PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES Unaudited Interim Consolidated Financial Statements September 30 and June 30, 2010

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PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands, Except Par Value and Number of Shares)

UNAUDITED SEPTEMBER 30,

2010 AUDITED

JUNE 30, 2010

ASSETS

Current Assets Cash and cash equivalents (Note 4) P=149,537 P=135,323 Receivables - net (Note 5) 675,266 622,398 Inventories - net (Note 6) 254,310 232,409 Real estate held for sale and development (Note 7) 400,951 400,410 Amounts owed by related parties - net (Note 17) 4,937 4,939 Available-for-sale (AFS) investments - net (Note 9) 632,511 636,321 Other current assets - net (Note 8) 183,697 182,921 Total Current Assets 2,301,209 2,214,721

Noncurrent Assets Investments in associates - net (Note 11) 530,755 530,755 Leasehold rights – net 28,787 31,019 Held-to-maturity (HTM) investments (Note 10) 18,285 18,285 Investment properties - net (Note 13) 674,260 686,061 Property, plant and equipment - net (Note 12) 661,401 660,706 Deferred income tax assets 86,898 85,625 Other noncurrent assets (Note 14) 142,092 142,633 Total Noncurrent Assets 2,142,478 2,155,084

TOTAL ASSETS P=4,443,687 P=4,369,805

LIABILITIES AND EQUITY

Current Liabilities Accounts payable and accrued expenses (Note 15) P=1,436,449 P=1,474,276 Rental deposits and advances 214,059 202,535 Amounts owed to related parties (Note 17) 3,061 3,065 Total Current Liabilities 1,653,569 1,679,876

Noncurrent Liabilities Retirement benefit obligation 62,884 62,139 Deferred income tax liabilities 199,678 200,703 Subscriptions payable (Note 11) 528,470 528,470 Total Noncurrent Liabilities 791,032 791,312 Total Liabilities 2,444,601 2,471,188

(Forward)

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UNAUDITED SEPTEMBER 30,

2010 AUDITED JUNE 30, 2010

Equity Attributable to Equity Holders of the Parent Capital stock - P=1 par value

Authorized - 2,400,000,000 shares Issued and subscribed - 2,367,149,383 shares (net of

subscriptions receivable of P=300,797) P=2,066,352 P=2,066,352 Additional paid-in capital 829,904 829,904 Revaluation increment on property, plant and equipment 193,299 193,299 Revaluation reserve on investment properties 225,799 225,799 Unrealized valuation gain (loss) on AFS investments (Note 9) 185,689 186,133 Deficit (1,572,247) (1,669,725) 1,928,796 1,831,762 Minority interest 70,290 66,855 Total Equity 1,999,086 1,898,617

TOTAL LIABILITIES AND EQUITY P=4,443,687 P=4,369,805 See accompanying Notes to Consolidated Financial Statements.

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PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Earnings Per Share) Quarter Ended September 30 2010 2009

REVENUE Merchandise sales - net P=160,451 P=179,125Rental 118,944 118,785Insurance premiums and commissions 42,283 33,121Real estate sales – 1,378 321,678 332,409

COST AND EXPENSES Cost of goods sold and services 151,528 163,467

79,596 104,330Operating expenses (Note 18) Rent and utilities 62,766 53,667Insurance underwriting deductions 30,674 27,928Cost of real estate sold – 956 324,564 350,358

OTHER CHARGES (INCOME) (234,145)(94,396)

– (1,246,640)Gain on sale of assets Gain on extinguishment of debt (Note 16) Reversal of allowance for probable losses – (550,689)Foreign exchange losses (gains) – net 9 10Interest and bank charges – net (2,451) (4,750)Others – net (9,956) (7,193) (106,794) (2,043,407) 217,770 (1,693,049)

INCOME BEFORE INCOME TAX 103,908 2,025,458 PROVISION FOR INCOME TAX - net 5,526 2,160

NET INCOME P=98,382 P=2,023,298

ATTRIBUTABLE TO: Equity holders of the parent P=97,478 P=2,024,960 Minority interests 904 (1,662) P=98,382 P=2,023,298

EARNINGS PER SHARE (Note 19) Basic, for loss for the period attributable to ordinary

equity holders of the parent P=0.041 P=0.855 See accompanying Notes to Consolidated Financial Statements.

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PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Thousands) Quarter Ended September 30 2010 2009

NET INCOME P=98,382 P=2,023,298

OTHER COMPREHENSIVE INCOME (LOSS) Unrealized valuation gain (loss) on AFS investments (444) 153,252

TOTAL COMPREHENSIVE INCOME P=97,938 P=2,176,550

ATTRIBUTABLE TO: Equity holders of the Parent P=90,981 P=2,177,856Minority interests 6,957 (1,306) P=97,938 P=2,176,550 See accompanying Notes to Consolidated Financial Statements.

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PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED SEPTEMBER 30, 2010 AND 2009 (Amounts in Thousands)

Capital Stock

AdditionalPaid-inCapital

RevaluationIncrement on

Property,Plant and

Equipment

Revaluation Reserve on Investment Properties

UnrealizedValuation

Gain (Loss) onAFS Investments

(Note 9) DeficitMinorityInterests Total

Balances at June 30, 2009 P=2,066,352 P=829,904 P=198,428 P=235,889 (P=8,709) (P=3,638,908) P=70,759 (P=246,285)

Net income (loss) for the period – – – – – 2,024,959 (1,662) 2,023,298

Other comprehensive income for the period:

Unrealized valuation gain on AFS investments – – – – 153,252 – 147 153,399

Total comprehensive income (loss) for the period – – – – 153,252 2,024,959 (1,515) 2,176,696

Balances at September 30, 2009 P=2,066,352 P=829,904 P=198,428 P=235,889 P=144,543 (P=1,613,949) P=69,244 P=1,930,411

Balances at June 30, 2010 P=2,066,352 P=829,904 P=193,299 P=225,799 P=186,133 (P=1,669,725) P=66,855 P=1,898,617

Net income for the period – – – – – 97,478 904 98,382

Other comprehensive income (loss) for the period:

Unrealized valuation loss on AFS investments – – – – (444) – 2,531 2,087

Total comprehensive income (loss) for the period – – – – (444) 97,478 3,435 100,469

Balances at September 30, 2010 P=2,066,352 P=829,904 P=193,299 P=225,799 P=185,689 (P=1,572,247) P=70,290 P=1,999,086

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PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Quarter Ended September 30 2010 2009

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=103,908 P=2,025,458Adjustments for: Interest and bank charges 59 41 Depreciation and amortization 19,819 46,135 Provisions for (reversal of):

1,935 1,769 Doubtful accounts Probable losses – (550,689) Unrealized foreign exchange losses 9 10

– (1,246,640) Gain on extinguishment of debt Gain on sale of asset (94,396) (234,145) Interest income (3,039) (4,791)Operating income before working capital changes 28,295 37,148Decrease (increase) in: Receivables (4,052) (70,053) Inventories (23,336) 19,372 Real estate held for sale and development (541) 956 Other current assets (776) 2,100Increase (decrease) in: Accounts payable and accrued expenses (44,994) 44,250 Rental deposits and advances 11,524 6,914Net cash flows from (used in) operations (33,880) 40,687Interest received 3,039 4,791Interest paid – –Net cash flows from (used in) operating activities (30,841) 45,478

CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in: Investment in shares of stocks – 200 Other noncurrent assets 541 (15,613)

(1,781) (5,824) AFS investments HTM investments – 28Proceeds from sale of assets 39,781 –Proceeds from sale of AFS investments 17,524 1,897Acquisitions of property, plant and equipment (10,508) (2,948)Net cash flows from (used in) investing activities 45,557 (22,260) (Forward)

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CASH FLOWS FROM FINANCING ACTIVITIES Decrease in amounts owed to related parties (P=502) (P=796)Payments of:

– (185,540) Convertible loan Loans – (35,250) Long-term debt – (31,545)Net cash used in financing activities (502) (253,131)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,214 (229,913)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 135,323 469,436

CASH AND CASH EQUIVALENTS AT END OF PERIOD (Note 4) P=149,537 P=239,523 See accompanying Notes to Consolidated Financial Statements.

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PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Corporate Information and Status of Operations

Prime Orion Philippines, Inc. (POPI; the Parent Company) was incorporated and registered with the Philippine Securities and Exchange Commission (SEC) on May 19, 1989. The Parent Company’s registered office address is 20th Floor LKG Tower, 6801 Ayala Avenue, Makati City. The Parent Company’s primary purpose is to acquire by purchase, exchange, assign, donate or otherwise, and to hold, own and use, for investment or otherwise and to sell, assign, transfer, exchange, lease, let, develop, mortgage, pledge, traffic, deal in and with, and otherwise operate, enjoy and dispose of any and all properties of every kind and description and wherever situated, as and to the extent permitted by law, including but not limited to, buildings, tenements, warehouses, factories, edifices and structures and other improvements, and bonds, debentures, promissory notes, shares of capital stock, or other securities and obligations, created, negotiated or issued by any corporation, association, or other entity, domestic or foreign. Prime Orion Philippines, Inc. and Subsidiaries, collectively referred to as “the Group”, have principal business interests in real estate and property development, financial services and manufacturing and distribution.

The unaudited consolidated financial statements of the Group as of September 30, 2010 and June 30, 2010 and for the three months ended September 30, 2010 and 2009 were approved and authorized for issue by the Audit Committee and the Board of Directors on November 19, 2010.

2. Summary of Significant Accounting Policies

Basis of Preparation The unaudited consolidated financial statements have been prepared on a historical cost basis, except for AFS investments that are carried at fair values. The unaudited consolidated financial statements are presented in Philippine peso, which is the Group’s functional and presentation currency. Statement of Compliance The financial statements of the Group have been prepared in compliance with Philippine Financial Reporting Standards (PFRS).

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Basis of Consolidation The unaudited consolidated financial statements include the accounts of the Parent Company and its subsidiaries as of September 30 and June 30, 2010:

Effective Percentage

of Ownership September 30 June 30 Orion Land, Inc. (OLI) and Subsidiaries: OLI 100.00 100.00 Tutuban Properties, Inc. (TPI) and Subsidiaries:

TPI 100.00 100.00 22BAN Marketing, Inc. 100.00 100.00

TPI Holdings Corporation (TPIHC) 100.00 100.00 Orion Property Development, Inc. (OPDI) and Subsidiary:

OPDI 100.00 100.00 Orion Beverage, Inc. (OBI) 100.00 100.00 Luck Hock Venture Holdings, Inc. 60.00 60.00 Orion I Holdings Philippines, Inc. (OIHPI) and Subsidiaries: OIHPI 100.00 100.00 Lepanto Ceramics, Inc. (LCI) 100.00 100.00 ZHI Holdings, Inc. (ZHI) 100.00 100.00 OYL Holdings, Inc. 60.00 60.00 Orion Solutions, Inc. (OSI) 100.00 100.00 OE Holdings, Inc. (OEHI) and Subsidiaries: OEHI 100.00 100.00 Orion Maxis Inc. 100.00 100.00 FLT Prime Insurance Corporation (FPIC) 70.00 70.00

All of the above companies are based in the Philippines. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. All significant intercompany transactions and balances between and among the Group, including intercompany profits and unrealized profits, have been eliminated in the consolidation.

Minority interests represent interests in certain subsidiaries not held by the Group. The equity and

net income attributable to minority interests are shown separately in the consolidated balance sheets and consolidated statements of income, respectively.

Changes in Accounting Policies

The accounting policies adopted in the preparation of the Group’s interim financial statements are consistent with those of the most recent annual audited financial statements. Cash and Cash Equivalents

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

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Financial Assets and Financial Liabilities Financial instruments within the scope of PAS 39 are recognized in the consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument. All regular way purchases and sales of financial assets are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. When financial assets and financial liabilities are recognized initially, they are measured at fair value, plus, in the case of investments not at FVPL, directly attributable transaction costs. Financial assets within the scope of PAS 39 are classified as either financial assets at fair value through profit or loss (FVPL), loans and receivables, held-to-maturity (HTM) investments or AFS investments, as appropriate, while financial liabilities are classified as either financial liabilities at FVPL or other financial liabilities. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. The Group determines the classification of its financial assets and financial liabilities upon initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end.

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

Financial assets and financial liabilities are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments or a financial guarantee contract. Any gains or losses on investments or liabilities held for trading are recognized in the consolidated statement of income. Financial assets and financial liabilities may be designated at initial recognition as at FVPL if the following criteria are met: (a) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on a different basis; or (b) the assets and liabilities are part of a group of financial assets, financial liabilities, or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy; or (c) the financial asset or financial liability contains an embedded derivative that would need to be separately recorded.

Financial assets and financial liabilities at FVPL are recorded in the consolidated balance sheets at fair value. Subsequent changes in fair value are recognized in the statement of income. Interest earned and incurred is recorded as interest income or expense, respectively, while dividend income is recorded when the right to receive payments has been established. As of September 30 and June 30, 2010, the Group has no financial assets and financial liabilities at FVPL.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are subsequently carried at amortized cost using the effective interest rate method, less any allowance for impairment. Amortized cost is calculated taking into account any discount or premium on acquisition and includes fees that are integral part of the effective interest rate and transaction costs. Gains and losses are recognized in the consolidated statement of income when the loans and receivables are derecognized or impaired, as well as through the amortization process.

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As of September 30 and June 30, 2010, the Group’s cash and cash equivalents, receivables and amounts owed by related parties are classified as loans and receivables. HTM investments Quoted non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as HTM when the Group has the positive intention and ability to hold to maturity. Where the Group sells other than an insignificant amount of HTM investments, the entire category would be tainted and reclassified as AFS investments and the Group will be precluded from using the HTM investments account for the current period and for the next two succeeding periods from tainting date. After initial measurement, HTM investments are measured at amortized cost using the effective interest rate method. Amortized cost is calculated taking into account any discount or premium on or acquisition and for that are integral parts of the effective interest rate. Gains and losses are recognized in the consolidated statement of income when the investments are derecognized or impaired, as well as through the amortization process. As of September 30 and June 30, 2010, the Group’s HTM investments include investments in debt securities. AFS investments AFS investments are those non-derivative financial assets that are designated as AFS or are not classified in any of the three preceding categories. They are purchased and held indefinitely, and may be sold in response to liquidity requirements or changes in market conditions. After initial measurement, AFS investments are measured at fair value with unrealized gains or losses being recognized directly in equity until the investment is derecognized or determined to be impaired at which time the cumulative gain or loss previously recorded in equity is recognized in the consolidated statement of income. The fair value of investments that are actively traded in organized financial markets is determined by reference to quoted market bid prices at the close of business on the statement of financial position date. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s-length market transactions; reference to the current market value of another instrument, which is substantially the same; and discounted cash flow analysis and option pricing models. As of September 30 and June 30, 2010, the Group’s investment in equity securities are classified as AFS investments. Determination of fair value The fair values of the quoted financial assets are based on current bid prices. If the market for a financial asset is not effective, the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models refined to reflect the issuer’s specific circumstances. Other financial liabilities This category pertains to issued financial liabilities or their components that are neither held for trading nor designated as at FVPL upon the inception of the liability and contain contractual obligations to deliver cash or another financial asset to the holder or to settle the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the

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residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any related issue costs, discount or premium. Gains or losses are recognized in the consolidated statement of income when the liabilities are derecognized as well as through the amortization process. As of September 30 and June 30, 2010, the Group’s accounts payable and accrued expenses, amounts owed to related parties and rental deposits and advances are classified as other financial liabilities. Derecognition of Financial Assets and Liabilities Financial asset A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:

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

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

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

Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Where continuing involvement takes the form of a written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferred asset that the Group may repurchase, except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of (a) the consideration received (including any new asset obtained less any new liability assumed) and (b) any cumulative gain or loss that has been recognized directly in equity is recognized in the consolidated statement of income. Financial liability A financial liability is derecognized when the obligation under the liability is discharged or cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially

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different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of income.

Embedded Derivatives An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL. The Group assesses whether embedded derivative are required to be separated from host contracts when the Group first becomes party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flow that would otherwise be required. Embedded derivatives are measured at fair value, with changes in fair value recognized immediately in the consolidated statement of income. Impairment of Financial Assets The Group assesses at each balance sheet date whether a financial asset or group of financial assets is impaired. A financial asset or a group of financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset of group of financial assets that can be reliably measured. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Assets carried at amortized cost The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through the use of an allowance account. The financial assets, together with the associated allowance accounts, is written off when there is no realistic prospect of future recovery and all collateral, if any, has been realized or has been transferred to the Group. The amount of the loss shall be recognized in the consolidated statement of income.

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If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. Assets carried at cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed in subsequent periods. AFS investments For AFS investments, the Group assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity investments classified as AFS, this would include a significant or prolonged decline in the fair value of the investments below its cost. When there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the consolidated statement of income - is removed from equity and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income. Increases in fair value after impairment are recognized directly in the consolidated statement of changes in equity. In the case of debt instruments classified as AFS, impairment is assessed based on the same criteria as financial assets carried at amortized cost. Future interest income is based on the reduced carrying amount and is accrued based on the rate of interest and to discount future cash flows for the purpose of measuring impairment loss. Such accrual is part of “interest income” in the consolidated statement of income. If, in subsequent year, the fair value of a debt instrument increased and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income.

Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheet, if and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is generally not the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated balance sheet. Investments in Associates Investments in shares of stock in which the Group has an effective interest of at least 20% or where it has, at least, ability to exercise significant influence over the investee’s operating and financial policies are accounted for under the equity method of accounting. Under the equity method, the investments are carried in the consolidated balance sheet at cost adjusted for the equity in net income or losses and changes in the investee’s equity account since the date of acquisition. Dividends received are treated as a reduction in the carrying value of the investments. The reporting dates of the associates and the Group are identical and the associates’ accounting

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policies conform to those used by the Group for like transactions and events in similar circumstances. The associate is accounted for under equity method from the date the Group obtains significant influence. In the Parent Company’s separate financial statements, investments in associates are accounted for at cost less impairment losses. The effective percentages of ownership in investments in associates for September 30 and June 30, 2010 are as follows:

Effective Percentage

of Ownership Cyber Bay Corporation (Cyber Bay) and Subsidiary: Cyber Bay 22.28 Central Bay Reclamation and Development Corporation (Central Bay) 22.28 BIB Aurora Insurance Brokers, Inc. (BAIBI) 20.00

Real Estate Held for Sale and Development Real estate held for sale and development is carried at the lower of cost and NRV. NRV is the selling price in the ordinary course of business less the costs of completion, marketing and distribution. Cost includes acquisition cost of the land plus development and improvement costs. Borrowing costs incurred on loans obtained to finance the improvements and developments of real estate held for sale and development are capitalized while development is in progress.

Leasehold Rights Leasehold rights are stated at cost and are amortized on a straight line basis over the remaining term of the lease from the start of commercial operations.

Investment Properties The Group’s investment properties include properties utilized in its mall operations, held for rentals or for capital appreciation.

Investment properties are stated at cost less accumulated depreciation. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day-to-day servicing of an investment property. Leasehold improvements under investment properties (including buildings and structures) on the leased land is carried at cost less accumulated depreciation and any impairment in value.

An investment property is derecognized either when it has been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the consolidated statement of income in the period of retirement or disposal. Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and

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only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale. Investment properties are carried at cost less accumulated depreciation and any accumulated impairment losses. Leasehold improvements under investment properties (including buildings and structures) on the leased land, is carried at deemed cost, less any impairment in value, if any. Leasehold improvements are amortized on a straight-line basis over the estimated useful lives or the term of the lease, whichever is shorter. Investment properties are amortized on a straight line basis over the estimated useful lives or term of the lease, whichever is shorter. The lease contract on a land where the investment properties is located is for 25 years, which is also the amortization period of the investment property. In December 2009, the lease contract on a land where the Group’s primary investment property (see Note 13) is located, was renewed. As a result of the lease renewal, and the review of the estimated useful life and amortization period of the said investment property, management came to a conclusion that there has been a significant change in the expected pattern of economic benefits from the said property of the Group. Property, Plant and Equipment Property, plant and equipment are carried at cost less accumulated depreciation and amortization and any impairment in value, except for land and building, together with their improvements, which are stated at appraised values as determined by an independent firm of appraisers. The excess of appraised value over the acquisition costs of the properties is shown as “Revaluation increment on property, plant and equipment” under the equity section of the consolidated balance sheet and in the consolidated statement of changes in equity. An amount corresponding to the difference between the depreciation based on the revalued carrying amount of the properties and depreciation based on the original cost is transferred annually from “Revaluation increment in property, plant and equipment” to “Deficit” account in the consolidated balance sheet. The amount transferred is net of the related deferred income tax liability. The initial cost of property, plant and equipment consists of its purchase price, including import duties, taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are normally charged to operations in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment.

When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and amortization and any impairment in value are removed from the accounts and any resulting gain or loss is credited to or charged against current operations.

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*SGVMC409123* 10

Depreciation and amortization is calculated on a straight-line basis over the estimated useful lives of the assets as follows:

Years Land improvements 30 Buildings and improvements 30 Leasehold improvements 3-5 Machinery and equipment 5-10 Transportation equipment 5 Furniture, fixtures and equipment 3-5

Leasehold improvements are amortized on a straight-line basis over their estimated useful lives or

the term of the lease, whichever is shorter. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of income in the year the asset is derecognized. The residual values, useful lives and depreciation method are reviewed and adjusted if appropriate, at each financial year end.

Fully depreciated assets are retained in the accounts until these are no longer in use. When assets are sold or retired, the cost and the related accumulated depreciation and any impairment in value are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated statement of income.

Impairment of Nonfinancial Assets The Group assesses at each reporting date whether there is an indication that a nonfinancial asset may be impaired when events or changes in circumstances indicate the carrying values may not be recoverable. If any such indication exists or when annual impairment testing for a nonfinancial asset is required, the Group makes an estimate of the nonfinancial asset’s recoverable amount. A nonfinancial asset’s estimated recoverable amount is the higher of the nonfinancial asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual nonfinancial asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying values exceed the estimated recoverable amounts, the assets are considered impaired and are written down to their estimated recoverable amounts. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses of continuing operations are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset. An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the nonfinancial asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the nonfinancial asset is increased to its estimated recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the nonfinancial asset in prior years. Such reversal is

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*SGVMC409123* 11

recognized in the consolidated statement of income unless the nonfinancial asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. The following specific recognition criteria must also be met before revenue is recognized: Sale of goods Revenue from sale of merchandise is recognized upon passage of title which coincides with the delivery of the goods. Rental Lease is recognized as income over the terms of the lease of mall spaces on a straight-line basis. Sale of real estate Revenue from sale of real estate is recognized on an accrual basis in accordance with the terms and conditions of the sales contract. Dividend income Dividend income is recognized when the Group’s right to receive the payment is established.

Premiums Premiums from insurance contracts are recognized as revenue over the period of the contracts

using the 24th method. The portion of the premiums written that relates to the unexpired periods of the policies at balance sheet dates is accounted for as Reserve for Unearned Premiums included in the “Accounts payable and accrued expenses” account in the consolidated balance sheet. The related insurance premiums ceded that pertain to the unexpired periods at balance sheet dates are accounted for as Deferred Reinsurance Premiums shown as part of “Other noncurrent assets” in the consolidated balance sheet. The net changes in these accounts between balance sheet dates are charged or credited to income for the year. Interest Revenue is recognized as the interest accrues (using the effective interest rate method that is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset). Inventories

Inventories are valued at the lower of cost and net realizable value (NRV). Costs incurred in bringing each product to its present location are accounted for as follows:

• Raw materials and supplies - purchase cost on a moving-average method;

• Finished goods and work in progress - direct materials, labor, and proportion of manufacturing overhead based on normal operating capacity.

The NRV is the selling price in the ordinary course of business, less costs of marketing and distribution.

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*SGVMC409123* 12

Claims The liabilities for unpaid claim costs (including incurred but not reported losses) and claim adjustment expenses relating to insurance contracts are accrued when insured events occur. The liabilities for unpaid claims are based on the estimated ultimate cost of settling the claims. The method of determining such estimates and establishing reserves is continually reviewed and updated. Changes in estimates of claim costs resulting from the continuous review process and differences between estimates and payments for claims are recognized as income or expense for the period in which the estimates are changed or payments are made. Estimated recoveries on settled and unsettled claims are evaluated in terms of the estimated realizable values of the salvaged recoverables and deducted from the liability for unpaid claims. The unpaid claim costs are accounted as Claims Payable under “Accounts payable and accrued expenses” account in the consolidated balance sheet.

Income Taxes Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date. Deferred income tax Deferred income tax is provided using the balance sheet liability method on temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences, except:

• where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of taxable temporary differences associated with investments in foreign subsidiaries and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred income tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits in the form of minimum corporate income tax (MCIT) and unused tax losses in the form of net operating loss carryover (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward benefits of MCIT and NOLCO can be utilized except: • where the deferred income tax asset relating to the deductible temporary difference arises from

the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

• in respect of deductible temporary differences associated with investments in foreign

subsidiaries and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

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*SGVMC409123* 13

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

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

Income taxes relating to the items recognized directly in equity are recognized in statement of comprehensive income and not in the consolidated statement of income.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists, to offset current income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. Retirement Costs The Group has a defined benefit retirement plan which requires contributions to be made to separately administered funds. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit actuarial valuation method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan. The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a retirement plan, past service cost is recognized immediately. The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized and reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: a. There is a change in contractual terms, other than a renewal or extension of the arrangement; b. A renewal option is exercised or extension granted, unless the term of the renewal or

extension was initially included in the lease term; c. There is a change in the determination of whether fulfillment is dependant on a specified

asset; or d. There is a substantial change to the asset.

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*SGVMC409123* 14

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and at the date of renewal or extension period for scenario (b). Group as a lessor Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over the lease term on the same bases as the rental income. Contingent rents are recognized as revenue in the period in which they are earned. Group as a lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the consolidated statement of income on a straight-line basis over the lease term. Foreign Currency Transactions The consolidated financial statements are presented in Philippine peso, which is the Group’s functional and presentation currency. The Group determines its own functional currency and items included in the consolidated financial statements are measured using that functional currency. Transactions in foreign currencies are initially recorded in Philippine peso based on the exchange rates prevailing at the dates of the transactions. Exchange rate differences arising from the settlement of monetary items at rates different from those at which they were initially recorded are recognized in the consolidated statement of income in the period in which they arise. At year-end, monetary assets and liabilities denominated in foreign currencies are restated at closing rate and any exchange differentials are credited to or charged against income. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Earnings (Loss) Per Share Earnings (loss) per share is computed by dividing the net income (loss) for the year by the weighted average number of common shares issued and outstanding during the year. The weighted average number of common shares outstanding during the period and for all years presented are 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. Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate financial asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the consolidated statement of income, net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense.

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*SGVMC409123* 15

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

Events After the Reporting Period

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

3. Significant Accounting Judgments and Estimates

The preparation of the accompanying consolidated financial statements in conformity with PFRS requires management to make judgments and estimates that affect the amounts reported in the consolidated financial statements and accompanying notes. The judgments and estimates used in the accompanying consolidated financial statements are based upon management’s evaluation of relevant facts and circumstances as of the date of the consolidated financial statements. Actual results could differ from such estimates. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Judgments In the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements: Determining functional currency Based on the economic substance of underlying circumstances relevant to the Group, the functional currency of the Group has been determined to be the Philippine peso. The Philippine peso is the currency of the primary economic environment in which the Group operates and it is the currency that mainly influences the underlying transactions, events and conditions relevant to the Group. Operating lease commitments - Group as lessor The Group has entered into commercial property leases on its investment property portfolio. The Group has determined that it retains all the significant risks and rewards of ownership of these properties which are leased out under operating lease arrangements. Operating lease commitments - Group as lessee The Group has entered into a lease agreement for the corporate office space and a subsidiary’s mall operations. The Group has determined that it does not obtain all the significant risks and rewards of ownership of the assets under operating lease arrangements.

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*SGVMC409123* 16

Estimation Uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Allowance for impairment losses The Group reviews its receivables and amounts owed by related parties at each reporting date to assess whether an allowance for impairment should be recorded in the consolidated statement of income. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumption about a number of factors and actual results may differ, resulting in future changes to the allowance. For the amounts owed by related parties, the Group uses judgment, based on the best available facts and circumstances, including but not limited to, assessment of the related parties’ operating activities (active or dormant), business viability and overall capacity to pay, in providing allowance against the recorded receivable amounts. For the receivables, the Group evaluates specific accounts where the Group has information that certain customers or third parties are unable to meet their financial obligations. Facts, such as the Group’s length of relationship with the customers or other parties and the customers’ or other parties’ current credit status, are considered to ascertain the amount of allowance that will be provided. The allowances are evaluated and adjusted as additional information is received.

Impairment of AFS investments The Group recognizes impairment losses on AFS investments when there has been a significant or prolonged decline in the fair value of such investments below its cost or where other objective evidence of impairment exists. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. In determining whether the decline in value is significant, the Group considers historical volatility of share price (i.e., the higher the historical volatility, the greater the decline in fair value before it its likely to be regarded as significant) and the period of time over which the share price has been depressed (i.e., a sudden decline is less significant than a sustained fall of the same magnitude over a longer period).

Useful lives of property, plant and equipment and investment properties The estimated useful lives used as bases for depreciating the Group’s property, plant and equipment and investment properties were determined on the basis of management’s assessment of the period within which the benefits of these asset items are expected to be realized taking into account actual historical information on the use of such assets as well as industry standards and averages applicable to the Group’s assets. The Group estimates the useful lives of its property, plant and equipment and investment properties based on the period over which the assets are expected to be available for use. The estimated useful lives of property, plant and equipment and investment properties are reviewed, at least, annually and are updated if expectations differ from previous estimates due to physical wear and tear and technical or commercial obsolescence on the use of these assets. It is possible that future results of operations could be materially affected by changes in these estimates brought about by changes in the factors mentioned above. A reduction in the estimated useful lives of property, plant and equipment and investment properties would increase depreciation expense and decrease property, plant and equipment and investment properties. Investment properties are amortized on a straight line basis over the estimated useful lives or the term of the lease, whichever is shorter. The lease contract on a land where the investment property

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*SGVMC409123* 17

is located is for 25 years, which is also the amortization period of the investment property. In December 2009, the lease contract is renewed. As a result of the lease renewal and the review of the estimated useful life and amortization periods of the said investment property, management came to a conclusion that there has been a significant change in the expected pattern of economic benefits from the said property of the Group. As a result, the Group prospectively revised the remaining amortization period of this property from an average 25 years (which is shorter of the lease term and the estimated useful life) to 35 years. These changes have been accounted for as a change in accounting estimates. Fair values of financial instruments Where the fair value of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flows model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Realizability of deferred income tax assets The Group reviews the carrying amounts of deferred income tax assets at each balance sheet date and reduces deferred income tax assets to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred income tax assets to be utilized. However, there is no assurance that the Group will generate sufficient taxable income to allow all or part of its deferred income tax assets to be utilized. Impairment of nonfinancial assets Internal and external sources of information are reviewed at each balance sheet date to identify indications that the assets may be impaired or an impairment loss previously recognized no longer exists or may be decreased. If any such indication exists, the recoverable amount of the asset is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its estimated recoverable amount. The Group assesses the impairment of assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Group considers important which could trigger an impairment review include the following: • significant underperformance relative to expected historical or projected future operating

results; • significant negative industry or economic trends; and • deterioration in the financial health of the investee for investments in stocks, industry and

sector performance, changes in technology, and operational and financing cash flows.

Pension and other retirement benefits The determination of the Group’s obligation and retirement expense is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, discount rates, expected returns on plan assets and salary increase rates. In accordance with PFRS, actual results that differ from the Group’s assumptions, subject to the 10% corridor tests, are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While the Group believes that the assumptions are reasonable and appropriate, significant differences between actual

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*SGVMC409123* 18

experiences and assumptions may materially affect the Group’s accrued retirement obligation and annual retirement expense. Contingencies The Parent Company and certain subsidiaries are currently involved in various legal proceedings. The estimate of the probable costs for the resolution of these claims has been developed in consultation with outside legal counsel handling the defense in these matters and is based upon an analysis of potential results. It is possible, however, that future results of operations could be materially affected by changes in estimates or in the effectiveness of the strategies relating to these proceedings.

4. Cash and Cash Equivalents

September 30 June 30 (In Thousands) Cash on hand and in banks P=74,085 P=87,580 Short-term investments 75,452 47,743 P=149,537 P=135,323

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

5. Receivables - net

September 30 June 30 (In Thousands) Trade debtors P=311,405 P=263,719 Insurance receivables 364,645 393,639 Current portion of Manila Electric Company

(Meralco) refund - 2,711 Others 291,739 254,852 967,789 914,921 Less allowance for impairment losses 292,523 292,523 P=675,266 P=622,398

6. Inventories – net

September 30 June 30 (In Thousands) At NRV: Finished goods P=177,707 P=157,106 Work-in-process 13,899 13,062 Raw materials 31,071 23,524 Factory supplies and spare parts 26,152 31,772 248,829 225,464 At cost: Materials in-transit 5,481 6,945 P=254,310 P=232,409

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*SGVMC409123* 19

7. Real Estate Held for Sale and Development

This account pertains to land located in Calamba, Laguna. Land for development pertains to parcels of land located in Calamba, Laguna and Sto. Tomas, Batangas.

In July 2003, OPDI entered into a Memorandum of Agreement with a counterparty to purchase a portion of OPDI’s property in Sto. Tomas, Batangas. OPDI received P=59.0 million which is included under “Accounts payable and accrued expenses” account in the unaudited consolidated balance sheets.

8. Other Current Assets – net

September 30 June 30 (In Thousands) Creditable withholding taxes - net of allowance for impairment losses amounting to P=16,381 in September 30 and June 30, 2010 P=142,846 P=138,746 Input value added tax (VAT) - net of allowance for impairment losses amounting to P=2,256 in September 30 and June 30, 2010 40,094 43,886 Prepayments 757 289 P=183,697 P=182,921

Movements in the allowance for impairment losses are as follows:

September 30 June 30 (In Thousands) Beginning balance P=18,637 P=18,576 Provision - 61 Ending balance P=18,637 P=18,637

9. AFS Investments

September 30 June 30 (In Thousands) Listed equity securities - at market P=479,281 P=476,067 Nonlisted equity securities - at cost 153,230 160,254 P=632,511 P=636,321

AFS investments, both listed and nonlisted equity securities, were held for investment purposes.

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*SGVMC409123* 20

10. HTM Investments

This account pertains to investments in government debt securities with interest rates ranging from 7.05% to 9%. These investments have maturity dates until July 2013. 11. Investments in Associates

September 30 June 30

(In Thousands) Acquisition costs: Balances at beginning and end of year P=1,416,101 P=1,416,101 Accumulated equity in net losses of associates:

Balances at beginning of year (160,323) (160,357) Equity in net income of associates - 234 Dividends received - (200) Balances at end of year (160,323) (160,323) 1,255,778 1,255,778 Less allowance for impairment losses 725,023 725,023 P=530,755 P=530,755

12. Property, Plant and Equipment - net

As of September 30, 2010

LeaseholdImprovements

Machinery andEquipment

TransportationEquipment

Furniture, Fixtures and

Equipment Total (In Thousands)

At cost: At beginning of the year P=26,867 P=2,066,164 P=43,592 P=109,399 P=2,246,022 Additions – 8,109 66 2,003 10,178 Disposals – – (611) - (611)At end of the period 26,867 2,074,273 43,047 111,402 2,255,589

Accumulated depreciation and amortization and allowance for impairment losses:

At beginning of year 21,633 2,047,479 30,641 92,426 2,192,179 Depreciation and amortization 131 785 1,007 2,090 4,013 Disposals – – (611) - (611)At end of the period 21,764 2,048,264 31,037 94,516 2,195,581

Net book value P=5,103 P=26,007 P=12,012 P=16,886 P=60,008

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*SGVMC409123* 21

Land and

Improvements

Buildings and

Improvements Total (In Thousands) At revalued amounts: At beginning of the year Additions At end of the period

P=307,580-

307,580

P=536,560 330

536,890

P=844,140330

844,470 Accumulated depreciation and

amortization:

At beginning of year 14,508 222,769 237,277 Depreciation 320 5,480 5,800At end of the period 14,828 228,249 243,077Net book value P=292,752 P=308,641 P=601,393

As of June 30, 2010

LeaseholdImprovements

Machinery andEquipment

TransportationEquipment

Furniture, Fixtures and

Equipment Total (In Thousands)

At cost: At beginning of year P=26,846 P=2,054,988 P=36,509 P=104,371 P=2,222,714 Additions 21 11,176 10,285 6,684 28,166 Disposals – – (3,202) (1,656) (4,858)At end of year 26,867 2,066,164 43,592 109,399 2,246,022

Accumulated depreciation and amortization and allowance for impairment losses:

At beginning of year 20,842 2,044,527 30,948 85,356 2,181,673 Depreciation and amortization 791 2,952 2,895 7,903 14,541 Disposals – – (3,202) (833) (4,035)At end of year 21,633 2,047,479 30,641 92,426 2,192,179

Net book value P=5,234 P=18,685 P=12,951 P=16,973 P=53,843

Land and

Improvements

Buildings and

Improvements Total (In Thousands) At revalued amounts: At beginning and end of year P=307,580 P=536,560 P=844,140Accumulated depreciation and

amortization:

At beginning of year 13,228 200,853 214,081 Depreciation and amortization 1,280 21,916 23,196At end of year 14,508 222,769 237,277Net book value P=293,072 P=313,791 P=606,863

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*SGVMC409123* 22

13. Investment Properties - net

As of September 30, 2010

BuildingLand and LandImprovements

Machinery and Equipment Total

(In Thousands) At cost:

At beginning of year P=2,120,552 P=13,667 P=17,378 P=2,151,597Disposals – (4,026) – (4,026)At end of year 2,120,552 9,641 17,378 2,147,571

Accumulated depreciation:

At beginning of year 1,452,327 – 13,209 1,465,536Depreciation 7,775 – – 7,775At end of year 1,460,102 – 13,209 1,473,311

Net book value P=660,450 P=9,641 P=4,169 P=674,260

As of June 30, 2010

BuildingLand and LandImprovements

Machinery and Equipment Total

(In Thousands) At cost:

At beginning of year P=2,120,552 P=36,387 P=17,378 P=2,174,317Additions – (22,720) – (22,720)At end of year 2,120,552 13,667 17,378 2,151,597

Accumulated depreciation:

At beginning of year 1,421,228 – 13,209 1,434,437Depreciation 31,099 – – 31,099At end of year 1,452,327 – 13,209 1,465,536

Net book value P=668,225 P=13,667 P=4,169 P=686,061 14. Other Noncurrent Assets

2010 2009 (In Thousands) Deferred reinsurance premiums P=56,503 P=52,876 Miscellaneous deposits 51,900 52,383 Deferred input VAT 9,049 11,618 Others 24,640 25,756 P=142,092 P=142,633

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*SGVMC409123* 23

15. Accounts Payable and Accrued Expenses

September 30 June 30 (In Thousands) Trade payables P=325,903 P=324,168 Accrued expenses 538,655 540,011 Claims payable 262,979 282,121 Reserve for unearned premiums 126,988 126,622 Due to reinsurers and ceding companies 37,932 50,085 Nontrade payables 82,472 81,715 Others 61,520 69,554 P=1,436,449 P=1,474,276

16. Gain on Extinguishment of Debt

On August 10, 2009, the Group and APA entered into a compromise agreement for the full settlement of the Group’s loan obligations totalling P=1.9 billion, including the related accrued interests, which were acquired by APA from the Group’s bank creditors for a total compromise amount of P=680.0 million. As a result of the full settlement of the compromise amount, the Group recognized a gain of P=1.2 billion in the 30 September 2009 consolidated statement of income.

17. Related Party Transactions

Parties are considered to be related if one party has the ability to control, directly or indirectly, the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. The Parent Company and its subsidiaries, in their normal course of business, have entered into transactions with related parties principally consisting of noninterest-bearing advances with no fixed repayment terms and are due and demandable. Account balances with related parties, other than intra-group balances which are eliminated in consolidation, are as follows:

September 30 June 30 (In Thousands) Amounts owed by related parties: Cyber Bay and Subsidiary (see Note 11) P=86,439 P=85,939 Hong Way Holdings, Inc. 1,841 1,841 Guoman Philippines, Inc. 1,628 1,627 Zeus Holdings, Inc. 1,192 1,191 Others 909 913 92,009 91,511 Less allowance for impairment losses 87,072 86,572 P=4,937 P=4,939

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Movements of allowance for impairment losses on amounts owed by related parties are as follows:

September 30 June 30 (In Thousands) Beginning balance P=86,572 P=84,846 Provision 500 1,726 Ending balance P=87,072 P=86,572

September 30 June 30 (In Thousands) Amounts owed to related parties: OYL Overseas, Ltd. P=2,673 P=2,673 Others 388 392 P=3,061 P=3,065

18. Operating Expenses

Quarter Ended September 30

2010 2009 Depreciation and amortization P=13,588 P=41,183 Personnel expenses 38,209 34,391 Professional and legal fees 4,416 2,699 Supplies and repairs 2,312 3,003 Marketing expenses 5,402 8,279 Taxes and licenses 6,300 6,530 Communication and transportation 2,474 2,198 Insurance 475 822 Provision for impairment losses 1,935 1,769 Representation 308 421 Others 4,177 3,035 P=79,596 P=104,330

19. Earnings Per Share

The following table presents information necessary to calculate basic and diluted earnings per share:

September 30 2010 2009 a. Net income attributable to equity

holders of the Parent (in thousands) P=97,478 P=2,024,960b. Weighted average number of shares (in

thousands) 2,367,149 2,367,149Basic and diluted earnings

per share (a/b) P=0.041 P=0.855

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20. Segment Information

Business Segments The Group’s operating businesses are organized and managed separately according to the nature of services provided and the different markets served, with each segment representing a strategic business unit.

The industry segments where the Parent Company and its subsidiaries and associates operate are

as follows: • Financial services - insurance and related brokerage • Real estate - property development • Manufacturing and distribution - manufacture and distribution of beverage and ceramic tiles

Financial information about the operations of these business segments is summarized as follows:

Holding

Company

Real Estateand PropertyDevelopment

FinancialServices

Manufacturing and

Distribution Total (In Thousands) Quarter Ended September 30, 2010 Revenue P=– P=118,944 P=42,283 P=160,451 P=321,678 Net income (loss) 85,105 20,407 1,496 (8,626) 98,382 Depreciation and amortization 361 11,240 1,125 7,093 19,819 As of September 30, 2010 Total assets 628,109 1,941,969 576,800 1,296,809 4,443,687 Capital expenditures 477 288 1,039 8,704 10,508 Investment in associates 528,470 – 2,285 – 530,755 Total liabilities 551,810 646,567 507,187 739,037 2,444,601

Holding

Company

Real Estateand PropertyDevelopment

FinancialServices

Manufacturing and

Distribution Total (In Thousands) Quarter Ended September 30, 2009 Revenue P=– P=120,163 P=33,121 P=179,125 P=332,409 Net income (loss) 1,274,502 6,269 (6,792) 749,319 2,023,298 Depreciation and amortization 300 37,783 1,047 7,005 46,135 As of June 30, 2010 Total assets 524,756 1,941,941 628,194 1,274,914 4,369,805 Capital expenditures 1,039 9,353 4,551 13,223 28,166 Investment in associates 528,470 – 2,285 – 530,755 Total liabilities 552,542 637,676 542,641 738,329 2,471,188 Geographical Segments

The Group does not have geographical segments.

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21. Financial Risk Management Objectives and Policies

The Group’s principal financial instruments are cash and cash equivalents, receivables, accounts payable and accrued expenses, amounts owed to related parties, deposits and advances. The main purpose of these financial instruments is to finance the Group’s operations. The Group has various other financial instruments such as AFS and HTM investments which arise directly from operations. The main risks from the use of financial instruments are liquidity risk, interest rate risk, foreign currency risk and credit risk and equity price risk. Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting financial obligation s due to shortage of funds. In the management of liquidity, the Group monitors and maintains a level of cash deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The tables below summarize the maturity profile of the Group’s financial liabilities as of September 30 based on contractual undiscounted payments. The table also analyzes the maturity profile of the Group’s financial assets in order to provide a complete view of the Group’s contractual commitments. September 30, 2010

On

demand Less than3 months

3 to 12months 1-5 years > 5 years Total

(In Thousands) Financial liabilities: Accounts payable and accrued expenses P=863,528 P=114,175 P=365,904 P=73,475 P=– P=1,417,082 Amounts owed to

related parties 3,061

–

–

–

– 3,061 Rental deposits and

advances 214,058

–

–

–

– 214,058 P=1,080,647 P=114,175 P=365,904 P=73,475 P=– P=1,634,201

Financial assets: Cash and cash

equivalents P=148,992

P=–

P=–

P=–

P=– P=148,992 Receivables 596,122 23,693 55,451 – – 675,266 Amounts owed

by related parties 4,937 – –

–

– 4,937 AFS investments 632,511 – – – – 632,511

HTM investments –

–

10,000

2,194

6,091 18,285 P=1,382,562 P=23,693 P=65,451 P=2,194 P=6,091 P=1,479,991

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June 30, 2010

On

demand Less than3 months

3 to 12months 1-5 years > 5 years Total

Financial liabilities:

Accounts payable and accrued expenses P=906,234 P=214,127 P=220,770 P=– P=– P=1,341,131 Amounts owed to

related parties 3,065

–

–

–

– 3,065 Rental deposits and

advances 202,535

–

–

–

– 202,535

P=1,111,834

P=214,127

P=220,770

P=–

P=– P=1,546,731

Financial

assets:

Cash and cash

equivalents P=134,778

P=–

P=–

P=–

P=– P=134,778

Receivables 469,388 65,078 87,932 – – 622,398 Amounts owed by

related parties 4,939 – – – –

4,939

AFS investments 636,321 – – – – 636,321

HTM investments –

–

10,000

2,194

6,091 18,285

P=1,245,426

P=65,078

P=97,932

P=2,194

P=6,091 P=1,416,721

Interest rate risk The Group’s policy is to obtain the most favorable interest rates available. As of September 30 and June 30, 2010, the Group is no longer exposed to cash flow interest rate risk. Foreign currency risk The Group’s foreign currency risk results primarily from movements of the Philippine Peso against the US Dollar. The Group’s foreign currency risk arises primarily from its trade payables. The Group monitors and assesses cash flows from anticipated transactions and financing agreements denominated in US Dollar.

The table below summarizes the Group’s exposure to foreign currency risk as of September 30 and June 30, 2010. Included in the table are the Group’s assets and liabilities at carrying amounts: September 30, 2010 June 30, 2010 Peso Peso US$ Equivalent US$ Equivalent (In Thousands) Financial Asset: Cash 67 2,951 25 1,128Financial Liability: Accounts payable 947 41,589 1,172 52,736Net financial liability (880) (38,638) (1,147) (51,608)

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The following table presents the impact on the Group’s income before income tax due to changes in the fair value of its financial assets and liabilities, brought about by a reasonably possible change in the US$/ P= exchange rate (holding all other variables constant) as of September 30, 2010.

Change in Effect on currency income rate before tax (In Thousands)September 2010 +0.24% (P=92) -0.24% 92

There is no other impact on the Group’s equity other than those already affecting the statement of income. Equity price risk Equity price risk is the risk that the fair values of equities decrease as the result of change in the levels of equity indices and the value of individual stock. The equity price risk exposure arises from the Group’s investment in stocks. Equity investment of the Group is categorized as AFS investments. The Group measures the sensitivity to its equity securities by using PSE index fluctuations and its effect to respective share prices.

Credit risk The Group establishes credit limits at the level of the individual borrower, corporate relationship and industry sector. It also provides for credit terms with the consideration for possible application of intercompany accounts between affiliated companies. Also, the Group transacts only with affiliated companies and recognized third parties, hence, there is no requirement for collateral. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. With respect to credit risk from other financial assets of the Group, which mainly comprise of cash, excluding cash on hand, amounts owed by related parties, AFS investments and HTM investments, the exposure of the Group to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments. There are no significant concentrations of credit risk in the Group. Credit quality of neither past due nor impaired financial asset The credit quality of financial assets is being managed by the Group by grouping its financial assets into two: (a) High grade financial assets are those that are current and collectible; (b) Standard grade financial assets need to be consistently followed up but are still collectible.

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The tables below show the credit quality by class of financial asset based on the Group’s credit rating system: September 30, 2010 Past due or Neither past due nor impaired individually High grade Standard grade impaired Total (In Thousands) Cash and cash equivalents P=148,992 P=– P=– P=148,992 Receivables 477,520 118,602 371,667 967,789 Amounts owed by related parties 4,937 – 87,072 92,009 HTM investments 18,285 – – 18,285 AFS investments 632,511 – – 632,511 P=1,282,245 P=118,602 P=458,739 P=1,859,586 June 30, 2010 Past due or Neither past due nor impaired individually High grade Standard grade impaired Total (In Thousands) Cash and cash equivalents P=134,778 P=– P=– P=134,778 Receivables 338,236 131,152 445,533 914,921 Amounts owed by related parties 4,939 – 86,572 91,511 HTM investments 18,285 – – 18,285 AFS investments 636,321 – – 636,321 P=1,132,559 P=131,152 P=532,105 P=1,795,816 The tables below show the aging analyses of past due but not impaired receivables per class that the Group held as of September 30 and June 30, 2010. A financial asset is past due when a counterparty has failed to make payment when contractually due. September 30, 2010

Past due but not impaired

Neither past due

nor impaired Less than 30 31 to 60 days 61 to 90 daysMore than 91

days Total (In Thousands)

Cash and cash equivalents P=148,992 P=– P=– P=– P=– P=148,992Receivables 596,123 10,881 5,920 6,892 55,450 675,266Amounts owed by related parties 4,937 – – – – 4,937HTM investments 18,285 – – – – 18,285AFS investments 632,511 – – – – 632,511 P=1,400,848 P=10,881 P=5,920 P=6,892 P=55,450 P=1,479,991

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June 30, 2010

Past due but not impaired

Neither past due

nor impaired Less than 3 31 to 60 days 61 to 90 daysMore than 91

days Total (In Thousands)

Cash and cash equivalents P=134,778 P=– P=– P=– P=– P=134,778Receivables 469,388 39,391 17,305 8,382 87,932 622,398Amounts owed by related parties 4,939 – – – – 4,939HTM investments 18,285 – – – – 18,285AFS investments 636,321 – – – – 636,321 P=1,263,711 P=39,391 P=17,305 P=8,382 P=87,932 P=1,416,721

Capital Management The primary objective of the Group’s capital management is to ensure the Group’s ability to continue as a going concern and pay the Group’s currently maturing loans and obligations. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes as of September 30 and June 30, 2010.

22. Fair Values and Categories of Financial Instruments

Fair Values of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value: September 30, 2010 June 30, 2010

Carrying Amounts Fair Values

Carrying Amounts Fair Values

(In Thousands) Financial assets:

Cash and cash equivalents P=148,992 P=148,992 P=134,778 P=134,778 Receivables 675,266 675,266 622,398 622,398 Amounts owed by related parties 4,937 4,937 4,939 4,939 AFS investments 632,511 632,511 636,321 636,321 HTM investments 18,285 18,260 18,285 18,260

Financial liabilities:

Accounts payable and accrued expenses P=1,417,082 P=1,417,082 P=1,341,131 P=1,341,131 Amounts owed to related parties 3,061 3,061 3,065 3,065 Rental deposits and advances 214,058 214,058 202,535 202,535

The Group has determined that the carrying amounts of cash and cash equivalents, receivables, accounts payable and accrued expenses, amounts owed to and by related parties, reasonably approximate their fair values due to the short-term maturity of these financial instruments.

AFS equity investments that are listed are based on quoted prices. Nonlisted AFS equity investments are based on cost less impairment, if any, since its fair value cannot be determined reliably.

HTM investments are based on quoted prices.

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Categories of Financial Instruments The carrying values of the Group’s financial asset and liabilities per category are as follows:

September 30 June 30 (In Thousands) Loans and receivables: Cash and cash equivalents P=148,992 P=134,778 Receivables – net 675,266 622,399 Amounts owed by related parties - net 4,937 4,939 829,195 762,116 AFS investments 632,511 636,321 HTM investments 18,285 18,285 P=1,479,991 P=1,416,722

September 30 June 30 Other financial liabilities: Accounts payable and accrued expenses P=1,417,082 P=1,341,131 Amounts owed to related parties 3,061 3,065 Rental deposits and advances 214,058 202,535 P=1,634,201 P=1,546,731

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PRIME ORION PHILIPPINES, INC. AND SUBSIDIARIESAGING OF ACCOUNTS RECEIVABLE AS OF SEPTEMBER 30, 2010 Current P=178,0541 to 30 days 26,15731 to 60 days 8,95661 to 90 days 3,446Over 90 days 94,792 Total receivable-trade 311,405 Advances to officer and employees 38,327Insurance receivable 364,645Others 253,412Total non-trade receivable 656,384 Total receivable 967,789 Allowance for impairment losses (292,523) P=675,266