Rules and Regulations Covering Form and Content of Financial Statements

February 22, 2002 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. Financial Statements of Commercial and Industrial Companies a. Applicability b. Underlying Assumptions c. Qualitative Characteristics d. Basic Financial Statements and Minimum Presentation 5. Comparative Financial Statements 6. Consolidated Financial Statements 7. Penalties, Repealing Clause and Effectivity Annex 68-J (General Notes to Financial Statements) Annex 68-K (Balance Sheet) Annex 68-L (Income Statement) Annex 68-M (Cash Flow Statement) II. Rule 68.1. Special Rules on Financial Statements of Reporting Companies under Section 17.2 of the SRC 1. Application 2. Periodic Presentation 3. Financial statements of businesses acquired or to be acquired 4. Age of Financial Statements 5. Applicability with Other Reports 6. Additional Disclosure Requirements 7. Interim Financial Statements 8. Pro Forma Financial Information 9. Consolidated Financial Statements Annex 68.1-JJ (General Notes to Financial Statements) Annex 68.1-KK (Balance Sheet) Annex 68.1-LL (Income Statement) Annex 68.1-MM (Cash Flow Statement) Annex 68.1-N (Segment Reporting) Annex 68.1-O (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, except those whose paid-up capital is less than P50,000.00 . AHCaES Additional requirements for financial statements of corporations covered under Section 17.2 of the Securities Regulation Code are set forth under Rule 68.1. ii 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 and related schedules, as defined in Statement of Financial Accounting Standards No. 1 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. An affiliate of, or a person affiliated with, a specified person is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. ii. 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 for the purpose of expressing an opinion thereon. iii. 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 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. iv. 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. v. Accounting principles include not only accounting principles and practices but also the method of applying them. Generally accepted accounting principles 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. vi. Majority-owned subsidiary means a subsidiary more than fifty percent (50%) of whose outstanding securities representing the right, other than as affected by events of default, to vote for the election of directors, is owned by the subsidiary's parent and/or one or more of the parent's other majority-owned subsidiaries. vii. Parent of a specified person is an affiliate controlling such person directly, or indirectly, through one or more intermediaries. viii. Person means an individual, a corporation, a partnership, an association, a joint-stock company, a business trust, or unincorporated organization. ix. 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. x. Related parties mean affiliates of the corporation, entities for which investments are accounted for by the equity method by the corporation; trusts for the benefit of employees, such as pension and profit sharing trusts that are managed by or under the trusteeship of the management; principal owners of the corporation; its management; members of the immediate families of principal owners of the corporation and its management; and other parties with which the corporation may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. Another party also is a related party if it can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests. xi. 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 xii. Subsidiary of a specified person is an affiliate controlled by such person directly, or indirectly through one or more intermediaries. xiii. 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 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). xiv. 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 The preparation, presentation and interpretation of financial statements shall be in accordance with the standards set by the Accounting Standards Council (ASC).Exceptions will be those included in this Rule and those that will be subsequently issued or announced by the Commission. b. Responsibility for Financial Statements 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. 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 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 _____________ 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 Paragraph shall be applicable to financial statements filed for all corporations covered by this Rule, except banks, insurance companies and public utilities, as to which copies of their financial statements, as submitted to the appropriate government offices, shall be furnished to the Commission. 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 [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 e. Current Assets and Current Liabilities Each corporation shall determine, based on the nature of its operations, whether or not to present current and non-current assets and current and non-current liabilities as separate classifications on the face of the balance sheet. When a corporation chooses not to make this classification, assets and liabilities shall be presented broadly in the order of their liquidity. 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.____ (Series of 2002). The said Circular shall take effect beginning July 1, 2002 and will cover audited financial statements for the year ending December 31, 2002 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 certifying accountant's License and PTR numbers, and registration/accreditation number with BOA/PRC ;(E) state the complete mailing address of the client and the auditor; (F) clearly indicate the name of the certifying partner, where the certification is made under a firm name, ii. Representations as to the Audit The auditor's report shall state whether the examination was made in accordance with generally accepted auditing standards 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: (A) the opinion of the independent auditor in respect of the financial statements covered by the report and the accounting principles and practices reflected therein; (B) the opinion of the independent auditors as to the consistency of the application of such accounting principles, or as to any change in such principles which have a material effect on 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 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. FINANCIAL STATEMENTS OF COMMERCIAL AND INDUSTRIAL COMPANIES a. This Section shall be applicable to general-purpose financial statements prepared and presented in accordance with generally accepted accounting principles and which are filed by corporations covered by this Rule, except banks, insurance companies and public utilities, as to which copies of their financial statements, as submitted to the appropriate government offices, shall be furnished to the Commission. 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. (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 " Annex 68-K ". (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 "Annex 68-L". (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 [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 "Annex 68-M". (v) General 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 "Annex 68-J" . 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 shall 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 herein by the previous auditor. If the auditor of the financial statements for such periods did not give a "clean" 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. CONSOLIDATED FINANCIAL STATEMENTS a. This paragraph shall be applicable when: (1) the total liabilities of any one entity in the group is more than P50 million, or when total liabilities of the group is more than P150 million as shown in the balance sheets at the beginning of the most recently completed fiscal year, (2) when it is an issuer of registered securities or a reporting company under Section 17.2 of the Securities Regulation Code, bank, financing company, investment house or investment company . b. As a general rule, consolidated financial statements should include the statements of the parent company and all its subsidiaries, except those described in paragraph (d) below. c. Even if the parent and its subsidiaries are engaged in dissimilar activities (i.e. some entities in the group are engaged in Manufacturing, Merchandising or other non financial activities, while the other entities are engaged in financial activities, such as banking, insurance, financing),consolidated financial statements shall be presented for the group. d. Consolidation of Non-Subsidiaries A company in which a group does not have control, but in which a group: i. Owns more than half the equity capital, but less than half the voting power, and ii. Has the power to control, by statute or agreement, the financial and operating policies of the company, with or without more than one-half of the equity, shall be treated as a subsidiary and included in the consolidated financial statements. e. Exclusion from Consolidation A subsidiary should be excluded from consolidation if: i Control is likely to be temporary as, for example, when a subsidiary must be disposed of under court order or will be abandoned if certain likely adverse contingencies materialize. ii. Control does not rest with the majority owners as, for instance, when the subsidiary is in legal reorganization or in bankruptcy, or operates under foreign exchange restrictions, controls, or other governmentally imposed uncertainties so severe that they cast significant doubt on the parent's ability to control the subsidiary. f. Consolidation of Subsidiaries with Different Fiscal Periods A difference in fiscal periods of a parent and subsidiary does not itself justify the exclusion of the subsidiary from consolidation. It ordinarily is feasible for the subsidiary to prepare, for consolidation purposes, statements for a period that corresponds with or closely approaches the fiscal period of the parent. However, if the difference is not more than three months, it usually is acceptable to use, for consolidation purposes, the subsidiary's statements for its fiscal period; when this is done recognition shall be given by disclosure or otherwise to the effect of intervening events that materially affect the financial position or results of operations. In addition, the consistency principle dictates that the length of the reporting periods and any difference in the balance sheet dates should be considered from period to period: g. Disclosure of Principles of Consolidation The following disclosures should be made in consolidated statements or the accompanying notes: i. The consolidation policy being followed, including a description of the bases on which subsidiaries and associated companies have been dealt with. ii. General identification (e.g. "all subsidiaries" or "all unconsolidated subsidiaries") of the entities included, if not stated in the financial statement captions. Desirably, an appropriate listing and description of significant subsidiaries included in consolidation should be provided. iii. The name of subsidiaries not consolidated and the reasons for not consolidating such subsidiaries unless otherwise evident. iv. Changes in the entities included and the reasons and effects on income thereof. v. If differences in fiscal periods exist and the effect could be significant, the fiscal periods of the entities' statements and any changes in such periods. In addition, the effects of intervening material events and transactions should be disclosed. vi. The nature of the relationship between the parent company and a company that is not a subsidiary but is treated as a subsidiary in consolidation, [Paragraph 5(c) above] and the reasons for consolidating such company. vii. The amounts of any material intercompany balances or transactions not eliminated and the reasons hereof. viii. If the exercise of outstanding conversion privileges or stock options and warrants of a subsidiary could have a significant effect on consolidated income, the existence of such stock rights and the effects if exercised. However, when a subsidiary is experiencing losses and it is not likely that the stock rights will be exercised, disclosure of the effects should be made. ix. The policy followed with respect to providing taxes on undistributed earnings of subsidiaries and the cumulative amount of undistributed earnings, if any, of such subsidiaries included in the consolidated retained earnings, for which taxes have not been provided. x. Restrictions on consolidated retained earnings (statutory or contractual),including those relating to legal reserves and capitalized earnings of and restrictions imposed on subsidiaries. xi. When the consolidated entities follow different accounting policies, desirably the proportion of the assets, liabilities, revenue or expenses, as appropriate, to which the different policies apply. xii. Desirably, what portions of long-term debt are those of the parent and what portions are those of the subsidiaries. h. Elimination of Intercompany Items and Transactions The following are eliminated in consolidation: i. Intercompany open account balances such as intercompany receivables and payables. ii. Intercompany transactions, including intercompany sales and purchases, intercompany charges (such as rents, interests) and intercompany dividends. In eliminating dividends, the portion not paid to the parent or other subsidiaries should be charged to the minority interests. iii. The cost or carrying value to the parent company of its investment in each subsidiary and the portion applicable to the parent company of the equity accounts (such as capital stock, additional paid-in capital, treasury shares, retained earnings appropriations) of each subsidiary. iv. Unrealized intercompany profits and losses (i.e.,any intercompany profit or loss on assets such as inventories and property, plant and equipment, remaining within the group). i. Requirement for Filing Parent Company's Financial Statements All corporations which are required to file consolidated audited financial statements to the Commission shall also submit copies of the parent company's audited financial statements, within the prescribed period . 7. 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. 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 SRC Rule 68, as amended, shall become effective for financial statements covering the period beginning January 1, 2001 and for interim financial statements starting the first quarter of 2002, and thereafter. February 22, 2002, Mandaluyong City, Philippines. (SGD.) LILIA R. BAUTISTA Chairperson (SGD.) FE ELOISA C. GLORIA (SGD.) JOSELLA J. POBLADOR Commissioner Commissioner (SGD.) EDIJER A. MARTINEZ (SGD.) JUANITA E. CUETO Commissioner Commissioner "Annex 68-J" General Notes to Financial Statements The following information shall be set forth on the face of the appropriate statement or in a note appropriately captioned and referred to in such statements. The accounting policies that corporations will present are not however restricted to those set forth in this Annex. (1) Summary of Accounting Policies Significant accounting policies followed by the reporting entity should be disclosed. Such disclosure should identify and describe the accounting principles that materially affect the determination of financial position, results of operations, changes in equity ,or changes in cash flows. (2) Principles of Consolidation With regard to consolidated financial statements, refer to paragraph 6 (Consolidated Financial Statements) of SRC Rule 68 for requirements on supplementary information in notes to the consolidated financial statements. (3) Business Combinations All disclosures should be made in accordance with generally accepted accounting principles . (4) Foreign Currency Transactions and Translation When items in foreign currencies are included in the financial statements being presented, disclosure should be made of the accounting policies followed in translating financial statements and/or individual accounts denominated in foreign currency and in reporting transaction gains and losses. (5) Assets Subject to Lien and Restrictions on Sales of Assets Assets mortgaged, pledged or otherwise subject to lien, and the approximate amounts thereof, shall be stated, and the obligations collateralized briefly identified. Details of any liens or pledges as collateral and any restrictions on sales of investments should be disclosed either in the body of the financial statements or in the accompanying notes. (6) Going Concern Material uncertainties related to events or conditions which may cast significant doubt upon the corporation's ability to continue as a going concern. When the financial statements are not prepared on a going concern basis, that fact shall be disclosed together with the basis on which the financial statements are prepared and the reason why the corporation is not considered to be a going concern. (7) Changes in Accounting Policies 1 When a change in accounting policy has a material effect on the current period or any prior period presented, or may have a material effect on subsequent periods, the corporation shall disclose the information required under SFAS No. 13 (Revised 2000). (8) Fundamental Errors 1 A corporation shall disclose the following: (a) The nature of the fundamental error; (b) The amount of the correction for the current period and for each prior period presented; (c) The amount of the correction relating to the periods prior to those included in the comparative information; and (d) The fact that comparative information has been stated or that it is impracticable to do so. (9) Preferred Shares For convertible/redeemable shares, the terms of conversion/redemption shall be stated briefly. Cumulative dividends (in arrears) and the date since when the unpaid dividends have accumulated should be disclosed. Aggregate preferences on involuntary liquidation, if other than par or stated value, shall be disclosed. Preferred stocks with mandatory redemption features should be separately presented and redemption terms stated. (10) Pension and Retirement Plans All disclosures should be made in accordance with generally accepted accounting principles. (11) Restrictions which limit the Availability of Retained Earnings for Dividend Purposes The most significant restrictions on the payment of dividends by the issuer shall be described, indicating briefly their source, their pertinent provisions and any violations thereunder, and, where appropriate and determinable, the amount of retained earnings so restricted, or the amount of retained earnings free of such restrictions. In the case of a stock corporation whose retained earnings exceed 100% of the paid-in capital, it should include in the notes an explanation as to why dividends have not been declared. Justifications for non-distribution include: (A) the corporation has definite expansion projects or programs approved by the board of directors; (B) it is prohibited under any loan agreement from declaring dividends without the consent of the creditor, and such consent has not yet been secured; or (C) it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there is a need for a special reserve for probable contingencies. Disclose the amount of undistributed earnings of investees accounted for by the equity method included in the retained earnings of the investor. This is to properly explain the increases in the balance of the retained earnings of the investor (which may be looked upon as an undue accumulation of profits by government authorities.) (12) Commitments and Contingent Liabilities A. Pertinent facts relative to firm commitments for the following, if material in amount, shall be disclosed; the purchase of merchandise and services, the acquisition of permanent or long-term investments and property, plant and equipment and the purchase, repurchase, construction or rental of assets under material leases, or agreements in connection with borrowings to maintain working capital, restrict dividends or reduce debts. B. If the annual rentals or obligations under non-cancelable leases which have not been recorded as assets and liabilities are in excess of one percent of total sales and revenues of the most recent fiscal year the following information shall be shown: 1. minimum annual rentals for the current year and each of the five succeeding years; 2. nature and effect of any provision that would cause the annual rentals to vary from the minimum rentals; 3. description of the types of property leased, important obligations assumed or guarantees made, and any other significant provisions of such leases. C. Material unused letters of credit on which drafts may be drawn should be disclosed. D. Regarding loss contingencies: 1. There should be disclosure as to the nature of a loss contingency which is accrued and, in some circumstances, the amount accrued if necessary for the financial statements not to be misleading. 2. If not accrued, disclose a loss contingency, the likelihood of which is at least reasonably possible. Indicate in the disclosure the nature of the contingency and give an estimate of the possible loss or range of loss or state that such an estimate cannot be made. 3. Certain loss contingencies such as: a) guarantees of the indebtedness of others, b) obligations of commercial banks under standby letter of credit, and c) guarantees to repurchase receivables, (or in some cases to repurchase the related property) that have been sold or otherwise assigned, shall be disclosed in the notes to financial statements even though the possibility of loss may be remote. The disclosure should include the nature and the amount of the guarantee. (13) Bonuses, Profit Sharing and Other Similar Plans The essential provisions of any such plans in which only directors, officers or key employees may participate shall be described, and for each of the fiscal periods for which income statements are presented, the aggregate amount provided for all plans by charges to expense shall be stated. (14) Capital Stock Optioned, Sold or Offered for Sale to Directors, Officers and Key Employees A. Briefly describe the terms of each option agreement, including: 1. the title and the amount of securities subject to option, 2. the year(s) during which the options were granted, and 3. the year(s) during which the optionees became or will become entitled to exercise the options. B. Indicate the following: 1. The number of shares under option at the balance sheet date. 2. The number of shares with respect to which options were exercisable during each period presented. 3. The number of shares with respect to which options were exercised during the period. 4. The option price and fair value of the shares, per share and in total, at the respective dates the options were: a. granted, b. became exercisable, and c. were exercised during the period 5. The number of optioned shares available at the beginning and at the close of the latest period for which financial statements are presented. C. Describe briefly the terms of each other arrangement covering shares sold or offered for sale to directors, officers and key employees, including the number of shares, and the offered price and the fair value thereof per share and in total, at the dates of sale or offer to sell, as appropriate. D. Summarize and tabulate, as appropriate, the required information with respect to all option plans as a group and other plans for shares sold or offered for sale as a group. (15) Warrants or Rights Outstanding The following information with respect to warrants or rights outstanding at the date of the related balance sheet shall be set forth. A. Title of issue of securities called for by warrants or rights. B. Aggregate amount of securities called for by warrants or rights outstanding. C. Date from which warrants or rights are exercisable and expiration date. D. Price at which warrants or rights are exercisable. (16) Subsequent Events Certain subsequent events which do not require adjustment of the financial statements may be of such a nature that disclosure of them is required to keep the financial statements from being misleading. Hence, such events should be disclosed if their non-disclosure would affect the ability of the users of the financial statements to make proper evaluation and decisions. Examples of such events are: A. sale of a bond or capital issue; B. purchase of a business; C. settlement of litigation when the event giving rise to the claims took place subsequent to the balance sheet date; D. loss of plant or inventories as a result of fire or flood or other cause over which the corporation reasonably had no control; E. losses on receivables resulting from conditions (such as a customer's major casualty) arising subsequent to the balance sheet date. When the effects of subsequent events are disclosed in the notes to financial statements, the disclosure should include a description of the events and an estimate, if possible, of their financial effects. (17) Significant Changes in Bonds, Mortgages, and Similar Debt Any significant changes in the authorized or issued amounts of bonds, mortgages and similar debt since the-date of the latest balance sheet being filed shall be stated. (18) Provision for Income Tax All disclosures should be made in accordance with generally accepted accounting principles. (19) Interest cost Disclosure shall be provided for each period for which an income statement is presented of the amount of interest cost incurred and the respective amounts expensed or capitalized. (20) Compliance with Generally Accepted Accounting Principles/International Accounting Standards A corporation whose financial statements comply with generally accepted accounting principles should disclose that fact . (21) Material Related Party Transactions which Affect the Financial Statements A. The financial statements filed shall disclose material related party transactions other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. Disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. This disclosure should include the following : 1. The nature of the relationship(s). 2. A description of the transactions (summarized when appropriate) for the periods for which an income statement is presented, including amounts, if any, and such other information as is deemed necessary to an understanding of the effects on the financial statements. 3. The pesos volume of transactions for each of the periods for which income statements are presented, and the effects of any change in the method of establishing the terms from that used in the preceding period. 4. Amounts due to or from related parties as of the date of each balance sheet presented, and if not otherwise apparent, the terms and manner of settlement. B. In some cases, aggregation of similar transactions by type or related party may be appropriate. Sometimes, the effect of the relationship between or among the related parties may be so pervasive that disclosure of such relationship alone is sufficient. For instance, substantially all the sales transactions may be with the controlling entity. Or, if the users of the financial statements are already familiar with the nature and extent of related party transactions (as would normally be the case with respect to wholly owned subsidiaries of joint ventures),the disclosure may be limited to the description of the related party relationship and a general indication of the nature and magnitude of such transactions. If necessary to the understanding of the relationship, the name of the related party should be disclosed. C. Transactions involving related parties cannot be presumed to be carried out on an arm's length basis, as the requisite conditions of competitive free-market dealings may not exist. Representations about transactions with the related parties, if made shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's length transactions unless such representations can be substantiated. D. If the reporting corporation and one or more other corporations are under common ownership or management control and the existence of that control could result in operating results or financial position of the reporting corporation significantly different from those that would have been obtained if the corporation were autonomous, the nature of the control relationship shall be disclosed even though there are no transactions between the corporations. (22) Defaults The facts and amounts concerning any default in principal, interest, sinking fund or redemption provisions with respect to any issuer of securities or credit agreements or any breach of contract of a related indenture or agreement, which default or breach existed at the date of the most recent balance sheet being filed and which has not been subsequently cured, shall be stated in the notes to financial statements. If a default or breach exists but acceleration of the obligation has been waived for a stated period of time beyond the date of the most recent balance sheet being filed, the amount of the obligation and the period of waiver shall be stated "Annex 68-K" Balance Sheet Except as otherwise required by the Commission, the Balance Sheet shall be prepared in accordance with the generally accepted accounting principles [See definition in paragraph 1(b)(v) of Rule 68].This Annex merely emphasizes some requirements as to the presentation and disclosures on the Balance Sheet. As a minimum, the face of the balance sheet should include the line items provided under paragraph (4)(d)(i) of Rule 68. A corporation shall disclose, either on the face of the balance sheet or in the notes to the balance sheet, further sub-classifications of the line items presented, classified in a manner appropriate to the corporation's operations. ASSETS (1) Cash and Cash Equivalents (A) Cash comprises cash on hand and demand deposits . (B) Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value . (2) Financial Assets A financial asset is any asset that is (a) cash; (b) a contractual right to receive cash or another financial asset from another corporation; (c) a contractual right to exchange financial instruments with another corporation under conditions that are potentially favorable; or (d) an equity instrument of another corporation . (3) Marketable Securities (A) This account should include only those securities which are readily marketable and which represent temporary investments of funds available for current operations and are intended to meet working capital requirements. This usually includes current marketable equity securities (e.g. common, preferred and other capital stock for which there is an active trading market) and other short-term cash investments such as investments in bonds, commercial papers, government obligations and certificates of deposits. Redeemable preferred shares and convertible debts, however, shall be treated as debt instruments and included in other investments in bonds, mortgages, notes and similar debt instruments. (B) The purpose served by the investment is the controlling factor for its proper financial statement presentation. Investments in securities that are marketable are not normally classified among current assets if these are acquired for purposes of control, affiliation or for some continuing business advantage. Securities, which are readily marketable may be held for several years and still be properly classified as temporary investments if management intends to sell them for working capital purposes whenever the need arises. (C) Securities of affiliates shall not be included here. (D) The following information shall be disclosed. (i) The basis of valuation of investments; (ii) Allowances for decline in value; (iii) When the investment is very significant, breakdown of the security portfolio and investment income by classification; (iv) Details of any lien/s or pledge/s as collateral and any restriction/s on sales; (v) As of date of each balance sheet presented, aggregate cost and market value (each segregated between current and non-current portfolios when a classified balance sheet is presented) with identification as to which is the carrying amount; (vi) As of date of the latest balance sheet presented, the following, segregated between current and non-current portfolios when a classified balance sheet is presented: (a) gross unrealized gains representing the excess of market value over cost for all marketable equity securities in the portfolio having such an excess, (b) gross unrealized losses representing the excess of cost over market value for all marketable equity securities in the portfolio having such an excess, (vii) For each period for which an income statement is presented; (a) net realized gain or loss included in the determination of net income; (b) The basis on which cost was determined in computing realized gain or loss; (c) the change in the valuation allowance(s) that has been included in the equity section of the balance sheet during the period and, when a classified balance sheet is presented, the amount of such change included in the determination of net income; (viii) Significant net realized gains and losses arising after the date of the financial statements, but prior to their issuance, applicable to marketable equity securities owned at the date of the most recent balance sheet. (E) Investments in marketable securities usually rank next to cash in liquidity and normally are listed in the current-section of the balance sheet immediately after cash. The captions marketable securities, short-term investments or other similar descriptive captions are used. (4) Trade and Other Receivables When items combine current and non-current amounts, disclose the amount of the non-current portion, which is expected to be recovered or settled after the 12 months. Classification of receivables as to current or non-current asset shall be in conformity with paragraph (2)(e) of SRC Rule 68. (5) Inventories [SFAS No. 4 (Revised)] Inventories are assets: A. Held for sale in the ordinary course of business; B. In the process of production for such sale; or C. In the form of materials or supplies to be consumed in the production process or in the rendering of services. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Inventories shall be measured at the lower of cost and net realizable value. The cost shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In case of service provider, its inventories shall include the labor and other costs of personnel directly engaged in providing the service, including supervisory personnel, and attributable overheads. For inventories not interchangeable & segregated for specific projects, the cost method shall be specific identification. For other inventories, FIFO or weighted average (benchmark),LIFO (allowed alternative). When inventories are sold, the carrying amount of those inventories should be recognized as an expense in the period in which the related revenue is recognized. The amount of any write-down of inventories to net realizable value and all losses of inventories should be recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, should be recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs. Disclosures State separately under this caption, or in a note to the financial statements the principal categories of inventories such as (i) finished goods; (ii) work in process; (iii) raw materials; (iv) factory supplies; (v) goods in transit. The following disclosures shall also be provided : A. The accounting policies adopted in measuring inventories, including the cost method used; B. The total carrying amount of inventories and the carrying amount in classifications appropriate to the corporation; C. The carrying amount of inventories carried at net realizable value; D. The amount of any reversal of any write-down that is recognized as in come in the period in accordance with paragraph 31 of SFAS No. 4 (revised 2000); E. The circumstances or events that led to the reversal of a write-down of inventories in accordance with paragraph 31 of SFAS No. 4 (revised 2000); F. The carrying amount of inventories pledged as security for liabilities; G. When the cost of inventories is determined using the LIFO method as an allowed alternative treatment, the financial statements should disclose the difference between the amount of inventories as shown in the balance sheet and either: (i) The lower of the amount arrived at using FIFO or weighted average costs and net realizable value; or (ii) The lower of current cost at the balance sheet date and net realizable value. H. The cost of inventories recognized as an expense during the period; I. The operating costs, applicable to revenues, recognized as an expense during the period, classified by their nature. Non-Current Assets (6) Property, Plant and Equipment SFAS Nos. 6 and 12, and any amendments thereto, shall be followed for the treatment and presentation of this account. Disclosures required under the said standards shall also be complied with. Accumulated Depreciation. Show accumulated depreciation, depletion, and amortization as a deduction from the group of assets to which they relate, or as a deduction from the total of property, plant and equipment. (7) Non-Current Marketable Equity Securities The following information should be disclosed: a) The basis of valuation of investments; b) Allowances for decline in value; c) When the investment is very significant, breakdown of the security portfolio and investment income by classification; d) Details of any lien/s or pledge/s as collateral and any restriction/s on sales; e) As of date of each balance sheet presented, aggregate cost and market value (each segregated between current and non-current portfolios when a classified balance sheet is presented) with identification as to which is the carrying amount; f) As of date of the latest balance sheet presented, the following, segregated between current and non-current portfolios when a classified balance sheet is presented: (a) gross unrealized gains representing the excess of market value over cost for all marketable equity securities in the portfolio having such an excess; (b) gross unrealized losses representing the excess of cost over market value for all marketable equity securities in the portfolio having such an excess; g) For each period for which an income statement is presented; (a) net realized gain or loss included in the determination of net income; (b) The basis on which cost was determined in computing realized gain or loss; (c) the change in the valuation allowance(s) that has been included in the equity section of the balance sheet during the period and, when a classified balance sheet is presented, the amount of such change included in the determination of net income; h) Significant net realized gains and losses arising after the date of the financial statements, but prior to their issuance, applicable to marketable equity securities owned at the date of the most recent balance sheet. (8) Investments Accounted for Using the Equity Method The investments in common stock shall be shown in the balance sheet of the registrant-investor as a single amount, and the registrant's share of earnings and losses from its investments shall ordinarily be shown in its income statement as a single amount except for the extraordinary items. The following disclosures shall be made in a note to financial statements : (i) The name of each investee and percentage of ownership of common stock; (ii) The accounting policies of the investing company with respect to investments in common stock; (iii) The carrying amounts of the investments, with amounts applicable to individually significant subsidiaries and investees shown separately; (iv) The acquisition cost of the investment; (v) The amount of undistributed earnings of investees included in the retained earnings of the investing company; (vi) The difference, if any, between the amount at which an investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference; (vii) The cash dividends received during the year from the investments; (viii) For investments in common stock of non-subsidiaries, the quoted market value, if available; (ix) If the investments in the aggregate are material to the financial position or results of operations of the investing company, summarized financial as to assets, liabilities, and results of operations for each investee; (x) If the exercise of outstanding conversion privileges, options and warrants of an investee may have a significant effect on the investing company's share of reported earnings or losses, or a material change on its existing security ownership in said investee, the existence of such rights and the effects if exercised; (xi) The practice followed regarding taxes on undistributed earnings. (9) Other Long-Term Investments (Investments in bonds and other debt securities, long-term funds and other investments) The applicable information under Non-Current Marketable Securities should be disclosed under this asset item. (10) Indebtedness of or Advances to Unconsolidated Subsidiaries and Related Parties Show separately under this caption non-current advances to unconsolidated subsidiaries and of Related Parties. (11) Intangible Assets Intangible assets should be presented net of recognized losses and accumulated amortizations. The method and period of amortization should be disclosed. (12) Other Assets (A) Include under this caption any other items not readily and properly classifiable in any one of the preceding asset captions or items not sufficiently material to warrant a separate caption. (B) State separately each major class of deferred charges and the policy for deferral and amortization. LIABILITIES AND EQUITY Current Liabilities Distinction of current or non-current liabilities shall be in conformity with paragraph (2)(e) of SRC Rule 68. (13) Trade and Other Payables When any of the above items combine current and non-current amounts, disclose the amount of the non-current portion, which is expected to be recovered or settled after 12 months. Refer to related notes under "Annex 68-J" for compliance with disclosure requirements. (14) Tax Liabilities and Assets. SFAS No. 23 (Accounting for Income Taxes). Non-Current Liabilities Distinction of current or non-current liabilities shall be in conformity with paragraph (2)(e) of SRC Rule 68. (15) Provisions (16) Non-current interest-bearing liabilities The following disclosures shall be made in the notes to balance sheet: (i) Title of the long-term debt whether bonds, mortgages, notes or others; (ii) Interest rates, amounts or number of periodic installments and maturity dates; (iii) The nature and amount or extent of assets pledged against the debt; (iv) Restrictive covenants, such as those affecting dividends, retained earnings, compensating balance or working capital maintenance requirements; liquidation of the business, merger or consolidation; issuance of capital stock; disposition of all or substantially all of the business property, capital expenditures; or compliance with debt-to-equity or other ratios, (v) Any default in principal payments, interest or other requirements of the loan agreement; (vi) Any significant change in the authorized or issued amount of bonds, mortgages and similar debt since the date of the latest balance sheet filed with the Commission. (vii) Convertibility into capital stock, if applicable, and the basis thereon; and (viii) Other significant information such as sinking fund requirements and amounts payable in foreign currency. (17) Minority Interests in Consolidated Subsidiaries State separately the amount representing the equity of minority interests in the majority-owned subsidiaries included in the consolidation. ISSUED CAPITAL AND RESERVES The equity section should be presented in sufficient detail to provide a clear understanding of the capital structure of the corporation and the sources of capital currently in use. In captioning equity accounts, care should be taken not to use terms that may be misunderstood or misleading. Generally, the elements constituting equity include the following: Capital stock Additional Paid-In Capital Revaluation increment in property, if applicable; and Retained earnings Treasury Stock A summary of each of the above-mentioned accounts setting forth the following information should be given for each period for which an income statement is being filed; balance at beginning of period; net income or loss from income statement; other additions or deductions (stating separately any material amounts and indicating clearly the nature of the transactions out of which the items arose);dividends (stating for each class of shares, the amount per share and the aggregate; and indicating whether cash, stock, or other type of dividends). (18) Capital Stock (SFAS No. 18) (A) For each class of capital stock, disclose the following information : (i) The number of shares authorized; (ii) The number of shares issued and fully paid, and issued but not fully paid; (iii) Par value per share, or that the shares have no par value; (iv) A reconciliation of the number of shares outstanding at the beginning and at the end of the year; (v) The rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital; (vi) Shares in the registrant held by the registrant itself or by subsidiaries or associate of the registrant; (vii) Shares reserved for issuance under options and sales contracts, including the terms and amounts; (viii) If convertible or redeemable, the basis of conversion and redemption; and any other essential features. (B) Show the amount, if any, of capital stock subscribed but unissued, and show the deduction of subscriptions receivable therefrom. Subscriptions receivable collectible within one year may be shown as current assets. Deposits on subscriptions to a proposed increase in capital stock may be shown as part of Stockholders' Equity as a separate item in the capital stock section. (C) All authorized classes of stock, whether or not any shares of the class are outstanding, should be indicated. (D) For preferred stock, the following items should be disclosed in addition; nature of the preference; participation; conversion; dividend rate, whether cumulative or non-cumulative, any dividend in arrears, (per share and in total) redemption price; redemption date; and any restrictive provisions as to payment of dividends or other actions of the company. (E) Preferred stocks whose redemption is not at the discretion of the issuer shall be listed separately on the face of the balance sheet or in a footnote which summarizes the components of stockholders' equity. Redemption terms shall be explained in a footnote and the balance sheet caption shall disclose that redemption is not optional at the discretion of the issuer. (19) Additional Paid-In Capital (20) Retained Earnings State separately the following either on the face or in the note to financial statements: (i) Appropriated retained earnings. The specific purpose shall also be disclosed parenthetically. (ii) Unappropriated retained earnings. (iii) Details of any stock purchase agreement, stock dividend, stock split and other dividends. (21) Treasury Stock (A) Treasury stock should be recorded at cost irrespective of whether these are acquired below or above par value. The total cost of treasury stock should be shown in the balance sheet as a deduction from the total stockholders' equity. If possible, the cost of each acquisition should be accounted for separately. Upon resale (reissuance) of the treasury shares, the treasury stock account is credited for the cost. "Gains" on such sales shall be credited to additional paid-in capital-treasury stock transactions for the class of stock. "Losses" shall be charged against additional paid-in capital but only to the extent of previous net "gains" from sales or retirements of the same class of stock; otherwise, "losses",should be charged to retained earnings. Gains or losses on sales of treasury shares should not be credited or charged to income. (B) Disclosures relating to treasury stock should include the following: (i) The number of shares held in the treasury together with a description of the issue; (ii) The description on availability of retained earnings for distribution as cash dividends; (iii) Changes in treasury stock during the year; (iv) If acquired for non-cash consideration, the fair value of the non-cash assets surrendered if materially different from their cost or net book value. "Annex 68-L" Income Statement Except as otherwise required by the Commission, all Income Statements shall be prepared in accordance with the generally accepted accounting principles [See definition in paragraph 1(b)(v) of Rule 68].This Annex merely emphasizes some requirements as to presentation and disclosures on the income statement. As a minimum, the face of the income statement should include the line items provided under paragraph (4)(d)(ii) of Rule 68. Additional line items, headings and sub-totals shall be presented on the face of the income statement when required by a standard, or when such presentation is necessary to present fairly the corporation's financial performance. (1) Revenue If material, state separately in the face or in the notes to financial statements the amount of revenue arising from: A. The sale of goods B. The rendering of services C. Interest D. Royalties E. Dividends F. Rent (2) Analysis of Costs The corporation shall present, either on the face of the income statement or in the notes to the income statement, an analysis of expenses using a classification based on either the nature of expenses or their function within the corporation. Expense items are further sub-classified in order to highlight a range of components of financial performance which may differ in terms of stability, potential for gain or loss and predictability. This information is provided in one or two ways. A. If analyzed by nature of expense, this comprises : (i) other operating income; (ii) changes in inventories of finished goods and work in progress; (iii) raw materials and consumables used; (iv) staff costs; (v) depreciation and amortization expense, and (vi) other operating expense. B. If analyzed by function of expense or "cost of sales" method, this comprises : (i) cost of sales; (ii) gross profit; (iii) other operating income; (iv) distribution costs; (v) administrative expenses; and (vi) other operating expenses C. Corporations classifying expenses by function shall disclose additional information on the nature of expenses, including the following : (i) depreciation and amortization expense; and (ii) staff costs. (3) Income or Loss Before Extraordinary Items Show this caption if there are extraordinary items. This caption should be expanded as appropriate to indicate that other items that follow such as disposal of a business or changes in accounting principles are excluded. (4) Extraordinary Items, less applicable tax Extraordinary items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the corporation and therefore are not expected to recur frequently or regularly. The nature and the amount of each extraordinary item shall be separately disclosed . (5) Disposal of Segment of a Business The results of continuing operations should be reported separately from discontinued operations and any gain or loss from disposal of a segment of a business determined in accordance with generally accepted accounting principles should be reported separately in conjunction with the related results of discontinued operations and not as an extraordinary item. Amounts of income taxes applicable to the results of discontinued operations and the gain or loss from disposal of the segment should be disclosed on the face of the income statement or in related notes. Revenues applicable to the discontinued operations should be separately disclosed in the related notes. (6) Cumulative Effects of Changes in Accounting Principles When applicable ,state separately the cumulative effects (up to date of immediately preceding statements filed with the Commission) of applicable changes in accounting principles and disclose the applicable income tax. (7) Net Income or Loss The amount of net income or loss should be clearly indicated . Net income or loss arising from ordinary activities and extraordinary items should be disclosed separately on the face of the income statement . (8) Earnings Per Share (EPS) If applicable, indicate per share data on the face of the income statement. "Annex 68-M" Cash Flow Statement Except as otherwise required by the Commission, Cash Flow Statements shall be prepared in accordance with SFAS No. 22 (revised 2000).This Annex merely emphasizes some requirements as to presentation and disclosures on the Cash Flow Statement. (1) Cash Flows Activities Separate disclosure of cash flows from the following activities shall be made by the registrant : (A) Operating Activities Cash flows primarily derived from the principal revenue-producing activities of the registrant shall be disclosed under this caption. These are items which generally result from transactions and other events that enter into the determination of net income or loss. The registrant may either prepare its operating activities under the direct or indirect method. However, direct method is encouraged. (1) Direct Method. Major classes of gross cash receipts and gross cash payments shall be disclosed. (2) Indirect Method. Net income or loss is adjusted for the following: (i) the effects of transactions of a non-cash nature; (ii) items of income or expense associated with investing or financing cash flows. (iii) Increases or decreases in non-cash working capital items. (B) Investing Activities Cash flows primarily derived from the acquisition and disposal of long-term assets and other investments not included in cash equivalents shall be disclosed under this item. (C) Financing Activities Cash flows primarily derived from activities that result in changes in size and composition of the equity capital and borrowings of the registrant shall be disclosed under this caption. (2) Reporting Cash Flows From Investing And Financing Activities A corporation shall report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities. The following transactions may be reported on a net basis : (i) Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the corporation; (ii) Cash receipts and payments for items in which the turnover is quick, the amounts are large and the maturities are short. (3) Foreign Currency Cash Flows Cash flows arising from transactions in a foreign currency shall be recorded in the registrant's reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the cash flow . (4) Interest And Dividends Cash flows from interest and dividends received and paid shall each be disclosed separately. Each should be classified in a consistent manner from period to period as either operating, investing or financing, depending on its source. (5) Taxes On Income Cash flow arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities. When tax cash flows are allocated over more than one class of activity, the total amount of taxes paid is disclosed. (6) Investments In Subsidiaries, Associates And Joint Ventures When accounting for an investment in associate or a subsidiary accounted for by use of the equity or cost method, an investor restricts its reporting in the cash flow statement to the cash flow between itself and the investee such as dividends and advances. (7) Acquisitions And Disposals Of Subsidiaries And Other Business Units The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business shall be presented separately and classified as investing activities . However, the following disclosures, in aggregate shall be made : (A) the total purchase or disposal consideration; (B) the portion of the purchase or disposal consideration discharged by means of cash and cash equivalents, (C) amount of cash and cash equivalents in the subsidiary or business unit acquired or disposed of; (D) amount of assets and liabilities other than cash or cash equivalents. (8) Non-Cash Transactions Non-cash and non-cash equivalents investing and financing transactions shall be disclosed elsewhere in the financial statement in a way that provides all the relevant information about those investing and financing activities. (9) Components of Cash and Cash Equivalents The following information shall be disclosed on the face of the statement of cash flow or in a footnote : (A) A reconciliation of the amounts in its cash flow statement with the equivalent items reported in the balance sheet ; (B) Amount of significant cash and cash equivalent balances held by the registrant that are not available for use by the group . (10) Extraordinary Items Cash flows arising from extraordinary items shall be classified as operating, investing or financing activities . 1. Accounting treatment for changes in accounting estimates, changes in accounting policies and correction of fundamental errors (referred to previously as prior period adjustments) shall follow SFAS No 13/IAS No. 8. 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; provided, however, that the obligation of such issuer to file reports shall be suspended for any fiscal year after the year such registration became effective if such issuer, as of the first day of any such fiscal year, has less than 100 holders of such class of securities or such other number as the Commission shall prescribe and it notifies the Commission of such; 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 any fiscal year; provided, however, that the obligation of such issuer to file reports shall be terminated ninety (90) days after notification to the Commission by the issuer that the number of its holders holding at least 100 shares is reduced to less than 100. 2. PERIODIC PRESENTATION a. Consolidated Balance Sheets i. There shall be filed for the registrant and its subsidiaries consolidated audited balance sheets (except for filings on Form 17-Q, to which paragraph (7) is applicable),in a comparative format, as of the end of each of the two most recent completed fiscal years. 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. ii. 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 also an interim balance sheet as of the end of the most recently ended fiscal year. iii. 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. iv. 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 also an interim balance sheet as of the end of the first fiscal quarter subsequent to the most recent fiscal year end. v. 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 also an interim balance sheet as of the end of the second fiscal quarter subsequent to the most recent fiscal year end. vi. 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 also an interim balance sheet as of the end of the third fiscal quarter subsequent to the most recent fiscal year end. vii. 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 (7) of this Rule. b. Consolidated Income Statement i. There shall be filed for the registrant and its subsidiaries consolidated and its predecessors, audited income statement for each of the three most recent completed fiscal years or such shorter period as the registrant (including predecessors) has been in existence. ii. 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 (7) of this Rule. c Consolidated Statement of Changes in Equity i. There shall be filed for the registrant and its subsidiaries consolidated and its predecessors, audited statements of changes in equity for each of the three most recent completed fiscal years or such shorter period as the registrant (including predecessors) has been in existence. ii 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 (7) of this Rule. d. Consolidated Cash Flow Statement i. There shall be filed for the registrant and its subsidiaries consolidated and its predecessors, audited statements of cash flows for each of the three most recent completed fiscal years or such shorter period as the registrant (including predecessors) has been in existence. ii. 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 (7) of this Rule. 3. 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 (8) 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 (8)].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)(xi) 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 finished 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 2 of this Rule shall be furnished. aHSAIT 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 (8),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)(xi) 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 2(b) of this Rule. VII. A separate audited balance sheet of the acquired business is not required when the registrant's most recent audited balance sheet required by Paragraph 2(a) 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)(xi) 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 Paragraphs 2(b) and 2(c).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)(xi),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. 4. 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. 5. APPLICABILITY WITH OTHER REPORTS The schedules required by Paragraph 6(g) and set forth in "Annex 68.1-0" of Rule 68.1 and the separate financial statements of subsidiaries not consolidated and 50 percent or less owned persons required under paragraph (3)(c) of this Rule, are not required in annual reports to shareholders. However, if the financial statements required by Paragraph 3(c) of this Rule are included in annual reports to shareholders, the requirements of Paragraph 6 of Rule 68 as to footnote disclosures about such investments need not be provided. (Footnotes in the annual report to shareholders should be the same as the footnotes included in the report on Form 17-A.) Also, if the principal accountant does not rely on the work of other accountants, the report of the other accountants, which is required by Paragraph 3(d) of Rule 68, is not required in annual reports to shareholders. 6. ADDITIONAL DISCLOSURE REQUIREMENTS a. Balance Sheet In addition to the disclosures required under the Statements of Financial Accounting Standards (SFAS) and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in "Annex 68.1-KK" 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 and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in "Annex 68.1-LL" if applicable, should appear on the face of the balance sheets or related notes filed by the persons to whom this Rule pertains. c. Statement of Changes in Equity In addition to the disclosures required under the SFAS and except as otherwise permitted by the Commission, corporations covered by Rule 68.1 shall comply with the following requirements: Provide the following disclosures : (1) The equity conversion element of a convertible debt; (2) A description of the nature and purpose of each reserve within the stockholders' equity, including restrictions on the distribution of the revaluation reserve. d Cash Flow Statement In addition to the disclosures required under the SFAS and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in "Annex 68.1-MM" if applicable, should appear on the face of the balance sheets or related notes filed by the persons to whom this Rule pertains. e. Segment Reporting Except as otherwise required by the Commission, the various line items and disclosures set forth in "Annex 68.1-N" if applicable, should appear on the face of the balance sheets or related notes filed by the persons to whom this Rule pertains. f. General Notes to Financial Statements In addition to the disclosures required under the SFAS and except as otherwise permitted by the Commission, the various line items and certain additional disclosures set forth in "Annex 68.1-JJ" if applicable, should appear on the face of the balance sheets or related notes filed by the persons to whom this Rule pertains. g. Schedules Please see "Annex 68.1-O" for disclosure requirements . 7. INTERIM FINANCIAL STATEMENTS a. Condensed statements Interim financial statements shall follow the general form and content of presentation as prescribed by this paragraph and the interim financial reporting of Statement of Financial Accounting Standards No. 30: i. Interim financial statements required by this Paragraph shall be prepared on a consolidated basis if the registrant's most recent year is consolidated .(Separate statements of other entities which may otherwise be required by Rule 68.1 may be omitted.) The interim financial statements may be unaudited. ii. An interim financial report should include, at a minimum, the following components : (1) Condensed balance sheet; (2) Condensed income statements; (3) Condensed statements showing either (i) all changes in equity or (ii) changes in equity other than those arising from capital transactions with owners and distributions to owners; (4) Condensed statement of cash flow statement; and (5) Selected explanatory notes. iii If a public company publishes a complete set of financial statements in its interim financial report, the form and content of those statements should conform to the requirements for a complete set of financial statements. If a public company publishes a set of condensed financial statements in its interim financial report, those condensed statements should include, at a minimum, each of the headings and subtotals that were included in its most recent annual financial statements and the selected notes. Additional line items or notes should be included if their omission would make the condensed interim financial statements misleading. iv. Basic and diluted earnings per share should be presented on the face of an income statement, complete or condensed, for an interim period . b. Materiality In deciding how to recognize, measure, classify, or disclose an item for interim financial reporting purposes, materiality should be assessed in relation to the interim period financial data. In making assessments of materiality, it should be recognized that interim measurements may rely on estimates to a greater extent than measurements of annual financial data. It should be ensured that the interim financial report includes all information that is relevant to understanding the registrant's financial position and performance during the interim period. c. If the registrant's interim financial report is in compliance with generally accepted accounting principles, that fact should be disclosed. An interim financial report should be described as complying with generally accepted accounting principles unless it complies with all of the requirements of each applicable statements and interpretations. d. The interim financial information shall include disclosures either on the face of the financial statements or in accompanying footnotes sufficient so as to make the interim information presented not misleading. The following information, as a minimum, should be disclosed in the notes to financial statements, if material and if not disclosed elsewhere in the interim financial report: i. A statement that the same accounting policies and methods of computation as followed in the interim financial statements as compared with the most recent annual financial statements or, if those policies or methods have been changed, a description of the nature and effect of the change; ii. Explanatory comments about the seasonality or cyclicality of interim operations; iii. The nature and amount of items affecting assets, liabilities, equity, net income, or cash flows that are unusual because of their nature, size, or incidence; iv. The nature and amount of changes in estimates of amounts reported in prior interim periods of the current financial year or changes in estimates of amounts reported in prior financial years; v. Issuances, repurchases, and repayments of debt and equity securities; vi. Dividends paid (aggregate or per share) separately for ordinary shares and other shares; vii. Segment revenue and segment results for business segments or geographical segments, whichever is the enterprise's primary basis of segment reporting. Please refer to Annex "N" for details. (This shall be provided only if the registrant is required to disclose segment information in its annual financial statements); viii. Material events subsequent to the end of the interim period that have not been reflected in the financial statements for the period; ix. The effect of changes in the composition of the enterprise during the interim period, including business combinations, acquisition or disposal of subsidiaries and long-term investments, restructurings, and discontinuing operation; x. Changes in contingent liabilities or contingent assets since the last annual balance sheet date; and xi. Existence of material contingencies and any other events or transactions that are material to an understanding of the current interim period. e. Detailed schedules otherwise required by this Rule may be omitted for purposes of preparing interim financial statements. f. Other instructions as to content The following additional instructions shall be applicable for purposes of preparing interim financial statements: i. Summarized income statement information (See definition of "Summarized Financial Information, Paragraph 1(b)(xiii) 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. ii. 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. iii. 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. A. 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. B. 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. C. 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. D. 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. E. 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. iv. Periods to be covered The periods for which interim financial statements are to be provided in registration forms are stated in Paragraph 2 of this Rule. For filings on Form 17-Q, financial statements shall be provided as set forth below: A. 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. B. 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. C. 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 D. 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. E. 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 (B) and (C) above. iv. 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. 8. 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 2 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 2, 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 2, 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)(xi) of Rule 68. B. The business to be disposed of meets the definition of a significant subsidiary in Paragraph 1(b)(xi) 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 2 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 the 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. 9. CONSOLIDATED FINANCIAL STATEMENTS In addition to those required under paragraph (6) of Rule 68, 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)(xiii) of Rule 68) shall be furnished in the footnotes 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. 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)(xi) 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 paragraphs 5 and 6. 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 Section I(b)(xi),substituting 20 percent (20%) for 10 percent (10%),are met. iii. Notwithstanding the requirements for separate financial statements in paragraph (e)(i) above, 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. c Parent's and consolidated subsidiaries audited financial statements A company which is covered by Rule 68.1 and required to file consolidated audited financial statements shall submit, in addition to the consolidated and parent company's audited financial statements required under paragraph (6) of Rule 68, the individual audited financial statements of its consolidated subsidiaries. If a public company is merely wholly/majority-owned or a significant subsidiary of an ordinary corporation, it shall submit with its own audited financial statements, the individual audited financial statements of its parent company and the consolidated subsidiary/ies thereof. "Annex 68.1-JJ" General Notes to Financial Statements In addition to the information required under "Annex 68-J",the following information shall be set forth on the notes to financial statements. (1) Segment Reporting Financial information about the different types of products and services of a public company and the different geographical areas in which it operates. Provide the definition of business and geographical segments and the basis for allocation of costs between segments. Refer to Annex "68.1-N" of Rule 68.1 for other specific disclosure requirements. (2) Earnings per Share Present earnings per share data in the financial statements of issuers of securities in accordance with the following rules: A. Basic earnings per share should be calculated by dividing the net income or loss for the period attributable to common shareholders by the weighted average number of common shares outstanding during the period. B. For the purpose of calculating basic earnings per share, the net income or loss for the period attributable to common shareholders should be the net income or loss for the period after deducting preferred dividends. C. For the purpose of calculating basic earnings per share, the number of common shares should be the weighted average number of common shares outstanding during the period. D. The weighted average number of common shares outstanding during the period and for all periods presented should be adjusted for events, other than the conversion of potential common shares, that have changed the number of common shares outstanding, without a corresponding change in resources. E. For the purpose of calculating diluted earnings per share, the net income attributable to common shareholders and the weighted average number of shares outstanding should be adjusted for the effects of all dilutive potential common shares. F. For the purpose of calculating diluted earnings per share, the amount of net income or loss for the period attributable to common shareholders, as calculated in accordance with paragraph (B),should be adjusted by the after-tax effect: 1. Any dividends on dilutive potential common shares which have been deducted in arriving at the net income attributable to common shareholders as calculated in accordance with paragraph (B); 2. Interest recognized in the period for the dilutive potential common shares; and 3. Any other changes in income or expense that would result from the conversion of the dilutive potential common shares. G. For the purpose of calculating diluted earnings per share, the number of common shares should be the weighted average number of common shares calculated in accordance with paragraphs (C) and (D),plus the weighted average number of common shares which would be issued on the conversion of all the dilutive potential common shares into common shares. Dilutive potential common shares should be deemed to have been converted into common shares at the beginning of the period or, if later, the date of the issue of the potential common shares. H. For the purpose of calculating diluted earnings per share, a public company should assume the exercise of dilutive options and other dilutive potential common shares of the corporation. The assumed proceeds from these issues should be considered to have been received from the issue of the shares that would have been issued at fair value. The difference between the number of shares issued and the number of shares that would have been issued at fair value should be treated as an issue of common shares for no consideration. I. Potential common shares should be treated as dilutive when, and only when, their conversion to common shares would decrease net income per share from continuing common operations. J. If the number of common or potential common shares outstanding increases as a result of a stock dividend or stock split or decreases as a result of a reverse stock split, the calculation of basic and diluted earnings per share for all periods presented should be adjusted retroactively. If these changes occur after the balance sheet date but before the issuance of the financial statements, the per share calculations for those and any prior period financial statements presented should be based on the new number of shares. When per share calculations reflect such changes in the number of shares, that fact should be disclosed. In addition, basic and diluted earnings per share of all periods presented should be adjusted for: 1. The effects of correction of errors, and adjustments resulting from changes in accounting principles, that are accounted for retroactively; and 2. The effects of a business combination which is accounted for as a pooling of interests. K. A public company should present basic and diluted earnings per share on the face of the income statement. A public company should present basic and diluted earnings per share with equal prominence for all periods presented. L. A public company should present basic and diluted earnings per share, even if the amounts disclosed are negative (a loss per share). M. A public company should disclose the following: 1. The amounts used as the numerators in calculating basic and diluted earnings per share, and a reconciliation of those amounts to the net income or loss for the period; and 2. The weighted average number of common shares used as the denominator in calculating basic and diluted earnings per share, and a reconciliation of these denominators to each other. N. If a public company discloses, in addition to basic and diluted earnings per share, per share amounts using a reported component of net income other than net income or loss for the period attributable to common shareholders, such amounts should be calculated using the weighted average number of common shares determined in accordance with this Rule. If a component of net income is used which is not reported as a line item in the income statement, a reconciliation should be provided between the component used and a line item which is reported in the income statement. Basic and diluted per share amounts should be disclosed with equal prominence. The provisions of Statement of Financial Accounting Standards No. 29 shall supplement Rule 68 for clarification. (3) Other Significant Accounting Policies Disclose any other significant accounting policies not covered by a specific standard but selected and applied in accordance with Statement of Financial Accounting Standard No. 1. "Annex 68.1-KK" Balance Sheet In addition to the requirements set forth under Annex 68-K of Rule 68, 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 balance sheet, 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)(x)); (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 : (a) allowance for doubtful accounts, (b) 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 Affiliates Show separately under this caption non-current advances to unconsolidated subsidiaries and of affiliates. (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 affiliates (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) Indebtedness to Affiliates and Related Parties non-current Include under this caption non-current indebtedness to affiliates and related parties. Disclose the following in the notes to financial statements: (a) Name of each affiliate to whom the registrant is indebted; (b) Amount of advances or loan from each affiliate; (11) 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. (12) Capital Stock Disclose the amount of issued capital for the year and the total number of investors/subscribers thereof, including the following information: (a) a statement of whether or not the shares were registered under the Securities Regulation Code or a confirmation of exemption from such was issued by the Commission; (b) date of registration or confirmation of exemption by the Commission; (c) period of lock-up, if any. "Annex 68.1-LL" Income Statement In addition to the requirements set forth under "Annex 68-L" of Rule 68, corporations 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 affiliates 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 affiliates 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; (5) Earnings Per Share Indicate per share data on the face of the income statement. If the income figure is affected by discontinued operations, extraordinary items and cumulative effect of change in accounting principle, a registrant is encourage to disclose the earnings per share amounts for the following: A. Income from continuing operations B. Discontinued operations C. Extraordinary items D. Cumulative effect of change in accounting principle E. Net income total of A, B, C and D "Annex 68.1-MM" Cash Flow Statement In addition to the requirements set forth under "Annex 68.1-M" of Rule 68, corporations covered by Rule 68.1 shall comply with the disclosure requirements of this Annex. 1) Disclose under operating, investing or financing activities as appropriate, or in the notes the amount of significant cash and cash equivalent balances held by the corporation that are not available for use by the group, together with the commentary by management. 2) Reporting companies are encourage to disclose the following information relevant in understanding the financial position and liquidity of the registrant, together with a commentary by management: (i) the amount of undrawn borrowing facilities available for future operating activities and to settle capital commitments; (ii) the aggregate amount of the cash flows from each operating, investing and financing activities related to interests in joint ventures/subsidiaries reported using proportionate consolidation; (iii) the aggregate amount of cash flows that represent increases in operating capacity separately from those cash flows that are required to maintain operating capacity; (iv) the amount of cash flows arising from the operating, investing and financing activities of each reported industry and geographical segment. "Annex 68.1-N" Segment Reporting Except as otherwise required by the Commission, reporting financial information by segment shall be prepared in accordance with SFAS No. 31. This Annex merely emphasizes and provides the disclosure and other requirements for Segment Reporting. (1) Primary Segments State separately the following items : A. Segment revenue (i) revenue from external sales (ii) revenue from inter segment sales B. Segment result C. Segment assets D. Segment liabilities E. Capital expenditure F. Any item of revenue or expense relevant to explain performance of the segment G. Total depreciation and amortization of segment assets and other significant non-cash expenses (not necessary if segment cash flow disclosures) H. Aggregate share of net result of associates, joint ventures or equity accounted investments (plus aggregate share in these investments) I. Reconciliation to financial statements (2) Secondary Segments State separately the following items : A. Geographical segments secondary reporting format . (i) External segment revenue based on location of customers (For each geographical segment with external revenue of 10% or more of total external enterprise revenue) (ii) Segment assets based on location of assets (For each geographical segment with segment assets of 10% or more of total segment assets.) (iii) Capital expenditure based on location of assets (For each geographical segment with assets of 10% or more of total segment assets.) B. Business Segments secondary reporting format : (i). Segment revenue from external customers (ii). Segment assets (iii). Capital expenditure for each business segment with : (a) external segment revenue of 10% or more of total external registrant revenue; or (b) segment assets of 10% or more of total segment assets C. If the geographical segment is based on location of assets and location of customers different from location of assets, the company should report revenue from sales to external customers for each customer-based geographical segment whose revenue from sales to external customers is 10% or more of total company's revenue from sales to all external customers. D. If the geographical segment is based on location of customers and location of assets different from location of customers, the company should report the following segment information for each asset-based geographical segment whose revenue from sales to external customers or segment assets are 10% or more of related consolidated amounts: (i) segment assets per location of assets (ii) total costs incurred during the period to acquire segment assets than are expected to be used during more than one period by location of the assets. (3) Other Disclosure Matters A. If a business segment or geographical segment for which information is reported to the board of directors and chief executive officer is not a reportable segment because it earns a majority of its revenue from sales to other segments, but nonetheless its revenue from sales to external customers is 10% or more of total enterprise revenue from sales to all external customers, the enterprise should disclose that fact and the amounts of revenue from: (i) sales to external customers (ii) internal sales to other segments B. In measuring and reporting segment revenue from transactions with other segments, inter-segment transfer should be measured on the basis that the enterprise actually used to price those transfers. The basis of pricing inter-segment transfers and any change therein should be disclosed in the financial statements. C. Changes in accounting policies adopted for segment reporting that have a material effect on segment information should be disclosed, and prior period segment information presented for comparative purposes should be restated unless it is impracticable to do so. Such disclosure should include a description of the nature of the change, the reasons for the change, the fact that comparative information has been restated or that it is impracticable to do so, and the financial effect of the change, if it is reasonably determinable. If a registrant changes the identification of its segments and it does not restate prior period segment information on the new basis because it is impracticable to do so, then for the purpose of comparison the enterprise should report segment data for both the old and the new bases of segmentation in the year in which it changes the identification of its segments. D. A registrant should indicate the types of products and services included in each reported geographical segment, both primary and secondary, if not otherwise disclosed in the financial statements or elsewhere in the financial report. "Annex 68.1-O" SCHEDULES This Annex prescribes the disclosure requirements including the form and content of the schedules required by paragraph 6(g) 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 Securities (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 Affiliates). This schedule shall be filed with respect to each person among the directors, officers, employees, and principal stockholders (other than affiliates) 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 Affiliates The Schedule shall be filed in support of the caption Indebtedness of Unconsolidated Subsidiaries and Affiliates in the balance sheet. This schedule may be omitted if: 1. The amount of all indebtedness of Affiliates 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. Property, Plant and Equipment This Schedule shall be filed in support of the caption Property, Plant and Equipment in the balance sheet, provided that this schedule may be omitted if: 1. The total shown under this caption does not exceed twenty-five per cent of total assets as shown by the related balance sheet at both the beginning and end of the period and; 2. Neither the additions nor the deductions during the period exceeded five per cent of total assets as shown by the related balance sheet at either the beginning or end of the period. Schedule F. Accumulated depreciation This schedule shall be filed in support of the caption accumulated depreciation in the balance sheet. This schedule may be omitted if Schedule E is not required. Schedule G. Intangible Assets and Other Assets Part A of this Schedule shall be filed in support of the caption intangible assets and Part B shall be filed in support of the caption Other Assets in the balance sheet provided that either part may be omitted if. 1. the total shown by the related balance sheet caption does not exceed five per cent of total assets as shown in the related balance sheet at both the beginning and end of the period; and 2. neither the additions nor the deductions during the period exceeded five per cent of total assets as shown by the related balance sheet at either the beginning or end of the period. Schedule H. Long-Term Debt This schedule shall be filed in support of the caption Long-Term Debt in the balance sheet. Schedule I. Indebtedness to Affiliates and Related Parties This schedule shall be filed to list the total of all non current Indebtedness to Affiliates and Related Parties included in the balance sheet. This schedule may be omitted if: 1. The total Indebtedness to Affiliates and 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 J. 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 K. 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 Affiliates) . 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 affiliates and (c) other companies, the investment in which is accounted for by the equity method. State separately investments in individual affiliates 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 affiliates 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 Affiliates 1) The affiliates 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. 2) For each affiliate named in the first column, explain in a note hereto the nature and purpose of any material increase. Schedule E. Property, Plant and Equipment (1) 1) Briefly comment on any significant and unusual additions, abandonments, or retirements, or any significant and unusual changes in the general character and location, of principal plants and other important units which may have occurred during the period. 2) Show by major classifications, as indicated in Part IV-(b)(14).If property, plant and equipment abandoned is carried at other than a nominal amount, indicate, if practicable, the amount thereof and state the reasons for such treatment, insignificant or minor items may be shown under a miscellaneous caption. 3) For each change that represents 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. 4) Explain, if practicable, changes stated at other than cost. 5) Clearly describe the nature of the changes and the other accounts affected. Schedule F. Accumulated Depreciation If practicable, accumulated depreciation shall be shown to correspond with the classification of property set forth in the related schedule of property, plant and equipment, separating especially depreciation, depletion, amortization and provision for retirement. Schedule G. Intangible Assets Other Assets 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 H. 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 I. Indebtedness to Affiliates and Related Parties (Long-Term Loans from Related Companies) 1) The affiliates 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 J. 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 K. 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) Affiliates referred to include affiliates for which separate financial statements are filed and those included in consolidated financial statements, other than the issuer of the particular security.