Rules and Regulations Covering Form and Content of Financial Statements

February 20, 2003 SECURITIES AND EXCHANGE COMMISSION SRC RULE 68, AS AMENDED RULES AND REGULATIONS COVERING FORM AND CONTENT OF FINANCIAL STATEMENTS I. RULE 68. GENERAL REQUIREMENTS. 1. Application and Definition of Terms 2. General Guides to Financial Statements Preparation 3. Qualifications and Reports of Independent Auditors 4. Framework for the Preparation and Presentation of Financial Statements a. Applicability b. Underlying Assumptions c. Qualitative Characteristics d. Basic Financial Statements and Minimum Presentation 5. Comparative Financial Statements 6. Penalties, Repealing Clause and Effectivity II. RULE 68.1. SPECIAL RULES ON FINANCIAL STATEMENTS OF REPORTING COMPANIES UNDER SECTION 17.2 OF THE SRC 1. Application 2. Auditor's Opinion on Financial Statements 3. Responsibility for Financial Statements 4. Periodic Presentation 5. Financial statements of businesses acquired or to be acquired 6. Applicability with Other Reports 7. Additional Disclosure Requirements 8. Interim Financial Statements 9. Pro Forma Financial Information 10. Consolidated Financial Statements Annex 68.1-J (General Notes to Financial Statements) Annex 68.1-K (Balance Sheet) Annex 68.1-L (Income Statement) Annex 68.1-M (Schedules) RULE 68 General Requirements 1. APPLICATION AND DEFINITION OF TERMS a Application of this Rule i. This Rule (together with subsequent official pronouncements, interpretations and rulings on accounting and reporting matters, which may be issued by the Commission from time to time) states the requirements applicable to the form and content of financial statements required to be filed with the Commission by all corporations that file with the Commission audited financial statements that are prepared and presented in conformity with the generally accepted accounting principles in the Philippines, except those whose paid-up capital is less than P50,000.00. AHCaES ii. Financial statements of branch offices of foreign corporations licensed to operate in the Philippines by the Commission shall likewise comply with the requirements of this Rule. iii Additional requirements for financial statements of corporations covered under Section 17.2 of the Securities Regulation Code are set forth under Rule 68.1. iv Unless otherwise specified, the term financial statements when used in this Rule, shall include a balance sheet, a statement of income, statement of changes in equity, and a statement of cash flows, together with all notes to the statements, as defined in Statement of Financial Accounting Standards No. 1 and related schedules required by the Commission or other subsequent amendments thereto. b. Definition of Terms Used in this Rule Unless the context otherwise requires, the following terms shall have the respective meanings when used in this Rule. i. Audit ,when used in regard to financial statements, means an examination of the statements by an independent certified public accountant in accordance with generally accepted auditing standards in the Philippines (GAAS) for the purpose of expressing an opinion whether the financial statements are presented fairly, in all material respects, in accordance with generally accepted accounting principles in the Philippines. ii. Auditor's report when used in regard to financial statements, means a document in which an independent certified public accountant indicates the scope of the audit which he has made and sets forth a clear written expression of his opinion regarding the financial statements taken as a whole, or an assertion to the effect that an overall opinion cannot be expressed. When an overall opinion cannot be expressed, the reason/s therefore shall be stated. iii. Auditor or independent auditor means an independent certified public accountant who performs an audit of financial statements for the purpose of expressing an opinion thereon. iv. Generally accepted accounting principles in the Philippines (GAAP) means accounting principles based on pronouncements of recognized bodies involved in setting accounting principles. Greatest weight shall be given to their pronouncements in the order listed below: A Philippine Securities and Exchange Commission. B. Accounting Standards Council. C. Standards issued by the International Accounting Standards Board. D. Accounting principles and practices for which there is a long history of acceptance and usage. If there appears to be a conflict between any of the bodies listed above, the pronouncements of the first listed body shall be applied. v. Control ,for purposes of preparation of consolidated financial statements, is the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than one half of the voting power of an enterprise unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control also exists even when the parent owns one half or less of the voting power of an enterprise when there is: A. Power over more than one half of the voting rights by virtue of an agreement with other investors; B. Power to govern the financial and operating policies of the enterprise under a statute or an agreement; C. Power to appoint or remove the majority of the members of the board of directors or equivalent governing body; or D. Power to cast the majority of votes at meetings of the board of directors or equivalent governing body. vi. Parent is an enterprise that has one or more subsidiaries. vii. Registrant means an issuer of securities with respect to which a securities registration statement or required issuer report has been or is to be filed. viii. Related parties exists when one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. ix. Significant influence is the participation in the financial and operating policy decisions of an enterprise, but not in control of those policies. Significant influence may be exercised in one or more of the following ways: A. Representation on the board of directors or equivalent governing body of the investee; B. Participation in policy making processes; C. Material intercompany transactions; D. Interchange of managerial personnel; or E. Dependence on technical information. Significant influence may be gained by share ownership, statute or agreement. x. Significant subsidiary means a subsidiary, including its subsidiaries, which meets any of the following conditions. A. The corporation's and its other subsidiaries' investments in and advances to the subsidiary exceed ten percent (10%) of the total assets of the corporation and its subsidiaries consolidated as of the end of the most recently completed fiscal year (for a proposed business combination to be accounted for as a pooling of interests, this condition is also met when the number of common shares exchanged or to be exchanged by the corporation exceeds ten percent (10%) of its total common shares outstanding at the date the combination is initiated);or B. The corporation's and its other subsidiaries' proportionate share of the total assets (after inter company eliminations) of the subsidiary exceeds ten percent (10%) of the total assets of the corporation and its subsidiaries consolidated as of the end of the most recently completed fiscal year; or C. The corporation's and its other subsidiaries' equity in the income from continuing operations before income taxes, extraordinary items and cumulative effect of a change in accounting principle of the subsidiary exceeds ten percent (10%) of such income of the corporation and its subsidiaries consolidated for the most recently completed fiscal year. xxx xxx xxx Computational note: For purposes of making the prescribed income test the following guidance shall be applied: 1. When a loss has been incurred by either the parent and its subsidiaries consolidated or the tested subsidiary, but not both, the equity in the income or loss of the tested subsidiary shall be excluded from the income of the corporation and its subsidiaries consolidated for purposes of the computation. 2. If income of the corporation and its subsidiaries consolidated for the most recent fiscal year is at least 10 percent lower than the average of the income for the last five (5) fiscal years, such average income shall be substituted for purposes of the computation. Any loss years shall be omitted for purposes of computing average income. 3. Where the test involves combined entities, as in the case of determining whether summarized financial data shall be presented, entities reporting losses shall not be aggregated with entities reporting income. xxx xxx xxx xi. Subsidiary is an enterprise that is controlled by another enterprise (known as the parent) xii. Summarized financial information referred to in this Rule shall mean the presentation of summarized financial information as to the assets, liabilities and results of operations of the entity for which the information is required. Summarized financial information shall include the following disclosures: A. Current assets, noncurrent assets, current liabilities, noncurrent liabilities, and when applicable, redeemable preferred stocks and minority interests (for specialized industries in which classified balance sheets are normally not presented, information shall be provided as to the nature and amount of the major components of assets and liabilities); B. Net sales or gross revenues, gross profit (or, alternatively, costs and expenses applicable to net sales or gross revenues),income or loss from continuing operations before extraordinary items and when the alternative treatment under ASC SFAS 13 (revised 2000) is followed, the, cumulative effect of a change in accounting principle, and net income or loss (for specialized industries, other information may be substituted for sales and related costs and expenses if necessary for a more meaningful presentation). xiii. Voting shares mean the sum of all rights, other than as affected by events of default, to vote for election of directors. 2. GENERAL GUIDES TO FINANCIAL STATEMENTS PREPARATION a In addition to the provisions in this Rule and those that will be subsequently issued or announced by the Commission, financial statements to be filed with the Commission shall be in accordance with the following Statements of Financial Accounting Standards (SFAS)/International Accounting Standards (IAS) an related Interpretations adopted by the Commission and the Accounting Standards Council (ASC): Effective 2002 - Framework for the Preparation and Presentation of Financial Statements SFAS 1 IAS 01 Presentation of Financial Statements (revised 2000) SFAS 4 IAS 02 Inventories (revised 2000) SFAS 7 - Contingencies and Subsequent Events SFAS 8 - Accounting for Effects of Changes in Foreign Exchange Rates SFAS 9 - Summary of Generally Accepted Accounting Principles on Intangible Assets SFAS 10 - Summary of Generally Accepted Accounting Principles on Investments SFAS 13 IAS 08 Net Income or Loss for the Period, Fundamental Errors and Changes in Accounting Policies SFAS 18 - Summary of Generally Accepted Accounting Principles on Stockholders' Equity SFAS 19 - Summary of Generally Accepted Accounting Principles on Banking Industry SFAS 19A - Accounting for Investments in Debt and Marketable Securities of Banks (an amendment of SFAS 19) SFAS 20 - Accounting for Business Combinations SFAS 22 IAS 07 Cash Flows Statements (revised 2000) SFAS 23 - Accounting for Income Taxes SFAS 24 - Retirement Benefit Costs SFAS 25 IAS 23 Borrowing Costs SFAS 26 IAS 11 Construction Contracts SFAS 27 - Accounting and Reporting for the Nonlife Insurance Industry SFAS 28 IAS 18 Revenue SFAS 29 IAS 33 Earnings Per Share SFAS 30 IAS 34 Interim Financial Reporting SFAS 31 IAS 14 Segment Reporting Based on new format SFAS 16 IAS 16 Property, Plant and Equipment SFAS 24 IAS 24 Related Party Disclosures SFAS 27 IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries SFAS 28 IAS 28 Accounting for Investments in Associates SFAS 31 IAS 31 Financial Reporting of Interests in Joint Ventures SFAS 35 IAS 35 Discontinuing Operations SFAS 36 IAS 36 Impairment of Assets i. SFAS Nos. 16, 24, 27, 28, 31, 35 and 36 above shall be effective for the period beginning January 1, 2002. ii. SFAS Nos. 29 (Earnings per share), 30 (Interim Financial Reporting) and 31 (Segment Reporting) shall only be applicable to companies covered by SRC Rule 68.1. iii. The following SFAS have been approved by the ASC and are effective beginning January 1, 2003. The Commission encourages earlier application of these standards. SFAS 8A - Deferral of Foreign Exchange Differences SFAS 10 IAS 10 Events After the Balance Sheet Date SFAS 20 IAS 20 Accounting for Government Grants and Disclosures for Government Assistance SFAS 22 IAS 22 Business Combinations SFAS 37 IAS 37 Provisions, Contingent Liabilities and Contingent Assets SFAS 38 IAS 38 Intangible Assets b. Responsibility for Financial Statements i. The financial statements filed with the Commission are primarily the responsibility of the management of the reporting company and accordingly, the fairness of the representations made therein is an implicit and integral part of the management's responsibility. The Board of Directors, in discharging its responsibilities, reviews and approves the financial statements before these are submitted to the stockholders. ii. To carry out the intent and attain the wisdom of this concept, management of all corporations covered by this Rule are required to acknowledge their responsibility over their financial statements. For this purpose, the financial statements filed with the Commission, other than companies covered by Rule 68.1, shall be accompanied by a statement of management's responsibility as follows: STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of (name of reporting company) is responsible for all information and representations contained in the financial statements for the year(s) ended (date).The financial statements have been prepared in conformity with generally accepted accounting principles and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the company. (name of auditing firm),the independent auditors and appointed by the stockholders, has examined the financial statements of the company in accordance with generally accepted auditing standards and has expressed its opinion on the fairness of presentation upon completion of such examination, in its report to stockholders. Signature _____________ Name of the Chairman of the Board _____________ Signature _____________ Name of Chief Executive Officer _____________ Signature _____________ Name of Chief Financial Officer _____________ iii. In case of branch offices of foreign corporations, the above Statement shall be signed by its local manager who is in charge of its operations within the Philippines. The third paragraph of the Statement may be deleted since the Philippine Branch does not have any local Board of Directors or stockholders. iv. The independent certified public accountant's responsibility for the financial statements required to be filed with the Commission is confined to the expression of his opinion on such statements which he has examined. c. Form, Order and Terminology i. This section shall be applicable to financial statements filed with the Commission for all corporations covered by this Rule. ii. Financial statements shall be filed in such form and order, and shall use such generally accepted terminology as will best indicate their significance and character in the light of the provisions applicable thereto. The information required with respect to any statement shall be furnished as a minimum requirement to which shall be added such further material information as is necessary to make the required statements, in the light of the circumstances under which they are made, not misleading. Financial statements filed with the Commission shall be prepared in accordance with generally accepted accounting principles in the Philippines [See definition in paragraph 1(b)(v)]. iii. All money amounts required to be shown in financial statements may be expressed in whole pesos or multiples thereof, as appropriate: provided, that when stated in other than whole pesos, an indication to that effect is inserted immediately beneath the caption of the statement or schedule, at the top of the money columns, or at an appropriate point in narrative material. iv. Negative amounts shall be shown in a manner which clearly distinguish the negative attribute. When determining methods of display, consideration shall be given to the limitations of reproduction and microfilming processes. v. The chronological arrangement of data may be with the most recent date to the right or to the left. However, the ordering used must be consistent in all financial statements, tabular data and footnote data in the document. d. Inapplicable Captions and Omission of Unrequired or Inapplicable Financial Statements i. No caption shall be shown in any financial statement as to which the items and conditions are not present. ii. Financial statements not required or inapplicable because the required matter is not present need not be filed. iii. The reasons for the omission of any required financial statements shall be indicated. 3. QUALIFICATIONS AND REPORTS OF INDEPENDENT AUDITORS a. Examination of Financial Statements by Independent Auditors The Commission will not accept financial statements required to be audited unless such financial statements are accompanied by an auditor's report issued by an independent auditor. b. Qualifications of Independent Auditors i. The Commission will not recognize any person as an independent auditor who is not duly registered with the Board of Accountancy (BOA)/Professional Regulation Commission (PRC) in accordance with the rules and regulations of said professional regulatory bodies. Those who are not in good standing and entitled to practice as such under the laws governing the practice of public accounting in the Philippines shall not likewise be recognized by the Commission. ii. For external auditors of public companies or those companies enumerated under Section 17.2 of the Securities Regulation Code, they must have been accredited by the Securities and Exchange Commission in accordance with SEC Circular No. 05 (Series of 2002). The said Circular shall take effect beginning January 1, 2003 and will cover audited financial statements for the year ending June 30, 2003 and thereafter. iii. The term independent auditor as used in the foregoing paragraph is an auditor who possesses the independence as defined by the Board of Accountancy and approved by the Professional Regulation Commission. c. Reports of Independent Auditors i. Technical Requirements The auditor's report shall: (A) be dated; (B) be manually signed; (C) identify the financial statements covered by the report; (D) state the signing accountant's License, Tax Identification and PTR numbers, and registration number with BOA/PRC; (E) state the complete mailing address of the client and the auditor; (F) clearly indicate the name of the signing partner, where the audit report is made under a firm name. The auditor's report of a company covered by Rule 68.1 shall likewise indicate the signing partner's accreditation number with the Securities Exchange Commission for audited financial statements covering fiscal year ending June 30, 2003 and thereafter. ii. Representations as to the Audit The auditor's report shall state whether the examination was made in accordance with GAAS and shall designate any auditing procedure deemed necessary by the auditor under the circumstances of the particular case, which have been omitted, and the reasons for their omission. This rule, however, shall not be construed to imply authority for the omission of any procedure which independent auditors would ordinarily employ in the course of an audit made for the purpose of expressing the opinion required by paragraph (iii) below. iii. Opinion to be Expressed The auditor's report shall state clearly the opinion of the independent auditor on the fairness of presentation in conformity with GAAP of the financial statements. iv. Exceptions Any matter to which the independent certified public accountant takes exception shall be clearly identified, the exception thereto specifically and clearly stated and to the extent practicable, the effect of each such exception on the related financial statements given. In cases when financial statements filed with the Commission pursuant to its rules and regulations are prepared in accordance with accounting principles for which there is no substantial authoritative support, such financial statements will be presumed to be misleading or inaccurate despite disclosures contained in the report of the accountant or in footnotes to the financial statements provided the matters involved are material. In cases where there is a difference of opinion between the Commission and the corporation as to the proper principles of accounting to be followed, disclosure will be accepted in lieu of correction of the financial statements themselves only if the points involved are such that there is substantial authoritative support for the practices followed by the corporation and the position of the Commission has not previously been expressed in rules, regulations or other official pronouncements of the Commission. v. Special report at time of first filing by accountant All financial statements to be submitted by a corporation to the Securities and Exchange Commission which are required to be certified by an independent Certified Public Accountant, shall in addition to the report of the certifying CPA, be accompanied by a Statement of Representation, which shall indicate the following: "TO THE SECURITIES AND EXCHANGE COMMISSION: In connection with my examination of the financial statements of client-corporations, which are to be submitted to the Commission, I hereby represent the following: 1. That said financial statements are presented in conformity with generally accepted accounting principles in the Philippines in all cases where I shall express an unqualified opinion; Except that in case of any departure from such principles, I shall indicate the nature of the departure, the effects thereof, and the reasons why compliance with the principles would result in a misleading statement, if such is a fact; 2. That I shall fully meet the requirements of independence as provided under the Code of Professional Ethics for CPAs; 3. That in the conduct of the audit, I shall comply with the generally accepted auditing standards promulgated by the Board of Accountancy; in case of any departure from such standards or any limitation in the scope of my examination, I shall indicate the nature of the departure and the extent of the limitation, the reasons therefore and the effects thereof on the expression of my opinion or which may necessitate the negation of the expression of an opinion; and 4. That relative to the expression of my opinion on the said financial statements, I shall not commit any acts discreditable to the profession as provided under Code of Professional Ethics for CPAs. As a CPA engaged in public practice, I make these representations in my individual capacity and as a partner in the accounting firm of _____________. Signature Printed Name CPA Cert. No. PTR No. TIN Date: d. Examination of Financial Statements by More Than One Accountant If, with respect to the examination of the financial statements, part of the examination is made by an independent Certified Public Accountant other than the principal accountant and the principal accountant elects not to place reliance on the work of the other accountant, the separate report of the other accountant shall be filed. However, notwithstanding the provisions of this Paragraph, reports of other accountants which may otherwise be required in filings need not be presented in annual reports to security holders. 4. FRAMEWORK FOR THE PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS a. This Section shall be applicable to general-purpose financial statements prepared and presented in accordance with GAAP and which are filed by corporations covered by this Rule. It summarizes the framework for the preparation and presentation of financial statements of commercial, industrial and business reporting enterprises. However, some enterprises may be covered by industry-specific reporting format. b. Underlying Assumptions (i) Accrual Basis In order to meet their objectives, financial statements are prepared on the accrual basis of accounting. Under this basis, the effects of transactions and other events are recognized when they occur (and not as cash or its equivalent is received or paid) and they are recorded in the accounting records and reported in the financial statements of the periods to which they relate. Hence, they provide the type of information about past transactions and other events that is most useful to users in making economic decisions. (ii) Going Concern The financial statements are normally prepared on the assumption that a corporation is a going concern and will continue in operation for the foreseeable future. Hence, it is assumed that the corporation has neither the intention nor the need to liquidate or curtail materially the scale of its operations; if such intention exists, the financial statements may have to be prepared on a different basis and, if so, the basis used is disclosed. c. Qualitative Characteristics The information provided in the financial statements shall have the following qualitative characteristics: (i) Understandability .The information provided in financial statements are readily understandable by users. (ii) Relevance .Information must be relevant to the decision-making needs of users. Information has the quality of relevance when they influence the economic decisions of users by helping them evaluate past, present or future events or confirming, or correcting, their past evaluations. The predictive and confirmatory roles of information are interrelated. (iii) Materiality .Information is material if its omission or misstatement could influence the economic decisions of users taken on the basis of the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut-off point rather than being a primary qualitative characteristic which information must have if it is to be useful. (iv) Reliability .Information has the quality of reliability when it is free from material error and bias and can be depended upon by users to represent faithfully that which it either purports to represent or could reasonably be expected to represent. (v) Faithful Representation .Information must represent faithfully the transactions and other events it either purports to represent or could reasonably be expected to represent. (vi) Substance Over Form .The information must be accounted for and presented in accordance with their substance and economic reality and not merely their legal form. The substance of transactions or other events is not always consistent with that which is apparent from their legal or contrived form. (vii) Neutrality .The information contained in financial statements must be neutral, that is, free from bias. Financial statements are not neutral if, by the selection or presentation of information, they influence the making of a decision or judgment in order to achieve a predetermined result or outcome. (viii) Prudence (Conservatism) . Prudence/conservatism is the inclusion of a degree of caution in the exercise of the judgments needed in making the estimates required under conditions of uncertainty, such that assets or income are not overstated and liabilities or expenses are not understated. However, the exercise of prudence/conservatism does not allow the deliberate understatement of assets or income, or the deliberate overstatement of liabilities or expenses, because the financial statements would not be neutral and, therefore, not have the quality of reliability. (ix) Completeness .The information in financial statements must be complete within the bounds of materiality and cost. An omission can cause information to be false or misleading and thus unreliable and deficient in terms of its relevance. (x) Comparability .Users must be able to compare the financial statements of a corporation through time in order to identify trends in its financial position and performance. Users must also be able to compare the financial statements of different corporations in order to evaluate their relative financial position, performance and changes in financial position. Hence, the measurement and display of the financial effect of like transactions and other events must be carried out in a consistent way throughout a corporation and over time for that corporation and in a consistent way for different corporations. d. Basic Financial Statements and Minimum Presentation (i) Balance Sheet As a minimum, the face of the balance sheet should include the following line items: 1) Cash and Cash Equivalents; 2) Financial Assets (excluding amounts shown under (1),(3),and (6); 3) Trade and Other Receivables, 4) Inventories, 5) Property Plant and Equipment; 6) Investments accounted for using the equity method; 7) Intangible Assets, 8) Trade and other payables; 9) Tax Liabilities and assets as required by SFAS No. 23, Accounting for Income Taxes; 10) Provisions; 11) Non-current interest-bearing liabilities; 12) Minority interest; and 13) Issued capital and reserves. Except as otherwise required by the Commission, the various line items and disclosures set forth for this form of statement shall be in accordance with the Statements of Financial Accounting Standards/International Accounting Standards enumerated under paragraph (2)(a) of this Rule. (ii) Income Statement As a minimum, the face of the income statement should include the following line items: 1) Revenue; 2) The results of operating activities; 3) Finance costs; 4) Share of income and losses of associates and joint ventures accounted for using the equity method; 5) Tax Expenses, 6) Income or loss from ordinary activities; 7) Extraordinary items; 8) Minority interest; and 9) Net income or loss for the period. Except as otherwise required by the Commission, the various line items and disclosures set forth for this form of statement shall be in accordance with the Statements of Financial Accounting Standards/International Accounting Standards enumerated under paragraph (2)(a) of this Rule. (iii) Statement of Changes in Equity Except as otherwise required by the Commission, Statements of Changes in Equity shall be prepared in accordance with the generally accepted accounting principles in the Philippines [See definition in paragraph 1(b)(v) of Rule 68].This Annex merely emphasizes some requirements as to presentation and disclosures on the Statements of Changes in Equity. (1) A corporation shall present, as a separate component of its financial statements, a statement showing. a The net income or loss for the period; b. Each item of income and expense, gain or loss which, as required by other Statements of Financial Accounting Standards, is recognized directly in equity, and the total of these items, and c. The cumulative effect of changes in accounting policy dealt with under the Benchmark treatment, and the correction of fundamental errors under the required treatment in ASC SFAS No. 13 (revised 2000),Net Income or Loss for the Period, Fundamental Errors and Changes in Accounting Policies. (2) In addition, a corporation shall present, either within this statement or in the notes: d. Capital transactions with owners and distributions to owners; e. The Balance of accumulated income or loss at the beginning of the period and at the balance sheet date, and the movements for the period; and f. A reconciliation between the carrying amount of each class of capital stock, additional paid in capital and each reserve at the beginning and the end of the period, separately disclosing each movement. (3) The requirements above may be met in a number of ways. The approach adopted shall follow a columnar format which reconciles between the opening and closing balances of each element within shareholders' equity, including items (a) to (f).An alternative is to present a separate component of the financial statements which presents only items (a) to (c).Under this approach, the items described in (d) to (f) are shown in the notes to the financial statements. Whichever approach is adopted, a sub-total of the items in (b) to enable users to derive the total gains and losses arising from the registrant's activities during the period, is required. (iv) Cash Flow Statement Except as otherwise announced by the Commission, the various line items and disclosures set forth for this form of statement shall be in accordance with the Statements of Financial Accounting Standards/International Accounting Standards enumerated under paragraph (2)(a) of this Rule. (v) Notes to Financial Statements (Accounting Policies and Explanatory Notes) Except as otherwise announced by the Commission, the various disclosures for this part of the financial statement shall be in accordance with the Statements of Financial Accounting Standards/International Accounting Standards enumerated under paragraph (2)(a) of this Rule. 5. COMPARATIVE FINANCIAL STATEMENTS (a) The financial statements to be filed with the Commission shall be presented in comparative form. The figures for the most recently ended fiscal year may be presented at the right portion immediately after the accounts name, followed by the figures for the last preceding year. (b) Balance Sheet The audited balance sheets shall be as of the end of each of the two most recent completed fiscal years. (c) Income Statement, Cash Flow Statement and Statement of Changes in Equity If practicable, these statements shall be for each of the two most recent completed fiscal years or such shorter period as the company (including predecessors) has been in existence. (d) An explanation through a note or otherwise shall be made explaining the reasons for filing a single-period statement, e.g. it is the first period of a new company. (e) When financial statements are presented on a comparative basis for more than the periods required, the auditor's report need not extend to prior period's for which the financial statements are not required to be audited. (i) If the financial statements of the prior year were not audited, such statements should be marked prominently as "UNAUDITED." In addition, the auditor should disclose this fact in his report by a statement to that effect in a separate paragraph after the opinion paragraph. (ii) If the financial statements of a prior-period have been examined by another independent certified public accountant whose report is not presented, the statements should be marked to disclose prominently that they are not being reported upon by the current auditor. If the auditor of the financial statements for such periods did not give an unqualified opinion on such statements, the auditor for the current year should indicate in the scope paragraph of his report (I) that the financial statements of the prior-period were examined by other auditors, (II) the date of their report (III) the type of opinion expressed by the predecessor auditor and (IV) the substantive reasons it was qualified. 6. PENALTIES, REPEALING CLAUSE AND EFFECTIVITY a. Penalties i. All Financial Statements submitted to this Commission shall adhere strictly to the provisions of these Rules; any financial statements filed which are not in accordance with these Rules shall be considered NOT FILED at all. If the said incomplete financial statements are submitted with other report/s, the said report/s shall likewise be deemed not filed. ii. Any corporation covered by SRC Rule 68, As Amended, that violates any of its provision is subject to administrative sanctions (monetary and/or non-monetary) provided under the Securities Regulation Code (SRC) and its Implementing Rules and Regulations, for public companies, or the Corporation Code (CC) and its Implementing Rules and Regulations, for all other corporations covered by this Rule. iii. Any officer or director of a company covered by SRC Rule 68.1 who causes the disclosure of untrue or misleading information in the financial statements or the submission of a materially incomplete financial report of said entity, shall after due notice and hearing, be subject to a basic penalty of One Hundred Thousand Pesos (P100,000.00) plus a daily fine of Five Hundred Pesos (P500.00) until the information is corrected or completed. The same shall be without prejudice to the filing of appropriate criminal charges against the said person. iv. The penalty under subparagraph (iii) hereof shall likewise be imposed on any officer or director of a company covered by SRC Rule 68.1 or any person acting under the direction of said officer or director, or acting on his own, who fraudulently influences, coerces, manipulates or misleads the external auditor of such company or any other person(s) on whom such auditor relies, for the purpose of rendering the financial statement materially misleading. v. In addition to the monetary penalty imposable under the SRC or CC and their Implementing Rules and Regulations and whenever appropriate, the Certified Public Accountant who attested to the Financial Statements prepared in violation of this Rule shall, after due notice and hearing, be suspended or barred from practicing before this Commission for such period of time as it may deem adequate. b. Repealing Clause All rules and regulations, circulars, or memoranda or any part thereof, in conflict with or contrary to these Rules or any portion hereof, are hereby repealed or modified accordingly. c. Effectivity Unless otherwise specified, SRC Rule 68 and the accompanying Rule 68.1, as amended, shall become effective for financial statements covering periods beginning January 1, 2002 and for interim financial statements starting the first quarter of 2003, and thereafter. February 20, 2003, Mandaluyong City, Philippines. (SGD.) LILIA R. BAUTISTA Chairperson (SGD.) FE ELOISA C. GLORIA (SGD.) JOSELLA J. POBLADOR Commissioner Commissioner (SGD.) MA. JUANITA E. CUETO (SGD.) JESUS E.G. MARTINEZ Commissioner Commissioner RULE 68.1 Special Rule on Financial Statements of Reporting Companies Under Section 17.2 of the Securities Regulation Code 1. APPLICATION In addition to those set forth under Rule 68, this Rule (together with subsequent official pronouncements, interpretations and rulings on accounting and reporting matters, which may be issued by the Commission from time to time) provides for the special requirements on the financial statements required to be filed with the Commission by corporations which file registration statements under Section 12 of the Securities Regulation Code (the Code) or which meet the following criteria with respect to the requirements to file reports: a. issuer which has sold a class of their securities pursuant to a registration under Section 12 of the Code; b. issuer with a class of securities listed for trading on an Exchange; and c. issuer with assets of at least P50,000,000.00 or such other amount as the Commission shall prescribe and having 200 or more holders each holding at least 100 shares of a class of its equity securities as of the first day of the issuer's fiscal year. 2. AUDITORS OPINION ON FINANCIAL STATEMENTS a. Under SEC Resolution No. 22, Series of 2003, the Commission discourages the submission of audited financial statements for companies covered by this Rule accompanied by an auditor's opinion which is other than unqualified. It is understood that the Commission retains the right to obtain clarification about the reason(s) for such opinion. aSDHCT b. Audited financial statements for periods beginning January 1, 2003 and thereafter, for companies covered by this Rule with auditors opinion other than unqualified as a result of departure(s) from generally accepted accounting principles in the Philippines shall be deemed not filed and appropriate sanctions shall be imposed thereon. 3. RESPONSIBILITY FOR FINANCIAL STATEMENTS The financial statements filed with the Commission by companies covered by this Rule shall be accompanied by a statement of management's responsibility as follows: STATEMENT OF MANAGEMENTS RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of (name of reporting company) is responsible for all information and representations contained in the financial statements for the year(s) ended (date).The financial statements have been prepared in conformity with generally accepted accounting principles in the Philippines and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the company's audit committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other employees who exercise significant roles in internal controls. The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the company. (name of auditing firm),the independent auditors appointed by the stockholders, has examined the financial statements of the company in accordance with generally accepted auditing standards in the Philippines and has expressed its opinion on the fairness of presentation upon completion of such examination, in its report to the Board of Directors and stockholders. Signed under oath by the following: Chairman of the Board Chief Executive Officer Chief Financial Officer 4. PERIODIC PRESENTATION The periodic presentation and coverage of financial statements accompanying the registration statements, annual reports and information or proxy statements shall be in accordance with the requirements of this section. a. Registration Statements i. Consolidated Balance Sheets A. If the registrant has been in existence for less than one fiscal year, there shall be filed an audited balance sheet as of a date within 135 days of the date of filing the registration statement. B. If a filing on SEC Form 12-1 is made within one hundred five (105) days after the end of the most recently ended fiscal year, the filing shall include audited consolidated balance sheets as of the end of each of the two (2) years prior to the most recently ended fiscal year and a separate interim balance sheet as of the end of the most recently ended fiscal year. C. If a filing on SEC Form 12-1 is made more than one hundred five (105) days but not more than one hundred thirty five (135) days after the end of the most recently ended fiscal year, the filing shall include audited consolidated balance sheets as of the end of each of the two most recently ended fiscal years. D. If a filing on SEC Form 12-1 is made more than one hundred thirty five (135) days but not more than two hundred twenty five (225) days after the end of the most recently ended fiscal year, the filing shall include audited consolidated balance sheets as of the end of each of the two most recently ended fiscal years and a separate interim balance sheet as of the end of the first fiscal quarter subsequent to the most recent fiscal year end. E. If a filing on SEC Form 12-1 is made more than two hundred twenty five (225) days but not more than three hundred fifteen (315) days after the end of the most recently ended fiscal year, the filing shall include audited consolidated balance sheets as of the end of each of the two most recently ended fiscal years and a separate interim balance sheet as of the end of the second fiscal quarter subsequent to the most recent fiscal year end. F. If a filing on Form 12-1 is made more than three hundred fifteen (315) days after the end of the most recently ended fiscal year, the filing shall include audited consolidated balance sheets as of the end of each of the two most recently ended fiscal years and a separate interim balance sheet as of the end of the third fiscal quarter subsequent to the most recent fiscal year end. G. Any interim balance sheet provided in compliance with this subparagraph may be unaudited and need not be presented in greater detail than is required by paragraph (9) of this Rule. ii. Consolidated Income Statement A. There shall be filed for the registrant and its subsidiaries consolidated and its predecessors, audited income statement in a comparative format for each of the three most recent completed fiscal years or such shorter period as the registrant (including predecessors) has been in existence. B. In addition, income statement shall be provided for any interim period between the latest audited balance sheet and the date of the most recent interim balance sheet being filed, and for the corresponding period of the preceding year. Such interim financial statements may be unaudited and need not be presented in greater detail than is required by paragraph (9) of this Rule. iii. Consolidated Statement of Changes in Equity A. There shall be filed for the registrant and its subsidiaries consolidated and its predecessors, audited statements of changes in equity in comparative format for each of the three most recent completed fiscal years or such shorter period as the registrant (including predecessors) has been in existence. B. In addition, statements of changes in equity shall be provided for any interim period between the latest audited balance sheet and the date of the most recent interim balance sheet being filed, and for the corresponding period of the preceding year. Such interim financial statements may be unaudited and need not be presented in greater detail than is required by Paragraph (9) of this Rule. iv. Consolidated Cash Flow Statement A. There shall be filed for the registrant and its subsidiaries consolidated and its predecessors, audited statements of cash flows in comparative format for each of the three most recent completed fiscal years or such shorter period as the registrant (including predecessors) has been in existence. B. In addition, consolidated statement of cash flows shall be provided for any interim period between the latest audited balance sheet and the date of the most recent interim balance sheet being filed, and for the corresponding period of the preceding year. Such interim financial statements may be unaudited and need not be presented in greater detail than is required by Paragraph (9) of this Rule. v. Age of Financial Statements At the time a registration statement on SEC Form 12-1 is to become effective, the financial information therein must be as of a date within 135 days from effective date. Interim financial statements required to be included in a registration statement, which are necessary to keep the registration statement current, need not be audited and need not be in greater detail than required by Paragraph 7 of this Rule. b. Annual Reports (SEC Form 17-A) i. There shall be filed consolidated audited balance sheets (except if not applicable),in comparative format, as of the end of each of the two most recent completed fiscal years. ii. The Income Statement, Cash Flow Statement and Statement of Changes in Equity shall be in comparative format for the three most recent completed fiscal years or such shorter period as the company (including predecessors) has been in existence. c. Information or Proxy Statements (SEC Form 17-IS or 20) i. There shall be filed consolidated audited balance sheets (except if not applicable),in comparative format, as of the end of each of the two most recent completed fiscal years. If the meeting date is beyond one hundred thirty five (135) days from the company's fiscal year end, a separate interim balance sheet as of the end of the most recent quarter with comparative figures as of the end of the preceding fiscal year shall likewise be filed. ii. The Income Statement, Cash Flow Statement and Statement of Changes in Equity shall be in comparative format for the three most recent completed fiscal years or such shorter period as the company (including predecessors) has been in existence. If the meeting date is beyond one hundred thirty five (135) days from the company's fiscal year end, separate interim statements for the most recent quarter with comparative figures for period ending of the same quarter of the preceding year shall likewise be filed. 5. FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED OR TO BE ACQUIRED a. Financial statements required i. Financial statements prepared and audited in accordance with this Rule should be furnished for the periods specified in paragraph (b) below if any of the following conditions exist: A. Consummation of a business combination accounted for as a purchase has occurred or is probable (for purposes of this rule, the term "purchase" encompasses the purchase of an interest in a business accounted for by the equity method);or B. Consummation of a business combination to be accounted for as a pooling of interests is probable. ii. For purposes of determining whether the provisions of this rule apply, the determination of whether a "business" has been acquired should be made in accordance with the guidance set forth in paragraph (6) of this Rule. iii. If consummation of more than one transaction has occurred or is probable, the required financial statements may be presented on a combined basis, if appropriate. iv. This subparagraph shall not apply to a business which is totally owned by the registrant prior to consummation of the transaction. b. Periods to be presented i. If securities are being registered to be sold for cash, the audited financial statements shall be furnished for the business to be acquired [See also Pro-Forma Financial Information requirements in paragraph (6)].In all other cases, the financial statements shall be furnished on an audited basis to the extent practicable for the business to be acquired. The periods for which such financial statements are to be filed shall be determined using the conditions specified in the definition of "significant subsidiary" in paragraph 1(b)(x) of Rule 68. A. If none of the conditions exceeds ten percent (10%),financial statements are not required. However, if the aggregate impact of the individually insignificant businesses acquired since the date of the most recent audited balance sheet filed for the registrant exceeds twenty percent (20%),financial statements covering at least the substantial majority of the businesses acquired, combined if appropriate, shall be furnished. Such financial statements shall be for at least the most recent fiscal year and any interim periods. B. If any of the conditions exceeds ten percent (10%),but none exceed twenty percent (20%),financial statements shall be furnished for at least the most recent fiscal year and any interim periods. C. If any of the conditions exceeds twenty percent (20%) but none exceed forty percent (40%),financial statements shall be furnished for at least the two most recent fiscal years and interim periods. D. If any of the conditions exceeds forty percent (40%),the full financial information specified in Paragraph (5) of this Rule shall be furnished. E. The determinations under subparagraphs (A),(B),(C),and (D) shall be made by comparing the most recent annual financial statements of each such business to the registrant's most recent annual consolidated financial statements filed at or prior to the date of acquisition. However, if the registrant made a significant acquisition subsequent to the latest fiscal year-end and filed a report on Form 17-C which included audited financial statements of such acquired business for the periods required by this subparagraph and the pro forma financial information required by Paragraph (10),such determination may be made by using the pro forma amounts for the latest fiscal year in the report on Form 17-C rather than by using the historical amounts for the latest fiscal year of the registrant. The tests may not be made by "annualizing" data. F. Notwithstanding the requirements in subparagraph (b)(i)(A) above, separate financial statements of the acquired business need not be presented once the operating results of the acquired business have been reflected in the audited consolidated financial statements of the registrant for a complete fiscal year unless such financial statements have not been previously filed or unless the acquired business is of such significance to the registrant that omission of such financial statements would materially impair an investor's ability to understand the historical financial results of the registrant. For example, if, at the date of acquisition, the acquired business met at least one of the conditions in the definition of "significant subsidiary" in Paragraph 1(b)(x) of Rule 68 at the 60 percent (60%) level the income statements of the acquired business should normally continue to be furnished for such periods prior to the purchase as may be necessary when added to the time for which audited income statements after the purchase are filed to cover the equivalent of the period specified in Paragraph 5 of this Rule. G. A separate audited balance sheet of the acquired business is not required when the registrants most recent audited balance sheet required by Paragraph 5 of this Rule is for a date after the date the acquisition was consummated. c. Separate financial statements of subsidiaries not consolidated and fifty percent (50%) or less owned persons i. If any of the conditions set forth in the definition of "significant subsidiary" in Paragraph 1(b)(x) of Rule 68, substituting twenty percent (20%) for ten percent (10%) in the tests used therein to determine a significant subsidiary are met for a majority-owned subsidiary not consolidated by the registrant or by a subsidiary of the registrant, separate financial statements of such subsidiary shall be filed. Similarly, if any of the conditions set forth therein, substituting twenty percent (20%) for ten percent (10%),are met by a fifty percent (50%) or less owned person accounted for by the equity method either by the registrant or a subsidiary of the registrant, separate financial statements of such fifty percent (50%) or less owned person shall be filed. ii. Insofar as practicable, the separate financial statements required by this Part shall be as of the same dates and for the same periods as the audited consolidated financial statements required by Paragraph 5. However, these separate financial statements are required to be audited only for those fiscal years in which any of the conditions described in the definition of "significant subsidiary" in Paragraph 1(b)(x),substituting 20 percent (20%) for 10 percent (10%),are met. iii. Notwithstanding the requirements for separate financial statements under this paragraph, where financial statements of two or more majority-owned subsidiaries not consolidated are required, combined or consolidated statements of such subsidiaries may be filed subject to principles of inclusion and exclusion which clearly exhibit the financial position, cash flows and results of operations of the combined or consolidated group. Similarly, where financial statements of two or more 50 percent or less owned persons are required, combined or consolidated statements of such persons may be filed subject to the same principles of inclusion or exclusion referred to above. 6. APPLICABILITY WITH OTHER REPORTS The schedules required by Paragraph 8(d) and set forth in "Annex 68.1-M" of Rule 68.1 and the separate financial statements of subsidiaries not consolidated and 50 percent or less owned persons required under paragraph (6) of this Rule, are not required in annual reports to shareholders. 7. ADDITIONAL DISCLOSURE REQUIREMENTS a. Balance Sheet In addition to the disclosures required under the Statements of Financial Accounting Standards (SFAS)/International Accounting Standards (IAS) and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in "Annex 68.1-K" if applicable, should appear on the face of the balance sheets or related notes filed by the persons to whom this Rule pertains. b. Income Statement In addition to the disclosures required under the SFAS/IAS and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in "Annex 68.1-L" if applicable, should appear on the face of the income statements or related notes filed by the persons to whom this Rule pertains. c. Cash Flow Statement In addition to the disclosures required under the SFAS/IAS and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in "Annex 68.1-M" if applicable, should appear on the face of the cash flow statements or related notes filed by the persons to whom this Rule pertains. d. General Notes to Financial Statements In addition to the disclosures required under the SFAS/IAS and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in "Annex 68.1-J" if applicable, should appear on the face of the financial statements or related notes filed by the persons to whom this Rule pertains. e. Schedules Please see "Annex 68.1-N" for disclosure requirements. 8. INTERIM FINANCIAL STATEMENTS The following additional instructions shall be applicable for purposes of preparing interim financial statements: a. Summarized income statement information (See definition of "Summarized Financial Information, Paragraph 1(b)(xii) under Rule 68) shall be given separately as to each subsidiary not consolidated or 50 percent owned person or as to each group of such subsidiaries or 50 percent or less owned persons for which separate individual or group statements would otherwise be required for annual periods. b. If appropriate, the income statement shall show earnings per share and dividends declared per share applicable to common stock. The basis of the earnings per share computation shall be stated together with the number of shares used in the computation. c. If, during the most recent interim period presented, the registrant or any of its consolidated subsidiaries entered into a business combination treated for accounting purposes as a pooling of interests, the interim financial statements for both the current year and the preceding year shall reflect the combined results of the pooled businesses. Supplemental disclosure of the separate results of the combined entities for the periods prior to the combination shall be given, with appropriate explanations. i. Where a material business combination accounted for as a purchase has occurred during the current fiscal year, pro forma disclosure shall be made of the results of operations for the current year up to the date of the most recent interim balance sheet provided (and for the corresponding period in the preceding year) as though the companies had combined at the beginning of the period being reported on. This pro forma information should as a minimum show revenues, income before extraordinary items and the cumulative effect of accounting changes, including such income on a per share basis, and net income per share. ii. Where the registrant has disposed of any significant segment of its business, revenues and net income total and per share for all periods shall be disclosed. iii. In addition to meeting the reporting requirements specified by existing standards for accounting changes, the registrant shall state the date of any material accounting change and the reasons for making it. In addition, for filings on Form 17-Q, a letter from the independent accountant shall be filed as an exhibit in the first Form 17-Q filed subsequent to the date of an accounting change indicating whether or not the change is to an alternative principle which in his judgment is preferable under the circumstances; except that no letter from the accountant need be filed when the change is made in response to a standard adopted by the Philippine ASC which requires such change. iv. Any material retroactive prior period adjustment made during any period covered by the interim financial statements shall be disclosed, together with the effect thereof upon net income total and per share of any prior period included and upon the balance of retained earnings. If results of operations for any period presented have been adjusted retroactively by such an item subsequent to the initial reporting of such period, similar disclosure of the effect of the change shall be made. v. Any unaudited interim financial statements furnished shall reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. A statement to that effect shall be included. Such adjustments shall include, for example, appropriate estimated provisions for bonus and profit sharing arrangements normally determined or settled at year-end. If all such adjustments are of a normal recurring nature, a statement to that effect shall be made; otherwise, there shall be furnished information describing in appropriate detail the nature and amount of any adjustments other than normal recurring adjustments entering into the determination of the results shown. d. Periods to be covered The periods for which interim financial statements are to be provided in registration forms are stated in Paragraph 4 of this Rule. For filings on Form 17-Q, financial statements shall be provided as set forth below: i. An interim balance sheet as of the end of the current interim period and a comparative balance sheet as of the end of the immediately preceding financial year. The balance sheet as of the end of the preceding fiscal year may be condensed to the same degree as the interim balance sheet provided. An interim balance sheet as of the end of the corresponding fiscal quarter of the preceding fiscal year need not be provided unless necessary for an understanding of the impact of seasonal fluctuations on the registrant's financial condition. ii. Interim statements of income shall be provided for the current interim period and cumulatively for the current financial year to date, with comparative income statements for the comparable interim periods (current and year-to-date) of the immediately preceding financial year. iii. Statement showing changes in equity cumulatively for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year; and iv. Interim statements of cash flows shall be provided for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year. v. For registrants whose business is highly seasonal, financial information for the twelve months ending on the interim reporting date and comparative information for the prior twelve-month period may be useful. They may provide interim statements of income and of cash flows for the twelve month period ended during the most recent quarterly period and for the corresponding preceding period in lieu of the year-to-date statements specified in (ii) and (iii) above. e. Filing of other interim financial information in certain cases The Commission may, upon the informal written request of the registrant, and where consistent with the protection of investors, permit the omission of any of the interim financial information herein required or the filing in substitution therefor of appropriate information of comparable character. The Commission may also by informal written notice require the filing of other information in addition to, or in substitution for, the interim information herein required in any case where such information is necessary or appropriate for an adequate presentation of the financial condition of any person for which interim financial information is required, or whose financial information is otherwise necessary for the protection of investors. 9. PRO FORMA FINANCIAL INFORMATION a. Presentation requirements i. Pro forma financial information shall be furnished when any of the following conditions exist: A. During the most recent fiscal year or subsequent interim period for which a balance sheet is required by Paragraph 4 of this Rule, a significant business combination accounted for as a purchase has occurred (for purposes of this Rule, the term "purchase" encompasses the purchase of an interest in a business accounted for by the equity method); B. After the date of the most recent balance sheet filed pursuant to Paragraph 4, consummation of a significant business combination to be accounted for by either the purchase method or pooling-of-interests method of accounting has occurred or is probable; C. Securities being registered by the registrant are to be offered to the security holders of a significant business to be acquired or the proceeds from the offered securities will be applied directly or indirectly to the purchase of a specific significant business; D. The disposition of a significant portion of a business either by sale, abandonment or distribution to shareholders by means of a spin-off, split-up or split-off has occurred or is probable and such disposition is not fully reflected in the financial statements of the registrant included in the filing; E. During the most recent fiscal year or subsequent interim period for which a balance sheet is required by Paragraph 4, the registrant has acquired one or more real estate operations or properties which in the aggregate are significant, or since the date of the most recent balance sheet filed pursuant to that Part the registrant has acquired or proposes to acquire one or more operations or properties which in the aggregate are significant; F. The registrant previously was a part of another entity and such presentation is necessary to reflect operations and financial position of the registrant as an autonomous entity; or G. Consummation of other events or transactions has occurred or is probable for which disclosure of pro forma financial information would be material to investors. ii. A business combination or disposition of a business shall be considered significant if: A. A comparison of the most recent annual financial statements of the business acquired or to be acquired and the registrant's most recent annual consolidated financial statements filed at or prior to the date of acquisition indicates that the business would be a significant subsidiary pursuant to the definition specified in Paragraph 1(b)(x) of Rule 68. B. The business to be disposed of meets the definition of a significant subsidiary in Paragraph 1(b)(x) of Rule 68. iii. When consummation of more than one transaction has occurred or is probable during a fiscal year, the tests of significance in (ii) above shall be applied to the cumulative effect of those transactions. If the cumulative effect of the transactions is significant, pro forma financial information shall be presented. iv. For purposes of this Rule, the term business should be evaluated in light of the facts and circumstances involved and whether there is sufficient continuity of the acquired entity's operations prior to and after the transactions so that disclosure of prior financial information is material to an understanding of future operations. A presumption exists that a separate entity, a subsidiary, or a division is a business. However, a lesser component of an entity may also constitute a business. Among the facts and circumstances which should be considered in evaluating whether an acquisition of a lesser component of an entity constitutes a business are the following: A. Whether the nature of the revenue-producing activity of the component will remain generally the same as before the transaction; or B. Whether any of the following attributes remain with the component after the transaction: I. Physical facilities. II. Employee base. III. Market distribution system. IV. Sales force. V. Customer base. VI. Operating rights. VII. Production techniques, or VIII. Trade names. v. This Rule does not apply to transactions between a parent company and its wholly-owned subsidiary. b. Preparation requirements i. Objective pro forma financial information should provide investors with information about the continuing impact of a particular transaction by showing how it might have affected historical financial statements if the transaction had been consummated at an earlier time. Such statements should assist investors in analyzing the future prospects of the registrant because they illustrate the possible scope of the change in the registrant's historical financial position and results of operations caused by the transaction. ii. Form and content A. Pro forma financial information shall consist of a pro forma condensed balance sheet, pro forma condensed statements of income, and accompanying explanatory notes. In certain circumstance ( i.e. ,where a limited number of pro forma adjustments are required and those adjustments are easily understood),a narrative description of the pro forma effects of the transactions may be furnished in lieu of the statements described herein. B. The pro forma financial information shall be accompanied by an introductory paragraph which briefly sets forth a description of (I) the transaction, (II) the entities involved, and (III) the periods for which the pro forma information is presented. In addition, an explanation of what the pro forma presentation shows shall be set forth. C. The pro forma condensed financial information need only include major captions ( i.e. ,the numbered captions) prescribed by the applicable paragraphs of this Regulation. Where any major balance sheet caption is less than 10 percent of total assets, the caption may be combined with others. When any major income statement caption is less than 15 percent of average net income of the registrant for the most recent three fiscal years, the caption may be combined with others. In calculating average net income, a loss year should be excluded unless losses were incurred in each of the most recent three years, in which case the average loss shall be used for purposes of this test. Notwithstanding these tests, "minimal" amounts need not be shown separately. D. Pro forma statements shall ordinarily be in columnar form showing condensed historical statements, pro forma adjustments, and the pro forma results. E. The pro forma condensed income statement shall disclose income (loss) from continuing operations before nonrecurring charges or credits directly attributable to the transaction. Material nonrecurring charges or credits and related tax effects which result directly from the transaction and which will be included in the income of the registrant within the 12 months succeeding the transaction shall be disclosed separately. It should be clearly indicated that such charges or credits were not considered in the pro forma condensed income statement. If the transaction for which pro forma financial information is presented relates to the disposition of a business, the pro forma results should give effect to the disposition and be presented under an appropriate caption. F. Pro forma adjustments related to the pro forma condensed income statement shall be computed assuming the transaction was consummated at the beginning of the fiscal year presented and shall include adjustments which give effect to events that are (I) directly attributable to the transaction, (II) expected to have a continuing impact on the registrant, and (III) factually supportable. Pro forma adjustments to the pro forma condensed balance sheet shall be computed assuming the transaction was consummated at the end of the most recent period for which a balance sheet is required by Paragraph 4 of this Rule and shall include adjustments which give effect to events that are directly attributable to the transaction and factually supportable regardless of whether they have a continuing impact or are nonrecurring. All adjustments should be referenced to notes which clearly explain the assumptions involved. G. Historical primary and fully diluted per share data based on continuing operations (or net income if the registrant does not report either discontinued operations, extraordinary items, or the cumulative effect of accounting changes) for the registrant, and primary and fully diluted pro forma per share data based on continuing operations before nonrecurring charges or credits directly attributable to the transaction shall be presented on the face of the pro forma condensed income statement together with the number of shares used to compute the per share data. For transactions involving the issuance of securities, the number of shares used in the calculation of th e pro forma per share data should be based on the weighted average number of shares outstanding during the period adjusted to give effect to shares subsequently issued or assumed to be issued had the particular transaction or event taken place at the beginning of the period presented. If a convertible security is being issued in the transaction, consideration should be given to the possible dilution of the pro forma per share data. H. If the transaction is structured in such a manner that significantly different results may occur, additional pro forma presentations shall be made which give effect to the range of possible results. *Instructions* 1. The historical statements of income used in the pro forma financial information shall not report operations of a segment that has been discontinued, extraordinary items, or the cumulative effects of accounting changes. If the historical statement of income includes such items, only the portion of the income statement through "income from continuing operations" (or the appropriate modification thereof) should be used in preparing pro forma results. 2. For a purchase transaction, pro forma adjustments for the income statement shall include amortization of goodwill, depreciation and other adjustments based on the allocated purchase price of net assets acquired. In some transactions, such as in financial institution acquisitions, the purchase adjustments may include significant discounts of the historical cost of the acquired assets to their fair value at the acquisition date. When such adjustments will result in a significant effect on earnings (losses) in periods immediately subsequent to the acquisition which will be progressively eliminated over a relatively short period, the effect of the purchase adjustments on reported results of operations for each of the next five years should be disclosed in a note. 3. For a disposition transaction, the pro forma financial information shall begin with the historical financial statements of the existing entity and show the deletion of the business to be divested along with the pro forma adjustments necessary to arrive at the remainder of the existing entity. For example, pro forma adjustments would include adjustments of interest expense arising from revised debt structures and expenses which will be or have been incurred on behalf of the business to be divested such as advertising costs, executive salaries and other costs. 4. For entities which were previously a component of another entity, pro forma adjustments should include adjustments similar in nature to those referred to in Instruction 3 above. Adjustments may also be necessary when charges for corporate overhead, interest, or income taxes have been allocated to the entity on a basis other than one deemed reasonable by management. 5. Adjustments to reflect the acquisition of real estate operations or properties for the pro forma income statement shall include a depreciation charge based on the new accounting basis for the assets, interest financing on any additional or refinanced debt, and other appropriate adjustments that can be factually supported. See also Instruction 4 above. 6. When consummation of more than one transaction has occurred or is probable during a fiscal year, the pro forma financial information may be presented on a combined basis; however, in some circumstances (e.g. depending upon the combination of probable and consummated transactions, and the nature of the filing) it may be more useful to present the pro forma financial information on a disaggregated basis even though some or all of the transactions would not meet the tests of significance individually. For combination presentations, a note should explain the various transactions and disclose the maximum variances in the pro forma financial information which would occur for any of the possible combinations. If the pro forma financial information is presented in a proxy or information statement for purposes of obtaining shareholder approval of one of the transactions, the effects of that transaction must be clearly set forth. 7. Tax effect, if any, of pro forma adjustments normally should be calculated at the statutory rate in effect during the periods for which pro forma condensed income statements are presented and should be reflected as a separate pro forma adjustment. xxx xxx xxx iii. Periods to be presented A. A pro forma condensed balance sheet as of the end of the most recent period for which a consolidated balance sheet of the registrant is required shall be filed unless the transaction is already reflected in such balance sheet. B. Pro forma condensed statements of income shall be filed for only the most recent fiscal year and for the period from the most recent fiscal year end to the most recent interim date for which a balance sheet is required. A pro forma condensed statement of income may be filed for the corresponding interim period of the preceding fiscal year. A pro forma condensed statement of income shall not be filed when the historical income statement reflects the transaction for the entire period. C. For a business combination accounted for as a pooling of interests, the pro forma income statements (which are in effect a restatement of the historical income statements as if the combination had been consummated) shall be filed for all periods for which historical income statements of the registrant are required. D. Pro forma condensed statements of income shall be presented using the registrant's fiscal year end. If the most recent fiscal year end of any other entity involved in the transaction differs from the registrant's most recent fiscal year end by more than 93 days, the other entity's income statement shall be brought up to within 93 days of the registrant's most recent fiscal year end, if practicable. This updating could be accomplished by adding subsequent interim period results to the most recent fiscal year-end information and deducting the comparable preceding year interim period results. Disclosure shall be made of the periods combined and of the sales and revenues and income for any periods which were excluded from or included more than once in the condensed pro forma income statements (e.g.,and interim period that is included both as a part of the fiscal year and the subsequent interim period.) E. Whenever unusual events enter into the determination of the results shown for the most recently completed fiscal year, the effect of such unusual events should be disclosed and consideration should be given to presenting a pro forma condensed income statement for the most recent twelve-month period in addition to those required in paragraph (iii)(B) above if the most recent twelve-month period is more representative of normal operations. 10. CONSOLIDATED FINANCIAL STATEMENTS In addition to those required under the applicable SFAS/IAS, the following requirements shall be complied with by the reporting company: a. Disclosure about Subsidiaries Not Consolidated and 50 Percent or Less Owned Persons i. Summarized financial information (see definitions in paragraph 1(b)(xii) of Rule 68) shall be furnished in the notes to the financial statements for each significant subsidiary not consolidated and for each 50 percent or less owned person. Notwithstanding the requirement for separate summarized financial information for each significant subsidiary, where summarized financial information of two or more majority-owned subsidiaries not consolidated are required, combined or consolidated summarized financial information of such subsidiaries may be filed subject to principles of inclusion and exclusion which clearly exhibit the financial position, cash flows and results of operations of the combined or consolidated group. Similarly, where summarized financial information of two or more 50 percent or less owned persons are required, combined or consolidated summarized financial information of such persons may be filed subject to the same principles of inclusion or exclusion referred to above. ii. Summarized financial information shall be furnished in the aggregate for (A) subsidiaries not consolidated and (B) 50 percent or less owned persons, not reported upon pursuant to (A) hereof. If in the aggregate, either subsidiaries not consolidated or 50 percent or less owned persons would not constitute a significant subsidiary, it may be stated that such groupings would not constitute a significant subsidiary and summarized financial information is not required. b. Foreign Subsidiaries A company covered by this Rule which has a significant foreign subsidiary or subsidiaries shall submit to the Commission copies of the financial statements of said subsidiaries. "Annex 68.1-J" General Notes to Financial Statements In addition to the requirements under the applicable SFAS/IAS, corporations covered by Rule 68.1 shall comply with the disclosure requirements of this Annex. 1. the nature and remaining undepreciated balance as of December 31, 2002 of foreign exchange losses capitalized as part of property, plant and equipment; 2. the nature and the unamortized balance as of December 31, 2002 of deferred losses arising from long term foreign exchange liabilities; 3. the nature and amount of intangible assets ( e.g. pre-operating expenses) as of December 31, 2002 expected to be written of as a result of applying SFAS/IAS 38. "Annex 68.1-K" Balance Sheet In addition to the requirements under the applicable SFAS/IAS, corporations covered by Rule 68.1 shall comply with the disclosure requirements of this Annex. A registrant shall disclose, either on the face of the balance sheet or in the notes to the financial statements, further sub-classifications of the line items presented in accordance with this Annex and in a manner appropriate to the registrant's operations and the nature and function of amount involved. (1) Trade and Other Receivables (A) State separately receivable from: (i) customers (trade); (ii) related parties (see definition under paragraph (1)(b)(viii) of Rule 68); (iii) other than trade debtors such as loans or advances to officers and employees; If significant in amount, other receivables should be segregated by type, otherwise, they may be grouped in one figure captioned as Accounts Receivables-Others, or other equivalent title. (B) Disclose the following amounts recognized during the period: (i) allowance for doubtful accounts; (ii) reversal of allowances for doubtful accounts. (2) Inventories The following disclosures shall be provided: (A) Declines subsequent to balance sheet date in market prices of inventory not protected by firm sales contracts. (B) Changes in pricing methods and the effects thereof; (C) Unusual purchase commitments and accrued net losses, if any, on such commitments. (Losses which are expected to arise from firm and uncancellable commitments for the future purchase of inventory items should, if material, be recognized in the accounts and separately disclosed in the income statement); (D) The amount of any substantial and unusual write downs. (3) Other Current Assets State separately any amounts in excess of five per cent (5%) of total current assets. The remaining items may be shown in one amount. (4) Other Long-Term Investments (Investments in bonds and other debt securities, long-term funds and other investments) State separately by class of investments any items in excess of five per cent (5%) of total assets. (5) Indebtedness of or Advances to Unconsolidated Subsidiaries and Related parties Show separately under this caption non-current advances to unconsolidated subsidiaries and related parties. (6) Intangible Assets State separately, if material in amount, each major class of intangible assets, such as goodwill, franchises, patents, copyrights, licenses, secret processes, subscription lists, non-competition agreements, and trademarks. They may be shown under a separate caption following property plant and equipment in the non-current section of the balance sheet or under Other Assets. Disclose also the basis of determining their respective amounts. (7) Other Assets State separately any item which is in excess of 5% of total assets. (8) Trade and Other Payables (A) The following payables shall be stated separately in the notes to financial statements: (i) Trade Payables; (ii) Payables to subsidiaries; (iii) Payables to related parties; (iii) Advances from Directors, officers, employees and principal stockholders and related parties of the company or its related parties (exclude from this item amounts for purchases subject to usual trade terms, for ordinary travel expenses, and for other items arising in the ordinary course of business). (iv) Accruals (Show separately significant accruals for payrolls, taxes other than income taxes, interest, and any other material items.). (B) The following information shall be also be disclosed: (i) Any current liability guaranteed by others; (ii) Assets pledged against secured liabilities. (9) Other Current Liabilities If material, state separately in amount the following in the notes to financial statements: (A) Dividends declared and not paid at balance sheet date. (B) Acceptances payable (C) Liabilities under trust receipts (D) Portion of long-term debt due within one year (E) Deferred Income (F) Any other current liability in excess of 5% of total current liabilities (10) Other Long-Term Liabilities State separately, in the balance sheet or in a note thereto, any item not properly classified in one of the preceding liability captions (Such as deferred income taxes and other long-term deferred credits) which is in excess of 5 percent of total liabilities. "Annex 68.1-L" Income Statement In addition to the requirements under the applicable SFAS/IAS, corporation covered by Rule 68.1 shall comply with the disclosure requirements of this Annex. (1) Finance Costs State separately in the face or in the notes to financial statements the amount of interest expense and amortization of debt discount and expenses for each of the following: A. Interest on bonds, mortgages and other similar long-term debt B. Amortization of debt discount, expense or premium C. Other interest. (2) Other Income A. Dividends State separately, if practicable, the amount of dividends from: 1. Securities of related parties and unconsolidated subsidiaries, 2. Marketable securities, and 3. Other securities B. Equity in earnings (losses) of unconsolidated subsidiaries and investees The investors' share of earnings or losses of unconsolidated subsidiaries and investees should ordinarily be shown as a single amount. C. Interest Income on Securities State separately, if practicable, the amount of interest from: 1. Securities of related parties and unconsolidated subsidiaries, 2. Marketable securities and 3. Other securities D. Gain (loss) on Securities If gain or loss on disposal of securities are shown separately, state gains, net of losses or vice versa and disclose the method followed in determining the cost of securities sold, e.g. ,"Average Cost","First-In" First-Out" or "Specific Identification Method." F. Miscellaneous State separately any material amounts of miscellaneous other income indicating clearly the nature of the transactions out of which the items arose. Miscellaneous other income may be stated net of miscellaneous income deductions or vice versa, provided that any material amounts are set forth separately. (3) Other Expenses State separately expenditures with material amount or that which constitutes 10% or more of the revenue of the registrant. (4) Specific disclosures on the face of the statement or in the notes A. Research and development expenditure recognized as an expense during the period; B. The amount of foreign exchange differences included in the net profit or loss for the period; "Annex 68.1-M" SCHEDULES This Annex prescribes the disclosure requirements including the form and content of the schedules required by paragraph 7(e) of Rule 68.1. 1. Except as expressly provided otherwise, the schedules specified below shall be filed as of the latest balance sheet date. 2. The independent auditor's report shall cover the schedules accompanying the financial statements filed. 3. In a registration statement filed on SEC Form 12-1, the Schedules need not be included in Part I Information Required in Prospectus, but may be included in Part II Information Not Required in Prospectus. 4. INSTRUCTIONS Schedule A. Marketable Securitie s (Current Marketable Equity Securities and Other Short-Term Cash Investments) This schedule shall be filed: 1. In support of the caption Current Marketable Equity Securities in the balance sheet, if the greater of the aggregate cost or the aggregate market value of current marketable equity securities as of the balance sheet date constitute 10 per cent or more of total assets. 2. In support of the caption Other Short Term Cash Investments, if the amount at which other short-term cash investments shown in the balance sheet constitutes 10 per cent or more of total assets, and 3. In support of the caption Current Marketable Equity Securities and Other Short Term Cash Investments in the balance sheet, if the greater of the aggregate cost or the aggregate market value of current marketable equity securities plus the amount at which other short term cash investments is shown in the balance sheet as of the balance sheet date. Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Parties, and Principal Stockholders (Other than Related parties). This schedule shall be filed with respect to each person among the directors, officers, employees, and principal stockholders (other than related parties) from whom an aggregate indebtedness of more than P100,000 or one per cent of total assets, whichever is less, is owed. For the purposes of this schedule, exclude in the determination of the amount of indebtedness all amounts receivable from such persons for purchases subject to usual terms, for ordinary travel and expense advances and for other such items arising in the ordinary course of business. Schedule C. Non-Current Marketable Equity Securities, Other Long-Term Investments in Stocks, and Other Investments This schedule shall be filed in support of the respective captions on long-term investments in the balance sheet. This schedule may be omitted if: 1. The sum of the captions Non-Current Marketable Equity Securities, Other Long-Term Investments, and Other Investments in the related balance sheet does not exceed five per cent of total assets as shown in the related balance sheet at either the beginning or end of the period or 2. There have been no material changes in the information required to be filed from that last previously reported. Schedule D. Indebtedness of Unconsolidated Subsidiaries and Related parties The Schedule shall be filed in support of the caption Indebtedness of Unconsolidated Subsidiaries and Related parties in the balance sheet. This schedule may be omitted if: 1. The amount of all indebtedness of Related parties to the registrant in such balance sheet does not exceed five per cent of total assets as shown in the related balance sheet at either the beginning or end of the period or 2. There have been no material changes in the information required to be filed from that last previously reported. Schedule E. Intangible Assets Other Assets This schedule shall be filed in support of the caption Intangible Assets in the balance sheet Schedule F. Long-Term Debt This schedule shall be filed in support of the caption Long-Term Debt in the balance sheet. Schedule G. Indebtedness to Related Parties This schedule shall be filed to list the total of all non current Indebtedness to Related Parties included in the balance sheet. This schedule may be omitted if: 1. The total Indebtedness to Related Parties included in such balance sheet does not exceed five per cent of total assets as shown in the related balance sheet at either the beginning or end of the period; or 2. There have been no changes in the information required to be filed from that last previously reported. Schedule H. Guarantees of Securities of Other Issuers. This schedule shall be filed with respect to any guarantees of securities of other issuing entities by the issuer for which the statement is filed. Schedule I. Capital Stock This schedule shall be filed in support of caption Capital Stock in the balance sheet. 5. FORM AND CONTENT Schedule A. Marketable Securities (Current Marketable Equity Securities and Other Short-term Cash Investments) 1) Each issue shall be stated separately, except that reasonable grouping, without enumeration may be made of (a) securities issued or guaranteed by the Philippine Government or its agencies and (b) securities issued by others for which the amounts in the aggregate are not more than two percent of total assets. (2) State the basis of determining the amounts shown in the column. This column shall be totaled to correspond to the respective balance sheet caption or captions. (3) This column may be omitted if all amounts that would be shown are the same as those in the immediately preceding column. Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related parties). D e d u c t i o n s 1) Show separately accounts receivables and notes receivable. In case of notes receivable, indicate pertinent information such as the due date, interest rate, terms of repayment and collateral, if any. 2) If collection was other than in cash, explain. 3) Give reasons for write off. Schedule C. Non-Current Marketable Equity Securities, Other Long-Term Investments in Stock, and Other Investments 1) Group separately securities of (a) unconsolidated subsidiaries and (b) other related parties and (c) other companies, the investment in which is accounted for by the equity method. State separately investments in individual related parties which, when considered with related advances, exceed two per cent of total assets. 2) Disclose the percentage of ownership interest represented by the shares if material. 3) The total of this column shall correspond to the amount of the related income statement caption. 4) Briefly describe each item. Explain if the cost represents other than a cash expenditure. 5) As to any dividends other than in cash, state the basis on which they have been taken up in the accounts, and the justification for such treatment. If any such dividends received from related parties have been credited in an amount different from that charged to retained earnings by the disbursing company, state the amount of differences and explain. 6) Briefly describe each item and state: a) Cost of securities sold and how determined; b) Amount received (if other than cash explain);and c) Disposition of resulting profit or loss. 7) The totals in this column shall correspond to the related balance sheet captions. Schedule D. Indebtedness of Unconsolidated Subsidiaries and Related parties 1) The related parties named shall be grouped as in Schedule C. The information called for shall be shown separately for each affiliate whose investment was shown separately in such related schedule. caHASI 2) For each affiliate named in the first column, explain in a note hereto the nature and purpose of any material increase. Schedule E. Intangible Assets Other Assets Deduction (3) 1) The information required shall be grouped into (a) intangibles shown under the caption intangible assets and (b) deferrals shown under the caption Other Assets in the related balance sheet. Show by major classifications as indicated in Parts IV-(b)(16). 2) For each change representing anything other than an acquisition, clearly state the nature of the change and the other accounts affected. Describe cost of additions representing other than cash expenditures. 3) If provision for amortization of intangible assets is credited in the books directly to the intangible asset account, the amounts shall be stated with explanations, including the accounts charged. Clearly state the nature of deductions if these represent anything other than regular amortization. Schedule F. Long Term Debt 1) Include in this column each type of obligation authorized. 2) This column is to be totaled to correspond to the related balance sheet caption. 3) Include in this column details as to interest rates, amounts or number of periodic installments, and maturity dates. Schedule G. Indebtedness to Related Parties (Long-Term Loans from Related Companies) 1) The related parties named shall be grouped as in Schedule D. The information called for shall be stated separately for any persons whose investments were shown separately in such related schedule. 2) For each affiliate named in the first column, explain in a note hereto the nature and purpose of any material increase during the period that is in excess of 10 percent of the related balance at either the beginning or end of the period. Schedule H. Guarantees of Securities of Other Issuers(1) 1) Indicate in a note any significant changes since the date of the last balance sheet filed. If this schedule is filed in support of consolidated financial statements, there shall be set forth guarantees by any person included in the consolidation except such guarantees of securities which are included in the consolidated balance sheet. 2) There need be made only a brief statement of the nature of the guarantee, such as "Guarantee of principal and interest","Guarantee of Interest",or "Guarantee of dividends".If the guarantee is of interest, dividends, or both, state the annual aggregate amount of interest or dividends so guaranteed. Schedule I. Capital Stock (1) 1) Indicate in a note any significant changes since the date of the last balance sheet filed. 2) Include in this column each type of issue authorized. 3) Related parties referred to include persons for which separate financial statements are filed and those included in consolidated financial statements, other than the issuer of the particular security.