, USA; Post-doctorate, Nuclear Reactor Physics Department, Argonne National Laboratory, Lemont Illinois, USA.; IAEA Fellow to Yavne Research Reactor Facility, Israel Atomic Energy, Israel �Positions held: Independent Director, Chairman of both Audit and Nominations Committee, [May 2001 to present] Mabuhay Vinyl Corporation; President & CEO [1999 to present] Calamba Medical Center; President and General Manager,[1985-1995] Interphil Laboratories, President [1994-1996] Marsman Laboratories, Vice President for Operations [1981-1983] Bristol Myers Group of Companies in the Philippines, Chairman of the Board [2015 to present] the Medical City South Luzon; Independent Director, Luzon Development Bank [2014 to present]; President and CEO, [1999 to present] Calamba Eye Center; President & CEO [2004-2014] Southern Luzon Hospital and Medical Center; Trustee [2004-2010] Zuellig Foundation, Inc.; Secretary & Member of the Executive Council [1993-2002] National Academy of Science & Technology (NAST); Secretary and Trustee [1993-2003] NAST Foundation; Undersecretary for Trade [1996-1998] Dept. of Trade & Industry; Chairman, Board of Chemistry [1993-1996] Professional Regulation Commission.

4. BARBARA ANNE C. MIGALLOS - 63, Filipino Bachelor of Laws, University of the Philippines Positions held: Director since August 2000 of Mabuhay Vinyl Corporation; Managing Partner, [2006 to present] Migallos & Luna Law Offices; Director [2001 to present] Phil. Resins Industries, Inc.; Director [2013 to present] Philex Mining Corporation; Corporate Secretary [1998 to present] Philex Mining Corp; Professorial Lecturer [2012 to present] De La Salle University, College of Law; Director [2010-2017] and Corporate Secretary [since 2007], PXP Energy Corporation; Corporate Secretary [since 2010] Nickel Asia Corporation; Cordillera Exploration Co., Inc.; Corporate Secretary, Philex Gold Phils. Inc.; Corporate Secretary [2005 to present] Eastern Telecommunications, Philippines, Inc.; Corporate Secretary, [2015 to present] Emerging Power Inc.; Corporate Secretary, [2015 to present] Alliance Select Foods International Inc.; Senior Partner [1988-2006] / Managing Partner [2000-2005], Roco, Kapunan, Migallos & Luna Law Offices.

5. RENATO N. MIGRIÑO - 68, Filipino BSC, Accounting, Philippine College of Commerce (now Polytechnic University of the Philippines) Positions held: Director since 2005, Mabuhay Vinyl Corporation; Treasurer since January 2015, Apex Mining Co., Inc.; Director and Treasurer [September 2016 to March 2017], A Brown Company, Inc.; Director and Treasurer [2011 to 2014], Philex Petroleum Corporation; Treasurer, Chief Financial Officer, Senior Vice-President - Finance, Compliance Officer, last position held [March 1998 to August 2013], Philex Mining Corporation; Director and Treasurer [to 2013], FEC Resources Inc. [in Canada]; Director and Treasurer [to January 2014], Fidelity Stock Transfers, Inc.; Senior Vice-President & Controller, last position held [1975-1998], Benguet Corporation; Senior Auditor, last position held [1970-1975], Sycip, Gorres, Velayo & Co.


6. TAKAYUKI NAKAMURA - 41, Japanese

Graduated from Waseda University, Japan, Department of Law�

Positions held: Director since 2016 of Mabuhay Vinyl Corporation; Manager, Corporate Strategy, [June 2016] Tosoh Corporation Tokyo Head Office; Manager, [Sep 2011] Tosoh Shanghai Co.,Ltd.; Chlor-alkali Division [June 2000] Tosoh Corporation Tokyo Head Office.

7. YOSHIAKI UENISHI - 49, Japanese

Graduated from Kansai University, Japan, Faculty of Social Psychology Positions held: Director since July 2013 of Mabuhay Vinyl Corporation; Division Head, Chemicals Division [June 2013 to present] Mitsubishi Corporation Manila Branch; Fertilizer Dept. Commodity Chemicals Div. [September 2008 to May 2012] Mitsubishi Corporation - Tokyo; [May 2004] Arysta Lifescience Corporation; [November 2000] DISCO Corporation; [1992] Kanematsu Corporation. (2) Executive Officers

The Company’s key executive officers as of 31 March 2018 are as follows: Tetsuro Hachimura - Chairman/CEO Edwin Ll. Umali - President/COO Michael S. Yu - Treasurer/VP-Corporate Planning Ryo Kobayashi - VP-Finance Romeo G. dela Cruz - VP-Marketing Steve S.C. Pangilinan - VP-Manufacturing The Officers (per the Company’s By-Laws) are elected/appointed annually by the Board of Directors during its organizational meeting, each to hold office for one (1) year until the next organizational meeting of the Board in the following year or until a successor shall have been elected/appointed and shall have qualified.

INCUMBENT OFFICERS 1. TETSURO HACHIMURA - Chairman and Chief Executive Officer see foregoing Director’s Profile

2. EDWIN LL. UMALI - President and Chief Operating Officer see foregoing Director’s Profile

3. MICHAEL S. YU - Treasurer/Vice-President, Corporate Planning

43, Filipino, B.S. Chemical Engineering, De La Salle University; Master in Business Administration, Ateneo de Manila University

Positions held: Vice-President, Corporate Planning since May 2017 and Treasurer since 2011; Assistant Vice-President, Corporate Planning [July 2009 to April 2017]; Head of Makati Purchasing [Aug 2004-2010]; Senior Manager, Corporate Planning, [2006-2009]; Corporate Planning, IT, Business Development Manager, [2004-2005]; Corporate Planning Officer, [1999-2001]; and Corporate Planning Engineer, [1997-1999].

4. RYO KOBAYASHI - Vice-President, Finance

38, Japanese, Bachelor of Laws, Chuoh University Japan, Masters in Law, Graduate School of Hitotsubashi University, Japan

Positions held: Vice-President, Finance since October 2015; Synthetic Rubber, Functional Polymers [June 2012], Tosoh Corporation; Planning and Business Development, Organic Chemical Division [May 2008] Tosoh Corporation; Accounting Department [May 2004] Nanyo Complex, Tosoh Corporation.


5. ROMEO G. DELA CRUZ - Vice-President, Marketing

50, Filipino, B.S. Chemical Engineering, Mapua Institute of Technology; Master in Business Administration (completed academic requirements), De La Salle University

Positions held: Vice-President, Marketing since July 2015; Assistant Vice-President, Marketing [May 2008 to June 2015]; Area Sales Manager - Luzon [July 2004 to April 2008]; Head of Logistics/Regional Sales Manager for Luzon [Jan 2002 to June 2004]; Area Sales Manager for Luzon/Distribution Manager [Feb 1998 to Dec 2001]; Distribution Manager [Jan 1995 to Jan 1998]; Corporate Planning Engineer/Technical Specialist [July 1993 to Dec 1994]; Marketing Technical Assistant [July 1991 to June 1993]; Market Researcher & Technical Service Assistant [June 1989 to June 1991].

6. STEVE S.C. PANGILINAN - Vice-President, Manufacturing

51, Filipino, B.S. Chemical Engineering, University of San Carlos-Technological Center, Cebu City; Master in Business Administration, Ateneo de Cagayan-Xavier University

Positions held: Vice-President, Manufacturing since July 2015; Assistant Vice-President, Manufacturing [May 2013 to June 2015]; Manufacturing Manager [Nov 2009 to April 2013]; Production Manager [June 2003 to Oct 2009]; Shift Manager [Oct 1998 to May 2003]; Production Engineer [Jan 1995 to Sept 1998]; Section Supervisor – Liquid Chlorine Plant [June 1992 to Jan 1995]; Industrial Engineer [Nov 1989 to June 1992]; Temporary Cadet Engineer [May 1989 to Nov 1989].

7. MA. MELVA E. VALDEZ - Corporate Secretary

58, Filipino, Bachelor of Arts in Political Science and Bachelor of Laws, University of the Philippines Positions held: Corporate Secretary since 1997 of Mabuhay Vinyl Corporation; Senior Partner [since 1998] and Management Committee Member, JGLaw Offices; Corporate Secretary/Director since 1998 Keppel Phils. Holdings, Inc.; Corporate Secretary since 1998 Keppel Phils. Marine, Inc., Keppel Phils. Properties, Inc., SM Keppel Land Inc. and Asian Institute of Management; Corporate Secretary since 2004 Keppel Subic Shipyard, Inc.; Director/Corporate Secretary of various Keppel affiliates and subsidiaries; Director since December 2000 Leighton Contractors Phils., Inc.; Director/Chairman/President since September 2000 Servier Philippines, Inc.

8. MYLA GLORIA A. AMBOY - Assistant Corporate Secretary

46, Filipino, Bachelor of Arts in Political Science, San Sebastian College; Bachelor of Laws, San Beda College

Positions held: Assistant Corporate Secretary since November 2011 of Mabuhay Vinyl Corporation, Senior Associate Jimenez Gonzales Liwanag Bello Valdez Caluya & Fernandez (JG Law) [2006 to present]. Assistant Corporate Secretary 2007 to SM Keppel Land, Inc., CSRI Investment Corporation, and Opon Ventures Inc., Corporate Secretary since 2007, Corporate Secretary since 2007 Opon Realty Development Corporation and Opon-KE Properties, Inc., and Corporate Secretary/Treasurer since 2007 of Servier International Philippines, Inc.

(3) Significant Employees

The Company relies significantly on the continued collective efforts of its senior executive officers and expects each employee to do his share in achieving the Company’s goals. (4) Family Relationships

There are no family relationships up to the fourth civil degree either by consanguinity or affinity among directors, executive officers, persons nominated or chosen by the Company to become directors, or executive officers, any security holder of certain record, beneficial owner or management. (5) Certain Relationships and Related Transactions

During the last two (2) years, no director of the Company has received or become entitled to receive any benefit by reason of any contract with the Company, a related corporation, a firm of which the director is a member or a company of which a director has a substantial financial interest.

There are no transactions in the last two (2) years or proposed transactions to which the registrant was or is to be a party, in which any of the following persons had or is to have a direct or indirect material interest:


i. Any director or executive officer of the Corporation; ii. Any nominee for election as a director; iii. Any security holders; iv. Any member of the immediate family of the preceding persons.

(6) Involvement in Certain Legal Proceedings

As of 31 March 2018, to the knowledge and/or information of the Company, none of the Company’s Directors or Executive Officers have been involved in any legal proceedings during the last five (5) years that are material to an evaluation of their ability or integrity to act as such. No director has resigned or declined to stand for re-election to the board of directors since the date of the last annual meeting of security holders due to disagreement with the registrant on any matter relating to the registrant’s operations, policies and practices.

(B) Compensation of Directors and Executive Officers

SUMMARY COMPENSATION TABLE

(a) (b) (c) (d) (e)

Name & Principal Position Year Salary Bonus Other

Compensation A. Tetsuro Hachimura

Chairman / CEO*

B. Edwin Ll. Umali President / COO

C. Michael S. Yu Treasurer / VP-Corporate Planning

D. Ryo Kobayashi VP-Finance

E. Romeo G. Dela Cruz VP-Marketing

F. Aggregate For The Above Named CEO & Officers

2018-Estim. 9,634,539 1,473,399 753,755

2017 9,175,752 1,403,237 717,862

2016 8,858,774 1,369,407 498,417

G. Aggregate For The Officers And Directors As A Group

2018-Estim. 9,634,539 1,473,399 1,320,755

2017 9,175,752 1,403,237 1,257,862

2016 8,858,774 1,369,407 1,173,417

b. Except for per diem (P10,000.00/board meeting) for each director during board meetings and quarterly

miscellaneous allowance for independent directors, there are no bonus, profit sharing or other compensation plan, contract or arrangement in which any director, nominee for election as director, or executive officers of the registrant will participate.

c. The Company has a registered, non-contributory retirement plan. All regular employees are covered from the President down to rank and file.

d. The Company has no existing options, warrants or rights to purchase any securities.


(C) Security Ownership of Certain Record and Beneficial Owners

(1) The persons known to the registrant to be directly or indirectly the record or beneficial owner of more than 5% of the registrant’s voting securities as of 31 March 2018 are as follows:

Title of Class

Name, Address of record owner and Relationship with Issuer

Name of Beneficial Owner and Relationship with Record

Owner Citizenship

No. of Shares Held

Percent

Common Tosoh Corporation (TOSOH) 4560 Kaisei-Cho, Shuunara-Shi Yamaguchi 746-8501, Japan

TOSOH is both the record and beneficial owner.

Tetsuro Hachimura Barbara Anne C. Migallos

Takayuki Nakamura Yoshiaki Uenishi

(All designated representatives)

Japanese 581,785,835 (“r”)

87.9748

Common Mitsubishi Corporation 6-3 Marunouchi 2-Chome Chiyoda-Ku, Tokyo, Japan

Mitsubishi is both the record and beneficial owner.

Yoshiaki Uenishi (Designated representative)

Japanese 39,679,999 6.0001

(2) Security Ownership of Directors and Management as of 31 March 2018:

(1) Title of Class

(2) Name of Beneficial Owner

Position (3) Amount and

Nature of Beneficial Ownership

(4) Citizenship

(5) Percentage (%) of Class

Board of Directors:

Common Tetsuro Hachimura Chairman/CEO 10,000 (d) Jpn 0.0015

Common Edwin Ll. Umali Director/President/COO

6,410 (d) Fil 0.0010

Common Jose O. Juliano Indep. Director 10,000(d) Fil 0.0015

Common Barbara Anne C. Migallos Director 5,000 (d) Fil 0.0008

Common Renato N. Migriño Indep. Director 5,629 (d) Fil 0.0009

Common Takayuki Nakamura Director 5,000 (d) Jpn 0.0008

Common Yoshiaki Uenishi Director 10,000 (d) Jpn 0.0015

Total for Directors 52,039 0.0080

Executive Officers: Common Shares

Tetsuro Hachimura Chairman & CEO/Director

- Fil -

Common Shares

Edwin LI. Umali

President & COO/Director

- Fil -

Common Shares

Michael S. Yu Treasurer / AVP-Corporate Planning

- Fil -

Common Shares

Ryo Kobayashi VP-Finance - Jpn -

Common Shares

Romeo G. Dela Cruz

VP-Marketing - Fil -

Common Shares

Steve S.C. Pangilinan

VP-Manufacturing - Fil -

Total for Officers - - Common Shares

Directors and Exec. Officers as a Group

52,039

0.0080

(3) None of the Company’s directors and management owns directly or indirectly 2.0% or more of the

outstanding capital stock of the Company.

(4) There are no voting trust holders of 5% or more.

(5) The Company is not aware of any voting trust agreement/s or similar agreement/s which may result in a change in control of the Company.


(6) No change in control of the registrant has occurred since the beginning of its last fiscal year.

(D) Certain Relationships and Related Transactions

(1) Mitsubishi Corporation supplies the Company with Liquid Caustic Soda and other materials. The commercial dealings with Mitsubishi have been in effect for more than fifteen years under normal arms-length commercial terms and on a basis consistent with applicable Philippine laws on conflicts of interest and related party transactions. Pricing is dictated by prevailing international market. Total purchases from Mitsubishi amounted to P771.2M in 2017, P458.6M in 2016 and P554.5M in 2015. Outstanding trade payable to Mitsubishi as of December 31, 2017 amounted to P0.83M (nil in 2016 and 2015).

(2) Aside from the party mentioned above, there is no other relationship that has existing negotiations on material transactions.

List of parents of the registrant a. Tosoh Corp.

No. of MVC shares owned 581,785,835 Percentage of control 87.9748%

(3) There is no transaction with promoters for the past 5 years.

PART V – CORPORATE GOVERNANCE

Pursuant to its Vision and Mission, the Corporation had significantly acted in accordance with its new Manual on Corporate Governance (MCG) for the year 2017. The Corporation had consistently performed its responsibilities, with its Corporate Values complementing the directions and activities for the corporation’s directors, officers and employees. The Board committees, including the Nominations and Audit committees, have consistently complied with their duties and responsibilities under the MCG. The Nominations Committee observes the nomination and election process for Independent directors, as provided under SRC Rule 38 (as amended). The Audit committee, on the other hand, has put in place an internal audit system which complies with the pertinent regulatory requirements and which ensures the integrity of internal control activities throughout the Company. There were no major deviations from the adopted Manual on Corporate Governance.

In support of the foregoing, the following programs and interventions for employees and officers were implemented :

1. Annual kick-off planning and alignment of departmental objectives in support of the Company’s directions held at the start of the year.

2. Corporate Social Responsibility (CSR) initiatives in the areas of Education, Environment, and Health. a. Provision of school supplies for selected students in Iligan and Luzon through Brigada Eskwela and

in cooperation with the Department of Labor and Employment to support its Child Labor Prevention and Elimination Program (Project Angel Tree).

b. Scholarship for selected indigent schoolchildren in Iligan adopted community c. Provision of painting and repair materials for elementary schools classrooms during the Brigada

Eskwela d. Provision for chairs, tables and repair materials for adopted Day care centers in Iligan e. Tree and mangrove planting activities both in Iligan and Luzon f. Medical and Dental missions both in Iligan and Luzon g. Quarterly Mobile Blood Donation h. International Coastal Clean-up both in Iligan and Luzon i. Provision for trash/garbage bins in support to the solid waste segregation program of Schools j. Continuing acceptance for On-the-Job trainees and K-12 immersions

3. “My Voluntary Contribution Drive” (M.V.C.) aimed to raise funds through employee donations: a. To support the relief mission of PBSP for the affected and displaced families during the Marawi

conflict b. To supplement daily sustenance of orphans in Bahay at Yaman ni San Martin De Porres c. To supplement food provision for Government troops during the Marawi siege


d. To support employee’s hospitalization needs 4. Activities under the Labor-Management Cooperation and through the Industrial Peace Council in Iligan and

Council of Solidarity in Luzon were Health Awareness Campaign, Summer Workshop for Kids, Pamaskong Handog for adopted indigent communities and dependents of Police and Army assigned in Marawi and other Community Outreach programs. All these programs were made successful with management-union participation and cooperation.

5. Small Improvement Group Activities-Productivity in Action program (SIGA-SI-PIA) aimed to imbibe a performance-based culture which remains an important direction for the Company.

6. Corporate Council on Quality, Safety, Security, Health and Environment (CCoQSSHE) continuously carried out programs for the health and welfare of the employees and their families/dependents such as the Palaro and year round Sports activities, Family Day, Nutrition Programs, Health Talks, Free Health Screenings like FBS, cholesterol and bone density test among others and Annual Physical Examination for employees and dependents.

7. Employee Engagement Initiatives through Council of Solidarity were successfully implemented such as Sports Fest, Bowling Tournament, Company Outing, Christmas Party, and other thematic activities.

The Company participated in the Corporate Governance Disclosure Survey conducted by the Philippine Stock Exchange (PSE) per PSE Memorandum Circular No. 2014-0002 and submitted the Survey on 31 March 2017. Pursuant to SEC Memorandum Circular No.19, Series 2016, the Company submitted its New Manual on Corporate Governance on 31 May 2017. The Company also submitted its Annual Corporate Governance Report on 19 June 2017 in compliance with SEC Memorandum circular No.20. The directors and officers of the Corporation have attended Corporate Governance Seminars in compliance with SEC Memorandum Circular No. 20, series of 2013 and the Corporation’s Manual on Corporate Governance. The Independent directors have submitted their Certificates of Qualification as required by the SEC vis-à-vis Section 38 of the Securities Regulation Code.


PART VI - EXHIBITS AND SCHEDULES

(a) Exhibit

* 2017 Audited Financial Statements

(b) Reports on SEC Form 17-C 26 January 2017 • Setting of the Date of the Annual Stockholders' Meeting and Fixing of

the Record Date for Stockholders Entitled to Notice of and to Vote During the Annual Stockholders' Meeting

16 February 2017 • Approval of the Y2016 Audited Financial Statements

13 March 2017 • Details of the Annual Stockholders Meeting

27 April 2017 (Board) • Declaration of 7% cash dividend 27 April 2017 (AGM)

• Appointment of External Auditor for Y2017 • Election of Directors

• Approval/Ratification of the Y2016 Audited Financial Statements 27 April 2017 • Conciliation proceedings before the national conciliation and Mediation

Board

• Election of Officers

• Appointment of Members/Chairpersons of the Various Committees 09 June 2017 • Approval by the SEC of MVC's amendment of Article Second of its

Articles of Incorporation, on the additional business activities


INDEX OF EXHIBIT

EXHIBIT A AUDITED FINANCIAL STATEMENTS For the year 2017 and 2016

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INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of DirectorsMabuhay Vinyl Corporation

Opinion

We have audited the accompanying consolidated financial statements of Mabuhay Vinyl Corporation andits subsidiary (collectively referred to as the “Group”), which comprise the consolidated balance sheets as

at December 31, 2017 and 2016, and the consolidated statements of income, consolidated statements of

comprehensive income, consolidated statements of changes in equity and consolidated statements of cash

flows for each of the three years in the period ended December 31, 2017, and notes to the consolidatedfinancial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,the consolidated financial position of the Group as at December 31, 2017 and 2016, and its consolidated

financial performance and its consolidated cash flows for each of the three years in the period ended

December 31, 2017 in accordance with Philippine Financial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Ourresponsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit

of the Consolidated Financial Statements section of our report. We are independent of the Group in

accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics)together with the ethical requirements that are relevant to our audit of the consolidated financial

statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with

these requirements and the Code of Ethics. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our

audit of the consolidated financial statements of the current period. These matters were addressed in the

context of our audit of the consolidated financial statements as a whole, and in forming our opinionthereon, and we do not provide a separate opinion on these matters. For each matter below, our

description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of theConsolidated Financial Statements section of our report, including in relation to these matters.

Accordingly, our audit included the performance of procedures designed to respond to our assessment ofthe risks of material misstatement of the consolidated financial statements. The results of our audit

procedures, including the procedures performed to address the matter below, provide the basis for our

audit opinion on the accompanying consolidated financial statements.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

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

BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018SEC Accreditation No. 0012-FR-4 (Group A), November 10, 2015, valid until November 9, 2018

A member firm of Ernst & Young Global Limited

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Provisions and Contingencies

The Group is involved in legal proceedings, tax and/or other regulatory assessments. This matter issignificant to our audit because the determination of whether any provision should be recognized and the

estimation of the potential liability resulting from these assessments require significant judgment by

management. The inherent uncertainty over the outcome of these matters is brought about by thedifferences in the interpretation and implementation of the relevant laws and tax rulings.

The Group’s disclosures about provisions and contingencies are included in Notes 3, 12 and 26 to the

consolidated financial statements.

Audit Response

We involved our internal specialist in the evaluation of management’s assessment on whether any

provision for contingencies should be recognized, and the estimation of such amount. We discussed with

management the status of the claims and/or assessments, and obtained correspondences with the relevantauthorities and opinions from the external legal and/or tax counsels. We evaluated the position of the

Group by considering the relevant laws, rulings and jurisprudence.

Determining Physical Quantities and Cost of Inventories

Inventories, consisting mainly of industrial salt and chemicals – caustic soda, hydrochloric acid, liquid

chlorine and sodium hypochlorite, are held in various forms throughout the different stages of theproduction process and are mostly contained in carriers or storage tanks. The physical quantities of

inventories on hand, in process or consumed are determined through quantity surveys, soundings and a

set percentage of raw material usage based on output. The determination of quantities considers factorssuch as concentration, density and split of inputs and outputs at different stages in the process, which

involve management estimates. Determination of the cost of inventories involves estimation of the split of

inputs and the allocation of costs to the different stages in the production process and to outputs. This is a

key audit matter because of the significance of management’s estimates in determining the physicalquantities and the allocation of costs of the inventory.

The Group’s disclosures about inventories are included in Notes 3 and 6 to the consolidated financialstatements.

Audit Response

We obtained an understanding of the Group’s processes for cost accumulation and allocation and tested

the relevant controls. We evaluated the competence, capabilities and objectivity of independent surveyor

by considering their qualifications, experience and reporting responsibilities. We observed howmanagement conducted the physical count and determined the quantities and tested the controls over the

quantity conversion. We tested the relevant controls from cost accumulation to recognition in the

accounting system. We tested the inventory costing process for a selected sample period by tracing theinputs to costs to the source documents and recalculating the cost allocation to the different stages of

production and outputs.

Valuation of Land Stated at Revalued Amount

The Group’s property, plant and equipment includes parcels of land which are stated at revalued amount,being the fair value as of December 31, 2017, and represent 13.4% of the consolidated total assets. The


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determination of the fair values of these properties involve significant judgment and estimations. The

valuation also requires the assistance of external appraisers whose calculations also depend on certain

assumptions, such as sales and listing of comparable properties registered within the vicinity andadjustments to sales price based on internal and external factors. Thus, we considered the valuation of

land as a key audit matter.

The disclosures relating to the land are included in Notes 3 and 9 to the consolidated financial statements.

Audit Response

We evaluated the competence, capabilities and objectivity of the external appraiser considering their

qualification, experience and reporting responsibilities. We involved our internal specialist in the review

of methodology and assumptions used in the valuation of parcels of land. We assessed the methodologyadopted by referencing common valuation models and reviewed the relevant information supporting the

sales and listing of comparable properties. We also inquired from the external appraiser the basis of

adjustments made to sales price.

Other Information

Management is responsible for the other information. The other information comprises the informationincluded in the SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and Annual Report

for the year ended December 31, 2017 but does not include the consolidated financial statements and our

auditor’s report thereon. The SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A andAnnual Report for the year ended December 31, 2017 are expected to be made available to us after the

date of this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will not

express any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read theother information identified above when it becomes available and, in doing so, consider whether the other

information is materially inconsistent with the consolidated financial statements or our knowledge

obtained in the audits, or otherwise appears to be materially misstated.

Responsibilities of Management and Those Charged with Governance for the Consolidated

Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financialstatements in accordance with PFRSs, and for such internal control as management determines is

necessary to enable the preparation of consolidated financial statements that are free from materialmisstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’sability to continue as a going concern, disclosing, as applicable, matters related to going concern and

using the going concern basis of accounting unless management either intends to liquidate the Group or to

cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.


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Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as awhole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report

that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an

audit conducted in accordance with PSAs will always detect a material misstatement when it exists.Misstatements can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on the

basis of these consolidated financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:

§ Identify and assess the risks of material misstatement of the consolidated financial statements,whether due to fraud or error, design and perform audit procedures responsive to those risks, and

obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk ofnot detecting a material misstatement resulting from fraud is higher than for one resulting from error,

as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of

internal control.

§ Obtain an understanding of internal control relevant to the audit in order to design audit procedures

that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the Group’s internal control.

§ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management.

§ Conclude on the appropriateness of management’s use of the going concern basis of accounting and,

based on the audit evidence obtained, whether a material uncertainty exists related to events or

conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If weconclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to

the related disclosures in the consolidated financial statements or, if such disclosures are inadequate,

to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our

auditor’s report. However, future events or conditions may cause the Group to cease to continue as agoing concern.

§ Evaluate the overall presentation, structure and content of the consolidated financial statements,including the disclosures, and whether the consolidated financial statements represent the underlying

transactions and events in a manner that achieves fair presentation.

§ Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.

We are responsible for the direction, supervision and performance of the group audit. We remain

solely responsible for our audit opinion.


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We communicate with those charged with governance regarding, among other matters, the planned scope

and timing of the audit and significant audit findings, including any significant deficiencies in internal

control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant

ethical requirements regarding independence, and to communicate with them all relationships and other

matters that may reasonably be thought to bear on our independence, and where applicable, relatedsafeguards.

From the matters communicated with those charged with governance, we determine those matters that

were of most significance in the audit of the consolidated financial statements of the current period and

are therefore the key audit matters. We describe these matters in our auditor’s report unless law orregulation precludes public disclosure about the matter or when, in extremely rare circumstances, we

determine that a matter should not be communicated in our report because the adverse consequences of

doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Catherine E. Lopez.

SYCIP GORRES VELAYO & CO.

Catherine E. LopezPartner

CPA Certificate No. 86447

SEC Accreditation No. 0468-AR-3 (Group A),

May 1, 2016, valid until May l, 2019Tax Identification No. 102-085-895

BIR Accreditation No. 08-001998-65-2015,

February 27, 2015, valid until February 26, 2018PTR No. 6621274, January 9, 2018, Makati City

February 15, 2018


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MABUHAY VINYL CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31

2017 2016 2015

SALES

Goods P=2,173,255,819 P=1,600,141,387 P=1,455,320,812Property (Note 10) – 78,581,250 –

2,173,255,819 1,678,722,637 1,455,320,812

COST OF SALES

Goods (Notes 16 and 24) 1,603,323,967 1,159,598,014 1,039,765,355Property (Note 10) – 35,055,000 –

1,603,323,967 1,194,653,014 1,039,765,355

GROSS PROFIT 569,931,852 484,069,623 415,555,457

Operating expenses (Note 17) (421,003,953) (338,458,938) (314,307,622)Interest income (Notes 4 and 18) 5,412,485 5,404,005 3,951,654Foreign exchange gain (loss) - net (1,400,404) (4,857,786) 215,775Interest and financing charges (Notes 14 and 18) (400,893) (375,807) (734,977)Other income - net (Note 18) 32,339,361 36,576,714 16,943,484

INCOME BEFORE INCOME TAX 184,878,448 182,357,811 121,623,771

PROVISION FOR INCOME TAX (Note 20)Current 60,781,233 54,378,251 35,308,521Deferred (2,674,486) (57,611) 81,713

58,106,747 54,320,640 35,390,234

NET INCOME P=126,771,701 P=128,037,171 P=86,233,537

Net income attributable to:Equity holders of the Company P=126,337,507 P=127,496,980 P=85,788,439Noncontrolling interest 434,194 540,191 445,098

P=126,771,701 P=128,037,171 P=86,233,537

BASIC/DILUTED EARNINGS

PER SHARE (Note 25) P=0.191 P=0.193 P=0.130

See accompanying Notes to Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


2017 2016 2015

NET INCOME P=126,771,701 P=128,037,171 P=86,233,537

OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) to be reclassified to

profit or loss in subsequent periods:

Net changes in fair values of available-for-sale investments (Note 8) 250,000 163,470 (495,060)

Other comprehensive income not to be reclassified to

profit or loss in subsequent periods:

Increase in revaluation increment due to appraisal (Note 9) 29,361,000 24,820,000 6,475,000Income tax effect (8,808,300) (7,446,000) (1,942,500)

20,552,700 17,374,000 4,532,500

Remeasurement gains (losses) on retirement benefits (Note 19) 23,451,914 (8,460,402) (5,064,475)Income tax effect (7,035,574) 2,538,121 1,519,343

16,416,340 (5,922,281) (3,545,132)

Net other comprehensive income not to be reclassified to profit or loss in subsequent periods 36,969,040 11,451,719 987,368

37,219,040 11,615,189 492,308

TOTAL COMPREHENSIVE INCOME P=163,990,741 P=139,652,360 P=86,725,845

Total comprehensive income attributable to:Equity holders of the Company P=163,556,547 P=139,112,169 P=86,280,747Noncontrolling interest 434,194 540,191 445,098

P=163,990,741 P=139,652,360 P=86,725,845


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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED DECEMBER 31, 2017, 2016 AND 2015

Attributable to the Equity Holders of the Company

RemeasurementRevaluation Gains (Losses)

Increment - Net on Retirement Reserve forof Deferred Benefits - Net of Fluctuations inIncome Tax Deferred Income Available-for-sale Retained

Capital Stock Capital Paid in Effect Tax Effect Financial Assets Earnings Non-controlling(Note 15) Excess of Par (Note 9) (Note 19) (Note 8) (Note 15) Total Interest Total

BALANCES AT JANUARY 1, 2015 P=661,309,398 P=176,594,308 P=129,499,867 (P=6,002,065) P=2,055 P=407,323,511 P=1,368,727,074 P=9,991,406 P=1,378,718,480

Cash dividends (Note 15) – – – – – (33,065,471) (33,065,471) – (33,065,471)

Net income for the year – – – – – 85,788,439 85,788,439 445,098 86,233,537

Other comprehensive income (loss) – – 4,532,500 (3,545,132) (495,060) – 492,308 – 492,308

Total comprehensive income (loss) – – 4,532,500 (3,545,132) (495,060) 85,788,439 86,280,747 445,098 86,725,845

BALANCES AT DECEMBER 31, 2015 661,309,398 176,594,308 134,032,367 (9,547,197) (493,005) 460,046,479 1,421,942,350 10,436,504 1,432,378,854

Cash dividends (Note 15) – – – – – (33,065,471) (33,065,471) – (33,065,471)

Net income for the year – – – – – 127,496,980 127,496,980 540,191 128,037,171Other comprehensive income (loss) – – 17,374,000 (5,922,281) 163,470 – 11,615,189 – 11,615,189

Total comprehensive income (loss) – – 17,374,000 (5,922,281) 163,470 127,496,980 139,112,169 540,191 139,652,360

BALANCES AT DECEMBER 31, 2016 661,309,398 176,594,308 151,406,367 (15,469,478) (329,535) 554,477,988 1,527,989,048 10,976,695 1,538,965,743

Cash dividends (Note 15) – – – – – (46,291,659) (46,291,659) (2,993,522) (49,285,181)

Net income for the year – – – – – 126,337,507 126,337,507 434,194 126,771,701Other comprehensive income – – 20,552,700 16,416,340 250,000 – 37,219,040 – 37,219,040

Total comprehensive income – – 20,552,700 16,416,340 250,000 126,337,507 163,556,547 434,194 163,990,741

BALANCES AT DECEMBER 31, 2017 P=661,309,398 P=176,594,308 P=171,959,067 P=946,862 (P=79,535) P=634,523,836 P=1,645,253,936 P=8,417,367 P=1,653,671,303


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CONSOLIDATED STATEMENTS OF CASH FLOWS


2017 2016 2015

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax P=184,878,448 P=182,357,811 P=121,623,771Adjustments for:

Depreciation and amortization (Notes 9 and 11) 114,922,907 106,337,679 101,077,931Interest income (Notes 4 and 18) (5,412,485) (5,404,005) (3,951,654)Movement in retirement benefits payable (Note 19) (4,205,266) (3,660,859) (644,130)Unrealized interest income on notes receivables (Note 18) (446,401) (384,377) –Interest expense (Note 18) 188,673 168,825 151,065Unrealized foreign exchange loss (gain) (112,973) (64,265) 101,875Loss (gain) on sale of property

and equipment (Note 18) (153,214) 30,060 (71,429)

Operating income before working capital changes 289,659,689 279,380,869 218,287,429Decrease (increase) in:

Trade and other receivables (126,169,866) (24,079,642) (18,395,134)Inventories (130,865,735) 78,884,434 (8,807,403)Other current assets (9,693,434) (11,302,797) (5,761,897)Other noncurrent assets 2,580,175 (328,316) (2,558,842)

Increase (decrease) in:Trade and other payables 48,972,149 18,843,926 (1,974,024)Customers’ deposit (14,897) 1,088,272 118,676

Net cash generated from operations 74,468,081 342,486,746 180,908,805Income taxes paid, including creditable and final

withholding taxes (58,156,752) (49,873,189) (31,556,728)

Net cash flows generated from operations 16,311,329 292,613,557 149,352,077

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of property and equipment (Note 9) (108,317,314) (97,187,522) (69,777,977)Increase in notes receivables - net (4,735,428) (3,143,295) –Interest received 4,160,205 4,947,714 3,903,522Proceeds from sale of property and equipment 446,547 644,940 71,429Decrease in investment property – 35,055,000 –

Net cash used in investing activities (108,445,990) (59,683,163) (65,803,026)

CASH FLOWS FROM FINANCING ACTIVITIES

Dividends paid (Note 15) (48,568,361) (33,128,163) (31,682,335)

EFFECT OF EXCHANGE RATE CHANGES

ON CASH AND CASH EQUIVALENTS 108,344 64,585 –

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS (140,594,678) 199,866,816 51,866,716

CASH AND CASH EQUIVALENTS

AT BEGINNING OF YEAR 534,617,722 334,750,906 282,884,190

CASH AND CASH EQUIVALENTS

AT END OF YEAR (Note 4) P=394,023,044 P=534,617,722 P=334,750,906


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Mabuhay Vinyl Corporation (the Company) and its subsidiary, MVC Properties Inc. (MPI), collectivelyreferred to as the “Group”, were incorporated in the Philippines on July 20, 1934 and November 26,2008, respectively. In 1984, the Board of Directors (BOD) of the Company approved the amendmentof its Articles of Incorporation to extend the corporate life of the Company, which expired on July 20,1984, for another 50 years up to July 20, 2034. The amended Articles of Incorporation was approvedby the Philippine Securities and Exchange Commission (SEC) in the same year. The Company’sprimary purpose is to engage in the business of manufacturing and distributing basic and intermediatechemicals with a wide range of household and industrial applications, including caustic soda,hydrochloric acid, liquid chlorine and sodium hypochlorite (chlor-alkali). MPI’s principal activity isto lease its parcels of land to the Company. Primary purpose of the subsidiary also includes investingin, purchase or otherwise hold, use, sell, assign, transfer, mortgage, pledge, exchange, or otherwisedispose of real and personal property of every kind and description, including shares of stock, bonds,debentures, notes, evidence of indebtedness, and other securities or obligations of any corporation,association, domestic or foreign, for whatever lawful purpose the same may have been organized.

The Company is 87.97% owned by Tosoh Corporation, the parent company.

The Company operates manufacturing plants in Assumption Heights, Buru-un, Iligan City and LagunaTechnopark, Biñan, Laguna. The Company’s registered address is 3rd Floor, Philamlife Building, 126L. P. Leviste Street, Salcedo Village, Makati City.

The consolidated financial statements as at December 31, 2017 and 2016 and for each of thethree years in the period ended December 31, 2017 were approved for issue by the BOD onFebruary 15, 2018.

Registration with the Board of Investments (BOI)On July 2, 2007, the BOI approved the registration of the Company as “New Producer of Caustic Soda,Hydrochloric Acid, and Liquid Chlorine” on a pioneer status under Executive Order (E.O.) 226. Underthe terms of its registration, the Company is required to achieve certain production and sales volumesfrom the new Ion Exchange Membrane (IEM) Bi-polar Chlor-Alkali plant. As a registered enterprise,the Company is entitled to certain tax incentives which include, among others: (a) income tax holiday(ITH) for six (6) years from June 2008 or actual start of commercial operations, whichever is earlier;(b) extension of the ITH for a maximum of two years (bonus years), subject to certain conditions; (c)for the first five (5) years from the date of registration, additional deduction from taxable income of50% of the wages arising from additional workers hired, provided that it is not simultaneously availedwith the ITH; (d) tax credit for taxes and duties on raw materials for its export product; (e) exemptionfrom wharfage dues, any export tax, duty, imposts and fees for ten (10) years from the date ofregistration; and, (f) may qualify for zero-duty import of capital equipment, spare parts and accessoriesfrom the date of registration up to June 16, 2011, pursuant to E.O. 528 and its Implementing Rules andRegulations. The original registration expired in May 2014. However, the Company was able to obtainan extension for one year starting June 1, 2014. Tax benefits from this ITH amounted to P=0.96 millionin 2015 (nil in 2017 and 2016) (see Note 20).

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2. Summary of Significant Accounting and Financial Reporting Policies

Basis of PreparationThe consolidated financial statements of the Group have been prepared using the historical costconvention, except for land which is carried at revalued amount and available-for-sale (AFS) financialassets which are carried at fair value.

The consolidated financial statements are presented in Philippine peso (Peso), which is the Company’sfunctional and presentation currency. Amounts are rounded to the last Peso, unless otherwise indicated.

Statement of ComplianceThe consolidated financial statements of the Group have been prepared in accordance with PhilippineFinancial Reporting Standards (PFRSs).

Basis of ConsolidationThe consolidated financial statements comprise the financial statements of the Company and itssubsidiary, MPI, a 40%-owned entity over which the Company has control. Control is achieved whenthe Company is exposed, or has rights, to variable returns from its involvement with the investee andhas the ability to affect those returns through its power over the investee. Specifically, the Companycontrols an investee if and only if the Company has all of the following:

· Power over the investee (i.e., existing rights that give it the current ability to direct the relevantactivities of the investee);

· Exposure, or rights, to variable returns from its involvement with the investee; and,· The ability to use its power over the investee to affect its returns.

When the Company has less than a majority of the voting rights of an investee, the Company considersall relevant facts and circumstances in assessing whether it has power over the investee, including:

· Any contractual arrangement with the other vote holders of the investee· Rights arising from other contractual arrangements· The Company’s voting rights and potential voting rights

The Company reassesses whether or not it controls an investee if facts and circumstances indicate thatthere are changes to one or more of the three elements of control.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Companyobtains control, and continue to be consolidated until the date when such control ceases. Specifically,income and expenses of a subsidiary acquired or disposed of during the year are included in theconsolidated statement of income from the date the Company gains control until the date when theCompany ceases to control the subsidiary.

The financial statements of the subsidiary are prepared for the same reporting period as the Company,using consistent accounting policies. All intra-group balances, transactions and gains and lossesresulting from intra-group transactions and dividends are eliminated in full.

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equityholders of the Company and to the noncontrolling interests, even if this results in the noncontrollinginterests having a deficit balance.

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A change in the ownership interest in a subsidiary, without a loss of control, is accounted for as anequity transaction. When the Company loses control over a subsidiary, it:

· Derecognizes the assets (including goodwill) and liabilities of the subsidiary

· Derecognizes the carrying amount of any noncontrolling interests

· Derecognizes the cumulative translation differences recorded in equity

· Recognizes the fair value of the consideration received

· Recognizes the fair value of any investment retained

· Recognizes any surplus or deficit in profit or loss

· Recognizes the Company’s share of components previously recognized in OCI to profit or loss orretained earnings, as appropriate, as would be required if the Company has directly disposed of therelated assets or liabilities.

Noncontrolling InterestNoncontrolling interest represents the portion (60%) of income and expense and net assets in MPI notheld by the Company and are presented separately in the consolidated statement of income,consolidated statement of comprehensive income and within equity in the consolidated balance sheet,separate from the equity attributable to the equity holders of the Company.

Changes in Accounting PoliciesThe accounting policies adopted are consistent with those of the previous financial year except for theadoption of the following amendments effective beginning January 1, 2017.

· Amendments to Philippine Accounting Standards (PAS) 7, Statement of Cash Flows, Disclosure

Initiative

The amendments to PAS 7 require an entity to provide disclosures that enable users of financialstatements to evaluate changes in liabilities arising from financing activities, including bothchanges arising from cash flows and non-cash changes (such as foreign exchange gains or losses).

The amendments have no impact on the Group’s disclosure since current financing activities of theGroup is limited to payment of dividends to shareholders.

· Amendments to PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses

The amendments clarify that an entity needs to consider whether tax law restricts the sources oftaxable profits against which it may make deductions on the reversal of that deductible temporarydifference. Furthermore, the amendments provide guidance on how an entity should determinefuture taxable profits and explain the circumstances in which taxable profit may include therecovery of some assets for more than their carrying amount.

The amendments do not have any impact on the Group’s financial statements.

· Amendment to PFRS 12, Disclosure of Interests in Other Entities Clarification of the Scope of the

Standard (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle)

The amendments clarify that the disclosure requirements in PFRS 12, other than those relating tosummarized financial information, apply to an entity’s interest in a subsidiary, a joint venture or anassociate (or a portion of its interest in a joint venture or an associate) that is classified (or includedin a disposal group that is classified) as held for sale.

The amendments do not have any impact on the Group’s consolidated financial statements.

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Standards issued but not yet effective

Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Groupdoes not expect that the future adoption of the said pronouncements to have a significant impact on itsconsolidated financial statements. The Group intends to adopt the following pronouncements whenthey become effective.

Effective beginning on or after January 1, 2018

· PFRS 9, Financial Instruments

PFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, FinancialInstruments: Recognition and Measurement, and all previous versions of PFRS 9. The standardintroduces new requirements for classification and measurement, impairment, and hedgeaccounting. PFRS 9 is effective for annual periods beginning on or after January 1, 2018, with earlyapplication permitted. Retrospective application is required, but providing comparativeinformation is not compulsory. For hedge accounting, the requirements are generally appliedprospectively, with some limited exceptions.

The Group is currently assessing the impact of adopting this standard.

· PFRS 15, Revenue from Contracts with Customers

PFRS 15 establishes a new five-step model that will apply to revenue arising from contracts withcustomers. Under PFRS 15, revenue is recognized at an amount that reflects the consideration towhich an entity expects to be entitled in exchange for transferring goods or services to a customer.The principles in PFRS 15 provide a more structured approach to measuring and recognizingrevenue.

The new revenue standard is applicable to all entities and will supersede all current revenuerecognition requirements under PFRSs. Either a full or modified retrospective application isrequired for annual periods beginning on or after January 1, 2018.

The Group is assessing the potential effect of the amendments on its consolidated financialstatements.

· Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based

Payment Transactions

The amendments to PFRS 2 address three main areas: the effects of vesting conditions on themeasurement of a cash-settled share-based payment transaction; the classification of a share-basedpayment transaction with net settlement features for withholding tax obligations; and theaccounting where a modification to the terms and conditions of a share-based payment transactionchanges its classification from cash settled to equity settled.

On adoption, entities are required to apply the amendments without restating prior periods, butretrospective application is permitted if elected for all three amendments and if other criteria aremet. Early application of the amendments is permitted.

These amendments are not expected to have any impact on the Group.

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· Amendments to PFRS 4, Insurance Contracts, Applying PFRS 9, Financial Instruments, with

PFRS 4

The amendments address concerns arising from implementing PFRS 9, the new financialinstruments standard before implementing the new insurance contracts standard. The amendmentsintroduce two options for entities issuing insurance contracts: a temporary exemption fromapplying PFRS 9 and an overlay approach. The temporary exemption is first applied for reportingperiods beginning on or after January 1, 2018. An entity may elect the overlay approach when itfirst applies PFRS 9 and apply that approach retrospectively to financial assets designated ontransition to PFRS 9. The entity restates comparative information reflecting the overlay approachif, and only if, the entity restates comparative information when applying PFRS 9.

The amendments are not applicable to the Group since none of the entities within the Group haveactivities that are predominantly connected with insurance or issue insurance contracts.

· Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part of Annual

Improvements to PFRSs 2014 - 2016 Cycle)

The amendments clarify that an entity that is a venture capital organization, or other qualifyingentity, may elect, at initial recognition on an investment-by-investment basis, to measure itsinvestments in associates and joint ventures at fair value through profit or loss. They also clarifythat if an entity that is not itself an investment entity has an interest in an associate or joint venturethat is an investment entity, the entity may, when applying the equity method, elect to retain thefair value measurement applied by that investment entity associate or joint venture to theinvestment entity associate’s or joint venture’s interests in subsidiaries. This election is madeseparately for each investment entity associate or joint venture, at the later of the date on which (a)the investment entity associate or joint venture is initially recognized; (b) the associate or jointventure becomes an investment entity; and (c) the investment entity associate or joint venture firstbecomes a parent. The amendments should be applied retrospectively, with earlier applicationpermitted.


· Amendments to PAS 40, Investment Property, Transfers of Investment Property

The amendments clarify when an entity should transfer property, including property underconstruction or development into, or out of investment property. The amendments state that achange in use occurs when the property meets, or ceases to meet, the definition of investmentproperty and there is evidence of the change in use. A mere change in management’s intentions forthe use of a property does not provide evidence of a change in use. The amendments should beapplied prospectively to changes in use that occur on or after the beginning of the annual reportingperiod in which the entity first applies the amendments. Retrospective application is only permittedif this is possible without the use of hindsight.


· Philippine Interpretation IFRIC 22, Foreign Currency Transactions and Advance Consideration

The interpretation clarifies that in determining the spot exchange rate to use on initial recognitionof the related asset, expense or income (or part of it) on the derecognition of a non-monetary assetor non-monetary liability relating to advance consideration, the date of the transaction is the dateon which an entity initially recognizes the nonmonetary asset or non-monetary liability arising fromthe advance consideration. If there are multiple payments or receipts in advance, then the entitymust determine a date of the transactions for each payment or receipt of advance consideration.

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The interpretation may be applied on a fully retrospective basis. Entities may apply theinterpretation prospectively to all assets, expenses and income in its scope that are initiallyrecognized on or after the beginning of the reporting period in which the entity first applies theinterpretation or the beginning of a prior reporting period presented as comparative information inthe financial statements of the reporting period in which the entity first applies the interpretation.

The Group is assessing the potential effect of the amendments on its consolidated financialstatements.

Effective beginning on or after January 1, 2019

· PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure ofleases and requires lessees to account for all leases under a single on-balance sheet model similarto the accounting for finance leases under PAS 17, Leases. The standard includes two recognitionexemptions for lessees – leases of ’low-value’ assets (e.g., personal computers) and short-termleases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, alessee will recognize a liability to make lease payments (i.e., the lease liability) and an assetrepresenting the right to use the underlying asset during the lease term (i.e., the right-of-use asset).Lessees will be required to separately recognize the interest expense on the lease liability and thedepreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain events(e.g., a change in the lease term, a change in future lease payments resulting from a change in anindex or rate used to determine those payments). The lessee will generally recognize the amount ofthe remeasurement of the lease liability as an adjustment to the right-of-use asset.

Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting underPAS 17. Lessors will continue to classify all leases using the same classification principle as inPAS 17 and distinguish between two types of leases: operating and finance leases.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.

Early application is permitted, but not before an entity applies PFRS 15. A lessee can choose toapply the standard using either a full retrospective or a modified retrospective approach. Thestandard’s transition provisions permit certain reliefs.

The Group is currently assessing the impact of adopting PFRS 16.

· Amendment to PFRS 9, Prepayment Features with Negative Compensation

The amendments to PFRS 9 allow debt instruments with negative compensation prepaymentfeatures to be measured at amortized cost or fair value through other comprehensive income. Anentity shall apply these amendments for annual reporting periods beginning on or after January 1,2019. Earlier application is permitted.


· Amendment to PAS 28, Long-term Interest in Associates and Joint Ventures

The amendments to PAS 28 clarify that entities should account for long-term interests in anassociate or joint venture to which the equity method is not applied using PFRS 9. An entity shallapply these amendments for annual reporting periods beginning on or after January 1, 2019. Earlierapplication is permitted.

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· Philippine Interpretation IFRIC 23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involveuncertainty that affects the application of PAS 12 and does not apply to taxes or levies outside thescope of PAS 12, nor does it specifically include requirements relating to interest and penaltiesassociated with uncertain tax treatments.

The interpretation specifically addresses the following:

· Whether an entity considers uncertain tax treatments separately

· The assumptions an entity makes about the examination of tax treatments by taxationauthorities

· How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused taxcredits and tax rates

· How an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or togetherwith one or more other uncertain tax treatments. The approach that better predicts the resolutionof the uncertainty should be followed.

The Group is currently assessing the impact of adopting this interpretation.

Deferred effectivity

· Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and itsAssociate or Joint Venture

The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss ofcontrol of a subsidiary that is sold or contributed to an associate or joint venture. The amendmentsclarify that a full gain or loss is recognized when a transfer to an associate or joint venture involvesa business as defined in PFRS 3, Business Combinations. Any gain or loss resulting from the saleor contribution of assets that does not constitute a business, however, is recognized only to theextent of unrelated investors’ interests in the associate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council postponed the original effectivedate of January 1, 2016 of the said amendments until the International Accounting Standards Boardhas completed its broader review of the research project on equity accounting that may result in thesimplification of accounting for such transactions and of other aspects of accounting for associatesand joint ventures.

Fair Value MeasurementThe Group measures financial instruments, such as AFS financial assets, and certain nonfinancialassets, such as land under revaluation model, at fair value at each reporting period.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. The fair value measurement is basedon the presumption that the transaction to sell the asset or transfer the liability takes place either:

· In the principal market for the asset or liability, or

· In the absence of a principal market, in the most advantageous market for the asset or liability.

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The principal or the most advantageous market must be accessible to the Group. The fair value of anasset or a liability is measured using the assumptions that market participants would use when pricingthe asset or liability, assuming that market participants act in their economic best interest. A fair valuemeasurement of a nonfinancial asset takes into account a market participant’s ability to generateeconomic benefits by using the asset in its highest and best use or by selling it to another marketparticipant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficientdata are available to measure fair value, maximizing the use of relevant observable inputs andminimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financialstatements are categorized within the fair value hierarchy, described as follows, based on the lowestlevel input that is significant to the fair value measurement as a whole:

· Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities

· Level 2 - Valuation techniques for which the lowest level input that is significant to the fair valuemeasurement is directly or indirectly observable

· Level 3 - Valuation techniques for which the lowest level input that is significant to the fair valuemeasurement is unobservable

For assets and liabilities that are recognized in the consolidated financial statements on a recurringbasis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities onthe basis of the nature, characteristics and risks of the assets or liability and the level of the fair valuehierarchy.

Current versus Noncurrent ClassificationThe Group presents assets and liabilities in the consolidated statement of financial position based oncurrent/non-current classification.

An asset is current when it is:

· Expected to be realized or intended to be sold or consumed in the normal operating cycle

· Held primarily for the purpose of trading

· Expected to be realized within twelve months after the reporting period

· Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for atleast twelve months after the reporting period

All other assets are classified as noncurrent.

A liability is current when:

· It is expected to be settled in the normal operating cycle

· It is held primarily for the purpose of trading

· It is due to be settled within twelve months after the reporting period

The Group classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities.

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Financial Assets and Financial LiabilitiesThe Group recognizes a financial asset or financial liability in the consolidated balance sheet when itbecomes a party to the contractual provision of the instrument.

Financial assets within the scope of PAS 39 are classified as either financial assets at fair value throughprofit or loss (FVPL), loans and receivables, held-to-maturity (HTM) investments or AFS financialassets, as appropriate. Financial liabilities, on the other hand, are classified as either financial liabilitiesat FVPL or other financial liabilities, as appropriate. The Group determines the classification of itsfinancial assets and financial liabilities at initial recognition and, where allowed and appropriate,reevaluates this designation at each reporting period.

Financial assets and financial liabilities are recognized initially at fair value. Directly attributabletransaction costs, if any, are included in the initial measurement of financial assets and financialliabilities, except for financial instruments measured at FVPL.

All regular way purchases and sales of financial assets are recognized on the trade date, i.e., the datethat the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases orsales of financial assets that require delivery of assets within the period generally established byregulation or convention in the market place.

As of December 31, 2017 and 2016, the Group’s financial instruments consist of loans and receivables,AFS financial assets and other financial liabilities (see Note 22).

“Day 1” difference

Where the transaction price in a non-active market is different from the fair value from other observablecurrent market transactions in the same instrument or based on a valuation technique whose variablesinclude only data from observable market, the Group recognizes the difference between the transactionprice and the fair value (a “Day 1” difference) in the consolidated statement of income. In cases wheredata which is not observable is used, the difference between the transaction price and model value isonly recognized in the consolidated statement of income when the inputs become observable or whenthe instrument is derecognized. For each transaction, the Group determines the appropriate method ofrecognizing the “Day 1” difference amount.

Loans and receivables

Loans and receivables are nonderivative financial assets with fixed or determinable payments that arenot quoted in an active market other than those that the Group intends to sell in the short-term or that ithas designated as an AFS financial asset. Such assets are carried at amortized cost using the effectiveinterest rate method. Gains and losses are recognized in the consolidated statement of income whenthe loans and receivables are derecognized or impaired, as well as through the amortization process.Loans and receivables are included in current assets if maturity is within 12 months from the reportingperiod. Otherwise, these are classified as noncurrent assets.

The Group has classified its cash and cash equivalents, trade and other receivables and security andrental deposits included under “Other noncurrent assets” as loans and receivables as of December 31,2017 and 2016 (see Note 22).

AFS financial assets

AFS financial assets are those non-derivative financial assets that are designated as AFS or are notclassified in any of the other categories. Financial assets may be designated at initial recognition asAFS if they are purchased and held indefinitely and may be sold in response to liquidity requirementsor changes in market conditions. After initial recognition, AFS financial assets are measured at fairvalue with gains or losses being recognized as part of other comprehensive income until the investment

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is derecognized or until the investment is determined to be impaired at which time the cumulative gainor loss previously reported in equity is included in the consolidated statement of income. Thesefinancial assets (or portion of these financial assets) are classified as noncurrent assets unless theintention is to dispose such assets within 12 months from the reporting date.

The Group has classified its investments in shares of stock and golf shares as AFS investments as ofDecember 31, 2017 and 2016 (see Notes 8 and 22).

Other financial liabilitiesOther financial liabilities are liabilities that are neither held-for-trading nor designated at FVPL uponthe inception of the liability. These are initially recognized at fair value and are subsequently carriedat amortized cost, taking into account the impact of applying the effective interest method ofamortization for any related premium, discount and any directly attributable transaction cost.

Gains and losses are recognized in the consolidated statement of income when these other financialliabilities are derecognized, as well as through the amortization process.

Other financial liabilities (or portions of other financial liabilities) are included in current liabilitieswhen they are expected to be settled within 12 months from the reporting date or the Company doesnot have an unconditional right to defer settlement of the liabilities for at least 12 months from thereporting date. Otherwise, these are classified as noncurrent liabilities.

Other financial liabilities include trade and other payables and customers’ deposits.

Derivative Financial InstrumentsFreestanding derivativesDerivative financial instruments are recognized and measured at fair value. The method of recognizingthe resulting gain or loss depends on whether or not the derivative is designated as a hedge of anidentified risk and qualifies for hedge accounting treatment.

The Group may enter into derivative financial instruments such as foreign currency contracts to hedgeits risks associated with foreign currency fluctuations. These derivative instruments provide economichedges under the Group’s policies but are not designated as accounting hedges. Any gains or lossesarising from changes in fair value of derivatives that do not qualify for hedge accounting are takendirectly to the consolidated statement of income.

The fair value of forward currency contracts is calculated by reference to the counterparty’s currentforward exchange rates as of the date of the consolidated financial statements.

The Group has no outstanding freestanding derivatives as of December 31, 2017 and 2016.

Embedded derivatives

An embedded derivative is separated from the host contract and accounted for as a derivative if all ofthe following conditions are met: a) the economic characteristics and risks of the embedded derivativeare not closely related to the economic characteristics and risks of the host contract; b) a separateinstrument 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.

The Group assesses whether embedded derivatives are required to be separated from the host contractswhen the Group first becomes a party to the contract. Embedded derivatives that are bifurcated fromthe host contract are accounted for as financial asset at FVPL. Changes in the fair values are includedin the consolidated statement of income.

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The Group makes a reassessment on the review of embedded derivatives only if there is a change tothe contract that significantly modifies the cash flows. The Group has no embedded derivatives as ofDecember 31, 2017 and 2016.

Derecognition of Financial Assets and Financial LiabilitiesFinancial assets

A financial asset (or, where applicable, a part of a financial asset or part of similar financial assets) isderecognized when:

· the contractual right to receive cash flows from the asset has expired;

· the Group retains the right to receive cash flows from the asset, but has assumed an obligation topay them in full without material delay to a third party under a “pass-through” arrangement; or,

· the Group has transferred its right to receive cash flows from the asset and either (a) has transferredsubstantially all the risks and rewards of ownership of the asset, or (b) has neither transferred norretained substantially all the risks and rewards of ownership of the asset, but has transferred controlof the asset.

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

Financial liabilities

A financial liability is derecognized when the obligation under the liability has been discharged,cancelled or has expired.

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

Impairment of Financial AssetsThe Group assesses at each reporting period whether a financial asset or group of financial assets isimpaired.

Financial assets carried at amortized costThe Group first assesses whether objective evidence of impairment exists individually for financialassets that are individually significant, and individually or collectively for financial assets that are notindividually significant. If it is determined that no objective evidence of impairment exists for anindividually assessed financial asset, whether significant or not, the asset is included in a group offinancial assets with similar credit risk characteristics and that group of financial assets is collectivelyassessed for impairment. The Group reviews the age and status of the financial assets and evaluates onthe basis of factors that affect the collectibility of the accounts. These factors include, but are notlimited to, the length of the Group’s relationship with the customer, the customer’s payment behavior,and other known market factors. Financial assets that are individually assessed for impairment and forwhich an impairment loss is or continues to be recognized are not included in a collective assessmentof impairment.

If there is objective evidence that an impairment loss on financial assets carried at amortized cost hasbeen incurred, the amount of the loss is measured as the difference between the asset’s carrying amountand the present value of estimated future cash flows (excluding future credit losses that have not beenincurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interestrate computed at initial recognition). Objective evidence of impairment include, but are not limited to,

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bankruptcy or insolvency on the part of the customer and adverse changes in the economy. The Groupprovides an allowance when it is probable that the financial asset will not be collected in the future.The amount of loss is recognized in the consolidated statement of income. The financial assets, togetherwith the associated allowance accounts, are written off when there is no realistic prospect of futurerecovery.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be relatedobjectively to an event occurring after the impairment was recognized, the previously recognizedimpairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in theconsolidated statement of income, to the extent that the carrying value of the asset does not exceed itsamortized cost at the reversal date.

Financial assets carried at cost

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


For equity investments classified as AFS financial assets, impairment would include a significant orprolonged decline in the fair value of the investments below its cost. Where there is evidence ofimpairment loss, the cumulative loss - measured as the difference between the acquisition cost and thecurrent fair value, less any impairment loss on that financial asset previously recognized in theconsolidated statement of income - is removed from equity and recognized in consolidated statementof income. Impairment losses on equity instruments are not reversed through profit or loss. Increasesin fair value after impairment are recognized as part of OCI.

Offsetting of Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount reported in the consolidatedbalance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amountsand there is an intention to settle on a net basis, or to realize the asset and settle the liabilitysimultaneously. This is not generally the case with master netting agreements, and the related assetsand liabilities are presented gross in the consolidated balance sheet. The Group has currentlyenforceable right when if the right is not contingent on a future event, and is legally enforceable in thenormal course of business, event of default, and event of insolvency or bankruptcy of the Group andall of the counterparties.

Cash and Cash EquivalentsCash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investmentsthat are readily convertible to known amounts of cash, with original maturities of three months or lessfrom dates of acquisition, and are subject to an insignificant risk of changes in value.

InventoriesInventories are valued at the lower of cost and net realizable value. Cost is determined using the movingaverage method. Net realizable value for finished goods, merchandise, work-in-process and rawmaterials is the estimated selling price in the ordinary course of business, less estimated costs tocomplete and the estimated costs necessary to make the sale. Net realizable value for materials andsupplies is the replacement cost. In determining the net realizable value, the Group considers anyadjustment necessary for obsolescence.

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Other Current AssetsInput tax

Input tax represents value added tax (VAT) paid to suppliers that can be claimed as credit against theGroup’s VAT liabilities. Input tax is recognized as part of “Other current assets” until applied againstthe output tax.

Prepayments

Prepaid expenses are amounts paid in advance for goods and services that are yet to be delivered andfrom which future economic benefits are expected to flow to the Group within 12 months from thereporting period.

Property, Plant and EquipmentProperty, plant and equipment, except for land that is carried at revalued amount, are stated at cost lessaccumulated depreciation and 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 of bringing the asset to its working condition and location forits intended use. Cost also includes: (a) interest and other financing charges on borrowed funds usedto finance the acquisition of property, plant and equipment to the extent incurred during the period ofinstallation and construction; and (b) asset retirement obligation specifically for property andequipment installed/constructed on the leased properties. Expenditures incurred after the fixed assetshave been put into operation, such as repairs and maintenance, are normally charged to income in the

period in which the costs are incurred.

In situations where it can be clearly demonstrated that the expenditures have resulted in an increase inthe future economic benefits expected to be obtained from the use of an item of property, plant andequipment beyond its originally assessed standard of performance, the expenditures are capitalized asan additional cost of property, plant and equipment.

Land is stated at revalued amount based on the fair market value of the property as determined by anindependent firm of appraisers as of January 10, 2018 and February 6, 2017. The increase in thevaluation of land, net of deferred income tax liability, is credited to “Revaluation increment” andpresented in the equity section of the consolidated balance sheet. Upon disposal, the relevant portionof the revaluation increment realized in respect of the previous valuation will be released from therevaluation increment directly to retained earnings. Decreases that offset previous increases in respectof the same property are charged against the revaluation increment; all other decreases are chargedagainst current operations. The Group obtains an updated appraisal report if there are indicators thatthe value of the properties may have significantly changed.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets asfollows:

Land improvements 10 yearsBuildings and structures 10 yearsMachinery and equipment 10 yearsTransportation equipment 5-10 yearsOffice furniture and equipment 3-5 years

Leasehold improvements are amortized over the term of the lease or the life of the assets (average of10 years), whichever is shorter.

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The useful lives and depreciation method are reviewed periodically to ensure that the periods andmethod of depreciation are consistent with the expected pattern of economic benefits from items ofproperty, plant and equipment.

When items of property, plant and equipment are sold or retired, their cost and related accumulateddepreciation and any impairment in value are removed from the accounts and any gain or loss resultingfrom their disposal is included in the consolidated statement of income.

Construction in progress represents projects under construction and is stated at cost (includes cost ofconstruction, machinery and equipment under installation and other related costs). Construction inprogress is not depreciated until such time as the relevant assets are completed and ready for its intendeduse. Interest costs on borrowings used to finance the construction of the project are accumulated underthis account. Interest costs are capitalized until the project is completed and becomes operational. Thecapitalized interest is amortized over the estimated useful life of the related assets.

Asset Retirement ObligationThe Group is legally required under various lease agreements to dismantle the installations and restorethe leased sites at the end of the lease term. The Group recognizes the fair value of the liability forthese obligations and capitalizes the present value of these costs as part of the balance of the relatedproperty and equipment accounts, which are being depreciated on a straight-line basis over the shorterof the useful life of the related asset or the lease term. The liability is subsequently carried at amortizedcost using the effective interest rate method with the related interest expense recognized in theconsolidated statement of income.

Investment PropertiesInvestment properties consist of parcels of land currently held for undetermined future use. These aremeasured initially at cost, including any transaction costs.

Investment properties are carried at cost less any impairment in value. Transfers are made to investmentproperties when, and only when, there is a change in use, evidenced by cessation of owner-occupationor commencement of an operating lease to another party. Transfers are made from investmentproperties when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale. When an item of property andequipment previously carried at revalued amount is transferred to investment properties, the carryingvalue at the date of reclassification is retained as new cost of the investment property and thecorresponding revaluation increment, net of the related deferred income tax liability, is closed toretained earnings.

Investment properties are derecognized when they are either disposed of or permanently withdrawnfrom use and no future economic benefit is expected from its disposal. Any gains or losses on theretirement or disposal of an investment property are recognized in the consolidated statement ofincome.

Software CostsSoftware costs (included under “Other noncurrent assets”) acquired separately are measured on initialrecognition at cost. Following initial recognition, software costs are carried at cost less accumulatedamortization and any accumulated impairment losses. The asset is amortized over the useful economiclife of five years and assessed for impairment whenever there is an indication that the asset may beimpaired. The amortization period and the amortization method are reviewed at least at the end of eachreporting period.

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Impairment of Nonfinancial AssetsThe carrying values of property, plant and equipment, investment properties and other nonfinancialassets are reviewed for impairment when events or changes in circumstances indicate that the carryingvalue may not be recoverable. If any such indication exists and where the carrying value exceeds theestimated recoverable amount, the assets or cash-generating units (CGU) are written down to theirrecoverable amount. The recoverable amount of these assets is the greater of fair value less cost to selland value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to theirpresent value using a pretax discount rate that reflects current market assessment of the time value ofmoney and the risks specific to the asset. For an asset that does not generate largely independent cashinflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.Impairment losses, if any, are recognized in the consolidated statement of income.

Capital StockCapital stock is measured at par value for all shares issued. When the shares are sold at premium, thedifference between the proceeds and the par value is credited to “Capital paid in excess of par”. Whenshares are issued for a consideration other than cash, the proceeds are measured by the fair value of theconsideration received. In case the shares are issued to extinguish or settle the liability of the Company,the shares shall be measured either at the fair value of the shares issued or fair value of the liabilitysettled, whichever is more readily determinable.

Retained EarningsRetained earnings represent the cumulative balance of net income or loss, net of any dividenddeclaration and other capital adjustments.

RevenueRevenue is recognized when the significant risks and rewards of ownership of the goods have passedto the buyer, the amount of revenue can be measured reliably and it is probable that the economicbenefits will flow to the Group. Net sales is measured at the fair value of the consideration received orreceivable, excluding discounts and sales taxes or duties. The Group assesses its revenue arrangementsagainst specific criteria in order to determine if it is acting as principal or agent. The Group hasdetermined that it is acting as principal in all its revenue arrangements. The following specific criteriamust also be met before revenue is recognized:

Sale of goodsRevenue from sale of goods is recognized when the goods are delivered to and accepted by customers.

Sale of property

Revenue is recognized when the risks and rewards of ownership of the investment property have beentransferred to the buyer, which is normally on unconditional exchange of contracts. For conditionalexchanges, revenue is recognized only when all the significant conditions are satisfied.

Interest

Revenue is recognized as the interest accrues, taking into account the effective interest yield on theasset.

Rent income

Rent income is recognized on a straight-line basis over the lease term.

Logistics and other services

Income is recognized when the related services are rendered.

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Other Comprehensive Income (OCI)OCI comprises items of income and expense (including items previously presented under theconsolidated statement of changes in equity) that are not recognized in profit or loss for the year inaccordance with PFRS. OCI of the Group includes changes in revaluation increment in property, fairvalue changes of AFS financial assets and remeasurement gains or losses on retirement benefits.

Cost of Sales and Operating ExpensesCost of sales

Cost of sales is recognized in the consolidated statement of income when the related goods are sold.These are measured at the fair value of the consideration paid or payable.

Operating expenses

Operating expenses are recognized in the consolidated statement of income upon utilization of theservices or materials or at the date that these expenses are incurred. These are measured at the fairvalue of the consideration paid or payable.

LeasesThe determination of whether the arrangement is, or contains a lease is based on the substance of thearrangement at inception date of whether the fulfillment of the arrangement depends on the use of aspecific asset or assets and the arrangement conveys a right to use the asset. A reassessment is madeafter the inception of the lease, only if any of the following applies: (a) there is a change in contractualterms, other than a renewal or extension of the arrangement; (b) a renewal option is exercised orextension granted, unless the term of the renewal or extension was initially included in the lease term;(c) there is a change in the determination of whether fulfillment is dependent on a specified asset; or(d) there is substantial change to the asset.

Where the reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for scenarios (a), (c), or (d) above, and at thedate of renewal or extension period for scenario (b).

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. Operating lease expense is recognized in the consolidated statement ofincome on a straight-line basis over the terms of the lease agreements.

Group as a lessee

A lease is classified at the inception date as a finance lease or an operating lease. A lease that transferssubstantially all the risks and rewards incidental to ownership to the Group is classified as a financelease.

Finance leases are capitalized at the commencement of the lease at the inception date fair value of theleased property or, if lower, at the present value of the minimum lease payments. Lease payments areapportioned between the finance charges and the reduction of the lease liability so as to achieve aconstant rate of interest on the remaining balance of the liability. Finance charges are charged to theconsolidated statement of profit or loss.

Operating lease is a lease other than a finance lease. Operating lease payments are recognized as anoperating expense in the consolidated statement of profit or loss on a straight-line basis over the leaseterm, except for contingent rental payments which are expensed when they arise.

Group as a lessor

Leases in which the Group does not transfer substantially all the risks and rewards of ownership of anasset are classified as operating leases. Initial direct costs incurred in negotiating and arranging anoperating lease are added to the carrying amount of the leased asset and recognized over the lease term

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on the same basis as rental income. Contingent rents are recognized as revenue in the period in whichthey are earned.

Retirement Benefit CostsRetirement benefits payable, as presented in the consolidated balance sheet, is the aggregate of thepresent value of the defined benefit obligation reduced by the fair value of plan assets, adjusted for theeffect of limiting a net defined benefit asset to the asset ceiling, each at the end of the reporting period.The asset ceiling is the present value of any economic benefits available in the form of refunds fromthe plan or reductions in future contributions to the plan.

The cost of providing benefits under the defined benefit plan is actuarially determined using theprojected unit credit method. The retirement benefit costs comprise of the service cost, net interest onthe net defined benefit liability or asset and remeasurements of net defined benefit liability or asset.

Service costs which include current service costs, past service costs and gains or losses on non-routinesettlements are recognized as expense in the consolidated statement of income. Past service costs arerecognized when plan amendment or curtailment occurs. These amounts are calculated periodically byindependent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the net definedbenefit liability or asset that arises from the passage of time which is determined by applying thediscount rate based on government bonds to the net defined benefit liability or asset. Net interest onthe net defined benefit liability or asset is recognized as expense or income in the consolidated statementof income.

Remeasurements comprising actuarial gains and losses, any difference in the interest income and actualreturn on plan assets and any change in the effect of the asset ceiling (excluding net interest on definedbenefit liability) are recognized immediately in OCI in the period in which they arise. Remeasurementsare not reclassified to profit or loss in subsequent periods.

Plan assets are assets that are held in trust and managed by a trustee bank. Plan assets are not availableto the creditors of the Group, nor can they be paid directly to the Group. The fair value of plan assetsis based on market price information. When no market price is available, the fair value of plan assetsis estimated by discounting expected future cash flows using a discount rate that reflects both the riskassociated with the plan assets and the maturity or expected disposal date of those assets (or, if theyhave no maturity, the expected period until the settlement of the related obligations). If the fair valueof the plan assets is higher than the present value of the defined benefit obligation, the measurement ofthe resulting defined benefit asset is limited by the ceiling equivalent to the present value of economicbenefits available in the form of refunds from the plan or reductions in future contributions to the plan.

Borrowing CostsBorrowing costs are capitalized if they are directly attributable to the acquisition or construction of aqualifying asset. All other borrowing costs are expensed as incurred. Capitalization of borrowing costscommences when the activities to prepare the asset are in progress and expenditures and borrowingcosts are being incurred. Capitalization of borrowing cost is suspended when the active developmentof a qualifying asset is suspended for an extended period. Borrowing costs are capitalized until theassets are substantially ready for their intended use. If the carrying amount of the asset exceeds itsrecoverable amount, an impairment loss is recorded.

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Foreign Currency-denominated Transactions and TranslationTransactions denominated in foreign currency are recorded using the exchange rate at the date of thetransaction. Outstanding monetary assets and liabilities denominated in foreign currencies aretranslated using the closing exchange rate at reporting period. Foreign exchange gains or losses arecredited to or charged against current operations.

Income TaxCurrent income tax

Current income tax assets and liabilities for the current and the prior periods are measured at the amountexpected to be recovered from or paid to the taxation authority. The tax rates and tax laws used tocompute the amount are those that are enacted or substantively enacted at the reporting period.

Deferred income tax

Deferred income tax is provided on all temporary differences at the reporting period between the taxbases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, including assetrevaluations. Deferred income tax liabilities are also recognized for all taxable temporary differencesassociated with investment in subsidiaries unless the Company is able to control the timing of thereversal of the temporary differences and it is probable that the temporary difference will not reversein the foreseeable future. Deferred income tax assets are recognized for all deductible temporarydifferences to the extent that it is probable that taxable profit will be available against which thedeductible temporary differences can be utilized. Deferred income tax, however, is not recognizedwhen it arises from initial recognition of an asset or liability in a transaction that is not a businesscombination, and, at the time of the transaction, affects neither the accounting profit nor the taxableprofit or loss.

The carrying amount of deferred income tax assets is reviewed at each reporting period and reduced tothe extent that it is no longer probable that sufficient future taxable profits will be available to allow allor part of the deferred income tax asset to be utilized.

Deferred income tax assets and deferred income tax liabilities are measured at the tax rates that areexpected to apply to the period when the asset is realized or the liability is settled, based on tax ratesand tax laws that have been enacted or substantively enacted at the reporting period.

Income tax relating to items recognized in the consolidated statement of comprehensive income anddirectly in equity is recognized in the consolidated statement of comprehensive income and not includedin the calculation of net income for the year.

Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable rightexists to set off current income tax assets against current income tax liabilities and the deferred incometaxes relate to the same taxable entity and the same taxation authority.

Earnings Per ShareBasic earnings per share is computed by dividing the net income for the year by the weighted-averagenumber of issued and outstanding shares of stock during the year, excluding ordinary shares purchasedby the Company and held as treasury shares. The Company has no potential dilutive common shares.

Provisions and ContingenciesProvisions are recognized when: (a) the Group has a present obligation (legal or constructive) as a resultof a past event, (b) it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation, and (c) a reliable estimate can be made of the amount of the obligation.

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Where the Group expects a provision to be reimbursed, for example under an insurance contract, thereimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.If the effect of the time value of money is material, provisions are determined by discounting theexpected future cash flows at the pretax rate that reflects current market assessments of the time valueof money and, where appropriate, the risk specific to the liability. Where discounting is used, theincrease in provision due to the passage of time is recognized as interest expense.

Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed inthe notes to consolidated financial statements unless the possibility of an outflow of resourcesembodying economic benefits is remote. A contingent asset is not recognized in the consolidatedfinancial statements but disclosed in the notes to consolidated financial statements when an inflow ofeconomic benefits is probable.

Segment InformationFor management reporting purposes, the Group considers the manufacturing and distribution of basicand intermediate chemicals as its primary business activity and only operating segment. Such businesssegment is the basis upon which the Group reports its operating segment information.

Events after the reporting periodPost year-end events that provide additional information about the Group’s position at the reportingperiod (adjusting events) are reflected in the consolidated financial statements. Post year-end eventsthat are not adjusting events are disclosed in the notes to financial statements when material.

3. Significant Accounting Judgments, Estimates and Assumptions

The preparation of the consolidated financial statements requires management to make judgments andestimates that affect the amounts reported in the consolidated financial statements. The estimates andassumptions used in the consolidated financial statements are based upon management’s evaluation ofrelevant facts and circumstances as of the date of the consolidated financial statements. Actual resultscould differ from such estimates. Future events may occur which will cause the judgments andassumptions used in arriving at the estimates to change. The effects of any change in judgments andestimates are reflected in the consolidated financial statements as they become reasonablydeterminable.

JudgmentsIn the process of applying the Group’s accounting policies, management has made the followingjudgments, apart from those involving estimations, which have the most significant effect on theamounts recognized in the consolidated financial statements:

Consolidation of MPIAn investee is included in consolidation even in cases where the Company owns less than one-half ofthe investee’s equity, when the substance of the relationship between the Company and the investeeindicates that the investee is controlled by the Company. Control is achieved when the Company isexposed, or has rights, to variable returns from its involvement with the investee and has the ability toaffect those returns through its power over the investee. While the Company has only 40% equityinterest in MPI, the Company has majority representation in MPI’s BOD. The Company is alsodesignated to appoint personnel to manage the day-to-day operations of MPI. Moreover, the onlyactivity of MPI is to lease out its parcels of land to the Company (see Notes 9 and 24). Based on thesefacts and circumstances, management concluded that the Company controls MPI and, therefore,included MPI in the consolidated financial statements of the Group.

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Impairment of nonfinancial assets

The Group assesses the impairment of nonfinancial assets whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. The factors that the Groupconsiders important which could trigger an impairment review include: significant under performancerelative to expected historical or projected operating results, significant changes in the manner of useof acquired assets or the strategy for overall business and significant negative industry or economictrends. Management assessed that there was no indication of impairment on the Group’s property, plantand equipment as of December 31, 2017 and 2016. As of December 31, 2017 and 2016, the aggregatecarrying value of these properties amounted to P=661.26 million and P=638.80 million, respectively (seeNotes 9 and 10).

Estimates and AssumptionsThe estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognized in the period in which the estimates are revised if the revisions affect only thatperiod, or in the period of the revision and future periods if the revision affects both current and futureperiods.

The key assumptions concerning the future and other key sources of estimation and uncertainty at thereporting period that have a significant risk of causing a material adjustment to the carrying amountsof assets and liabilities within the next financial year are discussed below:

Estimated allowance for doubtful accounts

The Group maintains allowances for doubtful accounts at a level considered adequate to provide forpotential uncollectible receivables. The Group reviews the age and status of receivables, designed toidentify accounts with objective evidence of impairment, and provide the appropriate allowance forimpairment. Management evaluates on the basis of factors that affect the collectibility of the accounts.These factors include, but are not limited to, the length of the Group’s relationship with the customer,the customer’s payment behavior and known market factors.

Reversal of excess provision in doubtful accounts amounted to P=0.08 million P=0.26 million andP=0.59 million in December 31, 2017, 2016 and 2015, respectively. Receivables, net of allowance forthe doubtful accounts of P=8.69 million and P=8.77 million as of December 31, 2017 and 2016,respectively, amounted to P=504.23 million and P=376.77 million as of December 31, 2017 and 2016,respectively (see Note 5).

Determination of inventory quantities and cost allocationThe Company determines the physical quantities of inventories on hand, in process or consumedthrough quantity surveys, soundings and a set percentage of raw material usage based on output. Thedetermination of quantities considers factors such as concentration, density and split of inputs andoutputs at different stages in the production process, which involve management estimates. Also,valuation of inventories at cost include various cost components and involve estimation of the split ofinputs and the allocation of costs to the different stages in the production process and to outputs. Thequantities of inventories and the cost allocation could vary significantly as a result of changes in themanagement’s estimate of the factors considered in determining the physical quantities and theallocation of costs of the inventory.

Inventories, net of allowance for losses, amounted to P=269.98 million and P=139.12 million as ofDecember 31, 2017 and 2016, respectively (see Note 6).

Estimated useful lives of property, plant and equipment and software cost

The Group estimated the useful lives of its property, plant and equipment and software costs based onthe period over which the assets are expected to be available for use. The Group reviews annually theestimated useful lives of property, plant and equipment based on factors that include asset utilization,internal technical evaluation, technological changes, environmental factors and anticipated use of the

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assets. Depreciable property, plant and equipment, net of accumulated depreciation, amounted toP=402.10 million and P=409.00 million as of December 31, 2017 and 2016, respectively (see Note 9).Software cost has been fully depreciated as of December 31, 2017 and 2016 (see Note 11).

Fair value of land

The land, included in property, plant and equipment, is stated at revalued amount as of December 31,2017 and 2016 based on the fair market value of the property as determined by an independent firm ofappraisers as of January 10, 2018 and February 6, 2017, respectively. The valuation was made on thebasis of the fair market value determined by referring to the character and utility of the properties,comparable property which have been sold or offered for sale recently, and the land’s highest and bestuse in the locality where the property is located. As of December 31, 2017 and 2016, the carrying valueof land amounted to P=259.16 million and P=229.80 million, respectively (see Note 9).

ContingenciesThe Group is involved in legal proceedings, tax and/or regulatory assessments. The estimate of theprobable costs for the resolution of possible claims against the Group has been developed inconsultation with outside counsel handling the Group’s defense in these matters and is based upon ananalysis of potential results. The inherent uncertainty over the outcome of these matters is broughtabout by the differences in the interpretation and application of the laws and rulings.

The Group, in consultation with its external counsels, does not believe that these proceedings will havea material adverse effect on the consolidated financial statements. Provision for probable losses arisingfrom contingencies amounted to P=20.00 million in 2017 (nil in 2016) (Notes 12 and 26).

Estimation of retirement benefits costThe determination of the obligation and cost of retirement benefits is dependent on certain assumptionsused by the actuary in calculating such amounts. Those assumptions are described in Note 19 to theconsolidated financial statements and include among others, discount rates and salary increase rates.While the Group believes that the assumptions are reasonable and appropriate, significant differencesin the actual experience or significant changes in the assumptions may materially affect the retirementcost and obligations.

The retirement benefits payable amounted to P=9.31 million and P=36.97 million as of December 31,2017 and 2016, respectively (see Note 19).

4. Cash and Cash Equivalents

2017 2016

Cash on hand and in banks (Note 21) P=101,971,470 P=98,278,716Short-term deposits (Note 21) 292,051,574 436,339,006

P=394,023,044 P=534,617,722

Cash in banks earn interest at the respective bank deposit rates. Short-term deposits are made forvarying periods of between three days to three months and earn an average interest at 1.31% in 2017and 1.33% in 2016.

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As of December 31, the Group has US dollar (US$) cash in banks as follows:

2017 2016

Cash in banks US$145,961 US$55,224Closing exchange rate (P=/US$) 49.93 49.72

Amount in Peso P=7,287,833 P=2,745,737

5. Trade and Other Receivables

2017 2016

Trade:Private P=500,276,071 P=374,040,787Government 8,104,248 6,585,785

508,380,319 380,626,572Notes receivable - current portion (Note 11) 1,935,820 683,539Others 2,602,114 4,232,210

512,918,253 385,542,321Less allowance for doubtful accounts 8,692,282 8,767,487

P=504,225,971 P=376,774,834

Trade receivables are noninterest-bearing and are generally on 30-60 day terms.

The allowance for doubtful accounts relates to trade receivables. No allowance has been provided onother receivables. Movements in the allowance for doubtful accounts follow:

2017 2016

Balance at beginning of year P=8,767,487 P=9,031,203Reversal (Note 18) (75,205) (263,716)

Balance at end of year P=8,692,282 P=8,767,487

Total intercompany receivables eliminated upon consolidation amounted to P=26.68 million as ofDecember 31, 2016 (nil in 2017).

6. Inventories

2017 2016

At cost:Finished goods and merchandise (Notes 16 and 24) P=176,410,151 P=63,144,165Work-in-process 7,154,700 4,268,780Raw materials 50,178,885 34,611,974Materials and supplies 26,204,216 24,432,777

259,947,952 126,457,696

At net realizable value:Finished goods 9,335,510 11,870,622Materials and supplies 698,569 787,978

10,034,079 12,658,600

P=269,982,031 P=139,116,296

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Allowance for inventory losses as of December 31, 2017 and 2016 amounted to P=3.37 million andP=4.01 million, respectively. The cost of materials and supplies carried at net realizable value amountedto P=3.76 million and P=3.94 million as of December 31, 2017 and 2016, respectively, while cost offinished goods at net realizable value amounted to P=9.65 million and P=12.73 million as of December 31,2017 and 2016, respectively. Inventories recognized as expense are presented as “Cost of sales” in theconsolidated statements of income (see Note 16).

7. Other Current Assets

2017 2016

Input VAT - net P=41,541,739 P=44,547,338Advances on purchases 21,458,785 8,252,090Prepaid taxes 14,126,024 17,436,171Prepaid insurance premiums 155,057 159,245Other prepayments 1,664,067 2,167,540

P=78,945,672 P=72,562,384

Advances on purchases pertain to advances made to suppliers for purchase of goods and services.

Prepaid taxes include creditable withholding taxes to be applied against income tax payable.

Other prepayments include advance rentals and deposits.

8. AFS Financial Assets

2017 2016

Quoted equity instruments at fair value:Listed companies P=399,915 P=399,915Golf shares 600,000 350,000

999,915 749,915Unquoted equity instruments 5,001,000 5,001,000

P=6,000,915 P=5,750,915

The fair value of investments in shares of listed companies was based on their bid prices as ofDecember 31, 2017 and 2016. Fair value of golf shares was based on club share quotes that are publiclyavailable from the local dailies and websites of club share brokers as of December 31, 2017 and 2016.

The investment in unquoted equity instruments consists of investments in 3,813 preferred, redeemable,non-convertible, non-voting shares of Tosoh Polyvin Corporation (TPC) representing 3% of totalpreferred shares and 10% of TPC’s issued capital stock equivalent to 22,478 common shares.

The following table presents the movements in Reserve for fluctuations in AFS financial assets:

2017 2016

Balance at beginning of year (P=329,535) (P=493,005)Mark-to-market gain for the year 250,000 163,470

Balance at end of year (P=79,535) (P=329,535)

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The Group follows the specific identification method in determining the cost of any AFS financial assetsold.

9. Property, Plant and Equipment

a. Property, plant and equipment at cost consist of:

2017

Office

Buildings Machinery Furniture

Land

Improvements

and

Structures

and

Equipment

Transportation

Equipment

and

Equipment

Leasehold

Improvements

Construction

in Progress Total

Cost

January 1 P=32,420,851 P=276,606,131 P=1,583,506,331 P=235,259,102 P=40,842,620 P=8,141,007 P=46,373,912 P=2,223,149,954

Additions – – – 1,156,696 199,620 – 106,960,998 108,317,314Disposals/retirement – – – (1,290,000) – – – (1,290,000)

Reclassification 8,453,234 17,648,740 101,764,104 4,019,582 623,079 2,008,700 (134,517,439) –

December 31 40,874,085 294,254,871 1,685,270,435 239,145,380 41,665,319 10,149,707 18,817,471 2,330,177,268

Accumulated Depreciation

January 1 29,245,436 240,474,992 1,346,395,466 152,849,014 38,939,619 6,249,604 – 1,814,154,131Depreciation and amortization (Notes 16 and 17) 1,502,875 8,750,239 77,053,819 25,876,285 1,291,961 447,728 – 114,922,907

Disposals/retirement – – – (996,667) – – – (996,667)

December 31 30,748,311 249,225,231 1,423,449,285 177,728,632 40,231,580 6,697,332 – 1,928,080,371

Net Book Value P=10,125,774 P=45,029,640 P=261,821,150 P=61,416,748 P=1,433,739 P=3,452,375 P=18,817,471 P=402,096,897

2016

OfficeBuildings Machinery Furniture

LandImprovements

andStructures

andEquipment

TransportationEquipment

andEquipment

LeaseholdImprovements

Constructionin Progress Total

Cost

January 1 P=32,296,237 P=270,610,043 P=1,559,903,221 P=212,787,060 P=40,034,952 P=8,141,007 P=3,951,363 P=2,127,723,883Additions – – – 1,840,786 256,115 – 95,090,621 97,187,522Disposals/retirement – – – (1,700,000) (61,451) – – (1,761,451)Reclassification 124,614 5,996,088 23,603,110 22,331,256 613,004 – (52,668,072) –

December 31 32,420,851 276,606,131 1,583,506,331 235,259,102 40,842,620 8,141,007 46,373,912 2,223,149,954

Accumulated Depreciation mJanuary 1 27,929,509 232,087,970 1,275,058,150 131,535,533 37,605,579 5,815,318 – 1,710,032,059Depreciation and amortization (Notes 16 and 17) 1,315,927 8,387,022 71,337,316 22,338,481 1,395,491 434,286 – 105,208,523Disposals/retirement – – – (1,025,000) (61,451) – – (1,086,451)

December 31 29,245,436 240,474,992 1,346,395,466 152,849,014 38,939,619 6,249,604 – 1,814,154,131

Net Book Value P=3,175,415 P=36,131,139 P=237,110,865 P=82,410,088 P=1,903,001 P=1,891,403 P=46,373,912 P=408,995,823

Cylinders, included under machinery and equipment, are used to store and transport the Group’sfinished goods to customers. The Group receives deposit from the customer while the cylindersare in the latter’s possession. The customers’ deposits are refundable when the cylinders aresurrendered. Outstanding customers’ deposits as of December 31, 2017 and 2016 amounted toP=21.11 million and P=21.12 million, respectively.

b. Land of a subsidiary at appraised value as of December 31, 2017 and 2016 consists of:

2017 2016

Cost P=13,506,189 P=13,506,189Appraisal increase 245,655,811 216,294,811

P=259,162,000 P=229,801,000

As of December 31, 2017 and 2016, the parcels of land are stated at revalued amount categorizedunder Level 3 based on the appraisal report dated January 10, 2018 and February 6, 2017,respectively, by an independent appraisal company. The appraised value was determined using theSales Comparison Approach wherein the market prices for comparable property listings areadjusted to account for the marketability, nature, bargaining allowance, location and size of thespecific properties. The significant unobservable input to the valuation is the price per square meterof P=490 to P=4,750 in 2017 and P=250 to P=4,300 in 2016. Significant increases (decreases) in the

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estimated price per square meter in isolation would result in a significantly higher (lower) fairvalue. The valuation considers an industrial land development as the highest and best use of theproperties.

As of December 31, 2017 and 2016, the revaluation increment, net of the deferred income taxeffect, amounted to P=171.96 million and P=151.41 million, respectively.

On March 19, 2009, the Company’s BOD approved the transfer/assignment of ownership of theCompany’s parcels of land located at Buru-un, Iligan City and Biñan, Laguna in exchange for theshares of stock of MPI. On September 1, 2009, the Company and MPI executed a Deed ofExchange whereby the Company ceded, transferred and conveyed unto MPI, in a manner absoluteand irrevocable, the said parcels of land (excluding any improvements thereon) free and clear ofall liens and encumbrances, and all its rights, title and interest therein, in exchange for 5,131,515Common A shares of MPI (representing 40% interest) with a par value of P=30 per share or totalvalue of P=153,945,450. The transaction was considered a tax free exchange, except fordocumentary stamp taxes, as certified by the Bureau of Internal Revenue (BIR).

The parcels of land are owned by MPI and are included in the consolidated financial statements incompliance with PFRS. The Company leases the land from MPI. The lease rentals have beeneliminated on consolidation. The title to the land remains with MPI and will not be transferred tothe Company.

10. Investment Properties of a Subsidiary

The investment properties of MPI with a carrying value of P=35.06 million as of December 31, 2015were sold in 2016.

11. Other Noncurrent Assets

2017 2016

Security and rental deposits (Note 23) P=11,247,725 P=11,058,991Notes receivable - noncurrent portion (Note 5) 6,773,681 2,844,133Others – 1,516,628

P=18,021,406 P=15,419,752

In 2011, the Group acquired software with cost amounting to P=6.77 million. The cost of the softwareis being amortized over five years. The amortization amounted to P=1.13 million in 2016 andP=1.35 million in 2015 (nil in 2017) (see Note 17).

In 2017 and 2016, the Company granted loans to a third party borrower with a total principal amountof P=5.43 million and P=3.26 million, respectively, with an interest of 8% per annum. The loan iscollectible in monthly amortizations over five years. The loan is secured by certain motor vehiclesowned by the borrower.

Others include noncurrent portion of advance rental (Note 5).

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12. Trade and Other Payables

2017 2016

Trade payables P=55,418,311 P=46,632,295Accrued expenses 70,163,874 50,282,185Provision for contingencies (Note 26) 20,000,000 –Dividends payable 11,084,799 10,367,979Advances from customers 2,977,629 2,042,703Accrued employee benefits 1,304,683 1,493,266Others 4,184,910 4,602,447

P=165,134,206 P=115,420,875

Accrued expenses consist mainly of accruals for shipping and delivery expenses, cost of power,professional fees and rental expenses. Provision for contingencies pertain to provisions made forvarious assessments, claims and litigations involving the Company in the ordinary course of business.The timing and amount of the cash outflows are uncertain as they depend upon the outcome of theCompany’s negotiations and/or legal proceedings which are currently ongoing with the partiesinvolved. Disclosure of additional details beyond the present disclosures may seriously prejudice theCompany’s position and negotiating strategy. Thus as allowed by PAS 37, Provisions, Contingent

Liabilities and Contingent Assets, only general descriptions were provided.

Total intercompany payable eliminated upon consolidation amounted to P=0.83 million as ofDecember 31, 2017 (nil in 2016).

Others include deposits from suppliers, withholding taxes and other liabilities to government agencies.

13. Unused Credit Lines

As of December 31, 2017 and 2016, the Group has unused credit lines amounting toP=566.64 million and P=567.29 million, respectively.

14. Asset Retirement Obligation

2017 2016

Balance at beginning of year P=1,604,827 P=1,436,002Accretion for the year (Note 18) 188,673 168,825

Balance at end of year P=1,793,500 P=1,604,827

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15. Equity

Capital StockThe number of shares authorized, issued and outstanding as of December 31, 2017 and 2016 are asfollows:

Authorized at P=1 par value per share 1,072,942,532Issued and outstanding 661,309,398

Track Record of Registration of Securities

Authorized capital stock

Date Activity Par ValueNo. of

Common Shares Balance

February 5, 1997 Authorized P=1.00 – P=1,200,000,000December 28, 2007 Retirement of capital stock 1.00 (100,057,468) 1,099,942,532August 31, 2011 Retirement of capital stock 1.00 (27,000,000) 1,072,942,532

Issued and outstanding

Date Activity Offer PriceNo. of

Common Shares Balance

February 5, 1997 Issued and outstanding before listing P=– – P=433,785,389

February 5, 1997 Issued during offer 1.90 223,187,000 656,972,389June 15, 1997 Stock dividend – 131,394,477 788,366,866December 28, 2007 Retirement of capital stock – (100,057,468) 688,309,398August 31, 2011 Retirement of capital stock – (27,000,000) 661,309,398

The Company’s shares are listed on and traded at the Philippine Stock Exchange (PSE) and the numberof equity holders of the Company was 2,300 and 2,316 as of December 31, 2017 and 2016, respectively.The Company received its permit to offer its shares to the public from the Philippine SEC on October 7,1996.

Retained EarningsBelow is a summary of the dividends declared for the years ended December 31, 2017,2016 and 2015:

Date of Declaration Date of Record Dividend rate Dividend per share

April 30, 2015 May 29, 2015 5% 0.05April 28, 2016 May 27, 2016 5% 0.05April 27, 2017 May 26, 2017 7% 0.07

Retained earnings include P=43.66 million and P=50.43 million as of December 31, 2017 and 2016,respectively, representing deferred income tax assets and retained earnings of MPI, which are notavailable for dividend declaration.

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16. Cost of Sales - Goods

2017 2016 2015

Finished goods and merchandiseinventory, January 1 P=75,875,445 P=108,296,206 P=126,290,910

Raw materials used andmerchandise purchased(Note 24) 1,456,778,834 868,996,550 779,116,922

Direct labor 34,945,933 37,071,511 34,408,749Manufacturing overhead:

Depreciation (Note 9) 81,315,605 76,280,065 74,853,279Supervision and indirect labor 39,023,898 37,870,326 39,684,032Supplies and facilities 26,847,147 27,573,526 28,517,907Repairs and maintenance 23,167,094 21,874,405 19,871,045Taxes and licenses 16,801,969 15,983,502 11,663,530Rental, light, janitorial and

security (Note 23) 13,918,867 12,143,946 12,747,491Others 23,590,549 23,896,679 20,701,635

Total manufacturing cost andmerchandised purchased 1,716,389,896 1,121,690,510 1,021,564,590

Decrease (increase) in work inprocess inventory (2,885,920) 5,486,743 206,061

Cost of goods manufactured andmerchandise purchased 1,713,503,976 1,127,177,253 1,021,770,651

Total goods available for sale 1,789,379,421 1,235,473,459 1,148,061,561Finished goods and merchandise

inventory, December 31 (186,055,454) (75,875,445) (108,296,206)

P=1,603,323,967 P=1,159,598,014 P=1,039,765,355

17. Operating Expenses

2017 2016 2015

Shipping and delivery P=238,796,449 P=192,523,195 P=175,760,823Depreciation and amortization

(Notes 9 and 11) 33,607,302 30,057,614 26,224,652Salaries and wages (Note 24) 28,200,497 27,367,830 25,725,090Provision for contingencies

(Note 12 and 26) 20,000,000 – –Rent, light and water (Note 23) 15,508,772 15,370,022 16,221,182Employee benefits 13,350,206 11,237,875 12,281,848Repairs and maintenance 12,776,420 6,647,321 8,730,847Taxes and licenses 11,164,314 9,397,931 7,855,460Supplies 9,925,515 12,821,417 8,141,209Professional fees 8,826,426 6,638,446 5,805,821Retirement benefits (Note 19) 7,794,734 8,339,141 7,755,870Insurance 5,708,842 4,534,463 5,156,589Communication 2,713,292 2,773,223 2,757,994Transportation and travel 2,712,329 2,508,442 2,723,445Entertainment, amusement and

recreation 1,378,501 2,129,377 1,838,149Others 8,540,354 6,112,641 7,328,643

P=421,003,953 P=338,458,938 P=314,307,622

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Professional fees include remuneration of some members of the BOD amounting to P=0.69 million in2017, P=0.83 million in 2016 and P=0.72 million in 2015.

18. Other Income - net

Interest and Financing Charges

2017 2016 2015

Bank charges P=212,220 P=206,982 P=583,912Accretion of ARO (Note 14) 188,673 168,825 151,065

P=400,893 P=375,807 P=734,977

Interest IncomeThe interest income was earned from cash in banks, short-term deposits and notes receivable. Interestincome amounted to P=5.41 million in 2017, P=5.40 million in 2016, and P=3.95 million in 2015.

Other Income - net

2017 2016 2015

Logistics and other service income - net P=29,895,013 P=32,023,557 P=11,843,943Unrealized interest income on notes receivables 446,401 384,377 –Gain (loss) on sale of equipment 153,214 (30,060) 71,429Rent income 122,184 2,719,410 3,254,258Collection of previously written off receivable 175,234 175,234 87,617Others - net (Note 5) 1,547,315 1,304,196 1,686,237

P=32,339,361 P=36,576,714 P=16,943,484

Logistics and other service income is presented net of cost of rendering the service.

Rent income pertains to lease of office and warehouse.

Others include sale of scraps, docking fee and miscellaneous charges.

19. Retirement Benefits Cost

The Company has a funded, non-contributory defined benefit retirement plan providing for death andretirement benefits to all its regular employees. An independent actuary, using the projected unit creditmethod, conducted the actuarial valuation of the plan. The retirement benefits liability is determinedaccording to the plan formula, taking into account the service rendered and compensation of coveredemployees as of valuation date. The latest actuarial valuation made for the plan was as of December 31,2017.

The following tables summarize the components of net retirement expense recognized in theconsolidated statements of income, other comprehensive income and the funding status and amountsrecognized in the consolidated balance sheets.

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The components of retirement expense which were charged to operations are as follows:

2017 2016 2015

Current service cost P=5,835,411 P=6,795,039 P=6,534,937Net interest cost 1,959,323 1,544,102 1,220,933

Retirement expense recognizedin profit or loss (Note 17) 7,794,734 8,339,141 7,755,870

Remeasurements recognizedin OCI (23,451,914) 8,460,402 5,064,475

Retirement benefit costs (P=15,657,180) P=16,799,543 P=12,820,345

The remeasurements on retirement benefits consists of:

2017 2016 2015

Gain (loss) on obligationarising from:Changes in financial assumptions P=3,051,768 P=4,088,214 P=3,436,556Experience adjustments 17,161,874 (10,890,137) (5,692,950)

20,213,642 (6,801,923) (2,256,394)Gain (loss) on plan assets 3,238,272 (1,658,479) (2,808,081)

P=23,451,914 (P=8,460,402) (P=5,064,475)

The details of the retirement benefits payable are as follows:

2017 2016

Benefit obligation P=97,601,233 P=120,735,598Plan assets (88,290,063) (83,767,248)

P=9,311,170 P=36,968,350

The movements in the retirement benefits payable are as follows:

2017 2016

Beginning of year P=36,968,350 P=32,168,807Retirement benefit costs (15,657,180) 16,799,543Contributions (12,000,000) (12,000,000)

End of year P=9,311,170 P=36,968,350

Changes in the present value of retirement benefit obligation are as follows:

2017 2016

Beginning of year P=120,735,598 P=119,253,904Current service cost 5,835,411 6,795,039Interest cost on benefit obligation 6,398,987 5,724,187Benefits paid (15,155,121) (17,839,455)Remeasurement loss (gain) on obligation from:

Experience adjustments (17,161,874) 10,890,137Change in assumptions (3,051,768) (4,088,214)

End of year P=97,601,233 P=120,735,598

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Changes in the fair value of plan assets are as follows:

2017 2016

Beginning of year P=83,767,248 P=87,085,097Interest income on plan assets 4,439,664 4,180,085Contributions 12,000,000 12,000,000Benefits paid (15,155,121) (17,839,455)Remeasurement gain (loss) 3,238,272 (1,658,479)

End of year P=88,290,063 P=83,767,248

Actual return on plan assets is as follows:

2017 2016 2015

Interest income on plan assets P=4,439,664 P=4,180,085 P=4,712,567Remeasurement gain (loss) 3,238,272 (1,658,479) (2,808,081)

P=7,677,936 P=2,521,606 P=1,904,486

The fund is administered by a trustee bank (Trustee). The Trustee is responsible for investment of theassets. The Trustee proposes an investment strategy based on the investment instructions and asapproved, executes such strategy. When defining the investment strategy, the Trustee takes intoaccount the plan’s objectives, benefit obligations and risk capacity. The investment strategy is definedin the form of a long-term target structure (investment policy). The control, direction, and managementof the fund shall reside in and be the sole responsibility of the Trustee.

The major categories of the net plan assets are as follows:

2017 2016

Cash 6.77% 7.07%Investment in debt securities:

Government securities 39.80% 39.39%Corporate debt securities 20.82% 24.69%

Investment in equity securities:Holding firms 15.74% 14.93%Property 6.44% 5.27%Power and utilities 3.47% 3.59%Bank 2.73% 1.36%Telecommunications 2.38% 2.44%Food, beverage and tobacco 1.06% 1.21%Retail 0.50% 0.00%Transportation services 0.29% 0.05%

100.00% 100.00%

The management and its trustee bank reviews the performance of the plan on a regular basis andassesses whether the plan will achieve an investment return which, together with contributions, will besufficient to pay retirement benefits as they fall due. The Group also reviews its solvency position onan annual basis and estimates, through the actuary, the expected contribution to the plan in thesubsequent year.

The Company expects to contribute P=12.0 million in 2018.

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The assumptions used to determine retirement benefits obligation for the Company’s retirement planas of January 1 are as follows:

2017 2016 2015

Discount rate 5.30% 4.80% 4.40%Salary increase rate 6.00% 6.00% 6.00%

As of December 31, 2017, discount rate and salary increase rate are 5.70% and 6.00%, respectively.

The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation as of December 31, 2017 and 2016, assumingall other assumptions were held constant:

2017

Increase (decrease)

in rate Amount

Discount rate

Assumption 1 +0.5% (P=3,585,243)

Assumption 2 -0.5% 3,841,931

Future salary increase rateAssumption 1 +0.5% 3,519,531

Assumption 2 -0.5% (3,318,010)

2016

Increase (decrease)in rate Amount

Discount rateAssumption 1 +0.5% (P=3,822,400)

Assumption 2 -0.5% 4,088,214

Future salary increase rateAssumption 1 +0.5% 3,681,572

Assumption 2 -0.5% (3,475,848)

The maturity profile of the undiscounted benefits payment as of December 31 follows:

2017 2016 2015

Not later than one year P=8,076,010 P=32,437,909 P=20,555,253Later than one year and not later

than five years 41,909,269 39,127,363 46,904,367Later than five years 57,721,712 58,391,531 51,280,838

20. Income Taxes

a. The current provision for income tax consists of the following:

2017 2016 2015

Regular corporate income tax P=59,709,039 P=53,323,006 P=34,537,699Final tax 1,072,194 1,055,245 770,822

P=60,781,233 P=54,378,251 P=35,308,521

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b. The components of the net deferred income tax liabilities of the Group are as follows:

2017 2016 2015

Deferred income tax assets on:Retirement benefits payable and unamortized past service cost P=7,514,925 P=14,724,271 P=12,323,175Accrued contingencies 3,251,729 – –Allowance for:

Doubtful accounts 2,607,685 2,630,246 2,709,361Inventory losses 1,012,475 1,203,774 955,814

Accrued leases 945,206 1,082,843 1,127,758Asset retirement obligation 538,050 481,448 430,801Provision for incentives 156,987 180,000 –Deferred lease 37,320 47,055 56,791Unrealized foreign exchange

losses – – 30,562

16,064,377 20,349,637 17,634,262

Deferred income tax liabilities on:Revaluation increment 73,696,744 64,888,444 57,442,444Premium on notes receivable 193,699 108,471 –Unrealized foreign exchange

losses 17,987 19,279 –Capitalized asset retirement

costs – 8,107 16,214

73,908,430 65,024,301 57,458,658

Net deferred income tax liabilities (P=57,844,053) (P=44,674,664) (P=39,824,396)

In 2015, MPI did not recognize the deferred income tax asset on the impairment loss on investmentproperties amounting to P=4.53 million since management believes that future taxable income maynot be available against which this temporary difference may be used. Tax effect of theunrecognized deferred income tax asset was eventually realized upon disposal of the investmentproperties in 2016.

c. A reconciliation of income tax computed at the statutory income tax rate to the provision for incometax reflected in the consolidated statements of income is as follows:

2017 2016 2015

Income tax at statutory rate P=55,463,534 P=54,707,343 P=36,487,131Increase (decrease) in provision

for income tax resulting from:Interest income subjected to final tax (501,682) (572,754) (414,674)Nondeductible expenses 3,144,895 186,051 280,065Income tax holiday (Note 1) – – (962,288)

P=58,106,747 P=54,320,640 P=35,390,234

Republic Act (RA) No.10963 or the Tax Reform for Acceleration and Inclusion Act (TRAIN) wassigned into law on December 19, 2017 and took effect January 1, 2018, making the new tax lawenacted as of the reporting date. Although the TRAIN changes existing tax law and includes severalprovisions that will generally affect businesses on a prospective basis, the management assessedthat the same will not have any significant impact on the financial statement balances as of thereporting date.

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21. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments comprise cash and cash equivalents, AFS financial assetsand other receivables. The main purpose of these financial instruments is to finance the Group’soperating requirements. The other financial assets and financial liabilities arising directly from itsoperations are trade receivables and payables. The Group does not engage in any trading of financialinstruments.

The main risks arising from the Group’s financial instruments are foreign currency risk, credit risk andliquidity risk. The Group’s exposure to equity price risk resulting from changes in the fair value of itsinvestment in equity securities is not significant. The BOD reviews and approves the policies formanaging each of these risks and they are summarized below.

Foreign currency riskForeign currency risk is the risk that the fair value or future cash flows from the Group’s foreign-currency denominated assets or liabilities may fluctuate due to changes in foreign exchange rates.

The Group’s exposure to foreign currency risk primarily arises from deposits and placements in foreigncurrency and importation of finished goods, raw materials and equipment. The Group manages thisexposure by matching its receipts and payments for each individual currency. Purchases of finishedgoods and raw materials are subject to an open account from foreign suppliers and are settledimmediately through a purchase of dollars from a local bank at spot rate once all documentationrequirements are complete. The Group may also enter into currency forward contracts to manage thecurrency risks. There are no currency forward contracts outstanding as of December 31, 2017 and2016.

The foreign currency-denominated financial instruments of the Group as of December 31 are asfollows:

2017 2016

Cash US$145,961 US$55,224Trade receivables 80,528 49,145Trade payables (16,080) –

210,409 104,369Closing exchange rate 49.93 49.72

Peso equivalent P=10,505,721 P=5,189,227

The following table shows the effect on income before income tax for the year ended due to areasonably possible change in foreign currency rates. There is no other impact on the Group’s equityother than those affecting net income.

Increase (decrease)in rate

Effect on incomebefore income tax

2017 +4.5% P=472,756

(4.5%) (472,756)

2016 +4.5% P=233,514(4.5%) (233,514)

The sensitivity analysis takes into account historical movements of Peso in every US$1 foreignexchange rates. The foreign exchange rate amounted to P=49.93 and P=49.72 per US$ as ofDecember 31, 2017 and 2016, respectively. The Group assumes parallel upward and downward effecton income due to a reasonably possible change in these foreign exchange rates.

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Credit riskCredit risk arises because the Group’s counterparty may fail to perform its obligations.

The Group is not exposed to concentration of credit risk. The Group does not have any customer thataccounts for more than 10% of its total revenue. It is the Group’s policy to require all customers, whowish to trade on credit terms, to comply with and undergo the credit verification process. This processemphasizes on the customer’s capacity and willingness to pay. In addition, receivables are closelymonitored so that exposure to bad debts is minimized.

The Group deals only with legitimate and duly accredited parties.

The maximum credit exposure of the Group’s financial assets is equal to their carrying values as ofDecember 31, 2017 and 2016. These financial assets are not supported by any collateral from thecounterparties.

The tables below show the credit quality of neither past due nor impaired financial assets and anaging analysis of past due but not impaired accounts as of December 31, 2017 and 2016.

December 31, 2017Neither Past Due nor Impaired

Standard Substandard Past Due but not Impaired Impaired

High Grade Grade Grade Over 30 days Over 60 days Over 90 days Receivables Total

Cash in banks and cash equivalents P=391,963,044 P=– P=– P=– P=– P=– P=– P=391,963,044

Trade receivablesPrivate 188,762,088 274,711,090 7,896,068 20,469,751 – – 8,437,074 500,276,071

Government 967,163 5,856,831 – 1,025,046 – – 255,208 8,104,248Notes receivable - current portion 1,935,820 – – – – – – 1,935,820

Other receivables 2,602,114 – – – – – – 2,602,114

Security and rental deposits* 5,394,505 – – – – – – 5,394,505

Notes receivable - noncurrent portion 6,773,681 – – – – – – 6,773,681

P=598,398,415 P=280,567,921 P=7,896,068 P=21,494,797 P=– P=– P=8,692,282 P=917,049,483

*Excluding nonfinancial deposits amounting to P=5,853,221.

December 31, 2016Neither Past Due nor Impaired

Standard Substandard Past Due but not Impaired Impaired

High Grade Grade Grade Over 30 days Over 60 days Over 90 days Receivables Total

Cash in banks and cash equivalents P=532,557,722 P=– P=– P=– P=– P=– P=– P=532,557,722

Trade receivablesPrivate 140,832,020 188,978,078 6,703,165 22,790,399 6,220,242 – 8,516,883 374,040,787Government 722,685 3,852,398 – 1,688,180 71,918 – 250,604 6,585,785

Notes receivable - current portion 683,539 – – – – – – 683,539Other receivables 4,232,210 – – – – – – 4,232,210Security and rental deposits* 6,212,660 – – – – – – 6,212,660Notes receivable - noncurrent portion 2,844,133 – – – – – – 2,844,133Other receivables** 1,516,628 – – – – – – 1,516,628

P=689,601,597 P=192,830,476 P=6,703,165 P=24,478,579 P=6,292,160 P=– P=8,767,487 P=928,673,464

**Excluding nonfinancial deposits amounting to P=4,846,331.

**Included under “Other noncurrent assets”.

High grade receivables consist of receivables from customers and other parties with good creditstanding and with a history of no delay in payments. Standard grade receivables are those fromcustomers with history of slight delay in payments. Substandard grade receivables, on the other hand,are receivables from customers with a history of recurring delayed payments. The Group constantlymonitors the receivables in order to identify any potential adverse changes in the credit quality. Short-term placements and cash in banks are maintained in banks duly approved by the BOD. Receivablesthat have been identified as individually impaired are provided with allowance for doubtful accounts.

Liquidity risk

Liquidity risk arises when a company encounters difficulties in meeting commitments associated withfinancial instruments. Such risk may result from inadequate market depth, disruption or refinancingproblems.

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The Group’s objective is to maintain a balance between continuity of funding and flexibility throughthe use of bank loans and purchase contracts. The Group also has existing credit lines with local bankswhich could be drawn when necessary.

The tables below summarize the maturity profile of the Group’s financial liabilities and financialassets used to manage liquidity as of December 31, 2017 and 2016:

December 31, 2017

On-demand <6 months <1 year <2 years Total

Financial liabilities:

Trade and other payables* P=– P=162,367,370 P=– P=– P=162,367,370

Customers’ deposit 21,105,320 – – – 21,105,320

21,105,320 162,367,370 – – 183,472,690

Financial assets:

Cash in bank 99,911,470 – – – 99,911,470

Short-term placements 292,051,574 – – – 292,051,574

Trade receivablesHigh grade – 189,729,251 – – 189,729,251

Standard grade – 280,567,921 – – 280,567,921

Substandard grade – 7,896,069 – – 7,896,069

391,963,044 478,193,241 – – 870,156,285

Excess of financial assets over

financial liabilities P=370,857,724 P=315,825,871 P=– P=– P=686,683,595

*Excluding nonfinancial liabilities amounting to P=2,766,836.

December 31, 2016

On-demand <6 months <1 year <2 years Total

Financial liabilities:

Trade and other payables* P=– P=112,006,002 P=– P=– P=112,006,002Customers’ deposit 21,120,217 – – – 21,120,217

21,120,217 112,006,002 – – 133,126,219

Financial assets:Cash in bank 96,218,716 – – – 96,218,716Short-term placements 436,339,006 – – – 436,339,006

Trade receivablesHigh grade – 141,555,024 – – 141,555,024Standard grade – 192,830,476 – – 192,830,476

Substandard grade – 6,703,165 – – 6,703,165

532,557,722 341,088,665 – – 873,646,387

Excess of financial assets overfinancial liabilities P=511,437,505 P=229,082,663 P=– P=– P=740,520,168

*Excluding nonfinancial liabilities amounting to P=3,414,872.

Capital ManagementThe primary objective of the Group’s capital management is to ensure profitability by maintaining highcapital turn-over ratio in order to support its business and maximize utilization of capital.

The Group manages its capital structure and makes adjustments in light of changes in economicconditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment toshareholders, return capital to shareholders or issue new shares.

The Group monitors capital using capital turn-over ratio (Net sales/Capital employed). The Group’sobjective is to keep the capital turn-over ratio not lower than 1:1.

2017 2016 2015

Net sales P=2,173,255,819 P=1,678,722,637 P=1,455,320,812Capital employed 1,645,253,936 1,527,989,270 1,421,942,350

Capital turnover ratio 1.32:1.00 1.10:1.00 1.02:1.00

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As of December 31, the Group’s capital employed comprises the following:

2017 2016 2015

Capital stock P=661,309,398 P=661,309,398 P=661,309,398Capital paid in excess of par 176,594,308 176,594,308 176,594,308Revaluation increment - net of

deferred income tax effect 171,959,067 151,406,367 134,032,367Remeasurement losses on

retirement benefits - netof deferred income tax effect 946,862 (15,469,478) (9,547,197)

Reserve for fluctuations inAFS financial assets (79,535) (329,535) (493,005)

Retained earnings 634,523,836 554,477,988 460,046,479

Capital employed P=1,645,253,936 P=1,527,989,048 P=1,421,942,350

22. Fair Value

Fair ValueDue to the short-term nature of the transactions, the carrying value of cash in banks, short-term deposits,trade and other receivables, trade payables and accrued expenses approximate their fair values.

The following table sets forth the carrying values and estimated fair values of the Group’s financialinstruments, other than those with carrying amounts that are reasonable approximations of fair values:

2017

Carrying

Value

Fair

Value

Quoted prices in

active market

(Level 1)

Significant

Observable inputs

(Level 2)

Significant

Unobservable

inputs

(Level 3)

Financial Assets

Loans and receivables -

Security and rental deposits* P=5,394,505 P=4,766,141 P=– P=4,766,141 P=–

Notes receivable 8,709,501 8,608,645 – 8,608,645 –


Quoted 999,915 999,915 394,210 605,705 –

Unquoted 5,001,000 5,001,000 – – 5,001,000

Land at appraised value 13,506,189 259,162,000 – – 259,162,000

P=33,611,110 P=278,537,701 P=394,210 P=13,980,491 P=264,163,000

*Excluding nonfinancial deposits amounting to P=5,853,221 as of December 31, 2017.

2016

CarryingValue

FairValue

Quoted prices in

active market(Level 1)

Significant

Observable inputs(Level 2)

SignificantUnobservable

inputs(Level 3)

Financial Assets

Loans and receivables -Security and rental deposits* P=6,212,660 P=6,164,721 P=– P=6,164,721 P=–

Notes receivable 3,768,946 3,656,205 – 3,656,205 –

AFS financial assetsQuoted 749,915 749,915 749,915 – –Unquoted 5,001,000 5,001,000 – – 5,001,000

Land at appraised value 13,506,189 229,801,000 – – 216,294,811

P=29,238,710 P=245,372,841 P=394,210 P=10,176,631 P=221,295,811

*Excluding nonfinancial deposits amounting to P=4,846,331 as of December 31, 2016.

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The following methods and assumptions were used to estimate the fair value of each class of financialinstrument for which it is practicable to estimate such value:

Security, rental deposits and notes receivableThe fair value of security and rental deposits have been calculated as the sum of all future cash flows,discounted using prevailing market rate of interest for instruments with similar maturities.

AFS financial assetsThe fair values of publicly traded instruments and similar investments are based on quoted bid prices.

Customers’ depositsThe fair value of the customers’ deposit is not determinable because there is no reasonable basis as tothe timing of the return of the cylinders by the customers and the refund of the deposits to customers.

Land of a subsidiary at appraised valueThe fair value of the land is determined by external, independent property appraisers, havingappropriate recognized professional qualifications and recent experience in the location and categoryof the property being appraised. The appraised value was determined using the Sales ComparisonApproach wherein the market prices for comparable property listings are adjusted to account for themarketability, nature, bargaining allowance, location and size of the specific properties. Significantincreases (decreases) in the estimated price per square meter in isolation would result in a significantlyhigher (lower) fair value. The valuation considers an industrial land development as the highest andbest use of the properties.

The Group determines whether transfers have occurred between levels in the hierarchy by re-assessingcategorization (based on the lowest level input that is significant to the fair value measurement as awhole) at the end of each reporting date. In 2017, based on management assessment, golf shares areconsidered not active in the market, therefore, golf shares were transferred from Level 1 to Level 2.There were no other transfers made in 2017. In 2016, there have been no transfers between Level 1 and2 categories. Further, there were no transfers in or out of Level 3 category in 2016.

23. Leases

The Company has various noncancellable operating lease agreements covering its office spaces,parking slots, warehouse, storage tanks, piping system, pumps, and bulk storage and handling facilitiesfor a period of three to 15 years and expiring on various dates up to 2021. These leases are renewableupon mutual agreement of the parties and subject to escalation at a rate of 2.5% to 6.5% annually.

The covering agreements of these leases require the Company to pay certain amounts of security andrental deposits, which are included under “Other noncurrent assets” in the consolidated balance sheets.The related security deposits amounted to P=11.25 million and P=11.06 million as ofDecember 31, 2017 and 2016, respectively (see Note 11).

Lease expense on the foregoing lease agreements amounted to P=10.07 million in 2017 and 2016, andP=9.66 million in 2015 (see Notes 16 and 17).

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Future minimum rental commitments under the above agreements as of December 31 follow:

2017 2016

Not later than one year P=5,802,586 P=9,217,744Later than one year and not later than five years 20,767,859 23,336,644Later than five years 1,095,320 4,329,122

P=27,665,765 P=36,883,510

24. Related Party Transactions

Related party relationship exists when one party has the ability to control, directly or indirectly, throughone or more intermediaries, or exercise significant influence over the other party in making financialand operating decisions. Such relationships also exist between and/or among entities which are undercommon control with the reporting entity and its key management personnel, directors or stockholders.In considering each possible related party relationship, attention is directed to the substance of therelationship and not merely the legal form.

Transactions between related parties are accounted for at arm’s length prices or on terms similar tothose offered to non-related entities in an economically comparable market.

The outstanding balances from transactions with related parties are as follows:

Related parties Nature Year VolumeOutstanding

balance Terms and Conditions

Stockholder

Mitsubishi Corporation Purchases 2017 P=771,152,033 P=–

Unsecured,

payable 30 days from dateof bill of lading2016 458,649,927 �

Retirement fund

Mabuhay Vinyl Corporation - Retirement Fund

Investment in MPI 2017 – 7,750,000 Guaranteed dividendsequivalent to T-Bill Rateplus 300 basis points

subject to declaration bythe BOD

2016 � 7,750,000

a. Mitsubishi Corporation

The Company purchases inventories from Mitsubishi based on agreed commercial terms andconditions.

b. MVC Properties, Inc.

As of December 31, 2017 and 2016, the Company’s defined benefit retirement fund hasinvestments in the shares of stock of MPI with a cost of P=7.75 million. No gain was recognized bythe fund in relation to the investment. The Company’s retirement fund is being managed by atrustee bank. All of the fund’s investing decisions are made by the trustee bank. The power toexercise the voting rights rests with the representative from the trustee bank.

On December 18, 2009, the Company and Mabuhay Vinyl Corporation - Retirement Fund (MVC-RF) executed a Shareholder’s Agreement (the Agreement) with respect to their investment in MPI.Among others, the Agreement provides for the following:

i. MPI’s authorized capital stock comprises (a) 5,140,000 Common A shares with par value ofP=30.00 and (b) 7,800,000 Common B shares with P=1.00 par value. The Company will ownshares not exceeding 40% of the outstanding capital stock of MPI and MVC-RF will own atleast 60%.

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ii. The Common A and Common B shares have full voting rights and shall enjoy the same rightsand privileges, except as follows:

· Each common B shares earns a fixed annual dividend (Guaranteed Preferred Dividend orGPD) which, upon declaration of MPI’s BOD, is payable within 60 days from the close ofthe calendar year. The annual GPD is computed using PDST-R2 one year Treasury Billrate plus 300 basis points upon payment by MVC-RF of its subscription.

· Undeclared/unpaid GPD shall, in addition to and on top of the GPD, earn a bonus dividend.

· The GPD shall be guaranteed and cumulative.

· The Common B shares, other than the GPD and other payments related thereto, shall notparticipate in net earnings of MPI.

· In the event that MPI is liquidated or dissolved, MVC-RF, as holder of the Common Bshares, shall be entitled to be paid in full the accrued and unpaid GPD, plus the par valueof such Common B shares; provided that, whatever is left as residual assets of MPI shallbe used to pay the value of the Common A shares.

iii. The right of MVC-RF, as holder of Common B shares, to petition for the redemption of theshares is recognized and guaranteed.

iv. The Company shall designate or appoint the personnel who will be responsible for the day-to-day operations of MPI.

v. The Common B shares are redeemable at the option of MPI (the issuer).

The compensation of key management personnel follows:

2017 2016 2015

Short-term employee benefits P=9,175,752 P=8,858,774 P=7,026,417Retirement benefits (Note 19) 653,752 768,079 714,356

P=9,829,504 P=9,626,853 P=7,740,773

There are no agreements between the Group and any of its directors and key officers providing forbenefits upon termination of employment, except for such benefits to which they may be entitledunder the Company’s retirement plan.

25. Basic/Diluted Earnings Per Share

2017 2016 2015

Net income attributable to the equity holders of the Company (a) P=126,337,507 P=127,496,980 P=85,788,439Weighted average number of shares outstanding (Note 15) (b) 661,309,398 661,309,398 661,309,398

Basic/Diluted earnings per share (a/b) P=0.191 P=0.193 P=0.130

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26. Contingencies

The Group, in the normal course of business, is subject to periodic examinations by tax authorities andis involved in various labor and other legal cases either as the defendant or plaintiff. The Group,together with its counsels, believes that the outcome of these cases will not have a material effect onthe consolidated financial statements.

27. Summarized Financial Information of MPI

The summarized significant financial information of MPI as at and for the year endedDecember 31 follow:

2017 2016 2015

Total current assets P=35,493,813 P=77,725,805 P=148,426Total noncurrent assets 153,945,450 153,945,450 189,000,450Total current liabilities 45,669 39,791,759 27,359,206Total equity 189,393,594 191,879,496 161,789,670Sale of investment property – 78,581,250 –Rental income 2,643,096 2,643,096 2,643,096Net income/total comprehensive

income 507,620 30,089,826 544,174Net cash flows from (used) in

operating activities (32,588,679) 34,532,451 –Net cash flows from investing

activities 484,394 35,055,153 –Net cash flows from (used) in

financing activities (3,824,939) – 10,000

28. Segment Information

The Group is engaged in manufacturing and distributing basic and intermediate chemicals andconsiders such as its primary activity and only operating segment. Management monitors the operatingresults (net sales and net income) of the Group for the purpose of making decisions about resourceallocation and performance assessment. In 2016, investment properties amounting to P=35.06 millionwas sold by the subsidiary.

Net sales, net income, total assets and total liabilities as of and for the years endedDecember 31, 2017, 2016, and 2015 are the same as reported elsewhere in the financial statements.

Segment information for this reportable business segment is shown in the following table (amounts inmillions):

2017 2016 2015

SalesGoods P=2,173 P=1,600 P=1,455Property – 79 –

Net income 127 128 86Total assets 1,932 1,783 1,634Total liabilities 279 244 201Capital expenditures 108 97 70

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

2017 Audited Consolidated Financial Statements Statement of Management’s Responsibility for Financial Statements Independent Auditors’ Report Consolidated Balance Sheets as of December 31, 2017 and 2016 Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2016 and 2015 Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015 Notes to Consolidated Financial Statements Forms and Content Schedules Page Number Independent Auditor’s Report on Supplementary Schedules A – Financial Assets 1 B – Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties)

Not Applicable

C – Amounts Receivable from Related Parties which were Eliminated during the Consolidation of Financial Statements

2

D – Intangible assets 3 E – Long-term Debt Not Applicable F – Indebtedness to Related Parties Not Applicable G – Guarantees of Securities and Other Issuers Not Applicable H – Capital Stock 4 Schedule of Retained Earnings Available for Dividend Declaration 5 List of All Effective Standards and Interpretations under the Philippine Financial Reporting Standards

6

Map of the conglomerate or group of companies 11

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MABUHAY VINYL CORPORATION Schedule A – Financial Assets December 31, 2017

Investments

Name of Issuing entity and association of each issue

Number of shares or principal

amount of bonds and notes

Amount

shown in the balance sheet

Valued based on market quotation

at end of reporting period

Income

received and accrued

AFS financial assets PLDT - Preferred stock - 10%

cumulative, series U

350

P=4,025

P=4,025

P=– Piltel 600 1,680 1,680 – Atlas Consolidated Mining Corp. 79,000 394,210 394,210 – The Orchard Golf and Country Club, Inc. (Class A)

1

300,000

300,000

– Valley Golf and Country Club 1 300,000 300,000 – Total quoted 999,915 999,915 – Tosoh Polyvin Corporation 26,921 5,001,000 – – Total unquoted 5,001,000 – – P=6,000,915 P=– P=–

Loans and receivables

Trade receivable - various – P=508,380,319 P=– P=–

Nontrade receivables - various – 2,602,114 – –

Notes receivable – 8,709,501 – –

Savings and current bank accounts - various

–

391,963,044

–

–

– P=917,655,893 P=– P=–

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MABUHAY VINYL CORPORATION Schedule C – Amounts Payable to Related Parties which were Eliminated during Consolidation of Financial Statements December 31, 2017 Advances from MVC Properties Inc. P=831,417

- 3 -

MABUHAY VINYL CORPORATION Schedule D – Intangible Assets December 31, 2017 Software cost P=6,774,932 Accumulated amortization of software cost 6,774,932 Net book value P=–

- 4 -

MABUHAY VINYL CORPORATION Schedule H – Capital Stock December 31, 2017

Title of Issue

Number of Shares

Authorized

Number of Shares Issued

and Outstanding

Number of Shares

Reserved for Options, Warrants,

Conversion and Other

Rights

Number of Shares Held by Related

Parties

Number of Shares Held by Directors

and Officers

Number of Shares Held by Others

Common

1,072,942,532

661,309,398

–

621,465,834

52,039

39,791,525

- 5 -

MABUHAY VINYL CORPORATION Schedule of Retained Earnings Available for Dividend Declaration December 31, 2017 Amount Unappropriated retained earnings, as reported P=527,620,147 Adjustment for deferred income tax assets (20,349,637) Deferred income tax asset recognized in other comprehensive income 6,629,776 Unappropriated retained earnings beginning, as adjusted 513,900,286 Add: Net income actually earned/realized during the year Net income for the year 126,264,078 Net increase in recognized deferred income tax assets (2,344,516) Total 123,919,562 Dividends declared during the year (46,291,659) Total Retained Earnings Available for Dividend Declaration P=591,528,189

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MABUHAY VINYL CORPORATION List of All Effective Standards and Interpretations under the Philippine Financial Reporting Standards

I. List of Philippine Financial Reporting Standards (PFRSs) effective as of December 31, 2017:

PHILIPPINE FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS Effective as of December 31, 2017

Adopted Not Adopted

Not Applicable

Framework for the Preparation and Presentation of Financial Statements Conceptual Framework Phase A: Objectives and qualitative characteristics

√

PFRSs Practice Statement Management Commentary √

Philippine Financial Reporting Standards

PFRS 1 (Revised)

First-time Adoption of Philippine Financial Reporting Standards √

Amendments to PFRS 1 and PAS 27: Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate

√

Amendments to PFRS 1: Additional Exemptions for First-time Adopters

√

Amendment to PFRS 1: Limited Exemption from Comparative PFRS 7 Disclosures for First-time Adopters

√

Amendments to PFRS 1: Severe Hyperinflation and Removal of Fixed Date for First-time Adopters

√

Amendments to PFRS 1: Government Loans √

Amendments to PFRS 1: Borrowing Costs √

Amendments to PFRS 1: Meaning of Effective PFRS √

PFRS 2 Share-based Payment √

Amendments to PFRS 2: Vesting Conditions and Cancellations √

Amendments to PFRS 2: Group Cash-settled Share-based Payment Transactions

√

Amendments to PFRS 2: Definition of Vesting Condition √

Amendments to PFRS 2: Share-based Payment, Classification and Measurement Share-based Payment Transactions*

Not early adopted

PFRS 3 (Revised)

Business Combinations √

Amendments to PFRS 3 : Accounting for Contingent Consideration √

Amendments to PFRS 3 : Scope Exceptions for Joint Arrangements √

PFRS 4 Insurance Contracts √

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts √

Amendment to PFRS 4: Applying PFRS 9, Financial Instruments with PFRS 4*

Not early adopted

PFRS 5 Non-current Assets Held for Sale and Discontinued Operations √

Amendments to PFRS 5: Changes in Methods of Disposal √

PFRS 6 Exploration for and Evaluation of Mineral Resources √

PFRS 7 Financial Instruments: Disclosures √

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets

√

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets - Effective Date and Transition

√

Amendments to PFRS 7: Improving Disclosures about Financial Instruments

√

*Standards and interpretations which will become effective subsequent to December 31, 2017.

- 7 -


Adopted Not Adopted

Not Applicable

PFRS 7 Amendments to PFRS 7: Disclosures - Transfers of Financial Assets √

Amendments to PFRS 7: Disclosures - Offsetting Financial Assets and Financial Liabilities

√

Amendments to PFRS 7: Mandatory Effective Date of PFRS 9 and Transition Disclosures

√

Amendments to PFRS 7: Servicing Contracts √

Amendments to PFRS 7: Applicability of the Amendments to PFRS 7 to Condensed Interim Financial Statements

√

PFRS 8 Operating Segments √

Amendments to PFRS 8 : Aggregation of Operating Segments and Reconciliation of the Total of the Reportable Segments’ Assets to the Entity’s Asset

√

PFRS 9 Financial Instruments* Not early adopted

Amendments to PFRS 9: Mandatory Effective Date of PFRS 9 and Transition Disclosures*

Not early adopted

Amendment to PFRS 9: Prepayment Features with Negative Compensation*

Not early adopted

PFRS 10 Consolidated Financial Statements √

Amendments to PFRS 10: Investment Entities √

Amendment to PFRS 10: Sale or Contribution of Assets between Investor and its Associate or Joint Venture

√

Amendments to PFRS 10: Investment Entities: Applying the Consolidation Exception

√

PFRS 11 Joint Arrangements √

Amendments to PFRS 11: Investment Entities √

Amendment to PFRS 11: Accounting for Acquisitions of Interests in Joint Operations

√

PFRS 12 Amendment to Disclosure of Interests in Other Entities √

Amendments to PFRS 12: Investment Entities: Applying the Consolidation Exception

√

Amendments to PFRS 12: Clarification of the Scope of the Standard √

Amendment to PFRS 12, Disclosure of Interests in Other Entities Clarification of the Scope of the Standard (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle)

√

PFRS 13 Fair Value Measurement √

Amendments to PFRS 13: Short-term Receivable and Payables √

Amendments to PFRS 13 : Portfolio Exception √

PFRS 14 Regulatory Deferral Accounts √

PFRS 15 Revenue from Contract with Customers* Not early adopted

PFRS 16 Leases* Not early adopted

Philippine Accounting Standards

PAS 1 (Revised)

Presentation of Financial Statements √

Amendment to PAS 1: Capital Disclosures √


- 8 -


Adopted Not Adopted

Not Applicable

PAS 1 (Revised)

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation

√

Amendments to PAS 1: Presentation of Items of Other Comprehensive Income

√

Amendments to PAS 1: Clarification of the Requirements for Comparative Presentation

√

Amendments to PAS 1: Disclosure Initiative √

PAS 2 Inventories √

PAS 7 Statement of Cash Flows √

Amendment to PAS 7: Disclosure Initiative √

PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors √

PAS 10 Events after the Reporting Period √

PAS 11 Construction Contracts √

PAS 12 Income Taxes √

Amendment to PAS 12 - Deferred Tax: Recovery of Underlying Assets

√

PAS 12: IFRIC Staff Agenda Decision √

Amendments to PAS 12: Recognition of Deferred Tax Assets for Unrealized Losses

√

PAS 16 Property, Plant and Equipment √

Amendments to PAS 16: Classification of Servicing Equipment √

Amendments to PAS 16: Revaluation method - Proportionate Restatement of Accumulated Depreciation

√

Amendment to PAS 16: Clarification of Acceptable Method of Depreciation and Amortization

√

Amendment to PAS 16: Bearer Plants √

PAS 17 Leases √

PAS 18 Revenue √

PAS 19 (Amended)

Employee Benefits √

Amendments to PAS 19: Employee Benefits: Defined Benefit Plans: Employee Contribution

√

Amendments to PAS 19: Regional Market Issue Regarding Discount Rate

√

PAS 20 Accounting for Government Grants and Disclosure of Government Assistance

√

PAS 21 The Effects of Changes in Foreign Exchange Rates √

Amendments to PAS 21: Net Investment in a Foreign Operation √

PAS 23 (Revised)

Borrowing Costs √

PAS 24 (Revised)

Related Party Disclosures √

Amendments to PAS 24 : Key Management Personnel √

PAS 26 Accounting and Reporting by Retirement Benefit Plans √

PAS 27 (Amended)

Separate Financial Statements √

Amendments to PAS 27: Investment Entities √

Amendments to PAS 27: Equity Method in Separate Financial Statements

√


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Adopted Not Adopted

Not Applicable

PAS 28 (Amended) PAS 28 (Amended)

Investments in Associates and Joint Ventures √

Amendments PAS 28: Sale or Contribution of Assets between Investor and its Associate or Joint Venture* Not early adopted

Amendments PAS 28: Long-term Interest in Joint Ventures and Associates*

Not early adopted

Amendments to PAS 28: Investment Entities: Applying the Consolidation Exception

√

Amendments to PAS 28: Measuring an Associate or Joint Venture at Fair Value

√

PAS 29 Financial Reporting in Hyperinflationary Economies √

PAS 32 Financial Instruments: Disclosure and Presentation √

Amendments to PAS 32 and PAS 1: Puttable Financial Instruments and Obligations Arising on Liquidation

√

Amendment to PAS 32: Classification of Rights Issues √

Amendments to PAS 32: Tax Effect of Distribution to Holders of Equity Instruments

√

Amendments to PAS 32: Offsetting Financial Assets and Financial Liabilities

√

PAS 33 Earnings per Share √

PAS 34 Interim Financial Reporting √

Amendments to PAS 34: Interim Financial Reporting and Segment Information for Total Assets and Liabilities

√

Amendments to PAS 34: Disclosure of Information √

PAS 36 Impairment of Assets √

Amendment to PAS 36: Impairment of Assets – Recoverable Amount Disclosure for Nonfinancial Assets

√

PAS 37 Provisions, Contingent Liabilities and Contingent Assets √

PAS 38 Intangible Assets √

Amendment to PAS 38: Clarification of Acceptable Method of Depreciation and Amortization

√

Amendments to PAS 38: Revaluation method - Proportionate Restatement of Accumulated Depreciation

√

PAS 39 Financial Instruments: Recognition and Measurement √

Amendments to PAS 39: Transition and Initial Recognition of Financial Assets and Financial Liabilities

√

Amendments to PAS 39: Cash Flow Hedge Accounting of Forecast Intragroup Transactions

√

PAS 39 Amendments to PAS 39: The Fair Value Option √

Amendments to PAS 39 and PFRS 4: Financial Guarantee Contracts √

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets

√

Amendments to PAS 39 and PFRS 7: Reclassification of Financial Assets – Effective Date and Transition

√

Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives

√

Amendment to PAS 39: Eligible Hedged Items √

Amendments to PAS 39: Financial Instruments: Recognition and Measurement – Novation of Derivatives and Continuation of Hedge Accounting

√


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Adopted Not Adopted

Not Applicable

PAS 40 Investment Property √

Amendments to PAS 40: Investment Property √

Amendments to PAS 40: Transfers of Investment Property* Not early adopted

PAS 41 Agriculture √

Amendment to PAS 41: Bearer Plants* Not early adopted

Philippine Interpretations

IFRIC 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities

√

IFRIC 2 Members' Share in Co-operative Entities and Similar Instruments √

IFRIC 4 Determining Whether an Arrangement Contains a Lease √

IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

√

IFRIC 6 Liabilities arising from Participating in a Specific Market - Waste Electrical and Electronic Equipment

√

IFRIC 7 Applying the Restatement Approach under PAS 29 Financial Reporting in Hyperinflationary Economies

√

IFRIC 9 Reassessment of Embedded Derivatives √

Amendments to Philippine Interpretation IFRIC–9 and PAS 39: Embedded Derivatives

√

IFRIC 10 Interim Financial Reporting and Impairment √

IFRIC 12 Service Concession Arrangements √

IFRIC 13 Customer Loyalty Programmes √

IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

√

Amendments to Philippine Interpretations IFRIC- 14, Prepayments of a Minimum Funding Requirement

√

IFRIC 15 Agreements for the Construction of Real Estate √

IFRIC 16 Hedges of a Net Investment in a Foreign Operation √

IFRIC 17 Distributions of Non-cash Assets to Owners √

IFRIC 18 Transfers of Assets from Customers √

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments √

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine √

IFRIC 21 Levies √

IFRIC 22 Foreign Currency Transactions and Consideration and Advance Consideration*

Not early adopted

IFRIC 23 Uncertainty Over Income Tax Treatments* Not early adopted

SIC-7 Introduction of the Euro √

SIC-10 Government Assistance - No Specific Relation to Operating Activities

√


- 11 -


Adopted Not Adopted

Not Applicable

SIC-15 Operating Leases - Incentives √

SIC-25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders

√

SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease

√

SIC-29 Service Concession Arrangements: Disclosures. √

SIC-31 Revenue - Barter Transactions Involving Advertising Services √

SIC-32 Intangible Assets - Web Site Costs √


- 12 -

MABUHAY VINYL CORPORATION Map of the conglomerate or group of companies 40% Ownership

MABUHAY VINYL CORPORATION

(Parent Company)

MVC PROPERTIES, INC.

(Subsidiary)

- 1 -

MABUHAY VINYL CORPORATION Aging of Accounts Receivable December 31, 2017 1. Aging of Accounts Receivable (In Million Pesos)

Type of Accounts Receivable

Total

Current

Over 30 days

Over 60 days

Over 90 days

Past due in litigation

A. Trade Receivables 508.380 478.193 22.183 5.126 2.878 – Less: Allowance for doubtful accounts 8.692 – 0.688 5.126 2.878 – Net Trade receivables 499.688 478.193 21.495 – – – B. Non-Trade Receivables Administrative 1.258 1.258 – – – – Notes receivable - current portion 1.936 1.936 – – – – Others 1.189 1.189 – – – – Subtotal 4.383 4.383 – – – – Less: Allowance for doubtful accounts – – – – – – Net Non-Trade receivables 4.383 4.383 – – – – C. Accrued interest receivable 0.155 0.155 – – – – Net Receivables (a+b+c) 504.226 478.731 21.495 – – –

2. Accounts Receivable Description Type of Accounts Receivable Nature /Description Collection period a. Trade Receivables Sale of products 30 – 60 days b. Non-Trade Receivables

Receivable from employees, receivables from truckers and other

receivables

30 – 60 days

- 1 -

MABUHAY VINYL CORPORATION Financial Ratios For the years ended December 31, 2017 and 2016

Dec. 31, Dec. 31, 2017 2016

1. Liquidity a. Quick ratio - capacity to cover its short-term obligations using only its more

liquid assets. [(cash + cash equiv. + A/R) / current liabilities] 4.28 5.67

- Remarks: The quick ratio for the period is higher than forecast due to lower current liabilities to suppliers.

b. Current ratio - capacity to meet current obligations out of its liquid assets. (current assets / current liabilities) 5.94 6.98

- Remarks: The current ratio for the period is higher than forecast due to lower current liabilities to suppliers.

2. Solvency a. Debt to equity ratio - indicator of which group has the greater representation in

the assets of the Company. (long-term debt / equity) 0.00 0.00

- Remarks: There is no exposure to long term debt.

3. Profitability

a. Net profit margin - ability to generate surplus for stockholder (net income / sales) 0.06 0.08

- Remarks: The Company’s net profit margin target was met.

b. Return on equity - ability to generate returns on investment of stockholders. (net income / stockholders equity) 0.08 0.08

- Remarks: The Company’s return on equity forecast was achieved.

4. Leverage

b. Debt to total asset ratio - the proportion of total assets financed by creditors. (total debt / total assets) 0.14 0.14

- Remarks: Debt to asset ratio was met.

c. Asset to equity ratio - indicator of the overall financial stability of the Company.

(total assets / equity) 1.17 1.17 - Remarks: The Company is financially stable and is capable to meet its long term

obligations.

5. Interest Rate Coverage Ratio a. Interest rate coverage ratio - measure of the Company’s ability to meet its

interest payments (earnings before interest and taxes / interest expense) 0.00 0.00

- Remarks: The Company has no exposure to long term debt.

2017 annual report (sec form 17- a)

Documents