PROSPECTUS

San Miguel Brewery Inc.

(A corporation organized and existing under Philippine laws) P 38,800,000,000.00 Fixed Rate Bonds consisting of Series A Bonds, Series B Bonds and Series C Bonds Due April 3, 2012 for Series A Bonds, April 4, 2014 for Series B Bonds and April 3, 2019 for Series C Bonds Issue Price of 100% Face Value Interest Rate of 8.250% p.a. for Series A Bonds, 8.875% p.a. for Series B Bonds and 10.500% for Series C Bonds
San Miguel Brewery Inc. (the Company or the Issuer) intends to offer for subscription and issue bonds (the Bonds) with an aggregate principal amount of P38,800,000,000, (the Offer). The Bonds will be issued in three series: Series A, Serie s B and Series C. The Series A Bonds shall have a term beginning on the Issue Date and ending three years from the Issue Date or on April 3, 20 12], with a fixed interest rate equivalent to 8.250% per annum. The Series B Bonds shall have a term beginning on the Issue Date and ending five years and one day from the Issue Date or on April 4, 2014, with a fixed interest rate equivalent to 8.875% per annum. The Series C Bonds shall have a term beginning on the Issue Date and ending ten years from the Issue Date or on April 3, 2019, with a fixed interest rate equivalent to 10.500% per annum. Interest on the Series A Bonds, Series B Bonds and Series C Bonds shall be payable semi-annually in arrears on October 3 and April 3 of each year while the Bonds are outstanding. (see Description and Terms and Conditions of the Bonds Interest) Subject to the consequences of default as may be contained in the Trust Agreement, and unless otherwise redeemed or purchased prior to the relevant Maturity Date, the Bonds will be redeemed at par or 100% of the face value thereof on the relevant Maturity Date, as set out in Description and Terms and Conditions of the Bonds Redemption and Purchase. Upon issue, the Bonds shall constitute direct, unconditional, unsubordinated, and unsecured obligations of the Company and sh all at all times rank pari passu and without preference among themselves and among any present and future unsubordinated and unsecured obligations of the Company, except for any statutory preference or priority established under Philippine law. The Bonds will effectively be subordinated in right of payment to all of the Companys secured debts, as allowed under the Trust Agreement, to the extent of the value of the assets securing such debt and all of its debts evidenced by a public instrument under Article 2244(14) of the Civil Code of the Philippines. As of the date of this prospectus, the Company has no existing secured debt or debts evidenced by a public instr ument under Article 2244(14) of the Civil Code of the Philippines. The Bonds have been rated PRS Aaa by the Philippine Rating Services Corporation (PhilRatings) as of February 19, 2009. The rating is not a recommendation to buy, sell, or hold securities and may be subject to revision, suspension, or withdrawal at any time b y the rating agency concerned. The Bonds shall be offered to the public at par through the Joint Lead Managers and Underwriters named below with Philippine Depository and Trust Corp. (PDTC) as the Registrar of the Bonds. It is intended that upon issuance, the Bonds shall be issued in scrip less form, with PDTC maintaining the scripless Register of Bondholders, and, as soon as reasonably practicable, listed in the Philippine Dealing and Exchange Corp. (PDEx). The Bonds shall be issued in denominations of P50,000.00 each, as a minimum, and in multiples of P10,000.00 in excess thereof, and traded in amounts of P10,000.00, as a minimum, and in multiples of P10,000.00 in excess thereof. (see Description and Terms and Conditions of the Bonds Form, Denomination and Title and Description and Terms and Conditions of the Bonds Transfer of Bonds)

This Prospectus is dated as of March 17, 2009.

Joint Issue Managers

DEVELOPME.T BA.K OF THE PHILIPPI.ES THE HO.GKO.G A.D SHA.GHAI BA.KI.G CORPORATIO. LIMITED
Joint Lead Managers and Underwriters

BDO CAPITAL & I.VESTME.T CORPORATIO. BPI CAPITAL CORPORATIO. CHI.A BA.KI.G CORPORATIO. DEVELOPME.T BA.K OF THE PHILIPPI.ES FIRST METRO I.VESTME.T CORPORATIO. THE HO.GKO.G A.D SHA.GHAI BA.KI.G CORPORATIO. LIMITED I.G BA.K, ..V. LA.D BA.K OF THE PHILIPPI.ES PHILIPPI.E COMMERCIAL CAPITAL, I.C. RCBC CAPITAL CORPORATIO. STA.DARD CHARTERED BA.K U.IO. BA.K OF THE PHILIPPI.ES
Participating Underwriters

SB CAPITAL I.VESTME.T CORP.

SA. MIGUEL BREWERY I.C. 40 San Miguel Avenue Mandaluyong City Philippines Telephone .umber: +632 632 3000 Offer for Subscription of P 38,800,000,000 Fixed Rate Bonds, consisting of Series A Bonds, Series B Bonds and Series C Bonds, due April 3, 2012 for Series A Bonds, April 4, 2014 for Series B Bonds and April 3, 2019 for Series C Bonds, at the Issue Price of 100% Face Value. This prospectus relates to the Offer of P38,800,000,000 Bonds of San Miguel Brewery Inc., consisting of Series A Bonds, Series B Bonds and Series C Bonds. The Series A Bonds shall have a term beginning on the Issue Date and ending three years from the Issue Date or on April 3, 2012, with a fixed interest rate equivalent to 8.250% per annum. The Series B Bonds shall have a term beginning on the Issue Date and ending five years and one day from the Issue Date or on April 4, 2014, with a fixed interest rate equivalent to 8.875% per annum. The Series C Bonds shall have a term beginning on the Issue Date and ending ten years from the Issue Date or on April 3, 2019, with a fixed interest rate equivalent to 10.500% per annum. The Bonds will be issued at the issue price (the Issue Price) of 100.00% of face value. The Company expects to raise gross proceeds amounting to P38,800,000,000 from the Offer. After deducting expenses relating to the issuance of the Bonds, the net proceeds are estimated to be P38,400,152,939.52 for gross proceeds of P38,800,000,000. Proceeds of the Offer will be used by the Company to fund the Proposed Acquisitions relating to the proposed purchase from San Miguel Corporation (SMC) of SMB Brands and SMB Land (see Use of Proceeds on pages 28 and Proposed Acquisitions on pages 29-36). The Issuer shall pay the Joint Lead Managers and Underwriters a commission of 0.45% flat based on the final aggregate nominal principal amount of the Bonds issued, as Joint Lead Managers and Underwriters fee (the Joint Lead Managers and Underwriters Fee) to be shared as may be agreed upon by the Joint Lead Managers and Underwriters. The Joint Lead Managers and Underwriters Fee shall be grossed up for gross receipts tax of 7%. The fees due to the Joint Lead Managers and Underwriters together with any applicable gross receipts tax or its equivalent and net of any applicable withholding tax arising in respect of such fee, shall be due and payable by the Issuer to the Joint Lead Managers and Underwriters on the date that the Issuer receives confirmation from the Issuers bank that cleared funds representing payments for all accepted Applications to Purchase have been credited to the account designated by the Issuer. The Joint Lead Managers and Underwriters are authorized to organize a syndicate of Participating Underwriters for the purpose of the Offer. However, the Company has no obligation to any member of such syndicate for the payment of any fee, underwriting or participating commissions (see Plan of Distribution on pages 38-41). The information contained in this prospectus relating to the Company, its operations and those of its affili ates has been supplied by the Company, unless otherwise stated herein. To the best of its knowledge and belief, the Company (which has taken all reasonable care to ensure that such is the case) confirms that the information contained in this prospectus relating to it, its operations and those of its affiliates is correct, and that there is no material misstatement or omission of fact which would make any statement in this prospectus misleading in any material respect and that the Company hereby accepts full and sole responsibility for the information contained in this prospectus. The Joint Lead Managers and Underwriters assume no liability for any information contained in this prospectus. Unless otherwise indicated, all information in this prospectus is as of the date of this prospectus. Neither the delivery of this prospectus nor any sale made pursuant to this prospectus shall, under any circumstances, create any implication that the information contained herein is correct as of any date subsequent to the date hereof or that there has been no change in the affairs of the Company since such date. No person has been authorized to give any information or to make any representation not contained in this prospectus. If given or made, any such information or representation must not be relied upon as having been authorized by the Company or any of the Joint Lead Managers and Underwriters. This prospectus does not constitute an offer of any securities, or any offer to sell, or a solicitation of any offer to buy any of the Companys securities in any jurisdiction, to or from any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

ii

In making an investment decision, investors must rely on their own examination of the Company and the terms of the Offer, including the risks involved. The Offer is being made on the basis of this prospectus only. Market data and certain industry forecasts used throughout this prospectus were obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified, and neither the Company nor the Joint Lead Managers and Underwriters make any representation as to the accuracy of such information. The Bonds are offered subject to receipt and acceptance of any order by the Company and subject to the Companys right to reject any order in whole or in part. Each investor in the Bonds must comply with all laws applicable to it and must obtain the necessary consent, approvals or permission for its purchase, offer or sale under the laws and regulations in force in any jurisdiction to which it is subject, and neither the Company nor the Joint Lead Managers and Underwriters shall have any responsibility therefor. The Company is organized under Philippine laws. The cash dividend policy of the Company entitles the holders of its Common Shares to receive annual cash dividends equivalent to 100% of the prior years recurring net income, which is net income calculated without respect to extraordinary events that are not expected to recur, based on the recommendation of the Board of Directors. Such recommendation will take into consideration factors such as the implementation of business plans, debt service requirements, operating expenses, budgets, funding for new investments and acquisitions, appropriate reserves and working capital, among others. The cash dividend policy is subject to review and may be changed by the Companys Board of Directors at any time (see Related Stockholder Matters - Dividends and Dividend Policy on page 112). This prospectus includes forward-looking statements. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting its business. Words including, but not limited to, believes, may, will, estimates, continues, anticipates, intends, expects and similar words are intended to identify forward -looking statements. In light of the risks and uncertainties associated with forward-looking statements, investors should be aware that the forwardlooking events and circumstances discussed in this prospectus might not occur. The Companys actual results could differ substantially from those anticipated in the Companys forward -looking statements. Application has been made to the Philippine Securities and Exchange Commission to register the Bonds under the provisions of the Securities Regulation Code of the Philippines (Republic Act No. 8799) (the SRC).

Any inquiries regarding this prospectus should be forwarded to the Company. Its principal office is at 40 San Miguel Avenue, Mandaluyong City, Philippines, with telephone number +632 632 3000.

iii

TABLE OF CO.TE.TS GLOSSARY OF TERMS ......................................................................................................................... 1 SUMMARY .............................................................................................................................................. 7 SUMMARY FINANCIAL AND OPERATING INFORMATION ....................................................... 14 SUMMARY OF THE OFFER ................................................................................................................ 16 RISK FACTORS ..................................................................................................................................... 17 USE OF PROCEEDS.............................................................................................................................. 28 PROPOSED ACQUISITIONS ............................................................................................................... 29 DETERMINATION OF ISSUE PRICE ................................................................................................. 37 PLAN OF DISTRIBUTION ................................................................................................................... 38 DESCRIPTION OF TERMS AND CONDITIONS OF THE BONDS ................................................. 42 CAPITALIZATION AND INDEBTEDNESS ....................................................................................... 52 SELECTED FINANCIAL INFORMATION ......................................................................................... 53 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND FINANCIAL PERFORMANCE ..................................................................................................... 55 CAPITAL EXPENDITURES ................................................................................................................. 70 THE BEER INDUSTRY IN THE PHILIPPINES ................................................................................. 71 BUSINESS OVERVIEW ....................................................................................................................... 76 BOARD OF DIRECTORS AND MANAGEMENT ............................................................................. 93 RELATED PARTY TRANSACTIONS ................................................................................................. 99 DESCRIPTION OF PROPERTIES ...................................................................................................... 104 MATERIAL CONTRACTS ................................................................................................................. 110 RELATED STOCKHOLDER MATTERS .......................................................................................... 111 REGULATORY FRAMEWORK ........................................................................................................ 116 PHILIPPINE TAXATION.................................................................................................................... 118 LEGAL MATTERS .............................................................................................................................. 121 EXPERTS ............................................................................................................................................. 122 INDEPENDENT PUBLIC ACCOUNTANTS..................................................................................... 123 INDEX TO FINANCIAL STATEMENTS .......................................................................................... 126

iv

GLOSSARY OF TERMS In this prospectus, unless the context otherwise requires, the following terms shall have the meanings set out below. ABI ............................................. ABV........................................... AIBC ......................................... Allocation Report ...................... Asia Brewery, Inc. Alcohol-by-volume, expressed as a percentage. Anchor Insurance Brokerage Corporation. The report to be prepared by the Joint Issue Managers and sent to the Issuer, the Joint Lead Managers and Underwriters and the Participating Underwriters no later than three Business Days before the Issue Date, allocating the Bonds among the Joint Lead Managers and Underwriters and the Participating Underwriters, for issuance to their respective clients. The application form accomplished and submitted by an applicant for the purchase of a specified amount of the Series A Bonds, Series B Bonds and Series C Bonds, together with all the other requirements set forth in such application form. Average selling prices of products, net of VAT and trade discounts. A day other than Saturday or Sunday on which banks are open for business in Metro Manila, Philippines. The Philippine Bureau of Internal Revenue. The Philippine Peso denominated fixed rate bonds with terms of three years, five years and one day and ten years to be issued by the Issuer with an aggregate principal amount of Thirty Eight Billion Eight Hundred Million Pesos (P38,800,000,000.00) consisting of Series A Bonds, Series B Bonds and Series C Bonds, which the Joint Lead Managers and Underwriters and the Participating Underwriters have agreed to distribute and sell on the Issue Date, and underwrite on a firm commitment basis, with features as set out in the Terms and Conditions. The holders of the Series A Bonds, Series B Bonds and Series C Bonds who, at any relevant time, appear in the Register of Bondholders as the registered owner of the Bonds, with each holder being a Bondholder. The Board of Directors of the Company. Brewery Landholdings, Inc. Brewery Properties Inc. Bangko Sentral ng Pilipinas, the central bank of the Philippines. Canadean Limited, a leading global beverage research company. The report on the Philippine beer industry prepared by Canadean for inclusion in this prospectus.

Application to Purchase .............

Average Selling Price ................. Business Day ...............................

BIR ............................................ Bonds .........................................

Bondholders ...............................

Board of Directors ...................... Brewery Landholdings .............. Brewery Properties ..................... BSP ............................................. Canadean ................................... Canadean Report.........................

CAGR ........................................ CBA ........................................... CESBD. Change in Law.

Compound annual growth rate. Collective Bargaining Agreement. SMCs Corporate Export Sales & Business Development. The enactment, passing, revoking, overturning, modification, amendment or abrogation, change in interpretation of any decree, statute, law, regulation, license, permit, authorization, concession, approval or other administrative act of the Government which comes into force after the Issue Date, or any change in the interpretation or application of any of the foregoing by the Government. SMCs Corporate Key Accounts Group. The Companys shares of common stock, par value of P1.00 per share. San Miguel Brewery Inc. Batas Pambansa Blg. 68, otherwise known as The Corpor ation Code of the Philippines. The Philippine Department of Environment and Natural Resources. Environmental Compliance Certificate. In respect of the market for beer, used to describe a market segment, meaning the bottom tier of socio-economic groups. The Philippine Environmental Impact Statement System. Institutional and retail investors other than Prohibited Bondholders determined by the Issuer and Joint Lead Managers and Underwriters and Participating Underwriters to be eligible holders of the Bonds. A measure of volume for beer, equal to a 24-bottle case of 320 ml bottles, the standard size for San Miguel Pale Pilsen, equivalent to 7.68 liters. Taxes levied on beer products based on removals from the plant where the products are produced. An agency of the National Food Authority of the Philippines. Any government agency, authority, bureau, department, court, tribunal, legislative body, public official, statutory or legal entity (whether autonomous or not), commission, corporation, or instrumentality, whether national or local, of the Republic of the Philippines. Ginebra San Miguel, Inc. 100 liters or 13.02 Equivalent Cases. Any beer with ABV of more than 5%. Iconic Beverages, Inc. International Financial Reporting Standards. April 3, 2009 or such other date as the Issuer and the Joint Issue 2

CKAG ........................................ Common Shares ......................... Company.................................... Corporation Code ......................

DENR ......................................... ECC ........................................... Economy .....................................

EIS Law ...................................... Eligible Bondholders ...................

Equivalent Case .........................

Excise Taxes ..............................

Food Development Center ........ Government ...............................

GSMI ........................................ Hectoliter or hl .......................... High-Alcohol Beer ................... Iconic ......................................... IFRS.......................................... Issue Date ................................

Managers may agree in writing, provided that such date shall be a date, which is within the validity of the SEC Permit to Sell Securities. Issue Management and Underwriting Agreement . . . The agreement dated as of March 16, 2009 executed by and among the Issuer, the Joint Issue Managers, and the Joint Lead Managers and Underwriters for the issuance, placement, distribution and sale of the Bonds in the Philippines. 100% of the face value for Series A Bonds, Series B Bonds and Series C Bonds. San Miguel Brewery Inc., a corporation duly organized and existing under Philippine law. The Development Bank of the Philippines and The Hongkong and Shanghai Banking Corporation Limited, each a Joint Issue Manager. BDO Capital & Investment Corporation, BPI Capital Corporation, China Banking Corporation, Development Bank of the Philippines, First Metro Investment Corporation, The Hongkong and Shanghai Banking Corporation Limited, ING Bank N.V., Land Bank of the Philippines, Philippine Commercial Capital, Inc., RCBC Capital Corporation, Standard Chartered Bank and Union Bank of the Philippines, each a Joint Lead Manager and Underwriter. Joe White Maltings Pty. Ltd. Kirin Holdings Company, Limited. Any beer with caloric content at least 33% lower than ordinary beer. Bondholders holding 51% of the outstanding Bonds. For each of the Series A Bonds, Series B Bonds and Series C Bonds, the bond certificate issued by the Issuer in the name of the Trustee for the benefit of the Bondholders covering the entire principal amount of the Bonds purchased during the Offer Period therefor and to be issued by the Issuer on the Issue Date, which shall be substantially in the form attached as Annex B of the Trust Agreement. The Companys Manual on Corporate Governance, approved by the Board of Directors on October 25, 2007, and as amended on April 10, 2008. Three (3) years from Issue Date or on April 3, 2012 for Series A Bonds, five (5) years and one (1) day from Issue Date or on April 4, 2014 for Series B Bonds and ten (10) years from Issue Date or on April 3, 2019 for Series C Bonds. The minimum corporate income tax under the National Internal Revenue Code of the Philippines, as amended, which is currently fixed at 2.0%. The offer for sale, distribution and issuance of the Bonds by the Issuer to Eligible Bondholders. The period when the Bonds are offered for sale, distribution and issuance by the Issuer to Eligible Bondholders, commencing at 9:00 a.m. on March 18, 2009 and ending at 12:00 p.m. on March 27, 2009 or such other dates as may be determined by the Issuer and the Joint Issue 3

Issue Price .................................

Issuer ........................................

Joint Issue Managers ................

Joint Lead Managers and Underwriters ..............................

JWM ......................................... Kirin......................................... Low-Calorie Beer .................... Majority Bondholders ............. Master Bond Certificate ...........

Manual .....................................

Maturity Date ...........................

MCIT ........................................

Offer ........................................

Offer Period ..............................

Managers. Off-premise............................... With respect to beer sales, means sales at grocery stores, convenience stores, sari-sari stores and other outlets other than on-premise outlets. With respect to beer sales, means sales at consumer outlets where consumers purchase and immediately consume beer, such as bars, restaurants, hotels and food stalls. The Philippine Pollution Adjudication Board. Other underwriters engaged by the Joint Lead Managers and Underwriters for the sale and distribution of the Bonds pursuant to their authority to enter into sub-underwriting agreements in accordance with the terms of the Issue Management and Underwriting Agreement. Philippine Accounting Standards. Philippine Dealing & Exchange Corporation. Philippine Depository & Trust Corporation. The permit to be issued by the SEC authorizing the Issuer to sell, distribute and issue the Bonds to the public. The lawful currency of the Republic of the Philippines. Philippine Financial Reporting Standards. Philippine Rating Services Corporation. The Companys operating brewery located in Valenzuela City, Metro Manila which primarily serves the Luzon market. In respect of the market for beer, used to describe a market segment by the Company under its internal segmentation, meaning the middle tier of socio-economic groups covering San Miguel Pale Pilsen, Red Horse, Colt 45 and Coors Regular brands. In respect of the market for beer, used to describe a market segment by Canadean under the Canadean Report, meaning the upper tier of socioeconomic groups covering San Miguel Pale Pilsen, San Mig Light, San Miguel Super Dry , San Mig Strong Ice , Cerveza +egra and imported beers. In respect of the market for beer, used to describe a market segment by the Company under its internal segmentation, meaning the upper tier of socio-economic groups covering San Miguel Super Dry , Oktoberfest Brew, Cerveza +egra, San Miguel Premium All-Malt and imported beers. The Issuer, its subsidiaries and affiliates, and wholly or majorityowned or controlled entities of such subsidiaries and affiliates. For purposes of this definition, an affiliate of the Issuer is an entity at least 20 but not more than 50% of the outstanding voting stock of which is owned by the Issuer. The Philippine Stock Exchange, Inc. The electronic records of the Registrar bearing the official information 4

On-premise ...............................

PAB ......................................... Participating Underwriters .......

PAS .......................................... PDEx ....................................... PDTC ....................................... Permit to Sell Securities ..........

Philippine Peso or P ................. PFRS ........................................ PhilRatings .............................. Polo Brewery ...........................

Popular.....................................

Premium / Super Premium.......

Premium / Upper Premium .......

Prohibited Bondholders ...........

PSE ........................................... Register of Bondholders ...........

on the names and addresses of the Bondholders and the number of Bonds they respectively hold, including all transfers of the Bonds and the names of subsequent transferee Bondholders. Registrar .................................. The Philippine Depository & Trust Corp., a corporation with a quasibanking license duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at the 37 th Floor, Tower 1, The Enterprise Center 6766 Ayala Avenue, Makati City, whose principal obligation is to maintain the Register of Bondholders and record the initial issuance and subsequent transfers of the Bonds. The written advice to be sent by the Registrar to Bondholders whether signed by an authorized signatory of the Registrar when manuallygenerated or signatureless when computer-generated to confirm the amount of Bonds registered in the Register of Bondholders in the name of such Bondholder at any relevant time. A computer-generated Registry Confirmation shall include a statement that it is a computergenerated form, and if issued without alteration, does not require any signature. Real Time Gross Settlement. A special Philippine court vested with jurisdiction over criminal and civil cases involving graft and corrupt practices and such other offenses committed by public officers and employees. A group comprised of SMYPC, SMYAC, SMYFMC, SMRPC and Mindanao Corrugated Fibreboard, Inc. The Securities and Exchange Commission of the Philippines. Bonds to be issued by the Issuer with an aggregate principal amount of P13,590,000,000.00 having a term beginning on the Issue Date and ending three years from the Issue Date or on April 3, 2012, with a fixed interest rate equivalent to 8.250% per annum. Bonds to be issued by the Issuer with an aggregate principal amount of up to P22,400,000,000.00 having a term beginning on the Issue Date and ending five years and one day from the Issue Date or on April 4, 2014, with a fixed interest rate equivalent to 8.875% per annum. Bonds to be issued by the Issuer with an aggregate principal amount of up to P2,810,000,000.00 having a term beginning on the Issue Date and ending ten years from the Issue Date or on April 3, 2019, with a fixed interest rate equivalent to 10.500% per annum. Statements of Financial Accounting Standards. Certain Philippine beer and malt-based beverages brands, including related trademarks, copyrights, patents, and other intellectual property rights and know-how assigned by SMC to Iconic. Land on which all of the Companys production facilities and certain sales offices used by the Company for its beer businesses are located. San Miguel Beer Division, a division of SMC before it was spun off to create the Company. San Miguel Beverages, Inc. 5

Registry Confirmation .............

RTGS ....................................... Sandiganbayan .........................

San Miguel Packaging Group . .

SEC ........................................... Series A Bonds ...........................

Series B Bonds ..........................

Series C Bonds ..........................

SFAS........................................ SMB Brands ............................

SMB Land ................................

SMBD ......................................

SMBI .......................................

SMC......................................... SMC Group .............................. SMCSL .................................... SMCSTSC SMDCI .................................... SMBIL ...................................... SMITS ..................................... SMPI ........................................ SMPFC ..................................... SMRPC .................................... SMYAC ................................... SMYFMC ................................ SMYPC ................................... SRC .........................................

San Miguel Corporation. SMC and its consolidated subsidiaries. SMC Shipping and Lighterage Corporation. SMC Stock Transfer Service Corporation. San Miguel Distribution Company, Inc. San Miguel Brewing International Limited. SMITS, Inc. San Miguel Properties, Inc. San Miguel Pure Foods Company, Inc. San Miguel Rengo Packaging Corporation. San Miguel Yamamura Asia Corporation. San Miguel Yamamura Fuso Molds Corporation. San Miguel Yamamura Packaging Corporation. Republic Act No. 8799, otherwise known as The Securities Regulation Code of the Philippin es, as amended from time to time, and including the rules and regulations issued thereunder. In respect of the market for beer, used to describe a market segment, meaning the middle tier of socio-economic groups. For the Company, this refers to the popular segment which is comprised of San Miguel Pale Pilsen, Red Horse, Colt 45 and Coors Regular. For the Canadean Report, this refers to the standard segment which is comprised of Red Horse and Colt 45 brands. The amended Philippine National Internal Revenue Code of 1997 and its implementing rules and regulations. The terms and conditions pursuant to which the Issuer issues, and the Bondholders subscribe for, the Bonds which constitute an integral part of the Master Bond Certificate. In respect of the market for beer, used to describe a market segment by the Company under its internal segmentation, meaning the upper middle tier of socio-economic groups covering San Mig Light, San Mig Strong Ice and Coors Light. The lawful currency of the United States of America. Value-added tax.

Standard ...................................

Tax Code ................................

Terms and Conditions .............

Upper Popular ..........................

U.S. dollars or US$ .................. VAT ..........................................

SUMMARY The following summary is qualified in its entirety by the more detailed information, including the Companys audited financial statements and examined pro forma consolidated financial statements and notes relating thereto, beginning on page F-1 of this prospectus. For a discussion of certain matters that should be considered in evaluating an investment in the Bonds, see the section of this prospectus entitled Risk Factors. Investors are recommended to read this entire prospectus carefully. OVERVIEW OF THE COMPA.Y The Company is the largest producer of beer in the Philippines, with a total market share of approximately 94% in 2007, according to Canadean Limited (Canadean). The Company has five breweries strategically located across the Philippines and a highly developed distribution system serving 478,757 outlets. The Companys beer brands include all of the top four beer brands in the country, namely San Miguel Pale Pilsen, Red Horse, San Mig Light and Gold Eagle. San Miguel Pale Pilsen , the Companys flagship brand, has a history of over 118 years. San Miguel beer was first produced by La Fabrica de Cerveza de San Miguel (San Miguel Brewery), a small brewery in the Philippines that began its operations in 1890. San Miguel Brewery provided the foundation from which SMC has grown to become the largest food, beverage and packaging company in the Philippines today. San Miguel Brewery was renamed San Miguel Corporation (SMC) in 1963. From a single brewery producing a single product in 1890, SMCs corporate history and business portfolio have evolved over the years. It entered the soft drinks business in 1922 and became the first overseas bottler of The Coca-Cola Company in 1927. To meet the needs of its beer and soft drinks businesses, SMC established a glass packaging plant in Manila in 1938 to supply its own requirements. SMC has expanded to include other food, beverage and packaging products. It has also grown geographically from a Philippine-based beer company to become a regional producer in the Asian beer market. The San Miguel brewery in Hong Kong was founded in 1948 and by the 1970s, San Miguel beer had established a strong market position in Hong Kong. Building on San Miguel beers leading positions in the Philippines and Hong Kong, SMC expanded into new markets, including China in 1991, Indonesia in 1992, Vietnam in 1993, and Thailand in 2004. Prior to the creation of the Company, all of SMCs beer operations were under the San Miguel Beer Division (SMBD), a business unit of SMC. On July 24, 2007, the shareholders of SMC approved the transfer of SMCs domestic Philippine beer business assets to the Company in exchange for additional shares in the Company, a wholly-owned subsidiary of SMC. The assets transferred to the Company comprise the domestic beer business net assets as of June 30, 2007, excluding land, brands and income and other taxes payable. The Company was incorporated on July 26, 2007, and the domestic beer business was spun off from SMC effective October 1, 2007. The spin-off of SMCs domestic beer business into the Company was intended to realize the value of SMCs flagship business. Following approval by the shareholders of SMC of the spin-off of the domestic beer business and the creation of the Company, all plant and equipment used by SMBD in the domestic beer business were transferred to the Company, while SMC retained ownership of the brands and land assets used in the domestic beer bus iness. Under this structure, the Company has agreed to pay SMC royalties for the use of brands and other intellectual property rights of SMC, rentals for the lease of the land assets, fees for shared services and dividends (see Related Party Transactio ns on page 99 of this prospectus). Some of these brands and related intellectual property rights and the land assets are the subject of the Proposed Acquisitions (see Use of Proceeds on page 28 and Proposed Acquisitions on pages 29-36 of this prospectus). The Company undertook an initial public offering of its shares (IPO) in April -May 2008. Prior to the IPO, the Company had total outstanding shares of 15,333,426,960 common shares. In the IPO, a total of 77,052,000 common shares were offered by way of primary offering, while a total of 809,050,000 common shares owned by SMC were offered by way of secondary offering. After the IPO, the Companys resulting outstanding shares totaled 15,410,478,960 common shares which were listed on the PSE on May 12, 2008. On January 19, 2009, SMC signed a Memorandum of Agreement with Kirin Holdings Company, Limited (Kirin). Under the terms of the agreement, Kirin will enter into exclusive negotiations with SMC to acquire from SMC shares representing approximately 43.25% of the issued and outstanding capital stock of the Company. On February 20, 2009, SMC and Kirin signed a share purchase agreement for the acquisition by Kirin of 43.249% shareholdings in the Company. Under the terms of the agreement, Kirin will purchase shares in the Company from SMC at a purchase price of P8.841 per share, for a total acquisition price of P58.9 billion. 7

Kirin will launch a tender offer to purchase additional shares from all existing shareholders of the Company at the same purchase price offered to SMC. The details of the tender offer will be announced by Kirin once determined. Further to the agreement, SMC, Kirin and the Company will undertake to negotiate exclusively for the Companys potential purchase of shares in SMCs overseas beer business. The exclusivity period is for six months following SMCs offer to sell the shares in its overseas beer busi ness. Strengths The Company believes that its principal strengths include the following: Strong and popular brand portfolio supported by high quality products. From a single product produced in a single brewery in 1890, San Miguel beer has, over 118 years later, grown into an array of popular beer products catering to the distinct tastes and preferences of beer drinkers across all segments and markets in the Philippines. San Miguel Pale Pilsen, the Companys flagship brand, has been an iconic Philippine brand for most of the 20 th century and up to today. After considering the Filipino beer drinkers evolving preferences, other brands and products have been introduced, and these have been very successful. Today, the Company offers a portfolio of ten strong and popular brands: Pale Pilsen, Red Horse, San Mig Light, Super Dry, Cerveza +egra, San Mig Strong Ice, Gold Eagle, San Miguel Premium All-Malt, Oktoberfest Brew (a seasonal beer), and Cali, the countrys only malt -based non-alcoholic drink. The various products carry distinct attributes that cater to the various segments of the Philippine beer market. The Companys products have been internationally recognized for quality, garnering a total of one grand gold award, 30 gold medals, 14 silver medals, two bronzes, one International High Quality trophy, and one Crystal Prestige award from Monde Selection International since 2000. Attractive growth prospects. Despite its dominant market position, the Company is well positioned to capture further volume growth and market share in the Philippine beer industry. Strong overall industry growth. The Company expects industry volumes to continue to grow, driven in part by the forecast GDP growth of 4% in the next three years, complemented by relatively low inflation. Given its strong brands and leading market position, the Company believes it is best placed to capture a very large portion of the expected overall growth in the industry. Expansion of Coverage Area. In addition, the Company expects to further increase its sales by expanding its coverage of currently under-served areas. Despite its overall market dominance, the Company believes there are areas where it holds less than 95% market share. The Company believes it will be able to grow its sales and share in these markets through enhanced distribution and promotional strategies. Increased market share of broader alcoholic beverage segment. Further, the Company also believes additional sales growth can be achieved by increasing its share of the broader alcoholic beverage segment. In particular, the Company believes its low cost, high-alcohol beer, Red Horse, which has enjoyed substantial volume growth in the past few years, will be able to attract hard liquor consumers and take an increasing share of the overall alcoholic beverage market from the hard liquor segment. Strong market position presenting significant barriers to entry. The Company enjoys a number of advantages that would be difficult for a potential competitor to replicate, making it difficult for other companies to successfully compete with it in the Philippine beer market. These advantages include: Market leadership and economies of scale. San Miguel Brewery products have consistently dominated the market for beer in the Philippines, the countrys largest alcoholic beverage segment. Based on the Companys internal data, the Companys products captured a high market share of 95.6% in 2008. The countrys top four beer brands are all produced by the Company. Unlike most other markets for beer, in the Philippines, imported brands account for only 0.1% of the market, with distribution limited to upscale bars and hotels and high-end supermarkets. Despite the entry of local competition in 1981 and the introduction of a few locally brewed versions of foreign brands, the Company has maintained an extremely strong market position. The popular acceptance and widespread availability of San Miguel Brewerys products have helped strengthen the Companys market position 8

over the years. The Companys size and scale of operations provide significant economies of scale in production, research and development, distribution, and managerial and marketing functions over a diversified product portfolio and geographic base. Its size also results in substantial leverage and significant bargaining power with suppliers and retailers. Proximity of Production Facilities to Consumer Markets. To ensure product availability and freshness, as well as to minimize distribution costs, the Company maintains a network of five local breweries that are strategically located in the three main islands of the Philippines: Luzon, Visayas and Mindanao. The Company has breweries in each of Valenzuela City, Metro Manila; San Fernando City, Pampanga; Mandaue City, Cebu; Bacolod City, Negros Occidental; and Darong, Sta. Cruz, Davao del Sur, with a total annual production capacity of 15.3 million hectoliters. Each of these breweries is equipped with automated facilities capable of packaging the Companys products in a variety of sizes and formats, including bottles, cans, and kegs. The strategic loc ation of the Companys breweries reduces overall risks by having alternative product sources to avert possible shortages and meet surges in demand in any part of the country. This also assists the Company in ensuring that the beer is freshly delivered to dealers at an optimal cost. The archipelagic nature of Philippine geography and the relative difficulty of transporting products to the countrys substantial rural population make these dispersed production facilities particularly valuable. Extensive and Efficient Distribution System Coverage. The Company has a far-reaching and efficient distribution system, which is based on five strategically located breweries and effective management of third party service providers and provides the Company with a competitive advantage. The Companys 49 sales offices, contracted logistics providers and transportation assets including 452 hauling trucks, 200 routing trucks, 258 pre-sell vans and 396 service pick-ups and its network of 489 dealers across the Philippines enable it to maintain optimum stock levels in terms of quality and quantity in 478,757 on-premise and off-premise outlets nationwide. The Companys products are delivered from any one of the Companys five breweries by contract haulers t o a sales office or dealer warehouse within five days of production date or less. The sales office or dealer then delivers the beer to the wholesaler or retailer promptly afterward, ensuring ample stock and quality wherever and whenever San Miguel Beer products are needed. The Companys returnable bottle system helps keep the price of its beer products affordable. With the high retrieval rates achieved under the system, bottle usage is maximized before bottles are replaced. Under this system, the Company is able to achieve a 95% average retrieval rate for its bottles, which substantially reduces its packaging costs. Cost Leadership. The Company maintains a strong cost leadership position through high productivity and efficiency, as well as cost control measures, which facilitate pricing flexibility and greater profit growth by maintaining the Companys margins. The Companys product quality initiatives, process enhancements, and improvement programs for plant operations and facilities management are all expected to be sustained. The Company continuously implements process optimization efforts and technology enhancements to generate cost savings. Experienced management and production team. The Company has an extensive pool of experienced managers, with many senior managers having been with the Company for an average of 20 years. The management team is well accustomed to the Philippine operating environment, and has been able to effectively manage the Company through periods of crisis and instability in the Philippines. The Company also has established experts in its production process, including 30 brewmasters, each of whom has completed advanced training and has over ten years of on-the-job-training experience working for the Company. Strategies The Companys principal strategy is to increase the volume of its beer sales, both by increasing its market share and by increasing the size of the market, while maintaining its margins. It plans to achieve this through the following: Increase market share. Although the Company already has a very strong position in the Philippine beer market, it intends to increase its market share by pursuing targeted marketing efforts in the regions and localities in which it believes its market share is lower than it is for the Philippines as a whole - which 9

currently stands at 95.6%, such as in specific areas in North and South Luzon, as well as in Visayas and Mindanao. The Company intends to accomplish this by selecting specific products in appropriate packaging to rival competing products and brands. The Company also intends to increase its product visibility in these markets through tactical consumer promotions and improve outlet penetration through persuasive selling and trade incentives. Similarly, the Company intends to increase its share of the overall market for alcoholic beverages. This effort will focus on those specific regions and localities in which hard liquor sales are higher, and, similar to the efforts to increase market share in the beer segment, will include brand- and package-specific marketing campaigns, persuasive selling and incentives for dealers and retailers. Increase the overall market for beer . The Company also plans to increase its sales volume by increasing the total market for beer sales. The Companys primary strategies to achieve this include: Segmented pricing strategy. The Company intends to keep its products affordable for the middle and lower socio-economic sectors by maintaining a moderate pricing strategy for its products in the Popular and Economy markets, where sales are highly price elastic. For the more upscale, or Upper Popular, market, where sales are less price elastic, the Company plans to increase the pricing of its existing and new specialty brands, supported by image-building activities to strengthen their premium positioning and improve their profitability. Amid the global economic slowdown, the Company intends to manage and align the timing and magnitude of price increases for all its products to sustain volume growth as well as cover increases in tax rates on beer and higher material costs. With the forecasted Philippine economic growth in 2009, the Company intends to pursue this segmented pricing strategy to protect its gains and to sustain the general uptrend for the industry as evidenced by the Companys improved market share and increased level of sales in 2008. Increase the size of the Upper Premium and Premium segments. The Upper Premium and Premium markets for beer in the Philippines are relatively small segments, but they play important roles in brand-building and overall market development. The segments offer promising prospects, underpinned by rising consumer incomes, increasing consumer sophistication, rapidly changing drinker habits and preferences, as well as increasing urbanization. The Company intends to further develop the higher priced segments of the beer industry by offering higher-priced and higher-margin products catering to these segments. For example, in August 2008, the Company launched two new brands, San Miguel Premium All-Malt and Oktoberfest Brew, a seasonal beer available for four months (from September 2008 to December 2008), which are marketed to the Upper Premium and Premium segments, respectively. With this strategy, the Company aims to take advantage of opportunities in segmenting the market as well as preempting the incursion of foreign brands. Relative to other Asian countries, the Philippine beer market offers greater potential with regard to premium pricing of brands given the current relatively narrow price gap between the Premium and Upper Popular brands. Strengthen the Brand Portfolio. The Company intends to strengthen its brand portfolio to take advantage of segment-specific growth opportunities, increasing sophistication and changing lifestyles of Philippine consumers and to maintain its market leadership position. The Company plans to maintain the status of its flagship San Miguel Pale Pilsen brand and strengthen its value through an integrated approach of national brand-building campaigns and retail promotional and marketing efforts. Examples of brand-building activities include advertising campaigns for the brand using famous endorsers such as Manny Pacquiao, Erik Morales and Kris Aquino under the Walang Katulad (Beer like no other) and Face to Face campaigns and the TV commercial featuring actor Jet Li, which forms part of the regional campaign to uplift the image and positioning of the San Miguel Pale Pilsen brand in the Asian region. The Company intends to implement new programs and initiatives catering to the yo unger segment of the market to protect its core customers and strengthen the appeal and preference for the brand among new drinkers. The Company expects to further grow main brands San Miguel Pale Pilsen, Red Horse and San Mig Light through the introduction of new thematic campaigns, special events and volumegenerating programs aligned with the respective positioning of these brands in the market. For the Companys specialty brands, including Cerveza +egra, Super Dry, and San Mig Strong Ice, the Company plans on increasing its efforts in on-premise channels by matching these brands with appropriate on-premise outlets and through event sponsorships, party series and tie-ups with other companies. Specialty brands will also be promoted in off-premise channels through increased visibility and promotions.

10

Optimize Trade Coverage and Efficiencies. The Company intends to further expand its trade reach and increase the visibility and availability of its products in retail outlets through point -of-sale merchandising materials and signage for both on- and off-premise outlets to increase sales and outlet yield. In pursuing this strategy, the Company will focus on improving the efficiency of its trade operations, including trade penetration levels and adherence to suggested retail prices in all distribution channels by strengthening per-outlet management, intensifying route assisting activity and alternative distribution mode management such as pedicabs (bicycle-driven cabs) and tricycles, which help to deliver the Companys products to remote areas. The Company also intends to raise its frequency of calls to retail outlets. Management of the distributors ter ritories will be strengthened through intensified retail-based servicing and territorial reconfiguration. Increase Sales Through Special Events and by Focusing on Fast-growing Trade Channels. The Company intends to continue its volume-generating initiatives and occasion-creation programs. Examples of these activities include the Companys sponsorship of town fiestas and major events, such as San Miguel Beer Oktoberfest, that aim to make the beer drinking experience more relevant and closer to the consumers. The Company recognizes the importance of fast-growing modern trade channels such as large supermarket chains, hypermarkets and modern convenience stores in marketing and carrying its products to consumers, especially in urban areas. Accordingly, the Company, primarily through SMCs Corporate Key Accounts Group (CKAG), is focusing on sales and marketing programs for key upscale products to these fast growing segments of the market. ,ew Product and Package Introduction. The Company plans to introduce new products and new package formats. The Company believes this strategy can increase consumer interest and overall market size, as well as address the needs of an increasingly fragmenting market, especially in high growth segments. For example, to increase consumer interest, in May 2007, the Company introduced San Miguel Pale Pilsen in paper label bottles. In 2008, the Company launched new products San Miguel Premium All-Malt in the Upper Premium segment and the Oktoberfest Brew (seasonal brew) in the Premium segment as well as introduced secondary packaging, i.e. Christmas -themed shrinkwrap (6-pack) for San Miguel Premium All-Malt and clear shrinkwrap (6-pack) for San Miguel Pale Pilsen, San Mig Light, Super Dry and San Mig Strong Ice. The Company intends to continue to pursue packaging innovations and capitalize on the market trend towards convenience packaging. The Company is developing packaging improvements for existing brands as well as convenience pack formats consistent with faster-paced lifestyles and addressing the various activities and interest of consumers. RISKS OF I.VESTI.G Before making an investment decision, investors should carefully consider the risks associated with an investment in the Bonds. These risks include: risks relating to the Company and its business, including: The Companys business and prospects may be adversely affected by changes in consumers preferences or purchasing power. The Companys financial position and financial performance may be adversely affected by any disruptions in the supply of, or the price fluctuations for, its major raw materials. Demand for the Companys products is highly price elastic, and if the Company increases its prices, sales volumes may fall, which may negatively affect the Companys financial results and financial performance. The Company may not be successful in implementing its strategy to increase its sales volume. Competition in the Companys businesses and markets may cause the Company to lose market share or reduce its operating margins, which could adversely affect its financial performance and financial position. The Company depends on trademarks and proprietary rights that it proposes to acquire and which are currently licensed from SMC to enhance its reputation, and infringement of these rights could 11

adversely affect the Companys competitive position; reputational issues involving other entities entitled to use the brands and trademarks used by the Company could also adversely affect the Company. The Companys financial position may be adversely af fected if the Company is not able to raise enough funds for the Proposed Acquisitions. The Company is dependent on its relationship with the SMC Group (other than the Company) and on its relationship with other third parties. The Companys current strateg ies may not be implemented as planned in the event Kirin Holdings Company, Limited becomes a major shareholder. The Companys controlling shareholder is able to exercise substantial influence over the Companys corporate policies and direct the outcome of corporate actions. The Companys business and sales are affected by seasonality. An ongoing dispute regarding the ownership of certain shares in SMC could directly affect the current control and management policies of SMC. The Company depends on certain key personnel, and its business and growth prospects may be disrupted if their services were lost. Under certain circumstances, the Company may not be able to meet increased demand for its products and may have to incur significant additional capital expenditures to avoid capacity constraints. Consolidation of sales channels in the Philippines may adversely affect the Companys financial position and financial performance. Product liability claims or other circumstances could harm the integrity and customer support for the Companys brands and adversely affect the sales of its products. Sales of the Companys products may be adversely affected if its relationship with distributors deteriorates. Regulatory decisions and changes in the legal and regulatory environment in which the Company operates could limit its business activities or increase its operating costs. Increases in excise tax rates applicable to beer or increases in other taxes to which the Company is subject may reduce consumption of the Companys products or the Companys margins or reduce both. Philippine environmental laws and regulations create potential liabilities should the Company fail to comply with prescribed environmental standards and limits. The Company may be adversely affected by any change in environmental, health and safety, accounting standards and other laws and regulations. Outbreaks of disease may dampen demand for the Companys products and may therefore adversely affect the Companys financial position and financial performance. risks relating to the Proposed Acquisitions: The Company may not complete the Proposed Acquisitions. risks relating to the Philippines, including: Political or social instability in the Philippines could have a negative effect on the financial position and business of the Company. 12

The Companys business and sales may be negatively affected by slow growth rates and economic instability in the Philippines as a result of the global economic recession. If foreign exchange controls were to be imposed, the Companys ability to purchase raw materials, primarily malted barley and technically advanced equipment, could be adversely affected. The occurrence of natural catastrophes or blackouts may materially disrupt the Companys operations. risks relating to the Offer, including: Secondary trading of the Bonds is subject to various market factors. The Bonds will constitute direct, unconditional, unsubordinated, general and unsecured obligations of the Issuer. The Bonds may be redeemed prior to Maturity Date upon the occurrence of certain events such as change in taxation or regulation. There is no assurance that a market for the Bonds will exist, and the Bonds may offer limited liquidity. risks relating to certain statistical information in this prospectus: Certain statistics in this prospectus relating to the Philippines, the industries and markets in which the Companys business operates have not been independently verified and may not be accurate, complete, up to-date or consistent with other information compiled within or outside the Philippines. Please refer to the section of this prospectus entitled Risk Factors, which, while not intended to be an exhaustive enumeration of all risks, must be considered in connection with the purchase of the Bonds.

13

SUMMARY FI.A.CIAL A.D OPERATI.G I.FORMATIO. The following tables present summary financial information for the Company and should be read in conjunction with the report of independent auditors, Companys audited historical financial statements and examined pro forma consolidated financial statements and notes thereto contained in this prospectus and the section entitled Managements Discussion and Analysis of Financial Position and Financial Performance. The information below is not indicative of the results of future operations.
Examined Pro Forma Consolidated Financial Statements For the Year Ended Audited Financial Statements For the Period from

For the Year Ended July 26, 2007 to December 31, 2008 December 31, 2008 December 31, 2007 P P P (in millions, except per share figures or where otherwise indicated)

Statement of Income Data Net Sales Cost of Sales Gross Profit Administrative and selling expenses Operating Income Interest Income Interest Expense Other Income (Charges) Income Before Tax Income Tax Expense Net Income Earnings per share - basic (1) Number of shares outstanding Balance Sheet Data Cash and cash equivalents Trade and other receivables - net Inventories - net Other current assets Total current assets Property, plant and equipment (net of accumulated depreciation and amortization) Intangible assets Other noncurrent assets - net Total noncurrent assets Total assets Accounts payable and accrued expenses Income and other taxes payable Total current liabilities Long-term debt (net of debt issue cost) Other noncurrent liabilities Total noncurrent liabilities Total liabilities 14

48,787 (24,800) 23,987 (7,288) 16,699 264 (3,484) (377) 13,102 (4,303) 8,799 0.57 15,410

48,787 (24,800) 23,987 (8,366) 15,621 264 (377) 15,508 (5,466) 10,042 0.65 15,410

12,180 (6,333) 5,847 (2,349) 3,498 36 15 3,549 (1,239) 2,310 0.15 15,333

6,427 3,662 3,279 379 13,747

6,041 3,661 3,279 418 13,399

5,262 3,676 2,447 180 11,565

12,932 32,011 5,206 50,149 63,896 3,000 1,518 4,518 38,447 9 38,456 42,974

5,864 11 5,360 11,235 24,634 3,000 2,585 5,585 39 39 5,624

5,616 3 5,424 11,043 22,608 3,243 1,710 4,953 12 12 4,965

Examined Pro Forma Consolidated Financial Statements For the Year Ended

Audited Financial Statements For the Period from

For the Year Ended July 26, 2007 to December 31, 2008 December 31, 2008 December 31, 2007 P P P (in millions, except per share figures or where otherwise indicated)

Capital Stock Additional paid-in capital Cumulative translation adjustments Retained Earnings Minority Interest Total equity Total liabilities and equity Cash Flow Data Net cash provided by (used for): Operating activities Investing activities Financing activities Net increase in cash Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Other Financial and Operating data EBITDA (2) EBIT (2) Capital Expenditure Depreciation and amortization Gross profit margin EBITDA margin EBIT margin Volume (Equivalent Cases) Volume (Hectoliters) Average selling price/case (in pesos) Average selling price/Hectoliter (in pesos) ______________
+otes:

15,410 515 (45) 4,800 242 20,922 63,896

15,410 515 (45) 3,130 19,010 24,634

15,333 2,310 17,643 22,608

8,961 (40,674) 32,878 1,165 5,262 6,427

11,027 (1,645) (8,603) 779 5,262 P6,041

5,831 (610) 41 5,262 P5,262

18,457 16,699 829 1,758 49.2% 37.8% 34.2% 174.48 13.40 278.88 3,632

17,379 15,621 829 1,758 49.2% 35.6% 32.0% 174.48 13.40 278.88 3,632

3,913 3,498 362 415 48.0% 32.1% 28.7% 46.70 3.59 260.11 3,389

(1) Computed as net income divided by the weighted average number of Common Shares issued and outstanding each period. (2) EBITDA and EBIT are measures used by the Companys management to internally evaluate the performance of its business. EBITDA is calculated as operating income plus depreciation, amortization and impairment losses and EBIT is calculated as operating income. Neither EBITDA nor EBIT is a measure determined in accordance with PFRS or IFRS, and should not be considered as an alternative to net income as a measure of operating performance or to cash flow as a measure of liquidity. The items of net income excluded from EBITDA are significant components in understanding and assessing the Companys financial performance. Neither EBITDA nor EBIT is intended to be a measure of free cash flow for managements discretionary use, as it does not reflect certain cash require ments such as interest payments, tax payments and capital expenditures. The Companys calculation of EBITDA and EBIT may be diff erent from the calculation used by other companies and, as a result, the Companys EBITDA and EBIT may not be comparable to other simila rly titled measures of other companies.

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SUMMARY OF THE OFFER The following summary is qualified in its entirety by, and should be read in conjunction with the more detailed information appearing elsewhere in this prospectus. Issuer Instrument : : San Miguel Brewery Inc. Philippine Peso denominated fixed rate bonds with terms of three years, five years and one day and ten years to be issued by the Issuer with an aggregate principal amount of Thirty Eight Billion Eight Hundred Million Pesos (P38,800,000,000.00) consisting of Series A Bonds, Series B Bonds and Series C Bonds. To fund the Proposed Acquisitions. 100% of the face value for Series A Bonds, Series B Bonds and Series C Bonds. The Bonds will be issued in scripless form in denominations of P50,000.00, as a minimum, and in integral multiples of P10,000.00 in excess thereof. The Offer shall commence at 9:00 a.m. on March 18, 2009 and end at 12:00 p.m. on March 27, 2009.. April 3, 2009 or such other date as the Issuer and the Joint Issue Managers may agree in writing, provided that such date shall be a date which is within the validity of the SEC Permit to Sell Securities. Series A: three years from Issue Date Series B: five years and one day from Issue Date Series C: ten years from Issue Date Series A: 8.250% Series B: 8.875% Series C: 10.500% Interest on the Bonds will be calculated on a 30/360-day count basis and will be paid semi-annually in arrears on April 3 and October 3of each year, commencing on October 3, 2009, for Series A Bonds and Series C Bonds, and October 4, 2009 for Series B Bonds. The Bonds will be redeemed at 100% face value on each of their respective Maturity Date.

Use of Proceeds Issue Price

: :

Form and Denomination of the Bonds

Offer Period

Issue Date

Maturity Date

Interest Rate

Interest Payment

Final Redemption

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RISK FACTORS An investment in the Bonds involves a number of risks. The price of securities can and does fluctuate, and any individual security may experience upward or downward movements and may even become valueless. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. There may be a large difference between the buying price and the selling price of these securities. Investors deal with a range of investments, each of which may carry a different level of risk. This section entitled Risk Factors does not purport to disclose all of the risks and other significant aspects of investing in these securities. Investors should undertake independent research and study the trading of securities before commencing any trading activity. Investors may request publicly available information on the Bonds and the Company from the SEC. Each Investor should seek professional advice if he or she is uncertain of, or has not understood any aspect of, the securities to be invested in or the nature of risks involved in the trading of securities. Prospective investors should carefully consider the risks described below, in addition to the other information contained in this prospectus, including the Companys examined pro forma consolidated financial statements and notes relating thereto included herein, before making any investment decision relating to the Bonds. The occurrence of any of the events discussed below and any additional risks and uncertainties not presently known to the Company or that are currently considered immaterial could have a material adverse effect on the Companys business, financial performance, financial position and prospects and the investors may lose all or part of their investment. The means by which the Company plans to address the risks discussed herein are principally presented in the sections of this prospectus entitled Business Overview Strengths, Business Overview Strategies and Managements Discussion and Analysis of Financial Position and Financial Performance. RISKS RELATED TO THE COMPA.Y The Companys business and prospects may be adversely affected by changes in consumers preferences or purchasing power. The ability of the Company to successfully launch new products and maintain demand for its existing products depends on the acceptance of these products by consumers, as well as the purchasing power of consumers. Consumer preferences may shift because of a variety of reasons, including changes in demographic and social trends or changes in leisure activity patterns. For example, younger drinkers tend to be less loyal to any brand or any type of drink than the previous generation of drinkers. Concerns about health effects due to negative publicity regarding alcohol consumption or other factors may also affect consumers purchasing p atterns. If the Company does not respond effectively to changes in consumer preference, the Companys business and prospects may be adversely affected. Sales of beer are also tied closely to consumers purchasing power and disposable income levels. Adve rse economic developments in the Philippines may affect consumers purchasing power and disposable income levels, thereby adversely affecting the Companys financial performance and financial position. For example, in periods of economic uncertainty or downturns, consumers may purchase more hard liquor and less beer or they may purchase less alcoholic beverages, either of which would affect the Companys financial performance. The Company intends to expand its product and brand portfolio in higher-priced premium market segments, which would make the Companys business and prospects more closely related to changes in consumer purchasing power. A significant decrease in disposable income levels or consumer purchasing power in the Companys target markets could materially and adversely affect the Companys financial position and financial performance. For more information, see Business Overview Strategies on pages 78-80 of this prospectus. The Companys financial position and financial performance may be adversely affected by any disruptions in the supply of, or the price fluctuations for, its major raw materials. The Companys products depend on raw materials that the Company p rocures from third parties, including purchases of critical raw materials, primarily malted barley, from abroad and the water supply for Polo 17

Brewery. Certain raw materials are subject to price volatility caused by a number of factors, including changes in global supply and demand, foreign exchange rate fluctuations, weather conditions and governmental controls. For example, the current global focus on bio-ethanol fuels has contributed, and is expected to continue to contribute to, higher prices for malted barley and adjuncts, which are among the Companys most important raw materials, as farmers shift their production out of barley and into grains used to produce those fuels, decreasing available supply. Although the Company actively monitors the availability and prices of raw materials, there can be no assurance that these items will be supplied in adequate quantities to meet the Company s needs or will not be subject to significant price fluctuations in the future. While the Company may, in certain limited instances, be able to shift to alternative raw materials used in the production of its products, the Company cannot assure prospective investors that it will be able to reduce its reliance on these raw materials in the future. The Company does not fully hedge against commodity prices and any such hedging may not work as planned. Moreover, the market prices of raw materials may increase significantly if there are material shortages due to, among other things, competing usage or drastic changes in weather or natural disasters. The Company cannot assure prospective investors that it will be able to pass increases in product costs to consumers. As a result, any significant shortages or material increase in the market price of such raw materials may have a material adverse effect on the Companys financial position and financial performance. For more information, see Managements Discussion and Analysis of Financial Position and Financial Performance on page 55 of this prospectus. Demand for the Companys products is highly price elastic, and if the Company increases its prices, sales volumes may fall, which may negatively affect the Companys financial results and financial performance. The substantial majority of beer drinkers in the Philippines belong to the lower socio-economic classes, where discretionary income is limited. Accordingly, the beer market in the Philippines is highly price elastic. If the Company raises the prices of its products, sales volumes will likely decline, and the decline may result in a lower level of net sales. For example, on March 1, 2006, the Company raised the selling prices of it s beer products by an average of 9%. This price rise was in response to a 20% increase in the excise tax on beer that was implemented effective January 1, 2005 and to cover higher costs of raw materials and fuel. As a result, the Companys average selling price in 2006 was 8.7% higher than in 2005. However, primarily as a result of this price increase, the volume of the Companys sales (in case equivalents) in 2006 was 9.0% lower than in 2005, and its net sales in 2006 were 1% lower than in 2005. On April 1, 2008, the Company again raised the selling prices of its beer products by an average of 9%, primarily in response to sharp increases in the prices of the Companys raw materials in 2007 and 2008. Despite the cost pressures a nd price increases, however, the Companys sales volume still grew by 4.2% in 2008, albeit at a slower rate than its volume growth in 2007. Price elasticity of demand for the Companys products may limit the Companys ability to pass on increases in excise taxes, raw material costs or other expenses, which may negatively affect the Companys financial results and financial performance. For more information, see Business Overview Strategies on pages 78-80 of this prospectus. The Company may not be successful in implementing its strategy to increase its sales volume. The Company has a strategy to increase its sales by increasing its market share, in terms of both the beer market and the overall market for alcoholic beverages, and by increasing the total size of the beer market. Both parts of this strategy involve uncertainties and risks, and the Company can offer potential investors no assurance that it will be successful in implementing its strategy. For example, the Companys strategy to increase its sales of higher-priced, higher-margin products depends on its ability to convince consumers to pay more than they have historically paid for beer, and the Company may not be successful in this respect, either for its existing higher priced products or in respect of any new products that it may introduce. Failure by the Company to implement its strategy to increase the volume of its sales would negatively affect the Companys financial results and growth prospects. For more information, see Business Overview Strategies on pages 78-80 of this prospectus.

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Competition in the Companys businesses and markets may cause the Company to lose market share or reduce its operating margins, which could adversely affect its financial performance and financial position. The Company operates in a competitive environment. The Philippine alcoholic beverage industry in general is highly competitive, and, while the Company estimates that it has the largest market share in the Philippines with respect to beer, the Company cannot assure prospective investors that it will be able to maintain its current market share for beer, or that it will be able to increase its market share in the future. The Company faces competition from another domestic producer, which sells both its own brand and foreign brands it produces under license, and from foreign brewers. The Company also competes with producers of other alcoholic beverages, primarily low-priced gin and brandy. In the beer industry, and more generally the alcoholic beverage industry, competitive factors generally include price, product quality, brand awareness and loyalty, distribution coverage, and the ability to respond effectively to shifting consumer tastes and preferences. The Company also competes with other discretionary items, including both other food and beverage products and other goods and services generally. The consolidation of the Companys competi tors, the entrance of a new, larger competitor into the Philippine market, or unanticipated actions or irrational behavior by existing competitors, could lead to downward pressure on prices or a decline in the Companys market share. Any such event could materially and adversely affect the Companys financial position and financial performance. For more information, see Business Overview Competition on page 87 of this prospectus. The Company depends on trademarks and proprietary rights that it proposes to acquire and which are currently licensed from SMC to enhance its reputation, and infringement of these rights could adversely affect the Companys competitive position; reputation al issues involving other entities entitled to use the brands and trademarks used by the Company could also adversely affect the Company. The Company currently has an exclusive license from SMC to use various brand names and related trademarks and other intellectual property rights to prepare, package, advertise, distribute and sell its products in the Philippines. The use of these brand names and related intellectual property rights is key to maintaining the Companys distinctive corporate and market identities. If other parties sell products that use counterfeit versions of the Companys brands or otherwise look like the Companys brands, consumers may confuse the Companys products with products that they consider inferior. This could cause consumers to refrain from purchasing the Companys brands in the future and adversely affect the Companys brand image and sales. Under the license agreement with SMC, SMC has the responsibility of defending against infringements, but the Company canno t assure prospective investors that SMC will be successful in this regard. Any failure by SMC to protect the Companys proprietary rights could have an adverse effect on the Companys competitive position. In addition to risks from infringement, many of these brands and trademarks used by the Company can also be used for products other than beer produced by SMC or other entities that SMC has licensed them to and on beer products produced and sold by SMCs brewing operations outside of the Philippines. As such, the Companys brand image could also be negatively affected by product quality or other reputational issues caused by these other users of the brands and trademarks. Any damage to the Companys brand image caused by other users of the brands and trademarks could have an adverse effect on the Companys sales and financial performance. Upon completion of the Proposed Acquisitions, the Company as the parent company of Iconic, may be required to defend against infringements. There is no assurance that the Company will be successful in this regard. The Company will remain to be subject to the risks in the preceding paragraph in respect of the use of the SMB Brands on products other than beer and in respect of the use of intellectual property similar to the SMB Brands on beer products produced and sold by SMCs brewing operations outside of the Philippines. For more information, see Proposed Acquisitions on page Transactions on page 99 of this prospectus. 29 of this prospectus, and Related Party

The Companys financial position may be adversely affected if the Company is not able to raise enough funds for the Proposed Acquisitions The Company cannot assure prospective investors that it will be able to raise adequate funds from this offering to enable the Company to implement the Proposed Acquisitions. Given that the current arrangement between the Company and SMC regarding the Proposed Acquisitions does not provide for any partial purchase, the Company may be constrained to resort to additional borrowings at higher financing costs to complete the funding requirements for the Proposed Acquisitions. With the higher financing costs, the Company will incur 19

additional expenses for debt-servicing. The additional expenses for debt-servicing may have a material adverse effect on the Companys financial position and financial performance. Moreover, the Company cannot assure prospective investors that it will be able to obtain sufficient funds from the additional borrowings to complete the financing requirements for the Proposed Acquisitions. In such an event, the Company will not only continue to incur additional expenses for the payment of royalties and land lease rentals, it will also incur additional expenses related to debt-servicing. The payments for the royalties and land lease rentals, with the additional expenses for debt-servicing may have a material adverse effect on the Companys financial position and financial performance. The Company is dependent on its relationship with the SMC Group and on its relationship with other third parties. The Company has a very limited history of operating as an independent entity, and it previously was a division of SMC. Even after the Companys spin -off from SMC in October 2007, it remains dependent on its relationship with the SMC Group in a number of critical areas, including the SMYPC, SMRPC and SMYAC, with respect to its packaging requirements, and SMC with respect to many of its critical corporate functions including strategic planning. For more information, see Related Party Transactions on page 99 of this prospectus. If conflicts were to arise in the Companys relationship with the SMC Group or if the SMC Group were to fail to provide the services it has contracted to provide to the Company, the Company likely could not easily replace SMC as a provider of the services. Any such development could cause a material disruption in the Companys business, negatively impacting its performance and growth prospects. In addition, the Company relies on third parties in a number of critical areas of its operations, including distribution and logistics services, for its finished products and certain raw material supplies. If any of these third parties were to fail to provide these services or materials to the Company, the Companys business could be negatively affected, including its financial performance and growth prospects. The Companys current strategies m ay not be implemented as planned in the event Kirin Holdings Company, Limitedacquires significant shareholdings in the Company. On January 19, 2009, SMC signed a Memorandum of Understanding with Kirin Holdings Company, Limited (Kirin) regarding Kirins potential investment in the Company. Under the agreement, Kirin will enter into exclusive negotiations with SMC to acquire from SMC shares representing approximately 43.25% of the issued and outstanding capital stock of the Company. On February 20, 2009, SMC and Kirin signed a share purchase agreement for the acquisition by Kirin of 43.249% shareholdings in the Company. Under the terms of the agreement, Kirin will purchase shares in the Company from SMC at a purchase price of P8.841 per share, for a total acquisition price of P58.9 billion. In the event that Kirin successfully acquires a significant stake in the Company, there can be no assurance that the Company will be able to implement its planned strategies. The Companys controlling shareholder is able to exercise substantial influence over the Companys corporate policies and direct the outcome of corporate actions. Currently, the Companys controlling shareholder is SMC which holds approximately 94.3% of the Companys Common Shares. SMC is able to influence the Companys business through its ability to control actions that require majority shareholders approval and through its representatives on the Companys Board of Directors. SMC is not obligated to provide the Company with financial support or to exercise its rights as a shareholder in the best interests of the Company or its other shareholders or creditors. In addition, SMC ma y engage in activities that conflict with such interests. For example, a subsidiary of SMC is a major producer of hard liquor in the Philippines, a product that competes directly with many of the Companys products. SMC may take actions through that sub sidiary, such as pricing or marketing activities, that could cause the Companys sales or margins to decrease. SMC also owns other producers of beer, which produce and sell their products outside of the Philippines primarily using the same brands and trademarks as those used by the Company. SMC could take actions through these other beer producers, such as competing with the Company in markets outside the Philippines, that would not be in the best interest of the Company or its other shareholders or creditors. In addition, the Company believes that it benefits from its ongoing relationship with SMC and some of its subsidiaries and affiliates through their global reach and relationships. The Company cannot assure potential investors that SMC will continue to enable the Company to benefit from these relationships in the future.

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The Companys business and sales are affected by seasonality. The Companys sales are affected by seasonality in customer purchase patterns. In the Philippines, alcoholic beverages, including those produced by the Company, experience increased sales during the Christmas season and typically decline in the third quarter as a result of rainy weather. For example, from 2006 to 2008, on average, 26.5% of the Companys net sales were in the first three months of the year and 23.7% were in the second quarter; while 22.7% were in the third quarter, typically the slowest period for sales, and 27.1% were in the last three months of the year. As a result of this pattern, the Companys financial position and financial performance may fluctuate significantly from quarter to quarter. For more information, see Business Overview Strategies on pages 78-80 of this prospectus. An ongoing dispute regarding the ownership of certain shares in SMC could directly affect the current control and management policies of SMC. Court proceedings regarding the ownership of certain shares in SMC are pending before the Sandiganbayan and the Philippine Supreme Court. These proceedings were initiated by the Government in 1987 with respect to shares of SMC held by (i) the Coconut Ind ustry Investment Fund Holding Companies (CIIF Holding Companies), administered by the United Coconut Planters Bank, comprising approximately 24.0% of SMCs total share capital; and (ii) the companies affiliated with Mr. Eduardo M. Cojuangco, Jr., Chair man and Chief Executive Officer of SMC, comprising approximately 16.0% of SMCs total share capital. In its complaints, the Government has alleged that these shares were acquired with public funds and therefore belong to the Government. On May 7, 2004 a partial summary judgment was rendered in favor of the Government with respect to the shares of SMC held by the CIIF Holding Companies. The Philippine Coconut Producers Federation, Inc. representing interests of coconut farmers appealed this judgment to the Philippine Supreme Court. The Governments complaint regarding the shares of SMC owned by companies affiliated with Mr. Cojuangco was dismissed on November 28, 2007; the Government has appealed the said dismissal to the Philippine Supreme Court. In July 2008, CIIF Holding Companies requested that the Supreme Court allow the government to sell the shares of SMC held by CIIF Holding Companies, with the proceeds of such a sale to benefit the coconut industry and farmers in the Philippines. The Company cannot anticipate the outcome of these proceedings, the final results of which could directly affect the control and management policies of SMC and indirectly of the Company. The Company depends on certain key personnel, and its business and growth prospects may be disrupted if their services were lost. The Companys future success is dependent upon the continued service of its key executives and employees. The Company cannot assure potential investors that it will be able to retain these executives and employees. If many of its key personnel were unable or unwilling to continue in their present positions, or if they joined a competitor or formed a competing company, the Company may not be able to replace them easily, and the business of the Company may be significantly disrupted and its financial position and financial performance may be materially and adversely affected. For example, the Company has 30 brewmasters, a position critical to its manufacture of beer. These brewmasters typically have degrees in chemistry or chemical engineering, and each of them has over ten years of on-the-job-training experience working for the Company, making them difficult to replace. The Company cannot assure potential investors that it will be able to attract and retain the key personnel that it needs to achieve its business objectives. For more information, see Business Overview Brewing Technology and Produc t Development on page 85 of this prospectus. Under certain circumstances, the Company may not be able to meet increased demand for its products and may have to incur significant additional capital expenditures to avoid capacity constraints. Although the Company continuously seeks to enhance the efficiency and manufacturing capabilities of its production facilities, the Company may, from time to time, experience production difficulties that may cause shortages and delays in deliveries, as is common in the manufacturing industry. The Company cannot assure prospective investors that it will not experience production difficulties in the future and cannot assure prospective investors that it will be able to increase the efficiency and manufacturing capabilit ies of its production facilities in line with increased customer demand in the future. Furthermore, the Company cannot 21

assure prospective investors that it will be able to meet increasing demand for its products without having to incur significant additional capital expenditures in the future. For more information, see Managements Discussion and Analysis of Financial P osition and Financial Performance Liquidity and Capital Resources on page 63 of this prospectus. Consolidation of sales channels in the Philippines may adversely affect the Companys financial position and financial performance. The Philippine retail market has historically been highly fragmented and dominated by numerous small neighborhood stores. These small neighborhood stores serve limited geographical areas and purchase relatively small quantities of the Companys products from distributors and larger supermarkets. In recent years, larger supermarkets have begun to gain market share in the Philippines. There is a risk that the Companys business may become concentrated in fewer, larger customers, which could increase the relative bargaining power of these customers. The Company cannot assure prospective investors that these customers will not exert downward pressure on wholesale prices of the Companys products, which may adversely affect the Companys financial position and financial performance. For more information, see Business Overview Strategies on pages 78-80 of this prospectus. Product liability claims or other circumstances could harm the integrity and customer support for the Companys brands and adversely affect the sales of its products. The success of the Company depends in large part upon consumers perception of its brands. The contamination of products by bacteria or other external agents, whether arising accidentally or through deliberate third par ty action, could result in product liability claims. Product liability claims, whether or not they are successful, could adversely affect the reputation of the brands used by the Company and the sales by the Company. In addition, other manufacturers, primarily affiliates of SMC that produce and sell beer outside of the Philippines, have rights to produce products that carry the same brands and trademarks as used by the Company. Actions by these other manufacturers, including producing deficient quality products, could tarnish the overall reputation of the relevant brands. Any of the problems mentioned above may adversely affect the Companys reputation and its ability to charge a premium for its products, which may result in reduced sales and profitability of the affected brand or all of the Companys brands. Sales of the Companys products may be adversely affected if its relationship with distributors deteriorates. The Companys products are primarily sold throu gh distributors. Although many of these distributors have been dealing with the Company for many years, there is no assurance that these distributors will continue to purchase and distribute the Companys products, or that these distributors can continue t o effectively distribute the Companys products without delays or interruptions. In addition, the financial instability of, contractual disputes with, or labor disruptions at, the Companys distributors could disrupt the distribution of the Companys products and adversely affect the Companys business. For more information, see Business Overview Strengths on pages 78 -80 of this prospectus and Business Overview Marketing, Sales and Distribution on pages 86 -87 of this prospectus. Regulatory decisions and changes in the legal and regulatory environment in which the Company operates could limit its business activities or increase its operating costs. Regulatory decisions or changes in the legal and regulatory requirements in a number of areas may have adverse effects on the Companys business. In particular, governmental bodies may subject the Company to actions such as product recall, seizure of products and other sanctions, any of which could have an adverse effect on the Companys sales. These governmental bodies may also impose limitations on advertising activities used to market beer, such as prohibitions or limitations on television or print advertising, which may inhibit or restrict the Companys ability to maintain or inc rease consumer support for and recognition of its brands. In addition, regulatory bodies may seek to restrict consumer access to the Companys products by, among other actions, regulating the hours when outlets are allowed to sell alcohol. These and other legal or regulatory changes could materially and adversely affect the Companys financial position and financial performance. 22

For more information, see Business Overview Regulation and Taxation on pages 91-92 of this prospectus. Increases in excise tax rates applicable to beer or increases in other taxes to which the Company is subject may reduce consumption of the Companys products or the Companys margins or reduce both. Beer is subject to an excise tax, and increases in excise taxes or value added taxes, or VAT, may reduce overall consumption of the Companys products, the Companys profit margins or both. An additional 8% increase in the excise tax rates applicable to beer was implemented on January 1, 2009 and the same rate increase is scheduled to be implemented on January 1, 2011. Additional non-scheduled increases in excise tax or VAT rates are also possible. Previous increases in excise tax rates have adversely affe cted the Companys sales volume. The scheduled increases in excise tax or other increases in excise tax or other taxes to which the Company is subject to may (i) reduce consumption of the Companys products if passed on to the consumers by way of upward price adjustments, (ii) reduce the Companys margins if prices remain unchanged or (iii) have both such effects if additional taxes are not fully passed on to the consumers. For more information, see Managements Discussion and Analysis of Financial Positi on and Results of Operation Factors Affecting Financial Performance Taxes and Regulatory Environment on page 56 of this prospectus, Business Overview Strategies on pages 78-80 of this prospectus and Business Overview Regulation and Taxation on pages 91-92 of this prospectus. Philippine environmental laws and regulations create potential liabilities should the Company fail to comply with prescribed environmental standards and limits. Various environmental laws and regulations govern the operations of the Company including, but not limited to, the management of solid wastes, water and air quality, toxic substances and hazardous wastes at the Companys breweries. Non-compliance with the legal requirements or violations of prescribed standards and limits under these laws could expose the Company to potential liabilities, including both administrative penalties in the form of fines and criminal liability, which could result in imprisonment for officers of the Company who were involved in or who are otherwise held to be responsible for any such violations. Violations of environmental laws could also result in the suspension and/or revocation of permits or licenses held by the Company or the suspension or closure of operations. For more information, see Business Overview Health, Safety and Environmental Matters on pages 91 -92 of this prospectus and Regulatory Framework Environmental Matters on pages 116-117 of this prospectus. The Company may be adversely affected by any change in environmental, health and safety, accounting standards and other laws and regulations. The Companys operations are subject to a number of national and local laws and regulations . These include industry laws and regulations relating to environmental protection, health and safety, accounting standards and tax. The Company cannot assure prospective investors that changes in laws or regulations, including environmental, health and safety, accounting standards and laws and regulations, will not result in the Company having to incur substantial additional capital expenditures to upgrade or supplement its existing facilities or having to report lower income or being subject to an increased rate of taxation or fines and penalties. Any such changes in laws and regulations could have a material adverse effect on the Companys business, financial position and financial performance. For more information, see Business Overview Health, Safety and Environmental Matters on pages 91 -92 of this prospectus. Outbreaks of disease may dampen demand for the Companys products and may therefore adversely affect the Companys financial position and financial performance. Several countries in Asia and Europe have reported cases of avian influenza, or bird flu, while in the Philippines, several pig farms have recently reported cases of the ebola reston virus or ebola virus. While 23

there have been no known outbreaks of bird flu in the Philippines, recent reports indicated that some farmers exposed to affected pig farms have tested positive for the ebola virus. There can be no assurance that these viruses will not mutate, thereby causing a human pandemic in the Philippines or elsewhere. Any outbreak of bird flu or the ebola virus that results in a human pandemic, or an outbreak of any other contagious disease for which there is no known, effective, or readily available treatment, cure or vaccine, could have a material adverse effect on the Companys financial position and financial performance. For example, any outbreak of bird flu or ebola virus could adversely affect consumer demand for the Com panys products, the Companys ability to adequately staff its operations, the distribution networks for the Companys products, as well as the general level of economic activity in the Philippines. The Company cannot assure prospective investors that any future outbreak of bird flu, ebola virus or any other contagious disease will not have a material adverse effect on the Companys financial position and financial performance. RISKS RELATI.G TO THE PROPOSED ACQUISITIO.S The Company may not complete the Proposed Acquisitions. The Company will only be able to complete the Proposed Acquisitions after a number of steps are accomplished, including regulatory approvals and securing the full funding required. There is no assurance, however, that the Company will be able to successfully complete these steps on a timely basis or at all. If the Company does not complete the Proposed Acquisitions, the information on the Proposed Acquisitions and the examined pro forma consolidated financial statements related to the Proposed Acquisitions in this prospectus would not be relevant. RISKS RELATI.G TO THE PHILIPPI.ES The Company is a Philippine corporation and substantially all of its operations are conducted in and all of its production facilities and other assets are located in the Philippines. As a result, the Companys financial position and financial performance will be influenced by the political and social situation in the Philippines, as well as the general state of the Philippine economy and the economies in the surrounding region. Political or social instability in the Philippines could have a negative effect on the financial position and business of the Company. The Philippines has from time to time experienced political, social, economic and military instability. For example, in 2005, following allegations of fraud and disenfranchisement of voters in relation to the 2004 presidential elections, several members of the Arroyo Cabinet resigned their posts and, along with certain government officials, various opposition groups and individuals, began to call for the resignation or impeachment of President Arroyo. Impeachment complaints based on allegations of violations of the Constitution, graft and corruption and betrayal of public trust were filed against President Arroyo with the House of Representatives. On August 31, 2005, the House Committee on Justice dismissed all these impeachment complaints. On June 26, 2006 similar impeachment complaints were filed against President Arroyo in the House of Representatives, but these were subsequently dismissed in August of 2006. On October 5, 2007, a new impeachment complaint was filed against President Arroyo following bribery allegations involving government officials allegedly involved in the approval of a government contract with a Chinese telecommunications company. This impeachment complaint was dismissed by the House of Representatives on November 26, 2007. A fourth impeachment complaint was filed against President Arroyo on October 13, 2008 alleging culpable violation of the Constitution for approving the Northrail rehabilitation project, numerous human rights violations and alleged ballot-switching in the 2004 presidential election, among others. This impeachment complaint was also dismissed on November 26, 2008. There have been media reports that opposition parties, including former members of the military, continue to call for President Arroyos resignation. The Philippines Presidential, Legislative and local elections are scheduled to be held on May 10, 2010. The 2010 elections shall lead to the election of the 15th President and Vice President of the Philippines, respectively. The legislators elected in the 2010 elections will join the senators of the 2007 elections and will comprise the 15th Congress of the Philippines. The 2010 election will be administered by the Commission on Elections in compliance with the Republic Act No. 9369, also known as the Amended Computerization Act of 2007, and thus, shall also be the first computerized election in the Philippines.

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Furthermore, the Philippines has been subject to sporadic terrorist attacks in the past several years. The Philippine army has been in conflict with the Abu Sayyaf organization, which has been identified as being responsible for kidnapping and terrorist activities in the Philippines. A series of bombings in the southern part of the Philippines also occurred in 2004. Although no one has claimed responsibility for these attacks, it is believed that the attacks are the work of various separatist groups, including possibly the Abu Sayyaf organization, which is alleged to have ties to the Al-Qaeda terrorist network. On February 14, 2005, three bomb explosions in the Makati financial district in Manila, Davao City and General Santos City resulted in the deaths of eight persons and injured more than 100 persons. The Abu Sayyaf organization claimed responsibility for the attack. The Philippine army has also been fighting a counter-insurgency campaign against the communist New Peoples Army (NPA) for decades, and the Arroyo administration has announced plans to increase the intensity of its efforts against the NPA. There can be no assurance that the Philippines will not be subject to further acts of terrorism or negative effects of its counter-insurgency campaign in the future. No assurance can be given that the future political or social environment in the Philippines will be stable or that current or future governments will adopt economic policies conducive to sustaining economic growth. Political or social instability in the Philippines could negatively affect the general economic conditions and operation environment in the Philippines, which could have a material impact on the Companys business, financial position and results of operation. The Companys business and sales may be negatively affected by slow growth rates and economic instability in the Philippines as a result of the global economic recession or other factors adversely affecting the countrys economic performance. The Company derives approximately 99.0% of its sales from its Philippine operations. The Companys products are discretionary in nature and may be adversely impacted by weak economic conditions in the Philippines. The Companys future growth depends in large part on continued economic growth in the Philippines. The Philippines has experienced periods of slow or negative growth, high inflation, significant depreciations of the Philippine peso and debt restructuring, and has been significantly affected by economic volatilities i n the Asia-Pacific region. After the onset of the Asian financial crisis in mid-1997, the Philippines experienced unfavorable economic conditions, including currency depreciation, reduced availability or higher cost of credit, interest rate volatility and a reduction of foreign currency reserves. Currently, the Philippines is threatened by the downstream effects of the recent global economic downturn. The Philippines is currently experiencing job layoffs, slowdown in export growth, stock trading volatility and reduction in personal consumption expenditure, among others. No assurance can be given on the extent the global recession shall effect the economic conditions and operating environment in the Philippines. Historically, the Philippines has experienced volatility in the exchange rate between the Philippine peso and the U.S. dollar, as well as against other currencies. The Philippines has also experienced volatility of the prices of shares traded on the domestic stock market. The Company cannot assure prospective investors that one or more of these factors will not negatively impact Philippine consumers purchasing power or product preferences, which could materially and adversely affect the Companys financial position and financial performance. For more information, see Managements Discussion and Analysis of Financial Position and Financial Performance Factors Affecting Financial Performance on pages 55 -56 of this prospectus and Business Overview Strategies on pages 78-80 of this prospectus. If foreign exchange controls were to be imposed, the Companys ability to purchase raw materials, primarily malted barley and technically advanced equipment, could be adversely affected. Currently, the Philippines does not have foreign exchange controls. However, the BSP has statutory authority, with the approval of the President of the Philippines, during a foreign exchange crisis or in times of national emergency, to: suspend temporarily or restrict sales of foreign exchange; require licensing of foreign exchange transactions; or require the delivery of foreign exchange to the BSP or its designee banks for the issuance and guarantee of foreign currency-denominated borrowings. 25

The Company purchases some critical raw materials, primarily malted barley, and most of its technically advanced equipment from abroad and needs foreign currency to make these purchases. The Company cannot assure prospective investors that foreign exchange controls will not be imposed by the Government in the future. If imposed, these restrictions could materially and adversely affect the Companys ability to obtain malted barley and other materials from abroad, which could materially and adversely affect its financial position and financial performance. The occurrence of natural catastrophes or blackouts may materially disrupt the Companys operations. The Philippines has experienced a number of major natural catastrophes in recent years including typhoons, volcanic eruptions, earthquakes, mudslides, droughts and floods related to the El Nio and La Nia weather events. Natural catastrophes may impair the economic conditions in the affected areas, as well as the overall Philippine economy, and disrupt the Companys ability to produce or distribute its products. The Philippines has also experienced electricity blackouts, both from insufficient power generation and from disruptions such as typhoons. These types of events may materially disrupt and advers ely affect the Companys business and operations. The Company cannot assure prospective investors that the insurance coverage it maintains for these risks will adequately compensate the Company for all damages and economic losses resulting from natural catastrophes or blackouts, including possible business interruptions. RISKS ASSOCIATED WITH THE OFFER Secondary trading of the Bonds is subject to various market factors. The Company plans to list the Bonds in the PDEx to provide price transparency and liquidity to the Bondholders. As with other fixed income securities, the Bonds could trade at prices higher or lower than the initial offering price due to prevailing interest rates, the Companys operations, the overall market for debt securities, political and economic developments in the Philippines and other regions, among others. It is possible that a selling Bondholder would receive sales proceeds lower than his initial investment should a Bondholder decide to sell his Bonds prior to maturity. The Bonds will constitute direct, unconditional, unsubordinated, general and unsecured obligations of the Issuer. The Bonds will rank at least pari passu in all respects and rateably without preference or priority (except for any statutory preference or priority applicable in the winding-up of the Issuer) with all other outstanding unsecured and unsubordinated obligations (contingent or otherwise, present and future) of the Issuer. The Bonds may be redeemed prior to Maturity Date upon the occurrence of certain events such as change in taxation or regulation. Upon the occurrence of certain events such as a change in Philippine tax or regulatory laws or their general application or interpretation having an effect on the Company, the Bonds could be redeemed in whole but not in part prior to the Maturity Date. In such an event, the Bonds shall be redeemed at the relevant Issue Price plus accrued interest. There is no assurance that a market for the Bonds will exist, and the Bonds may offer limited liquidity. The Bonds constitute a new issue of securities by the Company. Prior to this issue, there has been no public market for the Bonds. Although the Company intends for the Bonds to be listed on PDEx as soon as reasonably practicable, there can be no assurance that an active public market for the Bonds will develop and, if such a market were to develop, the Joint Lead Managers and Underwriters are under no obligation to maintain such a market. The liquidity and the market prices for the Bonds can be expected to vary with changes in market and economic conditions, the financial position and prospects of the Company and other factors that generally influence the market prices of securities.

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RISKS RELATI.G TO CERTAI. STATISTICAL I.FORMATIO. I. THIS PROSPECTUS Certain statistics in this prospectus relating to the Philippines, the industries and markets in which the Companys business operates, including statistics relating to market size and market share, are derived from various Government and private publications, including those produced by industry associations and research groups and the Canadean Report. This information has not been independently verified and may not be accurate, complete, up-to-date or consistent with other information compiled within or outside the Philippines.

27

USE OF PROCEEDS The Company intends to use the net proceeds of this Offer to fund the Proposed Acquisitions. Specifically, the Company intends to use the net proceeds as follows: P 32.0 billion for the Brand Acquisition; and P 6.8 billion for the Land Acquisition. Any additional funding required to complete the Proposed Acquisitions will be sourced through additional borrowings1. In the event that the net proceeds of this Offer will be insufficient to finance the Proposed Acquisitions, the Company intends to place the amount in short-term Government securities with maturities of up to three months until such time that the full amount required for the Proposed Acquisitions is raised. Further, the Company undertakes that it will not use the net proceeds from this Offer for any other purpose. For more information on the Proposed Acquisitions, see Proposed Acquisitions on pages 29 -36 of this prospectus. The Company estimates that the net proceeds from this Offer, after deducting expenses payable by the Company, will be approximately P38,400,152,939.52 (the Net Proceeds). Net proceeds from the Offer are estimated as follows: Estimated Proceeds from the Sale of the Bonds Less: Estimated Expenses Documentary Stamp Tax SEC Registration SEC Registration Fee SEC Legal Research and Publication Fee SEC Publication Fee Underwriting and Other Professional Fees Underwriting and Selling Fee Legal Fee Rating Fee Listing Application Fee Listing Maintenance Fee* Printing Cost** Trustee Fees*** Paying Agency and Registry Fees**** Investors' Conference Fee Miscellaneous Fees Estimated Net Proceeds to the Company
* ** *** ****

P 38,800,000,000.00

194,000,000.00 10,262,500.00 102,625.00 100,000.00

187,741,935.48 2,000,000.00 3,360,000.00 150,000.00 450,000.00 150,000.00 180,000.00 1,050,000.00 100,000.00 200,000.00 P 38,400,152,939.52

The Issuer will be charged an Annual Maintenance Fee of P150,000 per tranche of the Bonds, payable every January of each year. The fee shown is for the first year only. Estimated based on previous issuances. The Issuer will pay the Trustee a fixed annual fee of P180,000. The fee shown is for the first year only. The Issuer will pay PDTC P100,000 per tranche per interest payment date. The Paying Agency fee shown is for the first year only. The Registrar will charge (i) a monthly maintenance fee based on the face value of the Bonds and the number of Bondholders and (ii) out of pocket expenses for cost of mailing statement of accounts to Bondholders. The total amount shown includes an account opening fee of P75.00 assuming 6,000 Bondholders.

Sources of additional borrowings are the Companys existing credit facilities from both local and international relationship banks.
1

28

PROPOSED ACQUISITIO.S On December 8, 2008, the Board of Directors of SMC approved the transfer of the SMB Brands and SMB Land to Iconic and Brewery Properties, respectively. Iconic and Brewery Properties are wholly-owned subsidiaries of SMC. On January 27, 2009, the Company's Board of Directors approved the purchase of all the interests of SMC in Iconic after completion of the transfer by SMC to Iconic of the SMB Brands (Brand Acquisition). The Company and SMC agreed on the purchase price of P32.0 billion. The Company engaged UBS Investments Philippines Inc. as its financial adviser to perform a valuation study and analysis is connection with the Brand Acquisition. The Company arrived at the purchase price after taking into account the valuation and analysis. The purchase price agreed upon is within the value range yielded by the relevant methodologies considered applicable to the Company. On the same date, the Company's Board of Directors also approved the purchase of all the interests of SMC in Brewery Properties after SMC has transferred the SMB Land to Brewery Properties (the Land Acquisition and, together with the Brand Acquisition, the Proposed Acquisitions). The purchase price for the Land Acquisition is P6.829 billion, which is equivalent to the appraised value of the SMB Land transferred by SMC to Brewery Properties. The transfer of the SMB Brands to Iconic was approved by the SEC on February 27, 2009 while the transfer of the SMB Land to Brewery Properties is pending completion to date. The Company intends to enter into the agreements with SMC for the Brand Acquisition and the Land Acquisition by end March and end April 2009, respectively. The Company intends to use the proceeds from the Offer together with any additional funding to fund the Proposed Acquisitions. For a detailed description of the funding of the Proposed Acquisitions, see Use of Proceeds on page 28 of this prospectus. The Company currently expects the Brand Acquisition to be completed by end April 2009, and the Land Acquisition to be completed by end 2009. Each Proposed Acquisition, however, is subject to conditions that may not be satisfied. The Company can provide no assurance that the Proposed Acquisitions will be completed on a timely basis or at all. THE SMB BRA.DS The following is a description of the SMB Brands to be acquired by the Company under the Brand Acquisition.
LIST OF REGISTERED BRA.DS Mark Class Goods 32 Shandy, beers, mineral and aerated waters, other non-alcoholic drinks, fruit drinks, fruit juices, syrups and other preparations for making beverages 32 32 Shandy Beers; mineral and aerated waters and other non-alcoholic drinks; fruit drinks and fruit juices; syrups and other preparations for making beverages Malt beverages Beer

Country Philippines

Owner SMC CALI Device

Philippines Philippines

SMC SMC

CALI Label & Design CALI ICE LABEL

Philippines Philippines

SMC SMC

CERVEZA NEGRA CERVEZA NEGRA AN EXHILARATING DARK LAGER LABEL DESIGN SAN MIGUEL PALE PILSEN FIESTA LABEL DESIGN

33 32

Philippines

SMC

32

Beer

29

Country Philippines

LIST OF REGISTERED BRA.DS Owner Mark Class SMC GOLD EAGLE BEER & BOTTLE 32 Beer DESIGN SMC GOLD EAGLE BEER CONTAINER MARK GOLD EAGLE & DEVICE 32 Beer

Goods

Philippines

Philippines

SMC

32

Beer, lager, ale, pilsen, pilsener, pils, stout, bock and other malt beverages

Philippines

SMC

GOLD EAGLE BEER MUCHO & EAGLE DEVICE GRANDE

32

Beer

Philippines

SMC

32

Beer, lager, ale, pilsen/ pilsener/pils, stout, bock and other malt beverages Beer, lager, ale, pilsen/ pilsener/pils stout, bock and other malt beverages Beer, lager, ale, pilsen/ pilsener/pils, stout, bock and other malt beverages Entertainment services, amusement services or recreation of people, namely, annual amateur band competition organized by Red Horse Beer; all services included in Class 41 Beer, lager, ale, pilsen, pilsener, pils, stout, bock and other malt beverages

Philippines

SMC

MIGUELITO

32

Philippines

SMC

MUCHO

32

Philippines

SMC

MUZIKLABAN

41

Philippines

SMC

RED HORSE & Device

32

Philippines Philippines Philippines

SMC SMC SMC

RED HORSE STALLION SAN MIG LIGHT (stylized word) SAN MIG STRONG ICE & DEVICE SAN MIG STRONG ICE LABEL SAN MIGUEL BEER DIVISION SAN MIGUEL BEER DIVISION SAN MIGUEL PALE PILSEN & Label Design SAN MIGUEL SUPER DRY (container) SMB PLAY & DESIGN

32 32 32

Beer Beer Beer

Philippines Philippines Philippines Philippines

SMC SMC SMC SMC

32 32 32 32

Beer Beer and other malt-based beverages Beer and other malt-based beverages Beer, ale, lager, pilsen/pilsener, pils, stout, bock and shandy

Philippines

SMC

32

Beer

Philippines

SMC

41

Providing entertainment, sporting and cultural activities; providing purchase discount services, arranging and conducting promotional activities Beer and other malt-based beverages

Philippines

SMC

SAN MIGUEL CORPORATION BEER DIVISION SAN MIGUEL PILSEN ESCUDO & Label Design

32

Philippines

SMC

32

Beer

30

Country Philippines

LIST OF REGISTERED BRA.DS Owner Mark Class Goods SMC PASIKLABAN TOUR 41 Organizing and providing entertainment and recreational service and cultural activities, namely, rock band concerts and variety shows SMC SUPER X SERIES (wordmark) 41 Organizing and providing sporting activities, namely, extreme sports events Organizing and providing entertainment, recreational, and promotional activities Beer, lager, ale, pilsen/pilsener/pils, stout, bock and malt beverages all included in Class 32 Organizing and providing entertainment and recreational services and sporting and promotional activities, namely, onpremise dart competitions Class 16 - Promotional materials made of paper or cardboard, namely, stationery, paper envelopes and paper pouches, calendars, catalogues, posters, postcards, printed publications, advertisement boards of paper and cardboard, bottle wrappers of cardboard and paper boxes of cardboard and paper, and labels (not of textile) Class 18 - Bags made of leather and imitation of leather, garment bags for travel, umbrellas Class 25 - T-shirts, shirts, clothing jackets, caps, shorts

Philippines

Philippines

SMC

FOUR KICKS

41

Philippines

SMC

RED HORSE (stylized wordmark)

32

Philippines

SMC

HIT KAPALIT

41

Philippines

SMC

Ito ang Tama (wordmark)

16, 18 & 25

Philippines

SMC

RED HORSE BEER EXTRA STRONG & DEVICE

32

Beer, lager, ale, pilsen/pilsener/pils, stout, bock and malt beverages all included in Class 32 Organizing and providing entertainment, recreational, and promotional activities Month-long beer festival of San Miguel in which there would be events and promotions like concerts, beer and food stalls, contests, stalls in which promotional/novelty items are sold Beer drinking event with on-premise selling and karaoke singing

Philippines

SMC

4KICKS (word mark)

41

Philippines

SMC

OKTOBERFEST

41

Philippines

SMC

GOLD EAGLE AGILAKAD NIGHTS (WORD MARK) SAN MIGUEL DESIGN MARK RED HORSE BEER ITO ANG TAMA (Copyright) SAN MIGUEL BEER GRANDE (NAGKAISA ANG GRUPO) (copyright)

41

Philippines Philippines

SMC SMC

32 M

Malt Beverages --

Philippines

SMC

31

Country Philippines

LIST OF REGISTERED BRA.DS Owner Mark Class SMC MAG-RELAKS MAG-GOLD Class of EAGLE BEER Work: M

Goods

Philippines

SMC

PLASTIC CASE (SAN MIGUEL BEER) A BOTTLE (SAN MIGUEL BEER)

Int'l Class 21 21

Plastic crate

Philippines

SMC

Container for beer

Country Philippines Philippines

LIST PE.DI.G APPLICATIO.S Owner Mark SMC SAN MIGUEL SUPER DRY LABEL DESIGN SMC GOLD EAGLE BEER KING & EAGLE DESIGN MULA SA SAN MIGUEL (Copyright) CERVEZA PALE PILSEN ESCUDO & LABEL DESIGN SAN MIGUEL PALE PILSEN DRAFT LABEL DESIGN SAN MIGUEL PALE PILSEN WITH RECTANGULAR HOPS AND MALT CERVEZA NEGRA 1890 A DISTINCT PLEASURE LABEL DESIGN MAGNUM BEER (WORDMARK) SAN MIGUEL PREMIUM ALL-MALT BEER & LABEL DESIGN SAN MIGUEL PALE PILSEN OKTOBERFEST & LABEL DESIGN SAN MIGUEL ICE & DEVICE SAN MIGUEL DOUBLE CHILL DRAFT SAN MIGUEL DOUBLE CHILL PALE PILSEN GOLD EAGLE VIDEOKE KING WORDMARK METHOD OF MAKING COLORLESS AND ARTIFICIALLY COLORED CLEAR BEER SAN MIGUEL DARK BEER & LABEL DESIGN

Class 32 32

Goods Beer Beer

Philippines Philippines

SMC SMC

Copyright Application 32 Beer

Philippines

SMC

32

Beer

Philippines

SMC

25 & 32

Class 25 - Clothing Class 32 - Beer Events, competitions, advertisements

Philippines

SMC

41

Philippines Philippines

SMC SMC

32 32

Beer Beer

Philippines

SMC

32

Beer

Philippines Philippines Philippines

SMC SMC SMC

32 32 32

Beer Beer Beer

Philippines

SMC

41

Philippines

SMC

Clear beer

Philippines

SMC

32 & 33

Beer, ale and non-alcoholic malt based beverages

32

THE SMB LA.D The following is a description of the SMB Land.

Description and Use Address / Location TCT .o. Area in sq.mts (Land Title) Appraised Value

GREATER MA.ILA AREA M. Carreon St., Brgy. 866, Sta. Ana, Sales Office -Sta.Ana Manila Dona Juana St., Brgy. Potrero, Malabon Polo Brewery City

-240375M-34533 T-1759 T-126206 T-126207 T-126208 T-126209 T-197295 T-134350 -R-1383C-18257 C-18258 C-18259 -139443-139444RT-82256 (235850) NT-163434 T-248955

6,865.50 882 80,064 532 268 174 189 481 10,513 8,933 4,586 5,117 361 3,000 1,290 10,000 5,000 6,819

102,982,500 5,292,000 1,200,960,000 7,980,000 4,020,000 2,610,000 2,835,000 7,215,000 63,078,000 53,598,000 45,860,000 51,170,000 3,610,000 60,000,000 25,800,000 200,000,000 5,103,000 34,095,000

Polo Brewery

Mc. Arthur Highway, Brgy. Marulas, Valenzuela City

Polo Brewery Region/Sales Office Caloocan Sales Office - Tondo Sales Office - Cubao Sales Office - San Isidro Sales Office - Guiguinto

Banana Road cor. Dona Juana St., Potrero, Malabon City A. Cruz St., Brgy. 96, Caloocan City Honorio Lopez Blvd., Guidote St., Tondo, Manila Brgy. Mangga, Cubao, Quezon City Gapan-Olongapo Rd., Poblacion, San Isidro, Nueva Ecija Cagayan Valley Rd., Brgy. Sta. Cruz, Guiguinto, Bulacan

CE.TRAL .ORTH LUZO. Brgy. Quebiawan, San Fernando Brewery / McArthur Hi-way, San Isidro, San Region/Sales Office Fernando, Pampanga Region/Sales Office Dagupan Region/Sales Office - La Union Region/Sales Office Cauayan Region/Sales Office Angeles Caranglaan Dist., Dagupan City, Pangasinan Pennsylvania Ave., Brgy. Madayegdeg, San Fernando, La Union Brgy. San Fermin, Cauayan City, Isabela San Andres St., San Angelo Subd., Sto.Domingo, Angeles City, Pampanga 150392-R 152641-R 152640-R 152639-R -48189T-20561 T-150299 T-150300 T-173718 29659 -52655-52656T-22877 T-23010 T-61442 T-61441 T-61440 T-61443 T-50279 T-50330 T-179780 T-15637 T-50909 550,018 11,718 3,702 1,692 5,060 5,496 1,262 1,001 1,500 3,536 925 944 4,127.46 5,000 500 2,624 1,000 363 500 292 5,000 5,000 3,000 1,650,054,000 35,154,000 11,106,000 5,076,000 43,010,000 27,480,000 3,786,000 3,003,000 4,500,000 10,608,000 2,922,600 2,969,400 18,574,000 10,000,000 4,000,000 20,992,000 8,000,000 2,904,000 4,000,000 2,336,000 15,000,000 8,000,000 4,500,000

Region/Sales Office - San Brgy. 22, San Guillermo, San Nicholas, Nicolas Ilocos Norte Sales Office -Carmen Carmen East, Rosales, Pangasinan

Sales Office - Baguio

Naguilian Road, San Carlos Heights, Brgy. Irisan, Baguio City, Benguet

Sales Office - Santiago Warehouse - Ilocos Warehouse - Lallo

National Road, Brgy. Mabini, Santiago City, Isabela Brgy. Tablac, Candon City, Ilocos Sur Sta Maria, Lallo, Cagayan

33

Description and Use

Address / Location

TCT .o.

Area in sq.mts (Land Title)

Appraised Value

SOUTH LUZO. Area/Sales Office Canlubang Region/Sales Office Lucena Sales Office -Gumaca

Silangan Exit, Canlubang, Calamba City Maharlika Highway, Brgy. Isabang, Lucena City Maharlika Highway, Brgy. Villabota, Gumaca, Quezon Maharlika Highway, Brgy. Concepcion, Pequena, Naga City Brgy. Mandaragat, Puerto Princesa City, Palawan Brgy., Labangan, San Jose, Occidental Mindoro JP Laurel Hi-way, Brgy. Balintawak, Lipa City, Batangas National Road, Brgy. Balagtas, Batangas City, Batangas

T-172606 T-30190 T-30203 T-163370 T-10692 T-10693 -207996467 T-5548 T-78152 T-17707 T-17708

37,000 2,100 1,005 3,000 260 5,811 1,512 5,000 3,822 3,850 5,000 149

111,000,000 6,300,000 3,015,000 7,500,000 0 34,866,000 6,726,000 25,000,000 5,733,000 30,800,000 12,500,000 373,000

Region/Sales Office Naga Warehouse Warehouse Warehouse Region/Sales Office Batangas .EGROS

Bacolod Brewery/Sales Office

Brgy. Granada, Sta. Fe, Bacolod City, Negros Occidental

T-141422 T-141424 T-141425 T-141426 T-141427 T-141428 T-141429 T-141430 T-141431 T-141432 T-141433 T-141434 T-141435 T-141436 T-141437 T-141438 T-141439 T-141440 T-141441 T-141442 T-141443 T-125650 T-69650 T-73626 T-73624 T-33006 T-33007 T-0-276 T-13130

123,965 1,500 2,000 2,000 2,000 750 750 750 750 750 750 750 750 2,000 2,000 2,000 1,500 1,500 1,500 3,000 3,000 3,480 1,208 732 1,268 3,828 258 5,958 9,500

277,137,000

Warehouse - Sum-ag Sales Office Himamaylan Sales Office - Iloilo Sales Office - Numancia Sales Office - Roxas

Flores St., Brgy. Sum-ag, Bacolod City, Negros Occidental National Highway, Brgy.4, Himamaylan City, Negros Occidental Muelle Loney St., Brgy. Legaspi, Iloilo City Brgy. Camansi Norte, Numancia, Aklan Brgy. Libas, Roxas City

4,176,000 2,174,400 1,317,600 1,999,836 24,882,000 1,677,000 8,925,000 19,000,000

34

Description and Use

Address / Location

TCT .o.

Area in sq.mts (Land Title)

Appraised Value

VISAYAS -11787-11786National Highway, Brgy. Tipolo, Mandaue City -11206T-17143 -10888-30010-3000916110 -10887T-16649 -16689National Highway, Brgy. Tipolo, Mandaue City P. Pasubas St., Brgy. Tipolo, Mandaue City T-16648 -8190-8734-8733-9484-9483T-85039 T-85046 -85043T-85041 -8803-11761- 19033 -38618T-16844 T-19820 T-19821 T-19822 37,494 13,639 5,811 3,000 1,365 4,826 35,567 16,043 10,241 1,187 457 2,098 1,320 1,320 1,320 1,320 1,320 1,000 4,614 400 400 636 1,081 400 331 1,880 320 1,064 1,096 581,157,000 211,404,500 90,070,500 46,500,000 21,157,500 74,803,000 551,288,500 248,666,500 158,735,500 18,398,500 7,083,500 32,519,000 20,460,000 20,460,000 20,460,000 20,460,000 20,460,000 2,000,000 9,228,000 800,000 800,000 1,590,000 2,702,500 2,400,000 662,000 8,460,000 384,000 1,276,800 1,315,200

Mandaue Brewery/Sales Office

National Highway, Brgy. Tipolo, Mandaue City

Deepwell D

Tambalan-Budla-an, Brgy.Tambalan, Mandaue City Private Road, Brgy. Cabancalan, Mandaue City Private Road, Brgy. Cabancalan, Mandaue City AS Fortuna St., Brgy. Banilad, Mandaue City Private Road, Brgy. Cabancalan, Mandaue City H. Cortes St., Brgy. Banilad, Mandaue City Fatima Village, Brgy. 73 (formerly part of Brgy. Sagcahan), Tacloban City

Deepwell E Deepwell F Deepwell B Deepwell G Deepwell C Region/Sales Office Tacloban MI.DA.AO Davao Brewery

Davao Brewery, Brgy. Darong, Sta. Cruz, Davao Del Sur

T-26530 T-3419 T-3420 T-3420-A T-3422 T-3423 T-21267 T-21268 T-21269 T-21270 T-60306 T-60307 T-33128 T-33853 T-49827

269,573 4,146 397 4,926 1,535 3,727 1,946 791 1,916 721 2,850 2,850 20,000 1,511 737

161,743,800 3,316,800 317,600 3,940,800 1,228,000 2,981,600 1,556,800 632,800 1,532,800 576,800 8,550,000 8,550,000 30,000,000 7,555,000 3,685,000

Region/Sales Office Opol

National Highway, Brgy. Luyong Bonbon, Opol, Misamis Oriental

Warehouse - Tagum Warehouse - GenSan Warehouse - Marbel

National Highway, Brgy. Magugpo, Tagum City National Highway, Brgy. Lagao, General Santos City Sergio Osmena St., Brgy. Poblacion, Koronadal City

35

Description and Use

Address / Location

TCT .o.

Area in sq.mts (Land Title)

Appraised Value

T-53,629 Region/Sales Office Zamboanga RT Lim Blvd., Baliwasan, Zamboanga City T-48,426 T-47,396 T-47,397 T-47,398 T-5569 L-3411 T-5569 L-3409 T-6293 T-14953 T-14955 (T-10158) - T-2323

2,000 3,736 1,500 1,500 2,160 221 323 243 2,375 873 2,800 1,494,947.96

8,000,000 14,944,000 6,000,000 6,000,000 5,576,000 331,500 485,000 364,500 1,663,000 459,000 14,000,000 6,828,978,636

Warehouse - Tandag Region/Sales Office Butuan Warehouse - Digos TOTAL

Brgy. Bongtod, Tandag City, Surigao del Sur Fort Poyohan, Molave St., Butuan City JP Rizal Ave., Poblacion, Digos City

36

DETERMI.ATIO. OF ISSUE PRICE

The Bonds shall be issued on a fully-paid basis and at an issue price that is at par.

37

PLA. OF DISTRIBUTIO. The Company plans to issue the Bonds to institutional and retail investors through a general public offering to be conducted by the Joint Lead Managers and Underwriters. JOI.T LEAD MA.AGERS A.D U.DERWRITERS The Development Bank of the Philippines and The Hongkong and Shanghai Banking Corporation Limited, as Joint Issue Managers, have agreed to act as arranger in the issuance, placement, distribution, and sale of the Bonds and together with BDO Capital & Investment Corporation (BDO), BPI Capital Corporation (BPI Capital), China Banking Corporation (CBC), First Metro Investment Corporation (FMIC), ING Bank, N.V. (ING), Land Bank of the Philippines (LBP), Philippine Commercial Capital, Inc. (PCCI), RCBC Capital Corporation (RCBC), Standard Chartered Bank (SCB) and Union Bank of the Philippines (UBP) (collectively, the Joint Lead Managers and Underwriters), to distribute and sell the Bonds at the Issue Price, pursuant to an Issue Management and Underwriting Agreement entered into with the Company on March 16, 2009 (the Issue Management and Underwriting Agreement). Each Joint Lead Manager and Underwriter has committed severally to underwrite the Offer on a firm basis. The underwriting commitment of each of the Joint Lead Managers and Underwriters is as follows: Principal Amount of the Bonds P10,000,000,000.00 P2,000,000,000.00 P3,000,000,000.00 P3,000,000,000.00 P4,800,000,000.00 P3,000,000,000.00 P2,000,000,000.00 P2,000,000,000.00 P2,000,000,000.00 P2,000,000,000.00 P2,000,000,000.00 P3,000,000,000.00 P38,800,000,000.00

BDO BPI Capital CBC DBP FMIC HSBC ING LBP PCCI RCBC SCB UBP Total

There is no arrangement for any of the Joint Lead Managers and Underwriters to put back to the Issuer any unsold Bonds. The Issuer shall pay each of the Joint Lead Manager and Underwriter a fee of 0.45% flat based on its underwriting commitment , as Joint Lead Manager and Underwriters fee (the Joint Lead Manager and Underwriters Fee). The Joint Lead Manager and Underwriters Fee shall be grossed up for gross receipts tax of 7%. The fees due to the Joint Lead Managers and Underwriters together with any applicable gross receipts tax or its equivalent and net of any applicable withholding tax arising in respect of such fee, shall be due and payable by the Issuer to the Joint Lead Managers and Underwriters immediately upon receipt of confirmation from the Issuers bank that cleared funds representing payments for all accepted Applications to Purchase have been credited to the account designated by the Issuer. The Joint Lead Managers and Underwriters are authorized to organize a syndicate of Participating Underwriters for the purpose of the Offer. However, the Company has no obligation to any member of such syndicate for the payment of any fee, underwriting or participating commissions. The Issue Management and Underwriting Agreement may be terminated or suspended by the Joint Lead Managers and Underwriters under certain circumstances prior to the issuance of the Bonds and payment being made to the Company of the net proceeds of the Bonds. The Joint Lead Managers and Underwriters are duly licensed by the SEC to engage in underwriting or distribution of the Bonds. The Joint Lead Managers and Underwriters may, from time to time, engage in transactions with and perform services in the ordinary course of business for the Company or any of its subsidiaries. The Joint Lead Managers and Underwriters have no direct relations with the Company in terms of ownership by either of their respective major stockholder/s, and have no right to designate or nominate any member of the Board of Directors of the Company.

38

The following includes a summary of certain provisions of the Issue Management and Underwriting Agreement entered into by the Issuer and the Joint Lead Managers and Underwriters. This summary does not purport to be complete and is qualified in its entirety by reference to the Issue Management and Underwriting Agreement. SALE A.D DISTRIBUTIO. The distribution and sale of the Bonds shall be undertaken by the Joint Lead Managers and Underwriters who shall sell and distribute the Bonds to institutional and retail investors. The Joint Lead Managers and Underwriters are authorized to enter into sub-underwriting agreements with Participating Underwriters for the sale and distribution to the public of the Bonds; provided, however, that the Joint Lead Managers and Underwriters shall remain solely responsible to the Issuer in respect of their obligations under the Issue Management and Underwriting Agreement entered into by them with the Issuer and the Issuer shall not be bound by any of the terms and conditions of any agreement entered into by the Joint Lead Managers and Underwriters with the Participating Underwriters. Nothing herein shall limit the rights of the Joint Lead Managers and Underwriters from purchasing the Bonds for their respective accounts. TERM OF APPOI.TME.T The engagement of the Joint Lead Managers and Underwriters shall subsist in accordance with the terms of the Issue Management and Underwriting Agreement. The obligations of each Joint Lead Manager and Underwriter will be several, and not solidary with the other Joint Lead Managers and Underwriters, and nothing in the Issue Management and Underwriting Agreement shall be deemed to create a partnership or joint venture between or among any of the parties therein. Unless otherwise expressly provided in the Issue Management and Underwriting Agreement, the failure by any Joint Lead Manager and Underwriter to carry out its obligations shall not relieve any other Joint Lead Manager and Underwriter of its obligations thereunder, nor shall any Joint Lead Manager and Underwriter be responsible for the obligations of any other Joint Lead Manager and Underwriter thereunder. MA..ER OF DISTRIBUTIO. The Joint Lead Managers and Underwriters, in consultation with the Issuer, shall agree on the procedure for application, acceptance, or rejection of the Applications to Purchase, whether in whole or in part (the Allocation Plan). Consistent with bank procedures and the Allocation Plan, each of the Joint Lead Managers and Underwriters and Participating Underwriters shall observe the policies and procedures regarding acceptance of Applications to Purchase, evaluation and assessment of such applications and supporting documentary requirements, allocations of the Bonds to clients and acceptance of deposits of its potential investors. Based on each Joint Lead Manager and Underwriters and Participating Underwriters tentative reports on sales, as monitored by the Joint Issue Managers during the Offer Period, the Joint Issue Managers shall, as soon as practicable, commence the evaluation of the same for purposes of allocating the Bonds to applicants based on the Allocation Plan. OFFER PERIOD The Offer Period shall commence at 9:00 a.m. on March 18, 2009 and end at 12:00 p.m.] on March 27, 2009 or such other dates as may be determined by the Issuer and the Joint Issue Managers. APPLICATIO. TO PURCHASE All applications to purchase the Bonds shall be evidenced by a duly completed and signed Application to Purchase. An Application to Purchase may be obtained from the Joint Lead Managers and Underwriters and the Participating Underwriters by interested corporate/institutional investors and upon submission, must be accompanied by the following documents, among others: (i) two fully executed signature cards authenticated by the corporate secretary or authorized officer; (ii) a copy of its Certificate of Incorporation issued by the SEC or equivalent government institution, its Articles of Incorporation and By-Laws and latest amendments thereof stamped and signed as certified true copies by the SEC or the applicantscorporate secretary or by an equivalent authorized officer(s) who is/are authorized signatories; (iii) duly notarized certificate of its corporate secretary or other authorized officer setting forth the resolution of the board of directors or its equivalent body authorizing the purchase of the Bonds indicated in the Application to Purchase and designating the authorized signatory(ies) for the purchase of the said Bonds with their specimen signatures; and (iv) identification document(s) of 39

applicants authorized signatories. Individual applicants must, on the other hand, submit, among others, (i) a photocopy of any valid identification card duly issued by the Government showing the signature and residential address of the applicant and (ii) two duly accomplished signature cards containing the specimen signature of the applicant. Each Joint Lead Manager and Underwriter and Participating Underwriter shall be responsible for accepting payments accompanying the Applications to Purchase of their respective clients in accordance with the Issue Management and Underwriting Agreement and the relevant sub-underwriting agreement. An applicant who is exempt from or is not subject to withholding tax, or who claims reduced tax treaty rates shall, in addition, be required to submit the following requirements to the relevant Joint Lead Manager and Underwriter and Participating Underwriter (together with their Applications to Purchase) who shall then forward the same to the Registrar, subject to acceptance thereof by the Issuer and the Joint Lead Managers and Underwriters and Participating Underwriters as being sufficient in form and substance: (i) certified true copy of the original tax exemption certificate, ruling or opinion issued by the BIR confir ming the exemption or preferential rate; (ii) with respect to tax treaty relief, proofs to support applicability of reduced tax rates, such as the consularized proof of tax domicile issued by the relevant tax authority of the applicant, and original or certified true copy of the SEC confirmation that the relevant entity is not doing business in the Philippines; (iii) a duly notarized undertaking declaring and warranting the applicants tax -exempt status or preferential tax rate entitlement and undertaking to immediately notify the Issuer of any suspension or revocation of the tax exemption certificates and treaty privileges, and agreeing to indemnify and hold the Issuer, the Registrar and the Paying Agent free and harmless against all claims, actions, suits, and liabilities resulting from the nonwithholding or incorrect withholding of the required tax; and (iv) such other documentary requirements as may be required under the applicable regulations of the relevant taxing or other authorities. Copies of the completed Applications to Purchase together with the supporting documents must be received by the Registrar from the relevant Joint Lead Manager and Underwriter and Participating Underwriter on such date/s as may be designated in the Issue Management and Underwriting Agreement. The corresponding payments received by each Joint Lead Manager and Underwriter and Participating Underwriter net of any refunds for a rejected or scaled down Application to Purchase must be deposited or be remitted not later than 11:00 a.m. of the Issue Date via RTGS to a depository account designated by the Issuer. The Joint Lead Managers and Underwriters and the Participating Underwriters shall prepare a sales report of Applications to Purchase that each has approved, in the form required by the Registrar (the Sales Report). The Sales Report by each of the Joint Lead Managers and Underwriters and the Participating Underwriters shall be submitted to the Registrar no later than [5:00 p.m., three Business Days immediately preceding the Issue Date, together with such other documents as may be required by the Registrar under the Registry and Paying Agency Agreement to enable the Registrar to issue and prepare the Register of Bondholders and the relevant Securities Receipt Confirmations. The actual number of Bonds that an applicant will be allowed to purchase is subject to the confirmation of the Joint Lead Managers and Underwriters. All Applications to Purchase shall be subject to the final approval of the Issuer and the Joint Lead Managers and Underwriters. The Issuer reserves the right to accept or reject in full or in part any Application to Purchase due to any of the grounds specified in the Issue Management and Underwriting Agreement. Moreover, any payment received upon submission of an Application to Purchase does not mean approval or acceptance by the Issuer or the Joint Lead Managers and Underwriters and the Participating Underwriters of the Application to Purchase. An Application to Purchase, once accepted, shall constitute the duly executed purchase agreement covering the amount of the Bonds so accepted and shall be valid and binding on the Issuer and the applicant. Once accepted, an Application to Purchase may not be unilaterally revoked or canceled by the applicant, in full or in part, and the rights and privileges pertaining thereto shall be non-transferrable. MI.IMUM PURCHASE A minimum purchase of P50,000.00 shall be considered for acceptance. Purchases in excess of the minimum shall be in multiples of P10,000.00.

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REFU.DS In the event an Application to Purchase is rejected or the amount of Bonds applied for is scaled down, the relevant Joint Lead Manager and Underwriter and Participating Underwriter, upon receipt of the Allocation Report, shall notify the applicant concerned that his application has been rejected or that the amount of Bonds applied for is scaled down. Payments made by the applicants whose Applications to Purchase are rejected or scaled down will be returned to them no later than three Business Days after the Issue Date by the relevant Joint Lead Manager and Underwriter and Participating Underwriter to whom the Application to Purchase was submitted, in full (in case of a rejection) or in a proportionate sum corresponding to the amount of the Bonds partially rejected (in case of a scale down), but in both instances without any interest whatsoever. Refund shal l be made either (i) through the issuance of a check payable to the order of the applicant and crossed Payees Account Only and mailed or delivered, at the risk of the applicant, to the address specified in the Application to Purchase; or (ii) through the issuance of instructions for automatic credit payments to the accounts of the relevant applicants, as indicated in their respective Applications to Purchase The Issuer and the Joint Issue Managers shall not be liable in any manner to the applicant for any refund corresponding to any rejected or scaled-down Application to Purchase which is not transmitted by the relevant Joint Lead Manager and Underwriter and Participating Underwriter. In such case, the relevant Joint Lead Manager and Underwriter and Participating Underwriter shall be responsible directly to their respective applicants for the actual refund of the payment. REGISTER OF BO.DHOLDERS The Bonds shall be issued in scripless form and will be eligible for trading under the scripless book-entry system of PDTC. Master Bond Certificates representing the Bonds sold during the Offer Period shall be issued to and registered in the name of the Trustee, on behalf of the Bondholders. Legal title to the Bonds shall be shown in the Register of Bondholders to be maintained by the Registrar. Initial placement of the Bonds and subsequent transfers of interests in the Bonds shall be subject to applicable Philippine selling restrictions prevailing from time to time. The Issuer will cause the Register of Bondholders to be kept at the specified office of the Registrar. The names and addresses of the Bondholders and the particulars of the Bonds held by them and of all transfers of Bonds shall be entered into the Register of Bondholders. EXPE.SES All reasonable and documented out-of-pocket expenses, including but not limited to, registration with the SEC, credit rating, printing, publicity, communication and signing expenses incurred by the Joint Lead Managers and Underwriters in connection with the Offer will be for the Issuers account irrespective of whether the Offer is completed. Such expenses are to be reimbursed upon presentation of a composite statement of account. SECO.DARY TRADI.G The Issuer intends to list the Bonds in PDEx for secondary market trading. The Bonds will be traded in a minimum board lot size of P10,000.00 as a minimum, and in multiples of P10,000.00 in excess thereof for so long as any of the Bonds are listed on PDEx. Secondary market trading in PDEx shall follow the applicable PDEx rules and conventions, which include, among others, rules and conventions on trading and settlement. Upon listing of the Bonds with PDEx, investors shall course their secondary market trades through PDEx brokering participants for execution in the PDEx Public Market Trading Platform in accordance with PDEx Trading Rules, Conventions and Guidelines, and shall settle such trades on a Delivery versus Payment basis in accordance with PDEx Settlement Rules and Guidelines. The PDEx rules and conventions are available in the PDEx website (www.pdex.com.ph).

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DESCRIPTIO. OF TERMS A.D CO.DITIO.S OF THE BO.DS The following does not purport to be a complete listing of all the rights, obligations, or privileges of the Bonds. Some rights, obligations, or privileges may be further limited or restricted by other documents. Prospective investors are enjoined to carefully review the articles of incorporation, by-laws and resolutions of the Board of Directors of the Company submitted to the SEC, the information contained in this prospectus, the Trust Agreement, Registry and Paying Agency Agreement, Issue Management and Underwriting Agreement, and other documents relevant to the Offer. The issue of the Bonds was authorized by a resolution of the Board of Directors of the Issuer passed on January 30, 2009. The Bonds shall be governed by a Trust Agreement (the Trust Agreement) executed on March 16, 2009 between the Issuer and The Hongkong and Shanghai Banking Corporation Limited (the Trustee which expression shall wherever the context permits, include all other persons or companies for the time being acting as Trustee or Trustees under the Trust Agreement). The description of the terms and conditions of the Bonds set out below includes summaries of, and is subject to, the detailed provisions of the Trust Agreement. A registry and paying agency agreement (the Registry and Paying Agency Agreement) was executed on March 16, 2009 between the Issuer and the Philippine Depository and Trust Corp. as registrar (the Registrar) and as paying agent (the Paying Agent). The Bonds will be offered and sold through a general public offering in the Philippines, and issued in minimum principal amounts of P50,000.00, and multiples of P10,000.00 in excess thereof, and traded in amounts of P10,000.00 as a minimum, and in multiples of P10,000.00 in excess thereof. Series A, Series B and Series C Bonds will mature on April 3, 2012, April 4, 2012 and April 3, 2019, respectively, unless earlier redeemed by the Issuer pursuant to the terms thereof and subject to the provisions on redemption and payment as summarized below. Copies of the Trust Agreement and the Registry and Paying Agency Agreement will be available for inspection during normal business hours at the specified offices of the Trustee. The Bondholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Agreement and the Registry and Paying Agency Agreement applicable to them. FORM, DE.OMI.ATIO. A.D TITLE Form and Denomination The Bonds are in scripless form, and will be issued in denominations of P50,000.00 each, as a minimum, and in multiples of P10,000.00 in excess thereof. Title Legal title to the Bonds will be shown in the register of Bondholders (the Register of Bondholders) maintained by the Registrar. A notice confirming the principal amount of the Bonds purchased by each applicant in the Offer will be issued by the Registrar to all Bondholders following the Issue Date. BO.D RATI.G The Bonds have been rated PRS Aaa by PhilRatings. The rating is subject to regular annual review, or more frequently as market developments may dictate, for as long as the Bonds are outstanding. TRA.SFER OF BO.DS Register of Bondholders The Issuer will cause the Register of Bondholders to be kept by the Registrar, in electronic form. The names and addresses of the Bondholders and the particulars of the Bonds held by them and of all transfers of Bonds shall be entered into the Register of Bondholders. As required by Circular No. 428-04 issued by the BSP, the Registrar shall send each Bondholder a written statement of registry holdings at least every quarter (at the cost of the Issuer) and a written advice confirming every receipt or transfer of the Bonds that is effected in the Registrars system (at the cost of the relevant Bondholder). Such statement of registry holdings shall serve as the confirmation of ownership of the relevant Bondholder as of the date thereof. Any requests o f Bondholders

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for certifications, reports or other documents from the Registrar, except as provided herein, shall be for the account of the requesting Bondholder. Transfers; Tax Status The Bonds may be transferred upon exchange of confirmation of sale and confirmation of purchase, or by book entry in recording platforms maintained by approved securities dealers. The Registrar shall ultimately and conclusively determine all matters regarding the evidence necessary to effect any such transfer. Settlement in respect of such transfer or change of title to the Bonds, including the settlement of any documentary stamps taxes, if any, arising from subsequent transfers, shall be settled directly between the transferee and/or the transferor Bondholders. Subject to the provisions of the Registry and Paying Agency Agreement, Bondholders may transfer their Bonds at anytime, regardless of tax status of the transferor vis--vis the transferee. Should a transfer between Bondholders of different tax status occur on a day, which is not an Interest Payment Date, tax-exempt entities trading with non tax-exempt entities shall be treated as non tax-exempt entities for the interest period within which such transfer occurred. A Bondholder claiming tax-exempt status is required to submit a written notification of the sale or purchase to the Trustee and the Registrar, including the tax status of the transferor or transferee, as appropriate, together with the supporting documents specified under the Registry and Paying Agency Agreement within three days from the settlement date for such transfer. RA.KI.G The Bonds constitute direct, unconditional, unsecured and unsubordinated obligations of the Issuer and will rank pari passu and ratably without any preference or priority amongst themselves and at least pari passu with all other present and future, contingent or otherwise, unsecured and unsubordinated obligations of the Issuer, except for any statutory preference or priority established by law. I.TEREST Interest Payment Dates Each Series A Bond bears interest on its principal amount from and including Issue Date at the rate of 8.250% per annum, payable semi-annually in arrears on October 3 and April 3 in each year (each of which, for purposes of this clause is an Interest Payment Date) commencing on October 3, 2009 or the subsequent Business Day without adjustment if such Interest Payment Date is not a Business Day. Each Series B Bond bears interest on its principal amount from and including Issue Date at the rate of 8.875% per annum, payable semi-annually in arrears on October 3 and April 3 in each year (each of which, for purposes of this clause is an Interest Payment Date) commencing on October 4, 2009 or the subsequent Business Day without adjustment if such Interest Payment Date is not a Business Day. Each Series C Bond bears interest on its principal amount from and including Issue Date at the rate of 10.500% per annum, payable semi-annually in arrears on October 3 and April 3 in each year (each of which, for purposes of this clause is an Interest Payment Date) commencing on October 3, 2009 or the subsequent Business Day without adjustment if such Interest Payment Date is not a Business Day. The last Interest Payment Date shall fall on the relevant Maturity Date. Interest Accrual Each Bond will cease to bear interest on the Maturity Date, as defined in the Final Redemption below, unless, upon due presentation, payment of the full amount due is improperly withheld or refused or default is otherwise made in respect of such payment, in which case, the Penalty Interest (see Penalty Interest), below, will apply. Determination of Rate of Interest The interest shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed on the basis of a month of 30 days. 43

REDEMPTIO. A.D PURCHASE Final Redemption Unless previously redeemed, purchased and cancelled, the Series A Bonds, Series B Bonds and Series C Bonds will be redeemed at par or 100.00% of their face value on April 3, 2012, April 4, 2014 and April 3, 2019, respectively (the Maturity Date). However, payment of all amounts due on such dates may be made by the Issuer through the Paying Agent, without adjustment, on the succeeding Business Day if the relevant Maturity Date is not a Business Day. The Issuer may purchase the Bonds (and the Bondholders shall not be obliged to sell) at any time in the open market or by tender or by contract at any price without any obligation to make pro-rata purchases from all Bondholders. All Bonds so purchased or redeemed will be cancelled by the Issuer and may not be re-issued or re-sold. Early Redemption due to Taxation, Change in Law or Circumstance If payments under the Bonds become subject to additional or increased taxes other than the taxes prevailing on the Issue Date as a result of certain Changes in Law, and such additional or increased rate of such tax cannot be avoided by use of reasonable measures available to the Issuer, then the Issuer may redeem the Bonds in whole, but not in part, on any Interest Payment Date (having given not more than sixty (60 days) nor less than thirty (30) days notice to the Trustee) at par plus accrued interest. In the event that there shall hereafter occur any Change in Law, or any approval, permit, license, consent, authorization, registration, exemption, or any other right to be granted or granted by the Government to the Issuer now or hereafter necessary for the conduct of the Issuers business or operations is not obtained, or is subsequently terminated, withdrawn, rescinded, or amended, and the result of any of the foregoing, as determined by the Issuer, will materially and adversely affect the ability of the Issuer to comply with its obligations under the Bonds or the Trust Agreement or the Issuers financial position or operations, then the Issuer shall redeem the Bonds at any time in whole, but not in part, (having given not more than sixty (60 days) nor less than thirty (30) days notice to the Trustee from the time of the occurrence of the event) at par plus accrued interest. If any provision of the Issue Management and Underwriting Agreement, Trust Agreement, or the Registry and Paying Agency Agreement shall become, for any reason, invalid, illegal or unenforceable, or any act or condition or thing required to be done, fulfilled or performed at any time by the Issuer is not done, fulfilled or performed, to the extent that it will become unlawful for the Issuer to give effect to its rights and obligations under the Trust Agreement or the Bonds or to enforce the provisions of the Trust Agreement or the Bonds in whole or in part, then the Issuer shall redeem the Bonds at any time in whole, but not in part, (having given not more than sixty (60 days) nor less than thirty (30) days notice to the Trustee from the time of illegality) at par plus accrued interest. Payments The principal of, interest on, and all other amounts payable on the Bonds shall be paid to the Bondholders through the Paying Agent by crediting the proper amounts via RTGS, net of final taxes and fees (if any), to the Philippine Peso cash account maintained and designated by or on behalf of the Bondholder in his/her Application to Purchase. The principal of, and interest on, the Bonds shall be payable in Philippine Pesos. The Issuer shall ensure that so long as any of the Bonds remain outstanding, there shall at all times be a Paying Agent for purpose of disbursing payments on the Bonds. Taxation Interest income on the Bonds and the prepayment penalty are subject to a final withholding tax at rates of between 20% and 30% depending on the tax status of the relevant Bondholder under relevant law, regulation or tax treaty. Except for such final withholding tax and as otherwise provided, all payments of principal and interest are to be made free and clear of any deductions or withholding for or on account of any present or future taxes or duties imposed by or on behalf of the Republic of the Philippines, including but not limited to, issue, registration or any similar tax or other taxes and duties, including interest and penalties, if any. 44

Documentary stamp tax for the primary issue of the Bonds and the execution of the Bond Agreements, if any, shall be for the Issuers account. FI.A.CIAL COVE.A.TS So long as any of the Bonds remain outstanding, the Issuer undertakes to maintain and to observe the following financial ratios: 1. 2. Minimum current ratio of 1:1; and Maximum debt to equity ratio of 3.5:1.

For purposes hereof, current ratio shall mean the Issuers current assets divided by current liabilities and debt to equity ratio shall mean the Issuers total indebtedness for borrowed money divided by its total stockholders equity. .EGATIVE COVE.A.TS The Issuer covenants and agrees that the Issuer shall not, among others: (a) create, assume, incur, permit or suffer to exist, any indebtedness to: (i) be secured by or to benefit from any liens, encumbrances, restrictions, pledges, mortgages, security interest, charges or preferential arrangements of any kind (collectively the Liens) in favor of any creditor or class of creditors with respect to any present or future property of the Issuer or the right of the Issuer to receive income, unless the Bonds are secured by such Lien equally and ratably with such other indebtedness or (ii) receive any priority or preference over the claims of the Bondholders (which claims shall at all times rank pari passu in all respects with all other direct, unconditional, unsecured, and unsubordinated obligations of the Issuer other than those obligations preferred by mandatory provisions of law); provided, that for purposes of the foregoing, the terms Lien, priority or preference shall not include the Permitted Liens (as this term is defined in the Trust Agreement). (b) engage in any business except that authorized by its articles of incorporation. (c) sell, transfer, convey, lend or otherwise dispose of all or substantially all of its assets. (d) voluntarily suspend all or substantially all of its business operations. (e) amend its Articles of Incorporation or By-laws, if such amendments have the effect of changing the general character of its business from that being carried on at the signing date of the Trust Agreement.

GOVER.I.G LAW The Bonds and the Trust Agreement are governed by and are construed in accordance with Philippine law. DEFAULT Events of Default The Issuer shall be considered in default under the Bonds in case any of the following events (each an Event of Default) shall occur: (a) +on-payment. The Issuer fails to pay any interest or principal on any of the Bonds when due and payable. (b) Insolvency Default. The Issuer (i) is adjudged by a final order of a competent court to be insolvent or bankrupt or unable to pay its debts, (ii) stops, suspends or threatens to stop or suspend payment of all or a material part of its debts, (iii) proposes or makes any agreement for the deferral, rescheduling or other readjustment of all of its debts, or (iv) proposes or makes a general assignment or an arrangement or composition with or for the benefit of the relevant creditors in respect of any of such debts. In addition, if a moratorium is agreed or declared in respect of or affecting all or any material part of the

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debts of the Issuer, such agreement or declaration shall also constitute an Event of Default under this item (b). (c) Cross default. The Issuer defaults in the repayment of any amount of principal and premium (if any) or interest, or violates any term or condition, in respect of any contract or contracts executed by the Issuer with any bank, financial institution or other person, corporation or entity for the payment of borrowed money which constitutes an event of default, or with the giving of notice or the passage of time would constitute an event of default, under said contract; and which (i) if remediable, is not remedied by the Issuer within 30 days from such default, or is otherwise not contested by the Issuer, (ii) results in the acceleration or declaration of the whole financial obligation to be due and payable prior to the stated normal date of maturity, or (iii) will adversely and materially affect the performance by the Issuer of its obligations under the Bonds, provided, that no Event of Default shall occur under this paragraph unless the aggregate amount of the principal, premium and interest in respect of which the Issuer has defaulted or which has been declared to be due and payable prior to the stated normal date of maturity under such contract or contracts equals or exceeds P500,000,000.00. (d) Winding Up proceedings. The Issuer takes any corporate action or other steps are taken or legal proceedings are started by or against the Issuer for its winding up, bankruptcy, dissolution or reorganization (except in any such case for the purposes of a merger, consolidation, reorganization, reconstruction or amalgamation upon which the continuing corporation or the corporation formed thereby effectively assumes the entire obligations of the Issuer under the Bonds and the terms of which have previously been approved by Bondholders representing at least two-thirds of the Bonds then outstanding) or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of all or substantially all of its revenues and assets, provided that for winding-up proceedings instituted against the Issuer, an Event of Default may be declared only upon issuance of a final order of a court of competent authority. (e) Representation/Warranty Default. Any representation and warranty of the Issuer or any certificate or opinion issued by the Issuer in connection with the issuance of the Bonds is untrue, incorrect, or misleading in any material respect as and when made and with reference to the facts and circumstances then existing, as the circumstances which caused such representation or warranty to be untrue, incorrect or misleading continue for not less than 15 days (or such longer period as the Majority Bondholders shall approve). (f) Covenant Default. The Issuer fails to perform or violates its covenants under the Trust Agreement, and such failure or violation is not remediable or, if remediable, continues to be unremedied for a period of 30 days from notice by the Trustee to the Issuer. For the avoidance of doubt, any violation by the Issuer of its negative covenants set out above shall be deemed irremediable. (g) Breach of Obligations Default . The Issuer does not perform or comply with any one or more of its obligations in the Bonds and in the Trust Agreement and such default or non-compliance is incapable of remedy or is not remedied within 30 days after notice of such default shall have been given to the Issuer at its specified office by any Bondholder or the Trustee. (h) Expropriation Default . An order of the Government is issued to suspend the whole or a substantial portion of the operations of the Issuer or to condemn, seize, nationalize or expropriate (with or without compensation) the Issuer or any substantial portion of its properties or assets. (i) Judgment Default. Any final and executory judgment, decree, or arbitral award for the sum of money, damages, fine, or penalty is entered against the Issuer and the enforcement of which is not stayed, and is not paid, discharged, or duly bonded within 60 days after the date when payment of such judgment, decree, or award is due under the applicable law or agreement and such final judgment, decree or award shall have a material and adverse effect on the Issuers ability to perform its obligations under the Bonds. (j) Writ and Similar Process Default. Any writ, warrant of attachment or execution, or similar process shall be issued or levied against all or substantially all of the Issuer's assets, and such writ, warrant, or similar process shall not be released, vacated, or fully bonded within 60 days after its issue or levy.

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(k) Closure Default. The Issuer voluntarily suspends or ceases operations of a substantial portion of its business for a continuous period of 30 days, except in the case of strikes or lockouts when necessary to prevent business losses, or when due to fortuitous events or force majeure, and, provided that, in any such event, there is no material and adverse effect on the business operations or financial condition of the Issuer. (l) Validity Default. The validity of the Bonds or the Trust Agreement shall be contested by the Issuer. (m) Change of Control Default. The Issuer ceases to be at least 51% owned by its parent company, SMC. Consequences of Default If any one or more of the Events of Default shall occur and be continuing after the lapse of the period given to the Issuer within which to cure such Event of Default under the Trust Agreement, if any, or upon the occurrence of such Event of Default for which no cure period is provided, (i) the Trustee, upon the written direction of the Majority Bondholders, by notice in writing delivered to the Issuer, or (ii) the Majority Bondholders, by notice in writing delivered to the Issuer and the Trustee, or (iii) the Trustee, in its discretion, in case of a Non-Payment or Insolvency Default, may declare the Issuer in default and declare the principal of the Bonds then outstanding, together with all interest accrued and unpaid thereon and all amounts due thereunder, to be due and payable not later than five Business Days from the receipt of the declaration (Default Payment Date) with copy to the Paying Agent, who shall then prepare a payment report in accordance with the Registry and Paying Agency Agreement. Thereupon, the Issuer shall pay in accordance with the Registry and Paying Agency Agreement. Notwithstanding the declaration of default, the Majority Bondholders, by written notice to the Issuer and to the Trustee, may rescind and annul such declaration made by the Trustee upon such terms, conditions and agreements, if any, as they may determine; provided, that, no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereto and shall not apply to the following Events of Default: Non-payment, Insolvency Default, Winding-up Proceedings, Expropriation Default and Closure Default. Any such rescission and annulment of declaration of default shall be conclusive and binding upon all the Bondholders and upon all future holders and owners of such Bonds, or of any Bond issued in lieu thereof or in exchange therefor. Penalty Interest In case any amount payable by the Issuer under the Bonds, whether for principal, interest, or otherwise, is not paid on due date, the Issuer shall, without prejudice to its obligations to pay the said principal, interest and other amounts, pay penalty fee on the defaulted amount(s) at the rate of 1.00% per month (the Penalty Interest) from the time the amount fell due until it is fully paid. Payment in the Event of Default Upon a declaration of default and acceleration of payment of the Bonds by the Majority Bondholders pursuant to the terms of the Trust Agreement, the Issuer shall pay to the Paying Agent for the benefit of the Bondholders the whole amount which shall then have become due and payable on such outstanding Bonds with interest at the rate borne by the Bonds on the overdue principal and with Penalty Interest, where applicable. Application of Payments Subject to the provisions of the Trust Agreement or the Registry and Paying Agency Agreement, any money collected by the Trustee from the Issuer upon a declaration of default and any other funds held by it shall be applied by the Trustee in the order of preference as follows: (a) To the pro-rata payment to the Trustee, the Registrar and the Paying Agent of the reasonable and documented costs, expenses, fees, and other charges of collection, including reasonable compensation to them, their agents, attorneys, and all reasonable and documented expenses and liabilities incurred or disbursements made by them, without negligence or bad faith in carrying out their respective obligations under their respective agreements with the Issuer in connection with the Bonds.

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(b)

To the payment of all outstanding interest, including any Penalty Interest, in the order of maturity of such interest. To the payment of the principal amount of the Bonds then due and payable. The remainder, if any, shall be paid to the Issuer, its successors, or assigns, or to whoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct.

(c) (d)

Prescription Claims in respect of principal and interest or other sums payable under the Bonds will prescribe unless made within ten (10) years (in the case of principal or other sums) or five (5) years (in the case of interest) from the date on which the payment becomes due. Remedies All remedies conferred by the Trust Agreement upon the Trustee and the Bondholders shall be cumulative and not exclusive and shall not be so construed as to deprive the Bondholders of any legal remedy by judicial or extra judicial proceedings appropriate to enforce such direct rights under the Trust Agreement. No delay or omission by the Trustee or the Bondholders, or any one of them, to exercise any right or power arising from or on account of any default shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence thereto; and every power and remedy provided under the Trust Agreement to the Trustee and Bondholders may be exercised from time to time and as often as may be necessary or expedient. Waiver The Majority Bondholders may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee, or the Majority Bondholders may decide for and in behalf of the Bondholders, upon the written request of the Issuer, to waive the application of the Events of Default and its consequences except for Non-payment, Insolvency Default, Winding-Up Proceedings, Expropriation Default and Closure Default, which Events of Default cannot be waived by the Bondholders. No such waiver shall extend to any subsequent or other default or impair any right consequent thereto. Any such waiver by the Majority Bondholders shall be conclusive and binding upon all the Bondholders and upon all future holders and owners thereof. Ability to File Suit No Bondholder shall have any right by virtue or by availing of any provision of the Trust Agreement to institute any suit, action or proceeding for the collection of any sum due from the Issuer on account of principal or interest, or for the appointment of a receiver or Trustee, or for any other remedy hereunder, unless (i) such holder shall previously have given to the Trustee a written notice of default and of the continuance thereof and the related request for the Trustee to convene a meeting of the Bondholders to take up matters related to their rights and interests under the Bonds, or (ii) the Majority Bondholders shall have decided and made a written request upon the Trustee to institute such suit, action or proceeding in its own name, or (iii) the Trustee for sixty (60) days after receipt of such notice and request shall have neglected or refused to institute any such suit, action or proceeding, and (iv) no directions inconsistent with such written request or rescission and annulment of a declaration default by the Bondholders has been made. No one or more Bondholder shall have any right in any manner whatsoever by virtue of or by a vailing of any provision of the Trust Agreement to affect, disturb or prejudice the rights of the holders of any other such Bonds or to obtain or seek to obtain priority over or preference to any other such holder or to enforce any right under the Trust Agreement, except in the manner provided under the Trust Agreement and for the equal, ratable and common benefit of all Bondholders.

48

TRUSTEE Appointment of Trustee The Issuer has appointed HSBC as Trustee for and on behalf and benefit of the Bondholders, in connection with the distribution and sale by the Issuer of the Bonds. Duties and Responsibilities of the Trustee The Trustee shall be responsible for performing, among others, the following duties for the benefit of the Bondholders: (a) (b) Monitor compliance by the Issuer with its obligations under the Trust Agreement; Report regularly to Bondholders any non-compliance by the Issuer with the Trust Agreement and any developments with respect to the Issuer that adversely affect the interest of the Bondholders and advise the Bondholders of the course of action that they may take to protect their interest; and Act on behalf of the Bondholders including calling for and/or attending meetings of the Bondholders.

(c)

Resignation and Change of Trustee The Trustee may resign at any time by giving the Issuer at least 60 calendar days prior written notice to that effect. Upon receipt of such notice of resignation, the Issuer shall immediately appoint a replacement trustee (the Replacement Trustee) by written instrument in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the Replacement Trustee. If no Replacement Trustee shall have been so appointed and have accepted appointment within thirty (30) days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a Replacement Trustee. The Issuer may, subject to the occurrence of certain events as specified in the Registry and Paying Agency Agreement, within thirty (30) days therefrom, remove the Trustee and appoint a Replacement Trustee, by written instrument in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the Replacement Trustee. If the Issuer fails to remove the Trustee and appoint a Replacement Trustee, any Bondholder may, on behalf of himself and all other Bondholders, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a Replacement Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a Replacement Trustee. The Majority Bondholders may at any time remove for cause the Trustee and with the consent of the Issuer, appoint a Replacement Trustee in accordance with the terms of the Registry and Paying Agency Agreement, without prejudice to whatever remedies may be available to the Majority Bondholders under the law or in equity. Replacement Trustee The Replacement Trustee shall execute, acknowledge and deliver to the Issuer and to the Outgoing Trustee an instrument accepting his/her appointment, and thereupon the resignation or removal of the Outgoing Trus tee shall become effective and the Replacement Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, duties and obligations of its predecessor under the Trust Agreement. Upon acceptance of appointment by the Replacement Trustee, the Issuer shall notify the Bondholders in writing and/or by publication in a newspaper of general circulation in Metro Manila, Philippines of the succession of such Replacement Trustee to the duties of the Outgoing Trustee. If the Issuer fails to notify the Bondholders within ten (10) days after acceptance of appointment by the Replacement Trustee, the latter shall cause the Bondholders to be so notified at the expense of the Issuer.

49

MEETI.G OF BO.DHOLDERS The Trustee may at any time call a meeting of the Bondholders, on its own accord or upon the written request by the Issuer or Majority Bondholders, for purposes of taking any actions authorized under the Trust Agreement. ,otice of Meetings Notice of every meeting of the Bondholders, setting forth the time, place, and purpose of such meeting in reasonable detail, shall be sent by the Trustee to the Issuer and to each of the registered Bondholders not less than fourteen (14) days prior to the date fixed for the meeting and shall likewise be published in a newspaper of general circulation in the Philippines prior to the date stated in the notice for the date of the meeting; provided, that any meetings of the Bondholders shall be held at such time and place within Metro Manila as the party requesting such meeting may determine. Failure to Call a Meeting The failure of the Trustee to call a meeting upon the written request of either the Issuer or the Majority Bondholders within three (3) days from such request shall entitle the requesting party to send the appropriate notice of Bondholders meeting and the costs therefor shall be charged to the account of the Trustee. Quorum for Meetings The presence of Bondholders holding 51% of the outstanding Bonds, personally or by proxy, shall be necessary to constitute a quorum to do business at any meeting of the Bondholders. Procedure for Meetings The Trustee shall preside at all the meetings of the Bondholders, unless the meeting shall have been called by the Issuer or by the Bondholders, in which case the Issuer or the Bondholders calling the meeting, as the case may be, shall move for the election of the chairman and secretary of the meeting. Any meeting of the Bondholders may be adjourned from time to time for a period not to exceed in the aggregate one year from the date for which the meeting shall originally have been called, and the meeting as so adjourned may be held without further notice. Any such adjournment may be ordered by persons representing a majority of the aggregate principal amount of the Bonds represented at the meeting and entitled to vote, whether or not a quorum shall be present at the meeting. Voting Rights To be entitled to vote at any meeting of the Bondholders, a person should be a registered holder of the Bonds as reflected in the Register of Bondholders or a person appointed by a public instrument in writing as proxy or agent by any such Bondholder (and, in case of corporate or institutional Bondholders, duly supported by the resolutions of its board of directors or equivalent body authorizing the appointment of the proxy or agent duly certified by its corporate secretary or an authorized officer) as of the date of the meeting. For avoidance of doubt, P1.00 is equal to one (1) vote. Voting Requirements All matters presented for resolution by the Bondholders in a meeting duly called for the purpose shall be decided or approved by the affirmative vote of the Bondholders holding 51% of the outstanding Bonds present or represented in a meeting at which there is a quorum, except as otherwise provided in the Trust Agreement. Any resolution of the Bondholders which has been duly approved with the required number of votes of the Bondholders shall be binding upon all the Bondholders and the Trustee. Action of the Bondholders In cases where, pursuant to the Trust Agreement, the holders of a specified percentage of the aggregate outstanding principal amount of Bonds are allowed to take any action (including the making of any demand or request, the giving of any notice or consent, or the taking of any other action), the fact that at the time of taking 50

any such action the Bondholders of such specified percentage have joined such action may be evidenced by: (i) any instrument executed by the Bondholders in person or by the agent or proxy appointed in writing; (ii) the duly authenticated record of voting in favor thereof at the meeting of the Bondholders duly called and held in accordance with the Trust Agreement; or (iii) a combination of such instruments and any such record of meeting of the Bondholders. ,on-Reliance Each Bondholder represents and warrants to the Trustee and to the Issuer that it has independently and, without reliance on the Trustee or the Issuer, made its own credit investigation and appraisal of the financial position and affairs of the Issuer on the basis of such documents and information it has deemed appropriate and that it has subscribed to the Bonds on the basis of such independent appraisal, and that it shall continue to make its own credit appraisal without reliance on the Trustee or the Issuer.

51

CAPITALIZATIO. A.D I.DEBTED.ESS The following table sets forth in accordance with PFRS, on an actual and pro forma consolidated basis the Companys capitalization and indebtedness as of December 31, 2008. The figures for the examined pro forma consolidated financial statements represent audited actual amounts adjusted to reflect the impact of this Offer and the Proposed Acquisitions. The examined pro forma consolidated financial statements assume that this Offer and the Proposed Acquisitions were completed as of January 1, 2008. The information in this table should be read in conjunction with Selected Financial Information, Managements Discussion and Analysis of Financial Position and Financial Performance, and the Companys financial statements and the notes thereto included in this prospectus.
As of December 31, 2008 Pro Forma for the Pro forma Actual Adjustment (in P millions) Proposed Acquisition

Cash and Cash Equivalents (1) Short-term Debt Long-term Debt Equity: Common Shares - P 1.00 par value Authorized - 25,000,000,000 shares Issued and Paid-up - 15,410,478,960 shares Additional Paid-in Capital Cumulative translation adjustments Retained Earnings Minority Interest Total Equity Total Capitalization ______________
+ote:

6,041 -

386 38,447

6,427 38,447

15,410 515 (45) 3,130 19,010 19,010

1,670 242 1,912 40,359

15,410 515 (45) 4,800 242 20,922 59,369

(1) Cash equivalents include temporary cash investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value.

52

SELECTED FI.A.CIAL I.FORMATIO. The following tables present summary financial information for the Company and should be read in conjunction with the report of independent auditors, Companys audited historical financial statements and examined pro forma consolidated financial statements and notes thereto contained in this prospectus and the section entitled Managements Discussion and Analysis of Financial Position and Financial Performance. The information below is not indicative of the results of future operations.
Examined Pro Forma Consolidated Financial Statements For the Year Ended Audited Financial Statements For the Period from

For the Year Ended July 26, 2007 to December 31, 2008 December 31, 2008 December 31, 2007 P P P (in millions, except per share figures or where otherwise indicated)

Statement of Income Data Net Sales Cost of Sales Gross Profit Administrative and selling expenses Operating Income Interest Income Interest Expense Other Income (Charges) Income Before Tax Income Tax Expense Net Income Earnings per share - basic (1) Number of shares outstanding Balance Sheet Data Cash and cash equivalents Trade and other receivables - net Inventories -net Other current assets Total current assets Property, plant and equipment (net of accumulated depreciation and amortization) Intangible assets Other noncurrent assets -net Total noncurrent assets Total assets Accounts payable and accrued expenses Income and other taxes payable Total current liabilities Long-term debt (net of debt issue cost) Other noncurrent liabilities Total noncurrent liabilities Total liabilities 53

48,787 (24,800) 23,987 (7,288) 16,699 264 (3,484) (377) 13,102 (4,303) 8,799 0.57 15,410

48,787 (24,800) 23,987 (8,366) 15,621 264 (377) 15,508 (5,466) 10,042 0.65 15,410

12,180 (6,333) 5,847 (2,349) 3,498 36 15 3,549 (1,239) 2,310 0.15 15,333

6,427 3,662 3,279 379 13,747

6,041 3,661 3,279 418 13,399

5,262 3,676 2,447 180 11,565

12,932 32,011 5,206 50,149 63,896 3,000 1,518 4,518 38,447 9 38,456 42,974

5,864 11 5,360 11,235 24,634 3,000 2,585 5,585 39 39 5,624

5,616 3 5,424 11,043 22,608 3,243 1,710 4,953 12 12 4,965

Examined Pro Forma Consolidated Financial Statements For the Year Ended

Audited Financial Statements For the Period from

For the Year Ended July 26, 2007 to December 31, 2008 December 31, 2008 December 31, 2007 P P P (in millions, except per share figures or where otherwise indicated)

Capital Stock Additional paid-in capital Cumulative translation adjustments Retained Earnings Minority Interest Total equity Total liabilities and equity Cash Flow Data Net cash provided by (used for): Operating activities Investing activities Financing activities Net increase in cash Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period Other Financial and Operating data EBITDA (2) EBIT (2) Capital Expenditure Depreciation and amortization Gross profit margin EBITDA margin EBIT margin Volume (Equivalent Cases) Volume (Hectoliters) Average selling price/case (in pesos) Average selling price/Hectoliter (in pesos) ______________
+otes:

15,410 515 (45) 4,800 242 20,922 63,896

15,410 515 (45) 3,130 19,010 24,634

15,333 2,310 17,643 22,608

8,961 (40,674) 32,878 1,165 5,262 6,427

11,027 (1,645) (8,603) 779 5,262 P6,041

5,831 (610) 41 5,262 P5,262

18,457 16,699 829 1,758 49.2% 37.8% 34.2% 174.48 13.40 278.88 3,632

17,379 15,621 829 1,758 49.2% 35.6% 32.0% 174.48 13.40 278.88 3,632

3,913 3,498 362 415 48.0% 32.1% 28.7% 46.70 3.59 260.11 3,389

(1) Computed as net income divided by the weighted average number of Common Shares issued and outstanding each period. (2) EBITDA and EBIT are measures used by the Companys management to internally evaluate the performance of its business. EBITDA is calculated as operating income plus depreciation, amortization and impairment losses and EBIT is calculated as operating income. Neither EBITDA nor EBIT is a measure determined in accordance with PFRS or IFRS, and should not be considered as an alternative to net income as a measure of operating performance or to cash flow as a measure of liquidity. The items of net income excluded from EBITDA are significant components in understanding and assessing the Companys financial performance. Neither EBITDA nor EBIT is intended to be a measure of free cash flow for managements discretionary use, as it does not reflect certain cash requirements such as interest payments, tax payments and capital expenditures. The Companys calculation of EBITDA and EBIT may be different from the calculation used by other companies and, as a result, the Companys EBITDA and EBIT may not be comparable to other similarly titled measures of other companies.

54

MA.AGEME.TS DISCUSSIO. A.D A.ALYSIS OF FI.A.CIAL POSITIO. A.D FI.A.CIAL PERFORMA.CE Prospective investors should read the following discussion and analysis of the Companys financial position and financial performance together with (i) the report of independent auditors; (ii) the audited financial statements as of December 31, 2008 and 2007, for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007 and the notes thereto; (iii) the examined pro forma consolidated financial statements as of and for the year ended December 31, 2008 that assume the Proposed Acquisitions occurred as of January 1, 2008 and the notes thereto. OVERVIEW The Company is the largest producer of beer in the Philippines, with a total market share of approximately 94% in 2007, according to Canadean. The Company has five breweries strategically located across the Philippines and a highly developed distribution s ystem serving 478,757 retail outlets. The Companys beer brands include all of the top four beer brands in the country, namely San Miguel Pale Pilsen, Red Horse, San Mig Light and Gold Eagle. San Miguel Pale Pilsen, the Companys flagship brand, has a history of nearly 120 years. For years ended 2007 and 2008, the Companys net sales were P12,180 million, and P48,787 million, respectively, and net income was, P2,310 million and P10,042 million, respectively. FACTORS AFFECTI.G FI.A.CIAL PERFORMA.CE Demand and Pricing Increases in beer prices are driven by increases in raw material prices, excise tax increases, fuel prices and other costs of doing business. Unlike basic necessities, beer is a discretionary purchase. Since the majority of beer drinkers in the Philippines belong to the lower socio-economic classes, where discretionary income is limited, the beer market is highly price elastic. Consumers tend to cut back on their consumption when beer prices rise and they tend to increase their consumption when prices fall. In addition to beer pricing, demand for beer is also influenced by the relative price relationships between beer and other alcoholic beverages such as hard liquor, as well as the relationship between the prices of beer and nonalcoholic beverages, basic necessities and other goods and services in general. Drinkers are prone to adjust their buying choices according to shifts in the perceived value-for-money propositions of beer relative to other alcoholic beverages, non-alcoholic beverages and other consumer products and services. During periods of relatively weak economic growth, consumers tend to purchase more Economy beer brands, sales of which produce lower profit margins for the Company. In the last few years, consumers have been turning to high-alcohol beers, not only because of their affordability (most high-alcohol beers are relatively lowpriced), but also because they need to purchase fewer bottles of these beers to obtain the same amount of alcohol. The Philippines has historically been primarily an off-premise market, as consumers drink most of their beer at home, mainly because drinking at home is cheaper than in bars, restaurants and other on-premise outlets. The table below presents sales data by volume and average selling prices of the Company for the periods indicated.

For the Year ended December 31, 2008

For the Period from July 26, 2007 to December 31, 2007

Volume (Equivalent Cases, in millions) ................................ Volume (Hectoliters, in millions) .......................................... Average selling price/case (in pesos)..................................... Average selling price/hectoliter (in pesos) ............................

174.48 13.40 278.88 3,632

46.70 3.59 260.11 3,389

55

Changes in Consumer Tastes and Preferences Consumer preferences may change due to a number of factors, including changes in economic conditions and income levels, shifts in demographic and social trends, changes in lifestyle and leisure activity patterns, regulatory actions and negative publicity regarding alcohol consumption, and customer complaints against the alcoholic beverage industry or any company in the industry, any of which may affect consumers perception of beer and their willingness to purchase the Companys products. For example, the recent trend in the Philippines towards health consciousness is encouraging a shift away from beer drinking towards consumption of low-calorie beer, wine and non-alcoholic drinks. The rise of young professionals as a consumer class has led to increased popularity of mixed alcoholic drinks. Demographic changes in the Philippines have increased the number of potential consumers of the Companys products and have also resulted in younger drinkers who tend to be more informed, more adventurous and who live a different lifestyle than the older generation of consumers. However, these consumers, because of their greater exposure to media, other cultures and lifestyles, tend to be less loyal to any brand or any type of drink than the older generation. The future growth of the Company will depend on its ability to maintain the competitive positions of its products and brands by being able to proactively anticipate and react to changes in consumer tastes and preferences. Supply and Prices of Raw Materials The Company depends on raw materials sourced from third parties to produce its products. Beer production requires malted barley and hops, which are sourced primarily from the United States, Australia and Europe, and adjuncts, primarily corn and sugar, which are primarily sourced domestically. Raw materials are subject to price volatility caused by a number of factors, including changes in global supply and demand, weather conditions and governmental controls. The prices of these commodities to the Company are also affected by the Philippine pesos relative strength against other currencies, primarily the U.S. dollar. In recent years, the prices of certain raw materials, primarily malted barley, have been increasing. The current global focus on bio-ethanol fuels has and is expected to continue to contribute further to the recent trend for higher prices for malted barley and adjuncts, as farmers shift their production out of barley and into grains used to produce th ose fuels, decreasing available supply. The ability to obtain raw materials is also affected by a number of other factors beyond the Companys control, including interruptions in production by suppliers, decisions by suppliers to allocate raw materials to other purchasers and the availability and cost of transportation. Price increases for the Companys raw materials have driven up production costs and adversely affected the Companys operating margins, and this trend could continue. The Company has only limited hedges against commodity prices and, to the extent it does hedge, any such hedging activity may not work as planned. Price fluctuations have been mitigated to some extent by the Company through material substitution, which provides flexibility in using a combination of malted barley and adjuncts that reduces cost while maintaining high quality standards for the Companys beer products. New sources of materials such as malted barley and hops are also being developed to reduce reliance on traditional sources such as the United States, where the thrust towards biofuels, with its consequent upward impact on the prices of barley, continues to gain momentum. Supply and Prices of Packaging Materials Approximately 98% of the Companys beer sales are in returnable glass bottles. The Companys efficient returnable bottle system decreases its exposure to rising packaging costs driven by increases in fuel and aluminum prices, and therefore helps the Company to keep its products affordable. The durable nature of the returnable glass bottles results in an average usage of 60 cycles over a span of 10 years. When beer is sold in returnable bottles, the Company records an account receivable with respect to the deposit amount for the bottles, and this account is later paid by the return of the bottles. Under this deposit-driven system, the Company has achieved a high bottle retrieval rate of 95% on average during the last two years, and, as a result, bottle usage is maximized before bottles are replaced. New glass bottles are purchased only to support accelerating sales and to replace broken and scuffed bottles. The Company sources most of its packaging materials from SMYPC, a subsidiary of SMC, which manufactures, among other packaging products, new glass bottles, aluminum cans, crowns, plastic cases, and carton boxes. 56

Advertising and Promotions Advertising and promotions are important factors for consumer buying choices. Advertising affects consumer awareness of the brands used by the Company, which in turn, affects purchase decisions and therefore sales volumes. Product differentiation and brand loyalty are achieved through the marketing and image-building efforts of competing brands. The Company believes that consumer brand preferences are the cumulative result of exposure to the brands over an extended period of time, rather than of one specific advertisement. Competition The Company faces competition from another domestic producer, which sells both its own brand and foreign brands it produces under license, and from foreign brewers. The Company also competes with producers of other alcoholic beverages, primarily from low-priced gin and brandy. In the beer industry and more generally the alcoholic beverage industry competitive factors generally include price, product quality, brand awareness and loyalty, distribution coverage, and the ability to respond effectively to shifting consumer tastes and preferences. The Company also competes with other discretionary items, including both other food and beverage products and other goods and services generally. Taxes and Regulatory Environment The Companys operations are subject to various taxes. Excise tax accounts for a significant portion of the Companys production costs. The Government increased the excise tax rates applicable to beer products on January 1, 2005 by 20%, on January 1, 2007 by 8% and on January 1, 2009 by an additional 8%. The Government has announced that the excise tax rates applicable to beer will be raised by a further 8% effective January 1, 2011. See Business Overview Regulation and Taxation. In 2006, the Government increased the corporate income tax rate from 32% to 35% and the VAT rate from 10% to 12%. In general, the Company attempts to pass on higher taxes to its consumers by raising the prices of its products, although the timing and size of such price rises can be influenced by factors such as inflation and other economic conditions in the Philippines. Price changes the Company makes in reaction to changes in tax rates could affect the demand for the Companys products as well as the Companys profit margins, product pricing and net income. DESCRIPTIO. OF REVE.UE A.D COST ITEMS .et Sales The Company generates its net sales primarily from the production and sale of beer. The Companys net sales are net of VAT and discounts. The following table presents the Companys net sales for the periods indicated:

For the Year ended December 31, 2008

For the Period from July 26, 2007 to December 31, 2007 (in millions) P

Beer Sales Philippines .................................................................. Exports(1)..................................................................... Other Revenues(2) ........................................................... Total ............................................................................... _______
+otes: (1) (2)

48,310 366 111 48,787

12,052 100 28 12,180

The Companys top three export markets in 2008 were Taiwan, USA and South Korea; exports to these markets accounted for approximately 18%, 15% and 10%, respectively, of its total export revenues. Other Revenues include sales of CO2 and toll packing services for SMC subsidiaries.

57

Cost of Sales Cost of sales consists of: inventory costs, which are accounted for under the moving average cost method, include the cost of raw materials that the Company uses in the production of its products, including malted barley, adjuncts, hops and water;

taxes and licenses, including excise taxes and tariffs. Total taxes and licenses amounting to P14,523 million, primarily consists of P14,490 million excise tax, P31 million real property tax and P2 million other taxes and licenses;

depreciation and amortization costs, which relate primarily to the depreciation of production equipment, facilities and buildings; aluminum cans and secondary carton packaging; personnel expenses, which include salary and wages, employee benefits and retirement costs for employees involved in the production process; repairs and maintenance costs relating to production equipment, facilities and buildings; fuel and oil costs relating to the production process; communications, light and water expenses relating to the Companys production processes and facilities; and other costs of sales, which include miscellaneous expenses such as supplies, rental, insurance and freight expenses.

In 2007 and 2008, the Companys cost of sales was P6,333 million and P24,800 million, respectively. Operating Expenses The Companys operating expenses consist of selling expenses and administrative expenses. In 2007 and 2008, the Companys operating expenses were P2,349 million and P8,366 million, respectively. The Companys selling expenses consist primarily of: trade and consumer promotion expenses, which include the cost of event sponsorships, billboards, merchandising activities and other promotional activities; personnel expenses, including salary and wages, employee benefits and retirement costs for sales employees; freight, trucking and handling expenses in connection with the distribution of the Companys products; and depreciation expenses, which relate to the depreciation of sales-related facilities and equipment.

Selling expenses also consist of repairs and maintenance expenses for the Companys sales offices, communications, light and water expenses, rental expenses, supplies, taxes and licenses and professional fees. In 2007 and 2008, the Companys selling expenses were P765 million and P3,520 million, respectively. The Companys administrative expenses mainly consist of: land rental, shared service fees and royalties, all of which are paid to SMC;

58

personnel expenses, including salaries and wages, employee benefits and retirement costs for executive, administrative, finance and human resource personnel; depreciation, which relates primarily to the depreciation of office buildings, information technology equipment and other office equipment; breakages and loss, primarily those attributable to the Companys returnable beer bottles; repair and maintenance expenses relating to office buildings, information technology systems and other office equipment; professional fees of accountants and financial and legal advisors, as well as information technology systems, administration and project-related fees; certain of the Companys advertising and promotional expenses; and freight, trucking and handling expenses that are related to the Companys production processes or other internal requirements.

Administrative expenses also include supplies, rental expenses, communications, light and water expenses, and taxes and licenses. In 2007 and 2008, the Companys administrative expenses were P1,584 million and P4,846 million, respectively. CRITICAL ACCOU.TI.G POLICIES The Companys significant accounting policies are set out in note 3 of the Companys audited financial statements included elsewhere in this prospectus. The Company has identified the following accounting policies as critical to an understanding of its financial position and financial performance, as the application of these policies requires significant management assumptions and estimates that could result in the reporting of materially different amounts if different assumptions or estimates are used. Asset Impairment The carrying values of property, plant and equipment and other long-lived assets, including goodwill, intangible assets and investment properties, are reviewed periodically for impairment. Under PFRS, depending on the type of assets, the Company reviews for impairment annually and/or when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Determining the net recoverable value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. Changes in these estimates could materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the Companys financial position and financial performance. Revenue Recognition Except for interest income and other income, which historically have not been significant for the Company, the Company records its revenue as net sales, which represents the Companys sales of its products, net of VAT and discounts. Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. For sales by the Company of its products, revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably, which is normally upon delivery. Taxes Current tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the relevant balance sheet date.

59

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

with respect to taxable temporary differences associated with investments in subsidiaries, associates and interest 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 tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward benefits of unused tax credits and unused tax losses can be utilized, except: where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

with respect to deductible temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, deferred 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.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred 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 balance sheet date. Income tax relating to items recognized directly in equity is recognized in equity and not in the statements of income. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. As of December 31, 2008, the Company had deferred tax assets of P427 million. The Company reviews its deferred tax assets at each balance sheet date and reduces the carrying amount if it is not probable that sufficient taxable profit will be available in future periods to allow all or part of the deferred tax assets to be utilized. In addition, unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized if it has become probable that future taxable profit will allow the deferred tax asset to be recovered. VAT. Revenues, expenses and assets are recognized net of the amount of VAT, except: where the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the VAT is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable, and

receivables and payables that are stated with the amount of VAT included.

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The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables and payables in the balance sheet. Useful Lives of Property, Plant and Equipment As of December 31, 2008, the Company had property, plant and equipment net of accumulated depreciation and amortization of P5,864 million. Property, plant and equipment are stated at cost less accumulated depreciation and amortization. For a discussion of impairment see Asset Impairment. Depreciation and amortization are computed using the straight-line method over the following estimated useful life of the assets: Building and improvements ..................................................................................... Machinery and equipment ....................................................................................... Transportation equipment ........................................................................................ Tools and small equipment ...................................................................................... Office equipment, furniture and fixtures ................................................................. Leasehold improvements ......................................................................................... 5 to 50 years 10 to 40 years 5 to 7 years 2 to 5 years 2 to 6 years 5 to 50 years or term of the lease, whichever is shorter

The Company estimates the useful life of property, plant and equipment based on the period over which the assets are expected to be available for use. Estimates of the useful life of property, plant and equipment are based on a collective assessment of industry practice, internal technical evaluation and the Companys experience with similar assets. The estimated useful life of property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence or legal or other limits on the use of such assets. Changes in such estimates could significantly affect the Companys financial performance. In particular, a reduction in the estimated useful life of property, plant and equipment would increase depreciation and amortization expense and reduce operating income. See notes 4 and 9 of the Companys audited financial statements included elsewhere in this prospect us. Estimating Allowance for Doubtful Accounts As of December 31, 2008, the Company had trade and other receivables of P3,661 million, net of allowance for doubtful accounts of P647 million. Allowances for doubtful accounts are made when there is objective evidence of impairment. The Company evaluates its receivables for impairment based on available facts and circumstances, including, among others, the length of the Companys relationship with the customer, the customers current credit status, third -party credit reports and known market trends, the average age of the account, and the Companys collection and historical loss experience. Estimating Allowance for Inventory Losses The Companys finished goods and in -process inventory and materials and supplies inventory are stated at the lower of cost and net realizable value. Net realizable value for finished goods and in-process inventory is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling costs. Net realizable value for materials and supplies inventory is the current replacement cost. The Company provides allowance for inventories whenever net realizable value is lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other factors. Allowance for inventory losses is reviewed periodically. As of December 31, 2008, allowance for inventory obsolescence amounted to P320 million and P15 million for Containers and Materials and Supplies, respectively. As of December 31, 2008, inventories net of allowance for inventory losses, were P3,279 million. See note 7 of the Companys audited financial statements included elsewhere in this prospectus.

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Fair Value of Financial Assets and Liabilities A portion of the Companys financial assets and liabilities are carried at fair value, with changes in fair value being recorded directly in the Companys statements of income. Fair value is determined by various valuation methods, including discounted cash flow, that depend on a number of estimates and assumptions, as well as a significant degree of judgment. The determination of fair value could change significantly if different estimates, assumptions and valuation methods were used. Changes in the fair value of the Companys financial assets and liabilities could materially affect the Companys financial position and financial performance. FI.A.CIAL PERFORMA.CE The following comparison of the Companys financial performance is based on the Companys audited financial statements as of and for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007. Statement of Income ,et Sales Net Sales for 2008 was P48,787 million while 2007 was posted at P12,180 million. Average selling prices per equivalent case were P278.88 and P260.11, respectively. The significant increase in selling prices per case was due to a price increase implemented in April 1, 2008. Cost of Sales Cost of Sales for 2008 was P24,800 million. Previous years operations posted P6,333 million. Apart from higher sales volumes, cost of sales in 2008 increased as a result of higher cost of raw materials particularly malted barley and fuel prices. Gross Profit and Gross Margin Gross Profit for 2008 and 2007 were P23,987 million and P5,847 million, respectively. Gross profit margin increased by 1.2% from 48.0% in 2007 to 49.2% in 2008. Operating Expenses Operating expenses for 2008 was P8,366 million while 2007 incurred P2,349 million in selling and administrative expenses. The table below sets forth the principal components of operating expenses in the periods indicated.
For the year ended December 31, 2008 For the period from July 26, 2007 to December 31, 2007 (in millions of P)

Selling ............................................................ Administrative ................................................. Total ................................................................. Selling Expenses

3,520 4,846 8,366

765 1,584 2,349

Selling expenses was P765 million in 2007 while total year expenses for 2008 was P3,520 million. Administrative Expenses Administrative Expenses for 2008 was P4,846 million while 2007 resulted to P1,584 million.

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Income From Operating Activities As a result of the foregoing, 2008 income from operating activities was P15,621 million and P3,498 million in 2007. Operating income margin for 2008 increased to 35.6% from 32.1% in 2007. Interest Income Interest Income for 2008 was P264 million while previous year brought in P36 million of interest income. Other Income (Expenses) Other expenses for 2008 totaled P377 million while other income in 2007 was P15 million. In 2008, other income and expenses include recognition of marked-to-market losses amounting to P345 million. Income Tax Expense Income tax expense was P5,466 million in 2008 while 2007 resulted to a tax expense of P1,239 million. ,et Income Net Income in 2008 was P10,042 million and P2,310 million in 2007. Net income margin improved from 19.0% in 2007 to 20.6% in 2008 as a result of higher sales volume, increase in production efficiency and cost containment efforts. Liquidity and Capital Resources In 2008 and 2007, the Company's cash flows from operations were sufficient to provide cash for the Company's operations and capital expenditures. The table below sets forth the cash dividends declared by the Companys Board of Directors from February 2008 to January 2009. Declaration Date February 4, 2008 April 10, 2008 July 24, 2008 October 16, 2008 January 27, 2009 Payment Date February 8, 2008 April 18, 2008 August 22, 2008 November 12, 2008 February 23, 2009 Amount of Cash Dividends Per share Total P0.15 P0.16 P0.14 P0.15 P0.19 P2.300 billion P2.453 billion P2.157 billion P2.312 billion P2.928 billion

The following table sets out the Companys cash flows in 2008 and 2007:
For the year ended December 31, 2008 For the period from July 26, 2007 to December 31, 2007 (in millions of P)

Net cash flows provided by operating activities Net cash flows used for investing activities Net cash flows provided by/(used for) financing activities Net increase in cash and cash equivalents ,et Cash Flows from Operating Activities

11,027 (1,645) (8,603) 779

5,831 (610) 41 5,262

Net cash flows provided by operating activities were P11,027 million in 2008. The Company's income before income tax for this period was P15,508 million. This amount was positively adjusted for, among other things, depreciation of the Company's plant and equipment and amortization amounting to P1,758 million and an adjustment for provision for doubtful accounts and inventory losses of P127 million, resulting in operating cash 63

flows before working capital changes of P16,858 million. Aggregate changes in working capital decreased this amount by P777 million, resulting in cash generated from operating activities of P16,081 million. This amount was further reduced by income taxes paid of P5,054 million. Net cash flows provided by operating activities were P5,831 million in 2007. The Company's income before income tax for this period was P3,549 million. This amount was positively adjusted for, among other things, depreciation of the Company's plant and equipment and amortization amounting to P415 million, resulting in operating cash flows before working capital changes of P3,920 million. Aggregate changes in working capital increased this amount by P1,917 million, resulting in cash generated from operating activities of P5,837 million. This amount was further reduced by income taxes paid of P6 million. ,et Cash Flows Used in Investing Activities Net cash used for investing activities were P1,645 million in 2008 and P610 million in 2007. Said amount reflects replacements of bottles and containers as well as additions, replacements and upgrades of various plant equipments to improve efficiencies. ,et Cash Flows Provided by (Used for) Financing Activities Net cash flows used for financing activities were P8,603 million in 2008. This amount reflects cash dividends paid during the period amounting to P9,222 million, partially offset by proceeds from issuances of capital stock amounting to P592 million. Net cash flows provided by financing activities in 2007 were P41 million. This reflects, among other things, proceeds from issuances of capital stock. Balance Sheet Total assets as of December 31, 2008 amounted to P24,634 million, P2,026 million higher than the Company's total assets as of December 31, 2007 totaling P22,608 million, primarily due to cash and cash equivalents which increased from P5,262 million in 2007 to P6,041 million in 2008. This was mostly due to higher net income. Trade and other receivables were nearly flat at P3,661 million in 2008 and P3,676 million in 2007. Inventories as of 2008 were higher than 2007 year-end balance by P832 million. This is due to higher valuation as a result of increases in prices of major raw materials. Other noncurrent assets slightly declined from P5,424 million as of end last year to P5,360 million as of end 2008. Total liabilities as of end 2008 were P5,624 million, higher by P659 million compared to last year's P4,965 million. This is due to an increase in income and other taxes payable brought about by higher earnings. Stockholder's equity increased from P17,643 million to P19,010 million. This is due to higher retained earnings caused by higher net income in 2008. Capital Resources As of December 31, 2008, the Company has cash and cash equivalents of P6,041 million. As of the same date, the Company has no outstanding short-term debt. As of December 31, 2008, the Company has current assets of P13,399 million and current liabilities of P5,585 million. Its working capital (current assets minus current liabilities) was P7,814 million. The Company believes that its working capital is sufficient for its present requirements. In the ordinary course of business, the Company makes certain purchase commitments for the procurement of raw materials. As of December 31, 2008, the Companys outstanding purchase commitments were P522 million. A significant portion of these purchase commitments is payable within one year. The Company expects to finance these commitments through cash flows from its operations and short-term borrowings. Off-Balance Sheet Arrangements The Company does not have any material off-balance sheet arrangements. The Company has, however, entered into derivative transactions to manage its exposures to currency exchange rates and fuel oil prices. See Derivative Financial Instruments.

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Derivative Financial Instruments The Company has entered into derivative financial instrument transactions, including swaps, options and forwards, to manage its exposure to exchange rate risk and its risk relating to changes in fuel oil prices. A more detailed description of the Companys derivative financial instruments is set out in note 25 of the Companys audited financial statements included elsewhere in this prospectus. FI.A.CIAL PERFORMA.CE The following comparison of the Companys financial performance is based on the Companys audited financial statements as of and for the year ended December 31, 2008 and the Companys examined pro forma consolidated financial statements as of and for the year ended December 31, 2008. Operating income increased from P15,621 million in the audited statement of income to P16,699 million in the examined pro forma consolidated statement of income as a result of the assumed acquisition of brands and other intangible assets and parcels of land on January 1, 2008. This was caused by a decrease in operating expenses from P8,366 million in the audited statement of income to P7,288 million in the examined pro forma consolidated statement of income. However, net income decreased from P10,042 million in the audited statement of income to P8,799 million in the examined pro forma consolidated statement of income as a result of the assumed bond issuance. The bond caused an increase in interest expense by P3,484 million in the examined pro forma consolidated statement of income. Correspondingly, income tax expense decreased from P5,466 million in the audited statement of income to P4,303 million in the examined pro forma consolidated statement of income. As a result of the foregoing, gross profit margin was maintained at 49.2% for both audited and examined pro forma consolidated statements. Operating income margin increased from 32.0% in the audited financial statements to 34.2% in the examined pro forma consolidated financial statements. However, net income margin decreased from 20.6% in audited statements to 18.0% in the examined pro forma consolidated statements as a result of interest expense. Net cash flow provided by operating activities decreased from P11,027 million in the audited statement of cash flows to P8,961 million in the examined pro forma consolidated statement of cash flows as a result of interest payments pertaining to bond issuances. Net cash used for investing activities increased from P1,645 million in the audited statement of cash flows to P40,674 million in the examined pro forma consolidated statement of cash flows as a result of the acquisition of brands and other intangible assets and parcels of land. Audited statement of cash flows recorded net cash used for financing activities of P8,603 million mainly due to payment of cash dividends while examined pro forma consolidated statement of cash flows shows net cash provided by financing activities of P32,878 million as a result of cash proceeds from bond issuances. Total assets increased from P24,634 million in the audited balance sheet to P63,896 million in the examined pro forma consolidated balance sheet as a result of the acquisition of parcels of land, increasing property, plant and equipment account from P5,864 million in the audited balance sheet to P12,932 million in the examined pro forma consolidated balance sheet, and acquisition of brands and other intangible assets, increasing intangible assets from P11 million in the audited balance sheet to P32,011 million in the examined pro forma consolidated balance sheet. Total liabilities increased from P5,624 million in the audited balance sheet to P42,974 million in the examined pro forma consolidated balance sheet as a result of bond issuance lodged under long term debt account. Total equity also increased from P19,010 million in the audited balance sheet to P20,922 million in the examined pro forma consolidated balance sheet due to increased retained earnings. Cash dividends are assumed at 70% dividend payout in the examined pro forma consolidated statements.

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KEY PERFORMA.CE I.DICATORS Following below are the major performance measures that the Company uses. The Company employs analyses using comparisons and measurements based on financial data. The table below sets forth the Companys performance indicators based on the Companys audited financial statements and examined pro forma consolidated financial statements:
Examined Pro Forma Consolidated Financial Statements For the Year Ended December 31, 2008 Audited Financial Statements For the Period from For the Year Ended December 31, 2008 July 26, 2007 to December 31, 2007

Current ratio ..................................... Debt-to-equity ratio .......................... Return on average equity of the Company ...................................... Operating Margin __________
(1) Computation was based on an annualized net income

3.04 2.05 45.6% 34.2%

2.40 0.30 54.8% 32.0%

2.33 0.28 52.4%(1) 28.7%

The manner in which the Company calculates its key performance indicators is set out in the table below:
Key Performance Indicator Formula

Current ratio ...........................................................................

Current Assets Current Liabilities Total Liabilities (current + noncurrent) Equity Net Income Average Equity of the Company Income from Operating Activities Net Sales

Debt-equity ratio .....................................................................

Return on average equity ........................................................

Operating Margin

RECE.T ACCOU.TI.G PRO.OU.CEME.TS .ew Standards, Amendment to Standards and Interpretations Adopted in 2008 Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions: This interpretation describes how to apply PFRS 2, Share-based Payment to share-based payment arrangements involving an entitys own equity instruments and share -based payment arrangements of subsidiaries involving equity instruments of its parent company. The adoption of this interpretation did not have a material effect on the Companys financial statements. Philippine Interpretation IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction: This interpretation provides general guidance on how to assess the limit in PAS 19, Employee Benefits, on the amount of the surplus that can be recognized as an asset. It also 66

explains how the retirement asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The adoption of this interpretation did not have a material effect on the Companys financial statements. Amendments to PAS 39, Financial Instruments: Recognition and Measurement and PFRS 7 Financial Instruments: Disclosures: This standard permits an entity to reclassify non-derivative financial assets, other than those designated at fair value through profit or loss upon initial recognition, out of the trading category in certain circumstances. The amendments also permit an entity to transfer from the available-for-sale category to the loans and receivables category a financial asset that otherwise would have met the definition of loans and receivables, if the entity has the intention and ability to hold that financial asset for the foreseeable future. The adoption of these amendments to standard did no t have an effect on the Companys financial statements. .ew and Revised Standards and Interpretations .ot Yet Adopted The following are the new and revised standards and interpretations that are not yet effective as of December 31, 2008 and have not been applied in preparing the Companys financial statements: PFRS 8, Operating Segments, becomes effective for financial years beginning on or after January 1, 2009 and will replace PAS 14, Segment Reporting. This standard introduces the management approach to segment reporting. It will require a change in the presentation and disclosure of segment information based on the internal reports regularly reviewed by the Companys Chief Operating Decision Maker in order to assess each segments performa nce and to allocate resources to them. The Company has determined that this standard has no impact on its financial statements since it operates as one segment only (both in terms of business and geography). Revised PAS 1, Presentation of Financial Statements, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to introduce the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the statement of income and all non-owner changes in equity in a single statement), or in an statement of income and a separate statement of comprehensive income. The Company is currently assessing the impact of the revised standard on the financial statements when it adopts the standard on January 1, 2009. Revised PAS 23, Borrowing Costs, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to require an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The Company will assess the impact of this revised standard on the financial statements when it adopts the standard on January 1, 2009. Amended PFRS 1 and PAS 27, Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, becomes effective for financial years beginning on or after January 1, 2009. The amendments to PFRS 1 allow a first-time adopter, at its date of transition to PFRSs in its separate financial statements, to use deemed cost to account for an investment in a subsidiary, jointly controlled entity or associate. The amendments to PAS 27 remove the definition of cost method currently set out in PAS 27, and instead require all dividend from a subsidiary, jointly controlled entity or associate to be recognized as income in the separate financial statements of the investor when the right to receive the dividend is established. The Company will assess the impact of this revised standard on the financial statements when it adopts the standard on January 1, 2009. Improvements to PFRSs 2008 discusses 35 amendments and is divided into two parts: a) Part I includes 24 amendments that result in accounting changes for presentation, recognition o r 67

measurement purposes; and b) Part II includes 11 terminology or editorial amendments that the International Accounting Standards Board expects to have either no or only minimal effects on accounting. These amendments are generally effective for annual periods beginning on or after January 1, 2009. The adoption of the amendments in 2009 is not expected to have any material effect on the Companys financial statements. Revised PFRS 3, Business Combinations, incorporates the following changes that are likely to be relevant to the Companys operations: The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations. Contingent consideration will be measured at fair value, with subsequent changes therein recognized in profit or loss. Transaction costs, other than share and debt issue costs, will be expensed as incurred. Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognized in profit or loss. Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transactionby-transaction basis. Revised PFRS 3 will be applied prospectively and therefore there will be no impact on prior periods in the Companys financial statements. Amended PAS 27, Consolidated and Separate Financial Statement , requires accounting for changes in ownership interests by the Company in a subsidiary, while maintaining control, to be recognized as an equity transaction. When the Company loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in profit or loss. The amendments to PAS 27 are not expected to have a significant impact on the Companys financial statements. Amendments to PAS 39, Financial Instruments: Recognition and Measurement - Eligible Hedged Items, becomes effective for financial years beginning on or after July 1, 2009. The standard has been amended to provide for the following: a) new application guidance to clarify the existing principles that determine whether specific risks or portions of cash flows are eligib le for designation in a hedge relationship; and b) additional application guidance on qualifying items; assessing hedge effectiveness; and designation of financial items as hedged items. The amendments to PAS 39, which will become mandatory for the Companys 2010 financial statements, are not expected to have a significant impact on the financial statements. Philippine Interpretation IFRIC 17, Distributions of +on-cash Assets to Owners, becomes effective for financial years beginning on or after July 1, 2009. This interpretation provides guidance on the accounting for non-reciprocal distributions of non-cash assets to owners acting in their capacity as owners. It also applies to distributions in which the owners may elect to receive either the non-cash asset or a cash alternative. The liability for the dividend payable is measured at fair value of the assets to be distributed. The Company will assess the impact of this interpretation on the financial statements when it adopts the standard on July 1, 2009.

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QUA.TITATIVE A.D QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to various types of market risks in the ordinary course of business, including interest rate risk, foreign currency exchange rate risk and commodity price risk. Exchange Rate Risk The Companys foreign currency exchange rate risk exposure results primarily from business transactions denominated in foreign currencies. The Company uses a combination of natural hedges, with U.S. dollar revenue from exports providing a partial hedge against U.S. dollar-denominated raw material expenses, and derivative instruments to manage its exchange rate risk exposure. Authorized derivative instruments include currency forwards, currency swaps and currency options. For more information regarding the Companys exchange rate risk exposure and related derivative instruments, see note 24 of the Companys financial statements included elsewhere in this prospectus. The following table sets forth the Companys foreign currency -denominated assets and liabilities and their peso equivalents as of the date indicated:
As of December 31, 2008 U.S. Dollar (1) Peso equivalent (in millions)

Assets Cash and cash equivalents ....................................................................................... Trade and other receivables ..................................................................................... Liabilities Accounts payable and accrued expenses Net foreign currency-denominated monetary assets ................................................
____________ (1) U.S. Dollar equivalent of foreign currency-denominated balances as of balance sheet date

5 4 2 7

243 181 77 347

Commodity Price Risk The Companys commodity price risk exposure results primarily from the use of commodities as raw materials and fuel in its production processes. The Company enters into various commodity derivative transactions to manage its commodity price risk exposure, including swaps, futures, options and forwards. The Company enters into commodity swaps, futures and options primarily to manage the price risks of fuel oil. The Company makes commodity forward purchases of a variety of commodities. The prices of the commodity forwards are generally fixed through direct agreements with suppliers or by reference to a commodity price index. For more information regarding the Companys commodity price risk exposure and relative derivative instruments, see note 24 of the Companys financial statements included elsewhere in this prospectus.

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CAPITAL EXPE.DITURES The Company, as of December 31, 2008, has spent a total of P829.5 million to fund priority capital expenditures, which include the following:

Project Type

Amount (in millions P)

Implementation Period

Replacement and Maintenance Operations Improvement Expansion and Diversification General and Administrative Total Capital Expenditures, YTD Dec. 31, 2008

375.2 390.4 28 35.9 829.5

2008 2008 2008 2008

Major projects in the foregoing priority capital expenditures include replacement and maintenance projects such as replacement of electronic bottle inspectors, Schenk Automation System can seamers, mash filters, line monitoring systems and various equipment repairs and rehabilitation. Operations Improvement projects include acquisition of bottle coating machines and labelers, installation of yeast propagation system and conversion of Polo's high speed line 2 to multi-product line. For 2009, the Company has currently budgeted P789 million for capital expenditures, intended primarily for replacement and maintenance projects and secondarily for operations improvement projects. These capital expenditures are expected to be funded from internally generated cash flow. The Companys budgeted capital expenditures are based on managements estimates and have not been appraised by an independent organization. In addition, the Companys capita l expenditures are subject to various factors, including new product introductions, tolling arrangements and perceived surges in sales volumes of various products. There can be no assurance that the Company will implement its capital expenditure plans as intended at or below estimated costs.

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THE BEER I.DUSTRY I. THE PHILIPPI.ES The information and data contained in this Prospectus relating to the Philippine beer industry has been provided by Canadean Limited (Canadean), a leading global beverage research company, and is taken from Canadeans database and other sources. The Company does not have any knowledge that the information provided by Canadean is inaccurate in any material respect. Canadean has advised that (i) some information in Canadeans database is derived from estimates or subjective judgments, (ii) the information in the databases of other data collection agencies may differ from the information in Canadeans data base, and (iii) while Canadean has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain errors. OVERVIEW Between 2003 and 2008, global beer sales volumes increased at a compound annual growth rate (CAGR) of 4.8%. Over the same time period, the Philippines beer market also grew at a CAGR of 2.8%. Regionally, Asia Pacific beer sales volumes grew at a faster rate than markets in all other regions around the world. The following table sets forth the beer sales volumes CAGR from 2003 and 2008 for the Philippines, Asia Pacific and various regions: Beer Sales Volumes CAGR 2003-2008
8.2%

4.8% 2.8% 3% 3.4%

Philippines Asia Pacific Europe

America

World

________

Source: Canadean The Beer Service, Global Beer Trends 2008 Cycle

The Philippines is the third largest beer market in Southeast Asia (Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) and the sixth largest beer market in greater Asia by sales volume. In 2008, sales volume for beer in the Philippines was 14.2 million hectolitres. The following table sets forth beer sales volumes in 2008 and the 2003 to 2008 CAGR for various countries in Southeast and greater Asia: Major Asian Beer Countries 2008
Country Sales Volume (HL Millions) CAGR (20032008E)

China Japan Thailand South Korea Vietnam Philippines Taiwan Indonesia Hong Kong Malaysia Singapore Total

71

425.6 66.6 22.5 18.0 17.9 14.2 5.5 2.0 1.6 1.2 0.8 575.9

10.7% (0.1)% 7.3% 0.3% 11.5% 2.8% 1.3% 6.2% 1.3% (2.5)% 0.6% 8.2%

Between 2006 and 2008, the per capita sales volume of beer for the Philippines grew from approximately 15.0 litres to 16.3 litres. The following table sets forth the largest Asian beer markets ranked by per capita consumption and per capita GDP. Major Asian Beer Countries Beer Consumption Per Capita vs GDP Per Capita, 2008 Indonesia Malaysia Philippines Singapore Vietnam HongKong Taiwan China Thailand South Korea Japan 52 Beer Consumption per Capita (in Liters/Person) _________
Source: Canadean The Beer Service, Global Beer Trends 2008 Cycle, International Monetary Fund (IMF).

1 5 16 18 21 23 24 32 34 37

2 8 2 41 1 32 18 3 4 20 38 GDP per Capita (in 000 US$)

The following table sets forth changes in the Philippines per capita sales volume of beer for the periods indicated: Development of Philippines Beer Market Per Capita Sales Volume
2002 ....................................................................................................................................................................... 2003 ....................................................................................................................................................................... 2004 ....................................................................................................................................................................... 2005 ....................................................................................................................................................................... 2006 ....................................................................................................................................................................... 2007 ....................................................................................................................................................................... 2008 ....................................................................................................................................................................... Liters 14.2 15.5 17.5 16.8 15.0 15.8 16.3

___________

Source: Canadean, The Beer Service, Annual report 2008 Cycle, Philippines.

Beer Segmentation The beer market in the Philippines can be broken down into four segments: (i) economy brands, (ii) standard brands, (iii) premium brands and (iv) super-premium brands, principally differentiated by pricing. Brands from economy and standard segments are heavily advertised and promoted and can be generally differentiated by marketing policy and packaging. Economy brands. Economy brands are low-priced products, which are brewed locally and accounted for approximately 11.7% of sales volume in the Philippines in 2007. Economy beer is widely available to the mass market through a range of different outlets and is distributed mostly in glass bottles through small supermarkets, sari-sari stores (mom and pop) and on -premise channels throughout the country. Consumers in this segment are particularly price-sensitive. The typical retail selling price of a 320 millilitre bottle is between P14.00 and P15.00. Economy brands in the Philippines include Beer +a Beer and Gold Eagle. Standard brands. Standard brands are mostly brewed locally and represented approximately 54.9% of the beer 72

market by sales volume in 2007. The brands in this segment are targeted at consumers nationally. The brands within this segment are generally priced 20% to 21% above economy brands, with the typical retail selling price of a 330 millilitre bottle generally between P17.00 and P 18.00. Standard brands have been increasingly popular with consumers given the stronger alcohol content on leading brands such as Red Horse and Colt 45. Premium brands. Premium brands are mostly brewed locally and represented approximately 32.9% of sales volume in 2007. The brands in this segment are targeted at consumers mostly in urban areas with a purchasing power greater than the mass market. The brands in this segment are generally priced 12% to 22% above standard brands, with the typical retail selling price of a 330 millilitre bottle generally between P19.00 and P22.00. San Miguel is the dominant force in this segment through San Miguel Pale Pilsen and San Mig Light. Super-premium. This segment represented the remaining 0.5% of the beer market by sales volume in the Philippines in 2007, and comprises mainly local brands and international brands imported into the Philippines. The brands in this segment are targeted at urban consumers with relatively high purchasing power and tourists. These products are mostly sold through high-end bars, restaurants and hotels in the Metro Manila area. Super premium brands are significantly more expensive than economy, standard and premium brands and use more sophisticated packaging designed to appeal to urban consumers. The typical retail selling price of a 330 millilitre bottle is approximately P24.00 and upwards. The most popular local brands include San Mig Strong Ice, San Miguel Super Dry and Cerveza +egra whilst imported brands include Tiger, Corona and Fosters. Compared with other leading beer markets in Asia, both off and on-premise pricing per litre in the Philippines represent one of the lowest for Asia. The following table sets forth average beer pricing per litre in 2007 across the major beer markets in Asia: Leading Asian Beer Markets Average Per Litre Prices 2007 US$
Country Ave. Price per Litre (in US$)

China Hong Kong Indonesia Japan Philippines Vietnam ______________

0.83 3.04 2.77 5.37 1.46 1.21

Source: Canadean The Beer Service, Annual Report 2008 Cycle.

Key Industry Trends Economic impact. Consumer incomes have been improving in recent years supported by a favorable economic performance and higher incomes as farmers and farm workers have traditionally been a key consumption segment for beer. In 2006, VAT was raised from 10% to 12% as the government attempts to reduce the fiscal deficit resulted in a softening of consumer demand. Excise tax on beer was likewise increased by 8% in 2007 and 2009. Despite cost pressures, the beer industry managed to grow in the past two years. Industry profitability has come under increasing pressure as a result of the higher prices of commodities and volatility of the local peso which affects the distribution and raw materials import costs. Preference for mainstream over premium brands. The Philippine beer market is largely a pilsner lager type beer market. In recent years, there is increasing preference for mainstream beer which contains higher alcohol content than premium beer due to affordability with consumers. Red Horse brewed by San Miguel Corporation contains alcohol-by-volume (ABV) of 6.7% is the leading brand in the mainstream segment whi lst San Miguel Pale Pilsen, the leading brand in the premium segment contains an ABV of 5%. Distribution challenges. The Philippines is composed of over 7,000 islands that renders distribution a highly complex and expensive business and represents a significant barrier to market entry for new brewers wishing to distribute nationally. San Miguel Corporation and Asia Brewery Inc. (ABI) remain dominant in the beer market and limit competition nationally. 73

Competition The beer market in the Philippines is highly concentrated with San Miguel Corporation continuing to consolidate its leadership locally. The company has increased its corporate share from 91% in 2000 to 94% in 2007 as a result of strong performance from key brands such as Red Horse and San Mig Light. The other key local player is Asia Brewery Inc. (ABI) which started out brewing Carlsberg under license in 1987 and followed in 1988 with the launch of its own Beer na Beer brand. Despite new product introductions in recent years ABIs corporate market share has declined from 9% in 2000 to just under 6% in 2007. They are highly dependent on Beer na Beer and competition from Red Horse and Gold Eagle in particular have resulted in loss of market share. Imported beer comprises a small proportion of the market as these products can only be found in upscale hotels, bars, restaurants and supermarkets in Metro Manila. On January 1, 2005 the Philippines Government raised excise duty by 20% on beer which was unpopular with both the industry and consumers. Unlike other markets where excise duty is levied on the specific gravity of alcohol, in the Philippines, excise duties charged according to net retail price / per liter of volume capacity. On February 1, 2006, VAT was raised to 12% from 10% as part of the Governments policy to reduce the fiscal deficit. As a result, beer retail prices increased during 2006 which had a dampening effect on beer consumption during the same year. On January 1, 2007 and 2009, beer excise tax rate was increased by 8%. Philippines Leading Brewers / Importers 2005-2007 (000 hl) Company San Miguel . Asia Brewery . Others .
_______________ Source: Canadean The Beer Service, Annual Report 2008 Cycle.

2005 13,020 937 19

2006 2007 11,830 12,734 812 794 20 20

Distribution The Philippines is composed of 7,000 islands that renders distribution a highly complex and expensive business, and create a significant barrier to market entry for new brewers wishing to compete nationally. Metro Manila on the island of Luzon is the most densely populated conurbation and accounts for around 35% of all beer consumption in the country. The brewers distribute direct to retailers through a network of independent, exclusive distributors. In the provinces, these distributors work with a large number of sub-distributors known as bookers. In 2004, San Miguel embarked on a strategic programme of initiatives to improve its distribution system at the expense of local rival ABI. The returnable glass bottle enjoys widespread distribution across all channels as it is popular with consumers. For example, the leading brand Red Horse costs P51.00 for a one liter returnable glass bottle with a P4.50 deposit on the bottle when purchased from sari-sari stores. On average, each returnable glass bottle can be used anywhere from 40 to 60 manufacturing cycles depending on the quality of the glass used to make the bottles. Beer distribution covers large modern supermarkets, smaller supermarkets, convenience stores, gas stations and sari-sari stores as well as on-premise outlets such as bars, clubs, hotels and restaurants. Modern retail such as supermarkets is growing from a small base particularly in Metro Manila.

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The following table sets forth the outlet universe for beer in the Philippines: Outlet Universe for Beer (2007) .umber Retail Convenience stores Supermarkets Warehouse Clubs Gas Stations Sari-Sari Stores Other retail Total Retail On-Premise Hotels Restaurants, cafes, fast food Clubs, kiosks, others Total On-Premise
_______________ Source: Canadean The Beer Service, Annual Report 2008 Cycle, Philippines.

% share 0.29% 0.02% 0.008% 0.06% 99.55% 0.07% 100.00%

.... .... .... .... .... .... .... .... .... .... ....

1,020 84 30 220 350,000 240 351,594

3,659 68,500 16,500 88,659

4.13% 77.26% 18.61% 100.00%

The on-premise channel accounts for around 23% of overall beer consumption in 2007 and has been declining in recent years partially due to higher on-premise prices. Increased fuel cost has also added to distribution cost which has also pushed up prices. The following table sets forth distribution of beer in leading Asian markets for 2007: Major Asian Beer Countries Off vs. On Premise Volume Sales 2007
100% 28% 75% 45% 70% 50% 72% 25% 55% 30% 0% China Hong Kong Indonesia Off-Premise Philippines On-Premise Thailand Vietnam 77% 43% 33% 23% 57% 67%

__
___________ Source: Canadean The Beer Service, Global Beer Trends 2008 Cycle.

Outlook Overall, private consumption will be the key driver of the economy with GDP expected to grow at between 5% to 6% and inflation averaging at 5% over the next three years. Buoyant remittances from Filipinos working overseas will ensure that the current account remains in surplus. For the beer market the forecast is for a return to single-digit volume growth of 5 % per annum in 2007 and 2008 as prices stabilizes and remittances from Overseas Filipino Workers (OFWs) continue to increase. High alcohol beer volume is expected to grow.

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BUSI.ESS OVERVIEW The Company is the largest producer of beer in the Philippines, with a total market share of approximately 94% in 2007, according to Canadean. The Company has five breweries strategically located across the Philippines and a highly developed distribution system serving 478,757 outlets. The Companys beer brands include all of the top four beer brands in the country, namely San Miguel Pale Pilsen, Red Horse, San Miguel Light and Gold Eagle. San Miguel Pale Pilsen, the Companys flagship brand, has a history o f over 118 years. San Miguel beer was first produced by La Fabrica de Cerveza de San Miguel (San Miguel Brewery), a small brewery in the Philippines that began its operations in 1890. San Miguel Brewery provided the foundation from which SMC has grown to become the largest food, beverage and packaging company in the Philippines today. San Miguel Brewery was renamed San Miguel Corporation (SMC) in 1963. From a single brewery producing a single product in 1890, SMCs corporate history and business portfolio have evolved over the years. It entered the soft drinks business in 1922 and became the first overseas bottler of The Coca-Cola Company in 1927. To meet the needs of its beer and soft drinks businesses, SMC established a glass packaging plant in Manila in 1938 to supply its own requirements. SMC has expanded to include other food, beverage and packaging products. It has also grown geographically from a Philippine-based beer company to become a regional producer in the Asian beer market. The San Miguel brewery in Hong Kong was founded in 1948 and by the 1970s, San Miguel beer had established a strong market position in Hong Kong. Building on San Miguel Beers leading positions in the Philippines and Hong Kong, SMC expanded into new markets, including China in 1991, Indonesia in 1992, Vietnam in 1993, and Thailand in 2004. Prior to the creation of the Company, all of SMCs beer operations were under the San Miguel Beer Division (SMBD), a business unit of SMC. On July 24, 2007, the shareholders of SMC approved the transfer of SMCs domestic Philippine beer business assets to the Company in exchange for additional shares in the Company, a wholly-owned subsidiary of SMC. The assets transferred to the Company comprise of the domestic beer business net assets as of June 30, 2007, excluding land, brands and income and other tax payable. The Company was incorporated on July 26, 2007, and the domestic beer business was spun off from SMC effective October 1, 2007. The spin-off of SMCs domestic beer business into the Company was intended to realize the value of SMCs flagship business. Following approval by the shareholders of SMC of the spin-off of the domestic beer business and the creation of the Company, all plant and equipment used by SMBD in the domestic beer business were transferred to the Company, while SMC retained ownership of the brands and land assets used in the domestic beer business. Under this structure, the Company paid SMC royalties for the use of brands and other intellectual property rights of SMC, rentals for the use of the land assets of SMC, fees for shared services and divide nds. (see Related Party Transactions on page 99 of this prospectus). Some of these brands and related intellectual property rights and land assets are the subject of the Proposed Acquisitions (see Use of Proceeds on page 28 and Proposed Acquisitions on pages 29-36 of this prospectus). The Company undertook an initial public offering of its shares (IPO) in May 2008. Prior to the IPO, the Company had total outstanding shares of 15,333,426,960 common shares. In the IPO, a total of 77,052, 000 common shares were offered by way of primary offering, while a total of 809,050,000 common shares owned by SMC was offered by way of secondary offering. After the IPO, the Companys resulting outstanding shares totaled 15,410,478,960 common shares which were listed on the PSE on May 12, 2008. On January 19, 2009, SMC signed a Memorandum of Agreement with Kirin. Under the terms of the agreement, Kirin will enter into exclusive negotiations with SMC to acquire from SMC shares representing approximately 43.25% of the issued and outstanding capital stock of the Company. On February 20, 2009, SMC and Kirin signed a share purchase agreement for the acquisition by Kirin of 43.249% shareholdings in the Company. Under the terms of the agreement, Kirin will purchase shares in the Company from SMC at a purchase price of P8.841 per share, for a total acquisition price of P58.9 billion. Kirin will launch a tender offer to purchase additional shares from all existing shareholders of the Company at the same purchase price offered to SMC. The details of the tender offer will be announced by Kirin once determined. Further to the agreement, SMC, Kirin and the Company will undertake to negotiate exclusively for the Companys potential purchase of shares in SMCs overseas beer business. The exclusivity period is for six months following SMCs offer to sell the shares in its overseas beer business.

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STRE.GTHS The Company believes that its principal strengths include the following: Strong and popular brand portfolio supported by high quality products. From a single product produced in a single brewery in 1890, San Miguel beer has, over 118 years later, grown into an array of popular beer products catering to the distinct tastes and preferences of beer drinkers across all segments and markets in the Philippines. San Miguel Pale Pilsen, the Companys flagship brand, has been an iconic Philippine brand for most of the 20 century and up to today. After considering the Filipino beer drinkers evolving preferences, other brands and products have been introduced, and these have been very successful. Today, the Company offers a portfolio of ten strong and popular brands: Pale Pilsen, Red Horse, San Mig Light, Super Dry, Cerveza +egra, San Mig Strong Ice, Gold Eagle, San Miguel Premium All-Malt, Oktoberfest Brew and Cali, the countrys only malt-based non-alcoholic drink. The various products carry distinct attributes that cater to various segments of the Philippine beer market. The Companys products have been internationally recognized for quality, garnering a total of one grand gold award, 30 gold medals, 14 silver medals, two bronzes, one International High Quality trophy, and one Crystal Prestige award from Monde Selection International since 2000.
th

Attractive growth prospects . Despite its dominant market position, the Company is well positioned to capture further volume growth and market share in the Philippine beer industry. Strong overall industry growth. The Company expects industry volumes to continue to grow, driven in part by the forecasted GDP growth of 4% in the next three years, complemented by relatively low inflation. Given its strong brands and leading market position, the Company believes it is best placed to capture a very large portion of the expected overall growth in the industry. Expansion of Coverage Area. In addition, the Company expects to further increase its sales by expanding its coverage of currently under-served areas. Despite its overall market dominance, the Company believes there are areas where it holds less than 95% market share. The Company believes it will be able to grow its sales and share in these markets through enhanced distribution and promotional strategies. Increased market share of broader alcoholic beverage segment. Further, the Company also believes additional sales growth can be achieved by increasing its share of the broader alcoholic beverage segment. In particular, the Company believes its low cost, high-alcohol beer, Red Horse, which has enjoyed substantial volume growth in the past few years, will be able to attract hard liquor consumers and take an increasing share of the overall alcoholic beverage market from the hard liquor segment.

Strong market position presenting significant barriers to entry . The Company enjoys a number of advantages that would be difficult for a potential competitor to create, making it difficult for other companies to successfully compete with it in the Philippine beer market. These advantages include: Market leadership and economies of scale. San Miguel Brewery products have consistently dominated the market for beer in the Philippines, the countrys largest alcoholic beverage segment. Based on the Companys internal data, the Companys products captured a high market share of 95.6% in 2008. The countrys top four beer brands are all produced by the Company. Unlike most other markets for beer, in the Philippines, imported brands account for only 0.1% of the market, with distribution limited to upscale bars and hotels and high-end supermarkets. Despite the entry of local competition in 1981 and the introduction of a few locally brewed versions of foreign brands, the Company has maintained an extremely strong market position. The popular acceptance and widespread availability of San Miguel Brewerys products have helped strengthen the Companys market position over the years. The Companys size and scale of operations provide significant economies of scale in production, research and development, distribution, and managerial and marketing functions over a diversified product portfolio and geographic base. Its size also results in substantial leverage and significant bargaining power with suppliers and retailers. Proximity of Production Facilities to Consumer Markets. To ensure product availability and freshness, as well as to minimize distribution costs, the Company maintains a network of local breweries that are strategically located in the three main islands of the Philippines: Luzon, Visayas and Mindanao. The Company has breweries in each of Valenzuela City, Metro Manila; San Fernando City, 77

Pampanga; Mandaue City, Cebu; Bacolod City, Negros Occidental; and Darong, Sta. Cruz, Davao del Sur, with a total annual production capacity of 15.3 million hectoliters. Each of these breweries is equipped with automated facilities capable of packaging t he Companys products in a variety of sizes and formats, including bottles, cans, and kegs. The strategic location of the Companys breweries reduces overall risks by having alternative product sources to avert possible shortages and meet surges in demand in any part of the country. This also assists the Company in ensuring that the beer is freshly delivered to dealers at an optimal cost. The archipelagic nature of Philippine geography and the relative difficulty of transporting products to the country s substantial rural population make these dispersed production facilities particularly valuable. Extensive and Efficient Distribution System Coverage. The Company has a far-reaching and efficient distribution system, which is based on five strategically located breweries and effective management of third party service providers and provides the Company with a competitive advantage. The Companys 49 sales offices, contracted logistics providers and transportation assets including 452 hauling trucks, 200 routing trucks, 258 pre-sell vans and 396 service pick-ups and its network of 489 dealers across the Philippines enable it to maintain optimum stock levels in terms of quality and quantity in 478,757 onpremise and off-premise outlets nationwide. The Companys products are delivered from any one of the Companys five breweries by contract haulers to a sales office or dealer warehouse within five days of production date or less. The sales office or dealer then delivers the beer to the wholesaler or retailer promptly afterward, ensuring ample stock and quality wherever and whenever San Miguel Beer products are needed. The Companys returnable bottle system helps keep the price of its beer product s affordable. With the high retrieval rates achieved under the system, bottle usage is maximized before bottles are replaced. Under this system, the Company is able to achieve a 95% average retrieval rate for its bottles, which substantially reduces its packaging costs. Cost Leadership. The Company maintains a strong cost leadership position through high productivity and efficiency, as well as cost control measures, which facilitate pricing flexibility and greater profit growth by maintaining the Companys margins. The Companys product quality initiatives, process enhancements, and improvement programs for plant operations and facilities management are all expected to be sustained. The Company continuously implements process optimization efforts and technology enhancements to generate cost savings Experienced management and production team . The Company has an extensive pool of experienced managers, with many senior managers having been with the Company for an average of 20 years. The management team is well accustomed to the Philippine operating environment, and has been able to effectively manage the Company through periods of crisis and instability in the Philippines. The Company also has established experts in its production process, including 30 brewmasters, each of whom has completed advanced training and has over ten years of on-the-job-training experience working for the Company.

STRATEGIES The Companys principal strategy is to increase the volume of its beer sales, both by increasing its market share and by increasing the size of the market, while maintaining its margins. It plans to achieve this through the following: Increase market share. Although the Company already has a very strong position in the Philippine beer market, it intends to increase its market share by pursuing targeted marketing efforts in the regions and localities in which it believes its market share is lower than it is for the Philippines as a whole - which currently stands at 95.6%, such as in specific areas in North and South Luzon, as well as in Visayas and Mindanao. The Company intends to accomplish this by selecting specific products in appropriate packaging to rival competing products and brands. The Company also intends to increase its product visibility in these markets through tactical consumer promotions and improve outlet penetration t hrough persuasive selling and trade incentives. Similarly, the Company intends to increase its share of the overall market for alcoholic beverages. This effort will focus on those specific regions and localities in which hard liquor sales are higher, and, similar to the efforts to increase market share in the beer segment, will include brand- and package-specific marketing campaigns, persuasive selling and incentives for dealers and retailers.

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Increase the overall market for beer. The Company also plans to increase its sales volume by increasing the total market for beer sales. The Companys primary strategies to achieve this include: Segmented pricing strategy. The Company intends to keep its products affordable for the middle and lower socio-economic sectors by maintaining a moderate pricing strategy for its products in the Popular and Economy markets, where sales are highly price elastic. For the more upscale, or Upper Popular, market, where sales are less price elastic, the Company plans to increase the pricing of its existing and new specialty brands, supported by image-building activities to strengthen their premium positioning and improve their profitability. Amid the global economic slowdown, the Company intends to manage and align the timing and magnitude of price increases for all its products to sustain volume growth as well as cover increases in tax rates on beer and higher material costs. With the forecasted Philippine economic growth in 2009, the Company intends to pursue this segmented pricing strategy to protect its gains and to sustain the general uptrend for the industry as evidenced by the Companys improved market share and increased level of sales in 2008. Increase the size of the Upper Premium and Premium segments . The Upper Premium and Premium markets for beer in the Philippines are relatively small segments, but they play important roles in brand-building and overall market development. The segments offer promising prospects, underpinned by rising consumer incomes, increasing consumer sophistication, rapidly changing drinker habits and preferences, as well as increasing urbanization. The Company intends to further develop the higher priced segments of the beer industry by offering higher-priced and higher-margin products catering to these segments. For example, in August 2008, the Company launched two new brands, San Miguel Premium All-Malt and Oktoberfest Brew, a seasonal beer available for four months (from September 2008 to December 2008), which are marketed to the Upper Premium and Premium segments, respectively. With this strategy, the Company aims to take advantage of opportunities in segmenting the market as well as preempting the incursion of foreign brands. Relative to other Asian countries, the Philippine beer market offers greater potential with regard to premium pricing of brands given the current relatively narrow price gap between the Upper Premium/Premium and Upper Popular brands. Strengthen the Brand Portfolio. The Company intends to strengthen its brands to take advantage of segment-specific growth opportunities, increasing sophistication and changing lifestyles of Philippine consumers and to maintain its market leadership position. The Company plans to maintain the status of its flagship San Miguel Pale Pilsen brand and strengthen its value through an integrated approach of national brand-building campaigns and retail promotional and marketing efforts. Examples of brandbuilding activities include advertising campaigns for the brand using famous endorsers such as Manny Pacquiao, Erik Morales and Kris Aquino under the Walang Katulad (Beer like no other) and Face to Face campaig ns and the TV commercial featuring actor Jet Li, which forms part of the regional campaign to uplift the image and positioning of the San Miguel Pale Pilsen brand in the Asian region. The Company intends to implement new programs and initiatives catering to the younger segment of the market to protect its core customers and strengthen the appeal and preference for the brand among new drinkers. The Company expects to further grow main brands San Miguel Pale Pilsen, Red Horse and San Mig Light through the introduction of new thematic campaigns, special events and volumegenerating programs aligned with the respective positioning of these brands in the market. For the Companys specialty brands, including Cerveza +egra, Super Dry, and San Mig Strong Ice, the Company plans on increasing its efforts in on-premise channels by matching these brands with appropriate on-premise outlets and through event sponsorships, party series and tie-ups with other companies. Specialty brands will also be promoted in off-premise channels through increased visibility and promotions. Optimize Trade Coverage and Efficiencies. The Company intends to further expand its trade reach and increase the visibility and availability of its products in retail outlets thro ugh point-of-sale merchandising materials and signage for both on- and off-premise outlets to increase sales and outlet yield. In pursuing this strategy, the Company will focus on improving the efficiency of its trade operations, including trade penetration levels and adherence to suggested retail prices in all distribution channels by strengthening per-outlet management, intensifying route assisting activity and alternative distribution mode management such as pedicabs (bicycle-driven cabs) and tricycles, which help to deliver the Companys products to remote areas. The Company also intends to raise its frequency of 79

calls to retail outlets. Management of the distributors territories will be strengthened through intensified retail-based servicing and territorial reconfiguration. Increase Sales Through Special Events and by Focusing on Fast-growing Trade Channels. The Company intends to continue its volume-generating initiatives and occasion-creation programs. Examples of these activities include the Companys sponsorship of town fiestas and major events, such as San Miguel Beer Oktoberfest , that aim to make the beer drinking experience more relevant and closer to the consumers. The Company recognizes the importance of fast-growing modern trade channels such as large supermarket chains, hypermarkets and modern convenience stores in marketing and carrying its products to consumers, especially in urban areas. Accordingly, the Company, primarily through SMCs Corporate Key Accounts Group (CKAG), is focusing on sales and marketing programs for key upscale products to these fast-growing segments of the market. ,ew Product and Package Introduction. The Company plans to introduce new products and new package formats. The Company believes this strategy can increase consumer interest and overall market size, as well as address the needs of an increasingly fragmenting market, especially in high growth segments. For example, to increase consumer interest, in May 2007, the Company introduced San Miguel Pale Pilsen in paper label bottles. In 2008, the Company launched new products San Miguel Premium All-Malt in the Upper Premium segment and the Oktoberfest Brew (seasonal brew) in the Premium segment as well as introduced secondary packaging, i.e. Christmas -themed shrinkwrap (6-pack) for San Miguel Premium All-Malt and clear shrinkwrap (6-pack) for San Miguel Pale Pilsen, San Mig Light, Super Dry and San Mig Strong Ice. The Company intends to continue to pursue packaging innovations and capitalize on the market trend towards convenience packaging. The Company is developing packaging improvements for existing brands as well as convenience pack formats consistent with faster-paced lifestyles and addressing the various activities and interest of consumers. PRODUCTS A.D BRA.DS In the Philippines, beer has become synonymous with San Miguel, a company that has been known for its quality products for over 118 years. Specifically, Filipinos readily associate beer with a San Miguel product that embodies the attributes and values they look for in their beverage. The Company has differentia ted its product offerings through effective marketing programs. With the Companys diverse product portfolio, Filipino beer drinkers can have a San Miguel product that caters to their specific tastes and preferences. The Company considers the strong brand associations and imagery that San Miguel beer brands carry to be among the important selling points for San Miguel beer products. The Company markets its beer under the following brands: San Miguel Pale Pilsen , which is the Companys flagship brand, San Miguel Super Dry, San Mig Light, San Miguel Premium All-Malt, San Mig Strong Ice, Cerveza +egra, Red Horse, Oktoberfest Brew and Gold Eagle. The Company also sells Cali, the countrys only malt-based non-alcoholic drink. Cali is available in three variants: Cali Pineapple, Cali Ice and Cali Light (lowcalorie). The Companys products can be categorized into three classes based on the target market: Premium/Upper Premium, Upper Popular, Popular and Economy. Premium, Upper Premium and Upper Popular products cater to upscale markets especially in highly urbanized areas, while the Popular segment serves the majority of the population or the mass market. The Economy segment caters to the low-end market. Over time, the share of the Companys sales to the Upper Popular segment has been steadily increasing from 2% in 2000 to 11% in 2008. In contrast, the shares of the Popular and Economy segments have been decreasing. These trends reflect primarily shifts in consumer preferences given improvements in incomes, increased urbanization and changes in lifestyles.

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The following table sets forth each of the Companys products, organized by market segment, and includes a description of each product as well as the specific packaging in which the product is sold. Brand and Product Portfolio Market Segment Product Price(1) (P) 35.00

Brand/ Product

Description/Target Market San Miguel Premium All-Malt has a malty flavor with pleasant hoppy notes. It is full-flavored with a smooth balanced bitterness. Targeting both male and females aged 25-45. Alcohol content: 5%

Packaging 330ml bottle

Upper Premium

San Miguel Super Dry is the first and only dry beer in the Philippine market. The target market for this beer is primarily males, aged 22-45 in higher socioeconomic groups. It is a clear light amber lager with strong aromatic hop notes. It is light to mediumbodied with moderate bitterness. Alcohol content: 5% by volume.

330ml bottle, 330ml can

25.00

Premium

Cerveza +egra is a full-bodied 330ml bottle dark lager with a balance of moderate bitterness and sweetish roasted malt bouquets. Alcohol content: 5% by volume. It is marketed to both men and women, primarily those between the ages of 25-34 in higher socioeconomic groups. Oktoberfest Brew (seasonal) is a pale lager with malty notes balanced with floral and citrus hop notes. It is full flavored yet lightbodied, sweet and smooth without the inebriating effect of alcohol. Targeting both males and females aged 18-24. Alcohol content: 3.6% by volume San Mig Strong Ice is an icefiltered beer with higher alcohol content than regular beers. It is marketed primarily to men aged 18-24. Alcohol content: 6.3% by volume. 330ml bottle

25.00

25.00

330ml bottle, 330ml can

24.00

Upper Popular

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Brand and Product Portfolio Market Segment Product Price(1) (P) 22.00

Brand/ Product

Description/Target Market San Mig Light is the first light/low-calorie beer in the market. Alcohol content: 5% by volume. This beer is marketed to men and women aged 18-34, primarily those in higher socioeconomic groups. San Miguel Pale Pilsen is a pale golden lager with a clean, hoppy finish. It has a medium body, with a distinct bitter hop character. This beer, the Companys flagship brand, is marketed to all socioeconomic groups, primarily to those in the 24-45 age group, but also to those aged 18-24. It is marketed through various campaigns, including those linked to national marketing events and local festivals that are sponsored or supported by the Company. Alcohol content: 5% by volume. Red Horse Beer is a full-flavored high-alcohol beer. This beer is marketed primarily to men between the ages of 18-24 in middle and lower socio-economic groups. Marketing for this beer is often tied to rock music and sports. Alcohol content: 6.7% by volume

Packaging 330ml bottle, 330ml can, 15L, 30L &, 50L kegs

320ml bottle, 1000ml bottle, 330ml can, 15L, 30L & 50L Kegs

19.00

Popular

330ml bottle 500ml bottle 1000ml bottle 330 ml can

18.00

Economy

Gold Eagle is a low-priced beer. It has a pale amber hue and is moderately light-bodied. It is brewed to have an easydrinking character. It is marketed primarily to men aged 24-45 in middle and lower socioeconomic groups. Alcohol content: 4.5% by volume. Cali is a line of clear, nonalcoholic malt-based beverages with fruit flavors and slight effervescence. Cali has three variants: Cali Pineapple, Cali Ice (apple) and Cali Light (lowcalorie).

320ml bottle 750ml bottle 1000ml bottle

15.00

NonAlcoholic

330ml bottle 330ml can

18.00

________________
(1) Product prices represent the Companys suggested retail pri ce for each product, expressed in 320ml/330ml bottle

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Over the years, the Companys beer products have been the recipient of numerous international awards for product quality and excellence. San Miguel beer brands are consistent Monde Selection winners. Monde Selection is a Belgian based international institute for quality selections founded in 1961. The Company considers Monde Selection awards to constitute an exceptional advertising asset and a rec ognized quality assurance for consumers. The latest awards in 2008 give San Miguel a grand total of one grand gold award, 30 gold medals, 14 silver medals, two bronzes, one International High Quality trophy, and one Crystal Prestige award since 2000. San Miguel Pale Pilsen is also a certified Superbrand in Asia. Superbrands Ltd. (Superbrands) is an independent arbiter on branding based in the United Kingdom that represents over 57 countries (9 in Southeast Asia, including the Philippines) across four continents and is widely regarded as the worlds leading brand recognition program. Superbrands promotes the discipline of branding and pays tribute to exceptional brands that achieve a level of brand trust and reputation in the minds of consumers. The Company has been a consistent award winner for Superbrands, winning the platinum award in the Philippines for the fifth consecutive year after earning a gold citation when the survey began in 1999. PRODUCTIO. Facilities Due to the high cost of shipping relative to product cost as well as the importance of maintaining freshness and other distribution considerations the Company maintains a system of regional breweries rather than a central consolidated brewing facility. Each of the Companys breweries is equipped with automated facilities capable of packaging the products in a variety of packages to meet market preferences, including bottles, cans and kegs. The Company currently owns and operates five breweries in the Philippines. These breweries are strategically located in the Philippines three main island groups of Luzon, Visayas and Mindanao, and are located close to the intended end-markets in order to reduce transportation costs. In 2008, the overall utilization rate of the Companys breweries, calculated as the quotient of production divided by capacity, was 75%. The following table sets forth the year of establishment and annual brewing capacity in hectolitres, of each of the Companys breweries in December 2008:
Brewery Year Established Capacity (in millions of hl)

Polo San Fernando Mandaue Bacolod Davao Total

1947 1981 1968 1990 1995

3.3 5.5 3.4 1.0 2.1 15.3

The Polo Brewery is located north of Metro Manila and serves the Metro Manila and Southern Luzon markets. Established in 1947, it is the Companys oldest operating brewery. The Polo Brewery underwent a modernization program during the 1990s to upgrade its brewhouse facilities. The San Fernando Brewery is located in the Pampanga province, north of Metro Manila and serves Central and Northern Luzon. It was built in 1981 and was expanded and upgraded in the late 1980s up to mid 1990s. The Mandaue Brewery, located on the island of Cebu, serves part of the Visayas region and Mindanao. This brewery was built in 1968 and its facilities were expanded and modernized in the early 1990s. The Bacolod Brewery was built in 1990 on the island of Negros and serves Negros and the island of Panay and its facilities were modernized in 2005-2006. The Davao brewery was built in 1995 and serves the Mindanao market. Although production at each brewery is typically targeted to serve the geographical area around it, the Companys distribution system can shift production from one brewery to other regions if operational issues or demand changes require it. The Company can also make use of excess packaging capacity in one brewery to accommodate shortages elsewhere by, for example, shipping finished beer from the Polo Brewery to the San Fernando Brewery, which has excess packaging capacity, for bottling.

83

The Company employs state-of-the art brewing technology. Its main brewing equipment and technology are sourced from Huppmann Handel GmbH & Co. KG, one of Germanys leading brewing equipment manufacturers. Beer fermentation and maturation are done in stainless steel cylindro-conical tanks. Beer is filtered using vertical filters with horizontal plates made by a German company, SeitzSchenk Filtersystems GmbH. Most of the Companys packaging machines are from leading packaging equipment manufacturers from around the world, including Germanys Klckner, Holstein Seitz AG. The Company also uses washers from Barry-Wehmiller Companies, Inc. and pasteurizers with regenerative energy savings systems from the United States and camera-type electronic bottle inspectors capable of detecting transparent foreign materials in the empty bottles from Kirin Techno-System Corporation of Japan. The Companys labeling equipment is from Krones AG of Germany and Production Engineering (PE) Labellers of Italy. The Companys packaging materials are sourced from certain members of the San Miguel Packaging Group. All of the Companys breweries are in a state of certifiability for ISO 9001:2000 and ISO 14001:2004, as reviewed by SMCs Corporate Quality Management and Environment Management units. All of the breweries are also good manufacturing practices-certified by the Food Development Center. Raw Materials The main raw materials for brewing beer include malted barley, hops, water and yeast. Adjuncts, such as sugar and non-malted grains including rice, corn grits and food starch from cassava, can also be used in conjun ction with malted barley, which is generally more expensive. All of these commodities have experienced, and are expected to continue to experience, price fluctuations. The Company procures key raw materials for its beer operations through a procurement group that uses standardized procurement procedures. Malted barley and hops are generally sourced from the United States, Australia and Europe, while new sources in China and India are being developed. Adjuncts are generally sourced locally. The Company enters into supply contracts with key raw material suppliers with terms ranging from approximately one month to five years. These contracts typically provide for a pre-determined price for the duration of the contract. In addition, depending on considerations such as price trends and the quality of raw materials, the Company also makes spot purchases in the open market. To ensure the quality of its products, the Company closely monitors the quality of its raw materials. The following table indicates the trend of the Companys raw material costs:
For the years ended December 31, 2006 2007 2008 In P per kilogram

Malt price Corn Price

19.67 15.55

17.86 16.72

30.55 18.91

Packaging costs are also a significant factor in the manufacture of beer. The Company mostly sells its products in returnable glass bottles of varying sizes and shapes, as well as in aluminum cans and kegs. In 2008, approximately 95% of the glass bottles used by the Company were returned bottles. The returnable glass bottle is by far the most important and popular package for beer in the Philippines, accounting for 98% of the Companys sales in 2008. The Company enjoys wide distribution across all trade channels, from supermarkets, grocery and convenience stores to sari-sari (mom and pop) stores and on-premise outlets throughout the country. These returnable glass bottles are used for up to 60 cycles typically over a span of approximately 10 years. Retail outlets selling the Companys products collect deposits on these bottles when customers buy the beer and return the deposit when the bottles are returned. New glass bottles are purchased from time to time to support accelerating sales and to replace broken and scuffed bottles. The existing system for returnable glass bottles shields the Company from rising packaging costs triggered by the uptrend in fuel and aluminum prices. Cans are less popular mainly because they are more expensive, although the number of cans has been increasing in recent years with greater availability. Kegs for draft beer which come in 15, 30 and 50 liter sizes are very limited and represent a decreasing share of the market. All water supply used by the Company in its production is provided by deep wells owned by SMC and are operated by the Company, except for water used at the Polo Brewery, which is supplied by the Maynilad Water Services, Inc., a privatized water company serving parts of Metro Manila. 84

The following table sets forth the major raw materials and packaging supplies used in the Companys business, the source countries for these items and the Companys typical contract periods for procurement. Major Raw Materials and Packaging Supplies
Key Materials Sources Contract Period

Malted Barley

Australia Europe USA, Canada, China USA Germany Philippines Philippines Thailand, Vietnam Philippines Philippines Philippines Philippines Philippines Philippines Philippines, Malaysia

5 years 5 years 1 year 1 month - 1 year 1 month - 1 year 3 years One - two months Spot 3 years 1 year 1 year 1 year 1 year 1 year 1 year

Hops Adjuncts Corn Grits Sugar Food Starch (from Cassava) Rice Packaging Materials Bottles Crowns Aluminum Cans Plastic Cases Cartons Labels

BREWI.G TECH.OLOGY A.D PRODUCT DEVELOPME.T The Company employs state-of-the-art brewing technology. Its highly experienced brewmasters and quality assurance practitioners provide technical leadership and direction to continuo usly improve and maintain high standards in product quality, process efficiency, cost effectiveness and manpower competence. Brewing technology and processes are constantly updated and new product development is ensured through continuing research and development. A research and development group is housed in the technical center building of the Polo Brewery. Research and development activities are primarily undertaken in a pilot plant located in Polo Brewery. The pilot plant is a complete miniature brewery equipped with a 35-hl capacity brewhouse. The Company also has a central analytical laboratory, or CenLab, located in the technical center building of the Polo Brewery. The laboratory is equipped with modern equipment necessary for strategic raw materials (hops, malted barley, adjuncts) analysis and validation, beer product evaluation and new raw material accreditation. Specialized equipment includes gas chromatography, high performance liquid chromatography, atomic absorption spectroscopy, protein analyzer, and laboratory scale mashing/milling system for malt analysis. Analytical methods and validation procedures are constantly reviewed and updated, and these are standardized across all San Miguel Beer laboratories. CenLab runs proficiency tests for brewery laboratories and malted barley suppliers to ascertain continuous reliability and quality of analytical test results. CenLab is also tasked with ensuring compliance of all systems with international standards, specifically ISO 17025-2005. The following table presents the amounts spent by the Company on research and development activities, in millions of pesos and as a percentage of net sales, for the periods indicated:
For the years ended December 31, 2006 2007 2008

Amount (in millions) Percentage of net sales

.. ..

59.0 P23.0 P32.0

0.1%

0.1%

0.1%

To promote technical manpower development, the Company runs the San Miguel School of Brewing, which offers various programs spanning all levels of professional brewing technical training, starting from the b asic brewing course for newly hired personnel to the advanced brewing course for senior technical personnel. 85

Courses offered at the school included those highly advanced classes necessary to qualify the most senior of its technical personnel as brewmasters. Each of the Companys 30 brewmasters has extensive advanced coursework and over ten years of on-the-job-training experience working for the Company. MARKETI.G, SALES A.D DISTRIBUTIO. Domestic Market The Company markets, sells and distributes its products principally in the Philippines. Many of the Companys products have strong market positions in the Philippines. The Company believes that it maintains the most extensive distribution network in the Philippine beverage market. The Companys beer products are distributed and sold at 478,757 outlets, including off-premise outlets such as supermarkets, grocery stores, sari-sari stores, and convenience stores, as well as on-premise outlets such as bars, restaurants, hotels and beer gardens. As of December 31, 2008, the Company had 49 sales offices and 489 dealers throughout the Philippines. Generally, it takes five days or less for a bottle of beer to travel from production in the brewery to a sales outlet anywhere in the country. Beer is transported from the breweries by a variety of methods, mainly through thirdparty haulers and, in certain circumstances, by a fleet of boats contracted by the Company. The following chart is a graph of the Companys distribution network as of December 31, 2008:
PRODUCTION
S a l e s S u p e r v i s o r s & O f f i c e s

SALES AND DISTRIBUTION

END MARKETS

Dealers (489)

Dealer Sales Persons Wholesalers(2)

Sales Persons

SMB (5 Breweries)

Reta ilers [c .468,878]

Account Specialists

Wholesalers(2)

Sales Persons

On - P remise B ar/P ub /Loun ge R e stau rant Fastfood C a rin deria Indu strial/O ffice C an teen R e freshem e nt/S n ack Bar Beer H ous e H o tel/M otel/P e nsion house R e creation c e nter/R es ort Sarinum a n B urger H o use Off - P re m is e Sari-S ari Superm arket Mark et S tall G roce ry/Minim a rt W arehou se Clu b C o nv enie nce S tor e W in ehou se/Liquor S ho p Drugstore P ort/B u s S n ack C o unter M all S nac k C ente r Bakery

Call Center Associates (632-BEER) Corporate Key Accounts Group (1)

(1 ) SM Cs CK A G divisio n w ill provide targ eted sa le s and distrib u tio n s e rvices to SM B o n an a rm s le n g th basis. See Relate d P art y T ran sa ctio n s (2) The Company has a total of 9,879 Wholesalers

Dealers generally provide their own warehouse facilities and trucks, considerably reducing the Companys own investment requirements. To increase distribution efficiency, the Company has gradually reduced the number of its dealers. The Company has also increased the support that it provides to its dealers, including software support with respect to streamlining logistics, promotional support and financial management training. Th e Company enters into written distribution agreements with its dealers that specify the territory in which the dealer is permitted to sell the Companys products, the brands that the dealer is permitted to sell, the performance standards applicable to the dealer, procedures to be followed by the dealer in connection with the distribution rights and circumstances upon which distribution rights may be terminated. The Companys sales force designs and awards strategic sales territories to dealers based on research of the specific territory covered. Distribution rights, performance standards and sales procedures are developed by the Company and implemented in tandem with dealers to ensure high quality of services. As dealers are given exclus ivity over defined geographic areas that the Company actively monitors and enforces, these franchises are heavily sought after by potential dealers. To handle the modern trade accounts, such as hypermarkets, and high-visibility on-premise outlets, SMCs Corporate Key Accounts Group (CKAG) acts as an agent, with the Company as principal, and handles the sale and distribution of the Companys beer brands in key outlets such as hotels, bars and restaurants, supermarkets/malls and convenience stores. CKAG accounts for only 4% of total sales volume. The Company is not at the mercy of the modern trade given its strong relationship and the relatively large contributions of the 86

secondary and tertiary trades. As of December 31, 2008, the Company, together with its distributors and call center associates, had a sales force of approximately 1,607 in the Philippines. The Company recently introduced initiatives to increase sales performance, including sales technique training for the Companys distributors. Training that the Company provides to its dealers includes selling systems and procedures, logistics management systems, finance, quality management and human resource management. The Company also provides training to dealer personnel, including selling systems and procedures, selling skills workshops and quality management. The Company has also instituted systems to improve communication between its sales force and retail outlets, including an electronic sales-booking system for large customers. Marketing Activities The Company actively pursues marketing initiatives to promote new and existing products, as well as to maintain and enhance brand awareness of its existing products. These initiatives include media advertisements featuring well-known Philippine celebrities, sponsorship of special events, conducting various consumer and trade promotions and other merchandising activities. The Company also uses television, radio and print advertisements, outdoor billboards and posters that can be placed on the walls of retail outlets and restaurants, bars and other on-premise outlets. The Company operates a call center, 632 -BEER, which provides free beer delivery service for parts of Metro Manila. Advertising and promotion expenses of the Companys domestic beer operations were P1,395 million in 2007 and P825 million in 2008. The Company holds major events and sponsors numerous music events. San Miguel Beer Oktoberfest has been the brands flagship event for over three decades. This month -long festival of beer and activities takes places at numerous locations simultaneously across the Philippines. Popular bands and celebrities, including San Miguel beer endorsers, are on hand to entertain the crowds. The Company also holds San Miguel Pale Pilsens nationwide SMBabad Summerfest, which is an annual get-together of games, concerts and parties at the countrys popular beaches. In addition to San Miguel Pale Pilsen , Red Horse is also often a major sponsor of concerts, with the brand affiliated with Muziklaban, the countrys biggest annual rock challenge, a band competition. The Company also conducted other brand-specific bar tours, including Cerveza +egra Jazz Nights bar tours as well as Super Dry Tranquility lounge tours and Sultry Groovin night events. International Market In addition to its domestic sales, the Company also exports its beer products to over 40 countries, with key markets in Taiwan, Japan and the Unit ed States. The Companys exports are primarily sold under various San Miguel brands as well as under private labels. In 2008, export sales accounted for less than one percent of the Companys total beer sales. SMC also owns brewery operations in Hong Kong, China, Vietnam, Thailand and Indonesia. In addition to serving their local markets, these breweries which have a combined annual capacity of 5 million hl, also sell their products in various export markets. The export operations of all of these breweries, plus those of the Company, are coordinated at the direction of SMC. See Related Parties Transactions. Grupo Mahou San Miguel of Madrid, Spain has the rights to the San Miguel brand for beer in Europe. It is not affiliated with either the Company or SMC. COMPETITIO. The Company faces competition from another domestic producer, ABI, which sells both its own brand and foreign brands it produces under license, and from foreign brewers. ABI is the Companys largest competitor in the Philippine market. It operates two breweries and also holds the license for Carlsberg beer and Colt 45 in the Philippines. ABI competes, mainly on the basis of price, through its own Beer na Beer and Colt 45 brands. ABI also competes with the Companys market -leading high-alcohol beer product, Red Horse, with its licensed Colt 45 brand. Competition from imported beers is minimal. The Company also competes with producers of other alcoholic beverages, primarily low-priced gin and brandy. In the beer industry and more generally the alcoholic beverage industry competitive factors generally include price, product quality, brand awareness and loyalty, distribution coverage, and the ability to respond effectively to shifting consumer tastes and preferences. The Company believes that its market leadership, size and scale of operations, and extensive distribution 87

network create high entry barriers and provide the Company with a competitive advantage. REGULATIO. A.D TAXATIO. Philippine national and local government legislation require a license to sell alcoholic beverages and prohibit the sale of alcoholic beverages to persons below 18 years of age or within a certain distance from schools and churches. Advertising and marketing of alcoholic beverages is largely unregulated in the Philippines. The Company, however, aims to promote responsible drinking habits through its advertising and marketing programs, and has in fact adopted its own Advertising & Marketing Code of Ethics for Alcoholic Beverages. In the Philippines, excise tax represents a significant component of beer production costs. Excise tax is payable by the producer, and the tax rate varies depending on the type of alcoholic beverage being produced, with more expensive products being subject to higher rates. The Government raised excise tax rates for beer products on January 1, 2005 by 20%, on January 1, 2007 by 8% and on January 1, 2009 by an additional 8%. As of January 1, 2009, the excise tax rates applicable to the Companys products ranged from P9.64 per liter to P19.05 per liter. These excise tax rates will be raised by an additional 8% effective January 1, 2011. The sale of beer in the Philippines is also subject to a VAT. Effective February 1, 2006, the Government increased the VAT rate from 10% to 12%. The following table sets forth the taxation system, both excise taxes and VAT, applicable to beer from 2000 through 2009.

88

BEER TAXATIO. I. THE PHILIPPI.ES

Year Effective Date Excise Tax Structure Specific Excise Tax Rates (P/liter) VAT (in %)

2000

Jan.1

Three-tiered specific 12% increase from 1997

Low-priced (1) - 6.89 Medium-priced (2) - 10.25 High-priced (3) - 13.61 Low-priced (1) - 8.27 Medium-priced (2) - 12.30 High-priced (3) - 16.33

10

2005

Jan.1

Three-tiered specific 20% increase from 2000,with 8% increases every two years starting Jan 1, 2007 until Jan. 1, 2011 Three-tiered specific

10

2006

Feb. 1

Low-priced (1) - 8.27 Medium-priced (2) - 12.30 High-priced (3) - 16.33 Low-priced (1) - 8.93 Medium-priced (2) - 13.28 High-priced (3) - 17.64 Low-priced (1) - 9.64 Medium-priced (2) - 14.34 High-priced (3) - 19.05

12

2007

Jan.1

Three-tiered specific, reflecting first set of 8% increases Three-tiered specific, reflecting second set of 8% increases

12

2009

Jan. 1

12

________
+otes: (1) Low-priced beer net selling price per liter (excluding VAT & excise tax) less than P 14.50. (2) Medium-price beer net retail price per liter (excluding VAT & excise tax) from P 14.50 up to P 22.00. (3) High-priced beer net retail price per liter (excluding VAT & excise) is more than P 22.00.

The following table sets forth the excise tax rates applicable to fermented liquors, including beer, as of January 1, 2007, January 1, 2009 and as scheduled to be applied on January 1, 2011, respectively. Schedule of Current and Planned Excise Tax Rates on Fermented Liquors
Effectivity Date January 1, 2007 January 1, 2009 January 1, 2011

Fermented liquors, where the net retail price (excluding excise tax and VAT) per liter of volume capacity is: Less than P 14.50 ....................................................................... P 14.50 up to P 22.00 ................................................................. More than P 22.00 ..................................................................... Fermented liquors brewed and sold at microbreweries or small establishments such as pubs and restaurants, regardless of the net retail price ............................................................................. EMPLOYEES

P 8.93 P 13.28 P 17.64

P 9.64 P 14.34 P 19.05

P 10.41 P 15.49 P 20.57

P 17.64

P 19.05

P 20.57

The table below presents the Companys personnel numbers by functional category for the periods indicated.
Category .umber of Employees

89

For the year ended Dec. 31, 2006

For the year ended Dec. 31, 2007

For the year ended Dec. 31, 2008

Executives (Officers and Managers) .................. Project employees and Consultants .................. All other employees .......................................... Total ..................................................................

136 225 2,667 3,028

125 233 2,465 2,823

138 121 2,499 2,758

The Company approved its retirement plan on February 4, 2008. Under the plan, all regular monthly-paid employees and daily-paid workers of the Company are eligible members. Eligible members who reach the age of 60 (65 for employees transferred from SMC) are entitled to compulsory retirement. The Company may, however, at its own discretion, continue an employees member ship under the plan on a year-to-year basis after he/she reaches compulsory retirement. Eligible members may opt to retire earlier after they have completed at least 15 years of credited service at the Company. Upon retirement, eligible members will receive a certain percent of their final monthly pay for each year of their credited service. The amount varies depending on the years of service of the retiree. Eligible members may receive certain resignation benefits if they resign before they reach an eligible retirement date if they have completed at least five years of service at the Company. All of the Companys employees are based in the Philippines. The Company does not expect the number of its employees to materially change in the next 12 months.

The Company assumed the responsibilities of SMC under 10 existing CBAs that cover approximate ly 50% of the Companys employees. Details of the CBAs and their expiration dates, in respect of both the term of the agreement for employment and the term for the union to represent employees, are set out in the table below:
Union .o. of CBAs Expiration Economic Representation

SMC Employees Union-PTGWO (M) .......................................... Ilaw at Buklod ng Manggagawa-SMC Chapter (D) ..................... Ilaw at Buklod ng Manggagawa- local 42 (D) .............................. Ilaw at Buklod ng Manggagawa- local 48 (M) ............................. New San Miguel Sales Force Union-GMA(M) .............................. Philippine Agricultural, Commercial Industrial Workers Union (M) San Miguel Bacolod Brewery Employees Union (D) .................. Ilaw at Buklod ng Manggagawa- Mandaue Chapter (D)............... New San Miguel Sales Force Union-Cebu(M) .................................. San Miguel Davao Brewery Independent Union (D) .................... ________
+otes: (M) Monthly wage-earners (D) Daily wage-earners. (1) The Company intends to renegotiate this agreement.

1 1 1 1 1 1 1 1 1 1

30-Jun-10 30-Jun-10 15-Feb-11 31-Dec-10 31-Jan-11 31-Oct-10 31-Jul-10 31-Dec-11 15-Feb-09(1) 30-Nov-09

30-Jun-09 30-Jun-09 15-Feb-10 31-Dec-09 31-Jan-10 31-Oct-13 27-Apr-09 31-Dec-10 15-Feb-11 30-Nov-12

SMC has not experienced any strikes or work stoppages in the past three years. Neither has the Company experienced any such strikes or work stoppages since the effectivity of the spin-off on October 1, 2007. The Company considers its relationship with its employees to be good. I.SURA.CE The Company has an all-risk policy that covers its facilities and inventories against a variety of risks, including, among others, fire, lightning, catastrophic perils (typhoon, flood, earthquake, volcanic eruption), machinery breakdown, explosion, civil commotion, riot/strike, malicious damage, and other perils liability. The Company does not maintain business interruption insurance for its production facilities. The total sum insured under this policy is approximately US$627 million, with a maximum recovery for any one loss of US$250 million. In addition to the all-risk policy, the Company maintains various general liability and product liability insurance 90

policies covering its operations. These policies do not cover liability as a result of pollution or environmental damage by the Company. The Company has a marine cargo insurance policy to cover domestic and international shipment of goods and equipment. A product liability insurance policy insures all of the Companys exported products. The Companys insurance policies are provided by leading Philippine insurance companies that are generally reinsured by major international insurance companies. HEALTH, SAFETY A.D E.VIRO.ME.TAL MATTERS The Company is subject to a number of employee health and safety regulations in the Philippines. For example, the Company is subject to the occupational safety and health standards promulgated by the Philippine Department of Labor and Employment. The Company believes that a safe and healthy work environment is fundamental to the management of its human resources as well as conducive to greater employee productivity. SMC has a safety management group, and under the Shared Services Agreement it is responsible for formulating, implementing and enforcing the Companys employee health an d safety policies as well as ensuring compliance with applicable laws and regulations. See Related Party Transactions for a description of the Shared Services Agreement. The Company is subject to extensive regulation by the Philippine Department of Environment and Natural Resources. SMCs environmental management group is responsible for formulating and implementing an environmental management system based on ISO14001 standards for the Company under the Shared Services Agreement. See Related Party Transactions for a description of the Shared Services Agreement. SMCs environmental management group, with assistance from outside environmental consultants, regularly conducts employee environmental training as well as audits of the Companys facilities and production processes. In addition, the environmental management group conducts an annual compliance audit to ensure compliance with applicable environmental laws and regulations as well as with the Companys internal policies, and advises the Companys senior management of critical environmental issues. As of the date of this prospectus, the permits or licenses of the Company for its operations have been transferred from SMC except for the water permits covering the deep wells in the breweries (except in Polo Brewery which relies on a third -party for its water supply). As part of the extensive regulation by the DENR on the Companys operations, the Company is also required to comply with various laws and regulations concerning the discharge of materials into the environment. Prior to the spin-off of its domestic beer business, in 2004 SMC received a notice from the Pollution Adjudication Board (PAB) relating to the discharge of ammonia to the immediate surroundings of the Bacolod Brewery. Following SMCs submission of an environmental risk assessment report on this discharge, the PAB, in a resolution dated March 31, 2005, referred the matter to the Regional Office of the Environment Management Bureau (Region VI) of the DENR for their evaluation, after the receipt of which the PAB shall decide on the matter. PAB also referred the matter to the Department of Labor and Employment for its separate independent evaluation. The Company inquired as to the status of these referrals by separate letters to the Regional Office (Region IV) of the DENR and Central Office of the DENR Environment Management Bureau in November 2007. In October 2008, the central office of the DENR-EMB replied that they have requested the Regional Office to forward the relevant documents for their evaluation and calendar the matter for proper deliberation of the DENR-EMB board. Pursuant to a Technical Conference on January 30, 3009, the Company, in a letter dated February 3, 2009, confirmed its commitment to remit to DENR-PAB the amount of P10,000 in compliance with its obligations under Republic Act No. 8749. To date, the Company has yet to receive the resolution from the DENR-EMB on the matter. In a separate matter, in April 2007 SMC received a notice from the Environmental Management Bureau of the DENR for sulfur dioxide emissions of the boilers in the Mandaue Brewery in excess of the standards of The Clean Air Act of 1999 (the Clean Air Act), which resulted from the use of high sulphur bunker fuel. Subsequent to receiving this notice, SMC has been relying on a grace period granted by the Secretary of the DENR in a memorandum dated July 1, 2007 in favor of all industrial facilities using bunker fuel. The grace period granted under the memorandum allows the continuous use by these industrial facilities of bunker fuel for their operations without penalties, subject to the approved environmental management plan based on guidelines of the Environment Management Bureau. Under this memorandum, the grace period will be available until the DENR formulates definite guidelines for compliance with The Clean Air Act. On October 20, 2008, however, the DENR issued a memorandum which revoked the grace period for compliance with the Clean Air Act. With 91

the revocation of the July 2007 memorandum, the Company has commenced arrangements for the use of lowsulfur fuel oil in its Mandaue Brewery. In 2008, the Company spent P73.3 million in complying with environmental laws and regulations. LEGAL PROCEEDI.GS Except as otherwise disclosed above, as of the date of this prospectus, the Company is not a party to any material pending legal proceedings, and none of the properties of SMC that was transferred to the Company pursuant to the spin-off of the domestic beer business of SMC is the subject of any legal proceeding. SMC will continue to be responsible for all pending legal proceedings that involve the domestic beer business prior to the effectivity of the spin-off on October 1, 2007 (such as collection cases and foreclosure of properties given as collateral for product purchases and cases for tax refunds filed with the BIR).

92

BOARD OF DIRECTORS A.D MA.AGEME.T The table below sets forth each member of the Board of Directors of the Company as of the date of this prospectus:
.ame Age Citizenship Position

Ramon S. Ang ................................................. 55 Ferdinand K. Constantino ............................ Francis H. Jardeleza ...................................... Virgilio S. Jacinto .......................................... Joseph N. Pineda ............................................. Roberto N. Huang ........................................... Rosabel T. Balan ............................................. Iigo Zobel ...................................................... Carmelo L. Santiago ...................................... 57 59 52 45 60 45 52 66

Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino

Chairman, President and Director Director Director Director Director Director Director Independent Director Independent Director

Ramon S. Ang has served as Director of the Company since July 26, 2007 and its President since October 8, 2007. He also holds, among others, the following positions: Vice Chairman, President and Chief Operating Officer of SMC; Chairman and Chief Executive Officer of Petron Corporation; Chairman of San Miguel Properties, Inc. (SMPI), The Purefoods -Hormel Company, Inc., San Miguel Yamamura Packaging Corporation (SMYPC), Anchor Insurance Brokerage Corporation (AIBC) and San Miguel Brewery Hong Kong Limited (Hong Kong); Vice Chairman of Manila Electric Company; and Director of Ginebra San Miguel, Inc. (GSMI) and San Miguel Pure Foods Company, Inc. (SMPFC). He is also the Chairman of Liberty Telecoms Holdings Inc., Philippine Diamond Hotel & Resort, Inc., Philippine Oriental Realty Development, Inc., Atea Tierra Corporation and Cyber Bay Corporation and an independent director of Philweb Corporation. Mr. Ang has held directorships in various subsidiaries of SMC during the last five years. Ferdinand K. Constantino has served as Director of the Company since July 26, 2007 and its Chief Finance Officer and Treasurer until March 16, 2009. He also holds, among others, the following positions: Senior Vice President, Chief Finance Officer and Treasurer of SMC; Chief Finance Officer of Manila Electric Company; President of AIBC; and Director of GSMI, SMPFC, SMPI, SMYPC, Bank of Commerce, San Miguel Brewery Hong Kong Limited (Hong Kong), Magnolia, Inc. and San Miguel Foods, Inc. Mr. Constantino previously served as Chief Finance Officer of the San Miguel Beer Division of SMC (1999-2005) and has held directorships in various subsidiaries of SMC during the last five years. Francis H. Jardeleza has served as Director and Corporate Secretary of the Company since July 26, 2007. He also holds, among others, the following positions: Senior Vice President, General Counsel, Corporate Secretary and Compliance Officer of SMC; Corporate Secretary and Compliance Officer of GSMI, SMPFC and SMPI; Corporate Secretary of The Purefoods-Hormel Company, Inc. and SMYPC; Chairman and President of SMC Stock Transfer Service Corporation (SMCSTSC) and Director of SMBI. Mr. Jardeleza has been a director, corporate secretary and/or assistant corporate secretary of various subsidiaries of SMC during the last five years and is a professorial lecturer at the University of the Philippines, College of Law (1992-2003, 2007-2009). Virgilio S. Jacinto has served as Director of the Company since July 26, 2007. He also holds among others, the following positions: Vice President, First Deputy General Counsel of SMC and Director of San Miguel Beverages Inc. (SMBI). Mr. Jacinto is also an Associate Profes sor at the University of the Philippines, College of Law since June 1, 1993. Joseph .. Pineda has served as Director of the Company since July 26, 2007. He also holds, among others, the following positions: Vice President and Deputy Chief Finance Officer of SMC and Director of SMCSTSC, Monterey Foods Corporation, SMC Shipping and Lighterage Corporation (SMCSL), SMITS, Inc. (SMITS) and Process Synergy, Inc. Mr. Pineda was former President of UCPB Savings Bank (2004), Chief of Staff to the Office of the COO and Vice-President, Officer-in-Charge of the Trust Banking Division of United Coconut Planters Bank (2003) and President and Nominee to the Philippine Stock Exchange of UCPB Securities (1999-2003). Roberto .. Huang has served as Director and General Manager of the Company since October 8, 2007. He 93

also holds the following positions: Senior Vice President of SMC and Director of SMBI. He also served as Director of GSMI (2004-2008) and SMPFC (2004-2008); President of Coca-Cola Bottlers Philippines, Inc., Cosmos Bottling Corporation and Philippine Beverage Partners, Inc. (2003-2007); and Senior Vice President, Director, Corporate Sales for the Food, Beverage, Corporate Key Accounts and Corporate Export Sales Groups (2002-2003) and Vice President and Director, Corporate Sales for the Beverage Group (2001-2002) of SMC. Rosabel Socorro T. Balan has served as Director of the Company since October 8, 2007. She also holds, among others, the following positions: Vice President and Deputy General Counsel of SMC; Assistant Corporate Secretary of SMC, GSMI, SMPFC and SMPI and Compliance Officer of AIBC and SMCSTSC. Ms. Balan has also been a director, corporate secretary and/or assistant corporate secretary of various subsidiaries of SMC during the last five years. Iigo Zobel has served as Independent Director of the Company since October 8, 2007. He is also an Independent Director of SMC, GSMI, SMPFC and SMPI. Mr. Zobel also holds the following positions: President and Chief Executive Officer of E. Zobel, Inc.; President of Ayala Espaa S.A., Calatagan Golf Club, Inc. and Hacienda Bigaa, Inc.; and a Director of Top Frontier Investment Holdings, Inc., Global 5000 Investments, Inc., Calatagan Resort, Inc., Calatagan Gulf Realty, Inc., and Mermac, Inc., and has been the President of Diamond Star Agro Products, Inc. during the last five years. Carmelo L. Santiago has served as Independent Director of the Company since October 8, 2007. He is currently an Independent Director of SMC, SMPI, AIBC, Liberty Telecoms Holdings Inc., and San Miguel Brewery Hong Kong Limited (Hong Kong) and Director of Terbo Concept, Inc. Mr. Santiago is the founder and owner of several branches of Melos Restaurant and has held directorships in SMPI (2001-2004), GSMI (1998-2004), Manila Standard, Inc. (1998-2004), National Power Corporation (1998-2004) and Philippine National Bank Hong Kong (1998-2004). SE.IOR MA.AGEME.T The table below sets forth the Companys executive officers as of the date of this prospectus.
.ame Age Citizenship Position

Ramon S. Ang ...................................... Mercy Marie Jacqueline L. Amador. Francis H. Jardeleza ............................ Roberto N. Huang ............................... Minerva Lourdes B. Bibonia ............... Debbie D. Namalata ........................... Rene T. Ceniza ...................................... Enrico E. Reyes ....................................... Rebecca S. Flores ................................... Susan Y. Yu ...........................................

55

Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino

President Chief Finance Officer/ Treasurer Corporate Secretary General Manager Head - Marketing Head - National Sales Head - Logistics Head - Human Resources Head - Brewing Technical Group Senior Procurement Manager

59 60 50 43 46 46 53 32

Mercy Marie Jacqueline L. Amador was appointed Vice President and Chief Finance Officer and Treasurer of the Company on March 16, 2009. She was previously Chief Finance Officer of San Miguel Brewing International, Ltd. (SMBIL). She also sits on the boards of several subsidiaries of SMC, among them Guangzhou San Miguel Brewery Ltd., San Miguel Guangdong Food & Beverages, Neptunia Corporation Limited and SMBIL. Minerva Lourdes B. Bibonia has served as Head of Marketing of the Company since October 8, 2007. She also holds among others the following positions: Senior Vice President for Corporate Marketing of SMC since January 2002; Director of San Miguel Brewery Hong Kong Limited (Hong Kong) and a Commissioner of PT Delta Djarkarta Tbk (Indonesia). She previously served SMC in the following capacities: Vice President and Head of the CKAG (2001) and Consultant to the Office of the Chairman (2000-2001). Debbie D. .amalata has served as the National Sales Manager of the San Miguel Beer Division of SMC since July 2007. She was previously Executive Assistant to the San Miguel Beer Division President (April-June 2007); General Manager of San Miguel Super Coffeemix Co., Inc. (2006-2007); General Manager for butter, margarine, cheese and jellyace of Magnolia, Inc.; and Director of Sugarland Corporation, Star Dari, Inc. and 94

Magnolia, Inc. (2005-2006); and Assistant Vice President, Visayas-Mindanao Business Development Manager of The Purefoods-Hormel Company, Inc. (2002-2003) and Regional Sales Manager (2003-2004). Rene T. Ceniza has served as Assistant Vice President and Manager for National Logistics of the San Miguel Beer Division of SMC since May 2005. He previously served SMC in the following capacities: Manager, National Logistics (2004-2005), Manager, GMA Logistics (2003-2004); and Manager, Logistics Technical Services (2002-2003) of the San Miguel Beer Division. He was also placed on special assignment as Logistics Consultant for Coca-Cola Bottlers Philippines, Inc. in 2001. Enrico E. Reyes has served as Manager for Human Resources of the San Miguel Beer Division of SMC since April 2007. He previously served SMC in the following capacities: Compensation and Benefits Manager, Human Resources Division (2006) and Human Resources and Administration Manager for San Miguel Beer Division, Visayas (1997-2005). Rebecca S. Flores is the Assistant Vice President and Head of the Brewing Technical Group. She was previously Plant Manager of San Miguel Baoding Brewery, North China Operations (2006-2008); and Mandaue and Bacolod Breweries (2001-2006); and Brewmaster and Brewing Manager of Mandaue Brewery of San Miguel Brewing Philippines (former name of the San Miguel Beer Division) of SMC. Susan Y. Yu is the Assistant Vice President and Senior Corporate Procurement Manager of the Company. She was previously Assistant Vice President and Senior Corporate Procurement Manager (2006-2008) and Corporate Procurement Manager (2003-2006) of SMC and Fuel Purchasing and Price Risk Management Manager of Philippine Airlines (1997-2003). The Company has engaged the consultancy services of Mr. Josefino C. Cruz to direct the Companys manufacturing operations.. TERM OF OFFICE Pursuant to the Companys amended by-laws, the directors are elected at each annual shareholders meeting by shareholders entitled to vote. Each director holds office until the next annual election and his successor is duly elected, unless he resigns, dies or is removed prior to such election. QUALIFICATIO.S A.D DISQUALIFICATIO.S The Companys amended by-laws require that directors have at least 5,000 shares registered in their names in the books of the Company. No person shall qualify or be eligible for nomination or election to the Board of Directors if such person is engaged in any business, which competes with or is antagonistic to the business of the Company. Without limiting the generality of the foregoing, a person shall be deemed to be engaged in a business competing with or antagonistic to the Companys business under the following circumstances: (a) If the person is an officer, manager or controlling person of, or the owner (either of record or beneficially) of 10% or more of any outstanding class of shares of, any corporation (other than one in which the Company owns at least 30% of the capital stock) engaged in a business which the Board of Directors, by at least three-fourths vote, determines to be competitive or antagonistic to that of the Company; or

(b) If the person is an officer, manager or controlling person, or the owner (either of record or beneficially) of 10% or more of any outstanding class of shares of, any other corporation or entity engaged in any line of business of the Company, when in the judgment of the Board of Directors, by at least three-fourths vote, the laws against combinations in restraint of trade shall be violated by such persons membership in the Board of Directors of the Company; or

(c) If the Board of Directors, in the exercise of its judgment in good faith, determines by at least three-fourths vote that he is the nominee of any person set forth in (a) or (b) above.

95

The Board of Directors may also take into account other factors such as business and family relationship in determining whether or not a person is a controlling person, beneficial owner or the nominee of another. EXECUTIVE COMPE.SATIO. By resolution of the Board of Directors, each director shall receive a reasonable per diem allowance for his attendance at each board meeting. The Company intends to provide each director with reasonable per diem of P20,000 and P10,000 for each Board and Board Committee meeting, respectively, attended by such director. Other than these per diem amounts, there are no standard arrangements pursuant to which the directors of the Company are compensated, or are to be compensated, directly or indirectly, by the Company for services rendered by such directors as of the date of this prospectus. The table below sets out the aggregate compensation paid or incurred by the Company in 2007 and 2008 and estimated to be paid in the ensuing fiscal year to the President and senior executive officers of the Company:
.AME YEAR SALARY BO.US OTHERS TOTAL

(in P millions)

Total Compensation of the President and the nine named Executive Officers other than the President ........................ All other officers and directors as a group unnamed .....................
(1)

2009 (estimated) 2008 2007(1) 2009 (estimated) 2008 2007(1)

48.9 44.3 8.1 42.9 41.5 12.2 91.8 85.8 20.3

16.6 13.9 3.6 14.5 19.8 5.0 31.1 33.7 8.6

14.7 10.5 2.4 18.3 14.2 5.1 33.0 24.7 7.5

80.2 68.7 14.1 75.7 75.5 22.3 155.9 144.2 36.4

Total ............................................

2009 (estimated) 2008 2007(1)

__________
(1) 2007 figures are from October to December only.

OTHER ARRA.GEME.TS There are no other arrangements pursuant to which the directors of the Company are compensated, or are to be compensated, directly or indirectly, by the Company for services rendered by such directors as of the date of this prospectus. EMPLOYME.T CO.TRACTS A.D TERMI.ATIO. OF EMPLOYME.T A.D CHA.GE-I.CO.TROL There are no employment contracts between the Company and its executive officers. There is no compensatory plan nor arrangement with respect to an executive officer which results or will result from the resignation, retirement or any other termination of such executive officers employment with the Company, or from a change-in-control of the Company, or a change in an executive officers responsibilities following a change -incontrol of the Company. WARRA.TS A.D OPTIO.S OUTSTA.DI.G 96

As of the date of this prospectus, there are no outstanding warrants or options held by the Companys President, named executive officers and all directors and officers as a group. SIG.IFICA.T EMPLOYEES The Company has no individual employee who is not an executive officer but who is expected to make a significant contribution to the business. FAMILY RELATIO.SHIPS There are no family relationships up to the fourth civil degree either by consanguinity or affinity among the Companys directors, executive officers or persons nominated or chosen by the Company to become its directors or executive officers. I.VOLVEME.T I. CERTAI. LEGAL PROCEEDI.GS None of the directors and executive officers of the Company have been involved in any legal proceeding, including, without limitation, being the subject of any (a) bankruptcy petition, (b) conviction by final judgment, (c) order, judgment or decree of suspension, enjoinment or limitation of his involvement in any type of business, securities, commodities or banking activities, or (d) violation of a securities or commodities law, for the past five years up to the latest date, that is material to the evaluation of his ability or integrity to hold the relevant position in the Company. DISCLOSURE O. COMPLIA.CE WITH LEADI.G PRACTICES O. CORPORATE GOVER.A.CE Manual on Corporate Governance The Companys Manual on Corporate Governance (the Manual) was approved by the Board of Directors on October 25, 2007, as amended on April 10, 2008. Independent Directors Under the present SEC policy, the Company is required to have at least two independent directors in its Board of Directors. The Manual, in turn, requires at least two independent directors to serve on the Companys Audit Committee and one independent director on each of the Nomination and Hearing Committee and the Executive Compensation Committee. Under the implementing rules and regulations of the SRC, an independent director is defined as a person who, apart from his fees and shareholdings, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director. An independent director must satisfy the qualifications and must have none of the disqualifications of an independent director set out in the SRC and its implementing rules and regulations, the Manual, the amended articles of incorporation and amended by-laws of the Company. Board Committees Audit Committee The Audit Committee is comprised of at least three members of the Board of Directors, at least two of whom shall be independent directors. One of the independent directors shall be the Chairman of the Audit Committee. The Audit Committee is responsible for assisting the Board of Directors in discharging its corporate governance and fiduciary duties in relation to financial reporting, internal control structure, risk management systems and internal and external audit functions. It reviews and monitors, among others, the integrity of the Companys financial statements and reports, and ensures their compliance with pertinent accounting standards and regulatory requirements, and performs oversight financial management functions specifically in the areas of managing credit, market, liquidity, operational, legal and other risks of the Company, and crisis management.

97

The Companys Audit Committee is chaired by Mr. Carmelo L. Santiago (independent director) with Mr. Iigo Zobel and Mr. Joseph N. Pineda as members. ,omination and Hearing Committee The Nomination and Hearing Committee is composed of at least three voting members and one non -voting member in the person of the Human Resources director or manager. One of the three voting members must be an independent director. The Nomination and Hearing Committee shall be responsible for making recommendations to the Board of Directors on matters relating to the directors appointment, election and succession, with the view of appointing individuals to the Board of Directors with the rel evant experience and capabilities to maintain and improve the competitiveness of the Company and increase its value. It shall pre screen and shortlist all nominees in accordance with the qualifications and disqualifications for directors set out in the Manual, the amended articles of incorporation and amended by-laws of the Company and applicable laws, rules and regulations. The Companys Nominations and Hearing Committee is chaired by Mr. Iigo Zobel (independent director) with Mr. Carmelo L. Santiago and Joseph N. Pineda as voting members and Mr. Dave S. Santos as non-voting member. Executive Compensation Committee The Executive Compensation Committee shall be composed of three members, one of whom must be an independent director. It is responsible for advising and assisting the Board of Directors in the establishment of formal and transparent policies and practices on directors and executive remuneration and providing oversight over remuneration of directors, senior management and other key pe rsonnel to ensure that the Companys compensation scheme fairly and responsibly reward directors and executives based on their performance and the performance of the Company, and remain competitive to attract and retain directors and officers who are needed to run the Company successfully. The Executive Compensation Committee is chaired by Mr. Iigo Zobel (independent director) with Mr. Ferdinand K. Constantino and Mr. Carmelo L. Santiago as members. Compliance and Monitoring System The Chairman of the Board of Directors shall designate a Compliance Officer who shall be responsible for monitoring compliance by the Company with the provisions and requirements of the Manual and ensure adherence to corporate principles and best practices. Mr. Francis H. Jardeleza is the Companys Compliance Officer.

98

RELATED PARTY TRA.SACTIO.S SMC directly owns and controls approximately 94.25% of the Companys issued and outstanding Common Shares. Following the spin-off of the domestic beer business of SMC, which was then conducted by SMC through SMBD, to the Company, SMC and the Company entered into certain agreements, and SMC assigned to the Company all of its rights and obligations under various agreements with third parties relating to SMCs domestic beer business, including those agreements entered into with SMCs subsidiaries. The Companys policy with respect to related party transactions is to ensure that these transactions are entered into on terms comparable to those available from unrelated third parties. Below is a summary of the Companys related party transactions. SMC SMC receives a monthly royalty fee of 2% of the Companys net sales revenue under a License Agreement in consideration for its grant to the Company of an exclusive license to use, in the Philippines, certain know-how relating to the manufacture, packaging and handling of certain beer products currently produced by the Company (the Licensed Products) and ce rtain specified Philippine trademarks, trade dress, copyrights and patents, which include the SMB Brands, (the IP Rights) in connection with the production, preparation and distribution of the Licensed Products. The license is effective for a period of 25 years from October 1, 2007, renewable for another 25 years at the option of SMC upon request by the Company. It extends to such know-how or intellectual property rights as may be developed or acquired by SMC during the life of the License Agreement, and may not be used outside of the Philippines or applied to other products other than the Licensed Products. The rate of the royalty fee is subject to review by the parties every five years, and no royalty is paid for any IP Rights that expire and cannot be renewed under applicable intellectual property laws. Other key terms under the License Agreement include undertakings (a) by the Company (i) to spend at least 2% of its total sales revenues of the previous year during each year of the term of the License Agreement for the advertising and promotions of the Licensed Products; (ii) not to introduce new beer products and brands in the Philippines, or to manufacture, prepare, package, distribute, sell, deal in or otherwise be concerned with any other alcoholic beverage products (other than the Licensed Products) without SMCs prio r written consent; (iii) to secure the consent of SMC in the event of a change in the control of the Company; and (b) by SMC (i) to include in the Licensed Products all new beer products and brands introduced in the Philippines; and (ii) to allocate funds for advertising support in the amount of P375 million each year for the Licensed Products in the first two years of the License Agreement. Following the approval of the transfer of the SMB Brands to Iconic by the SEC on February 27, 2009, the License Agreement was amended to exclude therefrom the SMB Brands and SMC assigned all its rights and obligations under the License Agreement, as amended, to Iconic in respect of the SMB Brands. Upon completion of the Brand Acquisition, the Company and Iconic will execute a license agreement whereby the latter will grant the Company an exclusive license to use the SMB Brands under such terms and conditions as may be agreed by the parties. SMC receives a monthly ser vice fee equivalent to 0.5% of the Companys net sales revenue for the previous month under a Shared Services Agreement in consideration for rendering to the Company certain corporate services and 99

facilities related to finance, audit, legal, human resources, procurement, facilities audit, safety and property risk management, operations research, product technology and formulations, marketing, government and media affairs, and other similar services such as, mergers and acquisitions. The Company shall likewise pay SMC the actual costs and expenses incurred by SMC in performing the said services, and shall be liable for all taxes due and payable in connection therewith. The Shared Services Agreement has a term of 49 years commencing on October 1, 2007; but may be terminated upon termination of the License Agreement. SMC receives lease payments under a Contract of Lease, for the Lease by the Company of lands owned by SMC on which all of the Companys production facilities, as well as certain sales office facilities in the Philippines, are located. The rental payments under the lease are P154 million for the first year, subject to an escalation of 10% in each succeeding year until the end of the term. The term of the lease is 5 years commencing on October 1, 2007. Following the sale by SMC to Brewery Landholdings of certain parcels of land on which certain sales offices used by the Company are located, the Contract of Lease was amended to exclude therefrom such parcels of land sold to Brewery Landholdings, and SMC assigned its rights and obligations under the Contract of Lease, as amended, to Brewery Landholdings, in respect of such parcels of land. After the completion of the Land Acquisition, the Company intends to enter into a contract of lease with Brewery Properties and Brewery Landholdings for the lease of the land on which all of the Companys production facilities and certain of its sales offices used in its business are located, including the SMB Land, under such terms and conditions as may be agreed upon by the parties. SMC receives a service fee on a per-brand per-unit basis to cover actual costs and expenses incurred by its CKAG, a division of SMC, which acts as the Companys sales agent in the on -premise channel, and provides marketing services to the Company, including the formulation of plans and programs in connection with selling and marketing activities and management of the implementation of marketing plans and programs for the Companys beer brands in identified key on-premise and off-premise accounts such as hotels, bars and restaurants, supermarkets, malls and convenience stores, as approved by the Company. SMC, through CKAG, also acts as the Companys dealer in the off-premise channel, for which it receives a service fee that is given as a discount on the wholesale price of the products it purchases from the Company on a per-brand per-unit basis. The term of the agreement is up to September 30, 2009, subject to annual review by the parties. The service fees paid to and discounts earned by SMC for the foregoing services for 2007 and 2008 were P 337 million and P 282 million, respectively. SMC receives service fees at the rate of 4% of the invoiced value of the products sold in the export market every month following the month when the exports sales were collected for services rendered by its CESBD to the Company. CESBD acts as agents of the Company in handling the marketing, selling and distribution of the Companys beer products in the export markets. The term of the agreement is up to September 30, 2009 subject to annual review of the parties. The service fees paid for such services in 2007 and 2008 were P 10 million and P 14 million, respectively. The Company pays, under a Cost-Sharing Agreement, its monthly proportionate share of certain expenses and costs of services incurred by 100

SMC, such as but not limited to janitorial and security services, utilities and rentals for SMC Head Office and 808 building space, internet, email, SAP and photocopying charges, from which services and expenses the Company has benefited. The Companys proportionate share is based on the amount billed by the third party service provider or the amount of the expenses and the agreed basis of allocation as set out in the agreement and shall be without mark-up or profit on the part of SMC. SMC, at its sole option, however, may impose interest of 1% per month on any proportionate share due and unpaid by the Company. The Company paid its proportionate share of such services and expenses in 2007 and 2008 in the amount of P14 million and P38 million, respectively. The term of this agreement commenced on January 1, 2008 and will remain effective until terminated upon mutual agreement of the parties. SMCSL SMCSL, a 70% subsidiary of SMC and a joint venture between SMC and KADIWA Transport Corporation, receives fixed service fees for cargo handling, warehousing, and shipping services rendered to the Company for the distribution and delivery of its raw materials and finished goods to and from the Companys Mandaue Brewery. The service fees may be adjusted upward or downward in case of a 10% adjustment in the salary scale and/or benefits of SMCSLs employees or a 5% fluctuation in prevailing fuel a nd oil prices. The Service Agreement is for a term of 23 years, effective on March 1, 2001, and shall automatically terminate upon the expiration or termination of the Joint Venture Agreement between SMC and KADIWA Transport Corporation. The Company may terminate the Service Agreement by giving SMCSL 60 days prior written notice if the price charged by SMCSL is not the best price available or if the quality of SMCSLs service is not acceptable to the Company, unless such quality of service is remedied by SMCSL to the satisfaction of the Company within 30 days from SMCSLs receipt of the termination notice. The service fees paid for such services in 2007 and 2008 were P 102 million and P 415 million respectively. SMDCI, a wholly-owned subsidiary of SMC, receives a service fee per month based on a per case rate with a minimum guaranteed monthly volume from the Company for management of logistics service providers. The term of the agreement covering the Mandaue Brewery is up to December 31, 2008, and after that date on a month-to-month basis if the parties continue their relations under the agreement but no written renewal has yet been executed. SMDCI also receives a fixed service fee for the provision of logistics technical services, including provision of advice on the selection criteria for other third party logistics service providers, benchmarking of logistics services rates, improvements of logistics, and related business processes, among others. The term of the agreement is up to January 31, 2009, and after that date on a month-to-month basis if the parties continue their relations under the agreement but no written renewal has yet been executed The Company receives from SMBI, a wholly-owned subsidiary of SMC, service fees on a per case basis for warehousing and delivery of SMBIs finished goods in accordance with the plans and schedules provided by SMBI under a Logistics Management Agreement. The Company is also required to provide storage space for SMBIs products only to the extent that such storage space is not needed for the Companys products. Rentals for any delivery truck needed for the services under the agreement in addition to the required fleet complement for the Companys products are paid for by SMBI. The term of the agreement is from April 01, 2007 to March 31, 2008, and after that date on a month-to-month basis if the parties continue their relations under the agreement but no written renewal has yet been executed. The Company receives a fixed discount on a per case basis for SMBIs 101

San Miguel Distribution Company, Inc. (SMDCI)

SMBI

products that it sells under a Distribution Agreement, pursuant to which the Company, using its sales organization, dealer force and other modes of distribution, acts as the distributor of SMBIs ready -to-drink and powdered mix products in specified areas in the Philippines. The term of the agreement is from April 01, 2007 to March 31, 2008, and after that date on a month-to-month basis if the parties continue their relations under the agreement but no written renewal has yet been executed. The Company also receives rentals for leasing certain equipment and building to a third-party contractor, Supa Nova Foods, Inc., which in turn provides toll-manufacturing services to SMBI. The Company receives fees for the toll-manufacturing of SMBIs fru it drink and tea products under the toll-manufacturing arrangement with SMBI. GSMI, a majority-owned subsidiary of SMC, pays a fee on a per case basis in consideration for toll-manufacturing services rendered by the Company for GSMIs alcoholic beverages, which services are performed in the Polo Brewery using the brewerys excess capacities. The Company agrees not to toll-manufacture any other product which directly competes with the products it toll-manufactures for GSMI. The agreement is valid until December 31, 2009. The fees received by the Company for such services in 2007 and 2008 were P 2 million and P 8 million, respectively. A subsidiary of GSMI also paid its share for the use of utilities to the Company. SMYPC, SMRPC and SMYAC, all subsidiaries of SMC, receive payments from the Company for packaging materials such as bottles, crowns, caps, cartons, plastic crates and pallets purchased by the Company. These purchases are covered by various purchase orders which define the prices and delivery schedules negotiated and agreed upon by the parties. These SMC subsidiaries form part of the San Miguel Packaging Group, which, with its business partners, is one of the leading suppliers of packaging materials in the Philippines and exports packaging materials to more than 10 countries. Purchases of packaging products from SMYPC, SMRPC and SMYAC in 2007 and 2008 collectively amounted to P 538 million and P 2,116 million, respectively. SMPFC, a majority-owned subsidiary of SMC, has a subsidiary which obtains spent grains that are among the waste products resulting from the Companys brewing process. SMPFCs subsidiary uses spent grains as a minor component in the production of animal feeds. All costs associated with the withdrawal of the spent grains are for the account of SMPFCs subsidiary. Spent grains would be a pollutant if retained in the Companys facilities, and their disposal would be an expense for the Company. SMPFCs subsidiary obtained grains free of charge in 2007. In 2008, purchases amounted to P17 million. A subsidiary of SMPFC also paid the Company its share in the use of utilities for its chicken processing plant, which is located beside the Companys San Fernando Brewery, up to December 31, 2007. Beginning January 1, 2008, SMPFCs subsidiary and the Company paid their respective shares in the use of electricity directly to SMC. However, SMPFCs subsidiary paid its shares in the expenses for water consumption and use of communication facilities directly to the Company. The Company purchases products of subsidiaries of SMPFC for its employees annual Christmas gift packages and promo bundles. SMITS, a wholly-owned subsidiary of SMC, and a subsidiary receive fees 102

GSMI and a subsidiary

SMYPC, SMRPC, SMYAC

SMPFC and subsidiaries

SMITS

and a subsidiary

from the Company on a per-engagement and/or per-service basis for information technology and systems services, including maintenance of the Companys software and hardware facilities, and business process outsourcing and customer care services. SMITS also provides advisory services on the development of new systems and/or up-grade of existing systems which are outsourced to non-related third parties. The term of these engagements/services is usually for a year. The fees paid for such services in 2007 and 2008 were P 26 million and P 98 million, respectively. AIBC, a subsidiary of SMC, receives service fees on a per transaction or engagement basis from the Company for the Companys share in the insurance brokering services rendered by AIBC for the entire SMC Group for the SMC Groups consolidated insurance requirements such as insurance for motor vehicles, fire insurance, etc. For the comprehensive insurance coverage of the SMC Group which is bidded out to global insurance institutions, AIBC is engaged to assist in the bidding process and pre-qualification of insurance companies under the direction of SMC. The fees paid for such services in 2007 and 2008 were P 0.17 million and P 0.65 million, respectively. SMBIL, a wholly-owned subsidiary of SMC, and its subsidiaries purchase beer products from the Company. These purchases are covered by various purchase orders which define the prices and delivery schedules negotiated and agreed upon by the parties. Purchases of beer products by SMBIL and its subsidiaries in 2007 and 2008 were P 25 million and P 3 million, respectively.

Anchor Insurance Brokerage Corporation (AIBC)

San Miguel Brewing International Limited (SMBIL) and subsidiaries Archen Technologies, Inc. (Archen)

Archen, a wholly-owned subsidiary of SMC, receives a fixed service fee for liaison and consultancy services relating to power and energy concerns of the Company. The agreement commenced on June 1, 2008 and shall expire one year thereafter. Archen also receives fees for consultancy services relating to the capital expenditures of the Company. In 2008, the Company paid P 4.0 million for such services. SMCSTSC, a wholly-owned subsidiary of SMC, receives retainer fees and processing fees for stock transfer services rendered to the Company. The agreement commenced on April 1, 2008 and ended on December 31, 2008 but was subsequently renewed for a period of 1 year ending on December 31, 2009. In 2008, the Company paid P 0.18 million for such stock transfer services. BOC is held as to 30% of its capital stock by SMPI, a subsidiary of SMC. In consideration for the use of BOCs deposit pick up services, the Company agrees to maintain an agreed-upon reasonable average daily balance in a specified account with BOC, failing which (after a 30-day curing period), shall entitle BOC to charge a service fee. The agreement shall remain in effect until terminated by either party upon at least 30 days pr ior notice.

SMC Stock Transfer Service Corporation (SMCSTSC)

Bank of Commerce (BOC)

For further information on the Companys related -party transactions, including detailed breakdowns of amounts receivable from affiliated companies, see Note 19 of the Companys audited financial statements.

103

DESCRIPTIO. OF PROPERTIES OW.ED PROPERTIES The Companys principal owned properties consist of five breweries, 34 out of its 49 sales offices and 11 warehouses. The land improvements, buildings, machinery, transportation equipment, office equipment and furniture, and/or tools and small equipment owned by the Company in these breweries, region offices, sales offices and warehouses, as well as those in certain terminals and wharfs leased by the Company, have a net book value of P5.86 billion as of December 31, 2008. The locations and general asset description of these properties and equipment are set out below: Breweries The Company has 5 breweries in the following locations: Polo Brewery Marulas, Valenzuela City, Metro Manila San Fernando Brewery Brgy. Quebiawan, McArthur Highway, San Isidro, San Fernando, Pampanga Bacolod Brewery Brgy. Granada, Sta. Fe, Bacolod City, Negros Occidental Mandaue Brewery National Highway, Brgy.Tipolo, Mandaue City Davao Brewery Brgy. Darong, Sta. Cruz, Davao del Sur Business Overview

A more detailed description of these breweries are found in the section entitled Production. Sales/Area Offices and Warehouses

The Company owns land improvements, buildings, machinery, transportation, office equipment, tools and/or furniture in the following sales/area offices and warehouses located nationwide. Central +orth Luzon Area SMC Complex, Brgy. Quebiawan, McArthur Highway, San Fernando, Pampanga Carmen East, Rosales, Pangasinan Caranglaan Dist., Dagupan City, Pangasinan Naguilian Road, San Carlos Heights, Brgy. Irisan, Baguio City, Benguet Pennsylvania Ave., Brgy. Madayegdeg, San Fernando, La Union Brgy. San. Fermin, Cauayan, Isabela National Road, Brgy. Mabini, Santiago City, Isabela San Andres St., San Angelo Subdivision, Sto. Domingo, Angeles City, Pampanga

104

Maharlika Road, Bitas, Cabanatuan City, Nueva Ecija Brgy. 22, San Guillermo, San Nicolas, Ilocos Norte Greater Manila Area +orth Cagayan Valley Rd., Brgy. Sta. Cruz, Guiguinto, Bulacan Gapan-Olongapo Rd., Poblacion San Isidro, Nueva Ecija A. Cruz St., Brgy. 96, Caloocan City Honorio Lopez Blvd., Guidote St., Tondo, Manila Brgy. Mangga, Cubao , Quezon City Bldg. 23 Plastic City Cpd., #8 T. Santiago St., Brgy. Canumay, Valenzuela City, Metro Manila Quirino Highway, Novaliches, Quezon City, Metro Manila Greater Manila Area South GF SMC HOC, #40 San Miguel Ave., Mandaluyong City, Metro Manila (office equipment and furniture only) Brgy. 425, Zone 43, Sampaloc District, Manila M. Carreon St., Brgy. 866, Sta. Ana District, Manila Manila East Rd., Brgy. Dolores, Taytay, Rizal Bernabe Subdivision, Brgy. San Dionisio, Paraaque City, Metro Manila Mercedes Ave., Pasig City, Metro Manila South Luzon Area Silangan Exit, Canlubang, Calamba City, Laguna Maharlika Highway, Brgy. Isabang, Lucena City, Quezon Maharlika Highway, Brgy. Villa Bota, Gumaca, Quezon Maharlika Highway, Brgy. Concepcion Grande, Naga City, Camarines Sur Brgy. Mandaragat, Puerto Princesa City, Palawan Aurora Quezon and Calderron St., Brgy. Labangan, San Jose, Occidental Mindoro Governors Drive, Brgy. Lankaan II, Dasmarias, Cavite Bo. Balagtas, Batangas City, Batangas Ayala Highway, Lipa City, Batangas Corner Cogon and Patricio Streets, Bgy. Cruzada, Legaspi City, Bicol National Highway, San Pedro, Laguna

105

Tirona Highway, Habay, Bacoor, Cavite Matungao, Tugbo, Masbate City Pagsawitan, Sta. Cruz, Laguna +egros Brgy. Granada, Sta. Fe, Bacolod City, Negros Occidental Muelle Loney St., Brgy. Legaspi, Iloilo City National Hi-way, Brgy. 4, Himamaylan City, Negros Occidental Flores St., Brgy. Sum-Ag, Bacolod City, Negros Occidental Brgy., Camansi Norte, Numancia, Aklan Brgy. Libas, Roxas City, Capiz Pulantubig, Dumaguete City Visayas National Highway, Brgy. Tipolo, Mandaue City Fatima Village, Brgy. 73 (formerly part of Brgy. Sagcahan), Tacloban City, Leyte CPG North Ave., Tagbilaran City, Bohol Mindanao Brgy. Darong Sta. Cruz, Davao del Sur Ulas Crossing, Ulas, Davao City National Highway, Brgy. Magugpo, Tagum City Sergio Osmea, Brgy. Poblacion, Koronadal City National Highway, Brgy. Lagao, Gen. Santos City National Highway, Brgy. Luyong Bonbon, Opol, Misamis Oriental R.T. Lim Blvd., Baliwasan, Zamboanga City Molave St., Butuan City Brgy. Mangangoy, Bislig City, Surigao del Sur (building only) Brgy. Bongtod, Tandag City, Surigao del Sur J.P. Rizal Ave., Poblacion, Digos City National Highway, Sta. Felomina, Dipolog City National Highway, Sta. Filomena, Iligan City Baybay, Liloy, Zamboanga del Norte 106

Terminal Bataan Malt Terminal, Mariveles, Bataan (building, machineries and equipment, furniture and fixtures only). LEASED PROPERTIES The Company leases buildings and improvements in various locations in the Philippines. The Company also leases parcels of land from SMC for its five breweries, 30 area, region and sales offices, 12 warehouses and 6 deepwells. See Related Party Transactions for information on the rentals under the lease with SMC. Set out below are the details on the leases of the Company. Leases from Third Parties
Location Leased Asset Description Monthly Rental (P) Expiration Date

Terminal Bataan Malt Terminal *average

Mariveles, Bataan

Land

460,000.00*

12/16/2013

Sales Offices and Warehouse Greater Manila Area +orth Valenzuela S.O.

Bldg. 23 Plastic City Land & Cpd., #8 T. Santiago St., Land Brgy. Canumay, Improvement Valenzuela City, Metro Manila Quirino Highway, Novaliches, Quezon City, Metro Manila Cor. Buendia & Guidote St., Tondo Manila Mercedes Ave., Pasig City, Metro Manila No. 140, Bitas, Cabanatuan City Corner Cogon and Patricio Streets, Bgy. Cruzada, Legaspi City, Bicol Land & Buildings Land

231,960.27

4/30/2010

Novaliches S.O.

658,924.56 45,198.72

11/15/2009 10/15/2009

Tondo S.O.

Greater Manila Area South Pasig S.O. Central +orth Luzon Cabanatuan S.O. South Luzon Area Legazpi S.O.

Land & Warehouse Land & Building Land & Land Improvements

744,187.47 64,935.61

7/31/2011 10/31/2009

268,800.00 Land, Leasehold Improvement & Buildings

12/31/2010

+egros Iloilo S.O.

Solid Manila Bldg Diversion Road, Bgy, San Rafael, Mandurriao, Iloilo

76,975.36

12/15/2009

Mindanao Butuan Region Office

Fort Poyohan, Molave St., Butuan City, Agusan del Norte

Land & Land Improvement 107

45,682.78

1/31/2010

Location

Leased Asset Description

Monthly Rental (P)

Expiration Date

Ozamis Region Office

Bonifacio St., Lam-an, Ozamis City, Misamis Occidental

Land & Building

47,040.00

6/19/2009

Leases from SMC Land for Breweries

Location

Polo Brewery San Fernando Brewery Bacolod Brewery Mandaue Brewery Davao Brewery-Main Land For Sales Offices and Warehouses

Marulas, Valenzuela City, Metro Manila Brgy. Quebiawan, San Isidro, San Fernando, Pampanga National Road, Brgy. Sta. Fe, Bacolod City, Negros Occidental National Highway, Brgy. Tipolo, Mandaue City Brgy. Darong, Sta. Cruz, Davao del Sur

Location

Central +orth Luzon Area Angeles Region Office Baguio S.O. Carmen S.O. Cauayan Region Office Dagupan Region Office Ilocos Warehouse La Union Region Office Lal-lo Warehouse Santiago S.O. San Nicolas Region Office

San Angelo Subdivision, Sto. Domingo, Angeles City, Pampanga Naguilian Road., San Carlos Heights, Brgy. Irisan Baguio City, Benguet Carmen East, Rosales, Pangasinan Brgy. San Fermin, Cauayan City, Isabela Caranglaan District, Dagupan City, Pangasinan Brgy., Tablac, Candon City, Ilocos Sur Pennsylvania Ave., Brgy. Madayegdeg, San Fernando, La Union Sta. Maria, Lal-lo, Cagayan National Road, Brgy. Mabini, Santiago City, Isabela Brgy. San Guillermo, San Nicholas, Ilocos Norte

Greater Manila Area +orth Caloocan S.O. Cubao S.O. Guiguinto S.O. San Isidro S.O. Tondo S.O. Greater Manila Area South Paranaque S.O. Pureza S.O. Sta. Ana S.O. Taytay S.O.

A. Cruz St., Brgy. 96, Caloocan City Brgy. Mangga, Cubao, Quezon City Cagayan Valley Rd., Brgy. Sta. Cruz, Guiguinto, Bulacan Gapan-Olongapo Rd., Poblacion, San Isidro, Nueva Ecija Honorio Lopez Blvd., Guidote St., Tondo, Manila

No. 100, Bernabe Subdivision, Brgy. San Dionisio, Sucat, Paranaque City Brgy. 425, Zone 43, Sampaloc District, Metro Manila M. Carreon St., Brgy. 864, Sta. Ana, Manila Manila East Rd., Brgy. Dolores, Taytay, Rizal

Location

South Luzon Area Area Office Batangas Region Office Gumaca S.O. Lipa Warehouse Lucena S.O.

Silangan Exit, Canlubang, Calamba City National Rd., Brgy. Balagtas, Batangas City, Batangas Maharlika Highway, Brgy. Villa Bota, Gumaca, Quezon J.P. Laurel Hiway, Brgy. Balintawak, Lipa City, Batangas Maharlika Hiway, Brgy. Isabang, Lucena City 108

Naga S.O. Puerto Princesa Warehouse San Jose Warehouse

Maharlika Highway, Brgy. Concepcion, Pequena, Naga City Brgy. Mandaragat, Puerto Princesa City, Palawan Brgy. Labangan, San Jose, Occidental Mindoro

+egros Sum-ag Warehouse. Himamaylan S.O. Iloilo S.O. Numancia S.O. Roxas S.O. Visayas Tacloban S.O. Warehouse-Oro Verde

Flores St., Brgy. Sum-ag, Bacolod City, Negros Occidental National Hi-way, Brgy. 4, Himamaylan City, Negros Occidental Muelle Loney St., Brgy. Legazpi, Iloilo City Brgy. Camansi Norte, Numancia, Aklan Brgy. Libas, Roxas City, Capiz

Access Rd., Fatima Village, Brgy. 73, Tacloban City H. Cortes St., Brgy. Banilad, Mandaue City

Mindanao
Butuan S.O. Digos Warehouse GenSan Warehouse Marbel Warehouse Opol Region Office Tagum Warehouse Tandag Warehouse Zamboanga S.O. Others
Location

Fort Poyohan, Molave St., Butuan City J.P. Rizal Ave., Poblacion, Digos City National Highway, Brgy. Lagao, Gen. Santos City Sergio Osmea St., Brgy. Poblacion, Koronadal City National Hi-way, Brgy. Luyong Bonbon, Opol, Misamis Oriental National Highway, Brgy. Magugpo, Tagum City Brgy. Bongtod, Tandag City, Surigao del Sur R.T. Lim Boulevard, Baliwasan, Zamboanga City

Deepwell D Deepwell B Deepwell C Deepwell E Deepwell F Deepwell G CO.DITIO. OF PROPERTIES

Tambalan-Budla-an Rd., Brgy. Tambalan, Mandaue City A.S. Fortuna St., Brgy. Banilad, Mandaue City H. Cortes St., Brgy. Banilad, Mandaue City Private Rd., Brgy. Cabancalan, Mandaue City Private Rd., Brgy. Cabancalan, Mandaue City Private Rd., Brgy. Cabancalan, Mandaue City

The properties owned by the Company and leased by the Company from SMC are in good condition and are free from liens and encumbrances, other than those permitted under the Trust Agreement. The Company does not intend to acquire any other material assets except for those to be acquired from the proceeds of the Offer as discussed in Use of the Proceeds on page 28 of this prospectus and those in connection with capital expenditure projects a s discussed in Capital Expenditures on page 70 of this prospectus. All of the Companys existing lease contracts contain a provision that the contract is renewable upon agreement by the parties.

109

MATERIAL CO.TRACTS The following are summaries of the material terms of the principal contracts related to the Companys primary business and should not be considered to be a full statement of the terms and provisions of such contracts. Accordingly, the following summaries are subject to the full text of each contract. Following the spin-off of the beer domestic business of SMC to the Company as discussed in the Business Overview section of this prospectus, SMC assigned to the Company all its rights and obligat ions under the principal contracts described below. SUPPLY OF RAW MATERIALS Malted Barley The Company sources a portion of its malted barley requirements from Joe White Maltings Pty. Ltd. (JWM) under a supply agreement with a term of five years from January 1, 2007 to December 31, 2011, subject to a renewal for another five years upon mutual agreement of the parties. Under the agreement, JWM is a preferred supplier, with the Company having the option to increase its purchases up to 20% above the agreed minimum tonnage at the agreed prices and up to 50% above the agreed minimum tonnage at prices and conditions to be negotiated by the parties. JWM commits to provide new malted barley capacity in the event of increased malted barley purchases to support the Companys future requirements and agrees to give priority to the Company for the supply of malted barley in the event of drought, change in barley varieties or barley quality variations. Fuel Oil The Company sources a portion of its fuel oil requirements from Pilipinas Shell Petroleum Corporation under an exclusive supply and equipment loan agreement entered into by SMC on behalf of its subsidiaries using petroleum products, such as the Company. Orders for the products must be placed at least 48 hours prior to the intended date of delivery and purchases during the months are payable on or before the 30th day of the succeeding month, subject to payment of interest on the amount outstanding in the event of default on payments. The term of the agreement is five years until April 2012. The agreement is currently under review by the parties. AGREEME.TS WITH SMC The Company entered into a License Agreement, a Shared Services Agreement and a Contract of Lease with SMC following the spin-off of the domestic beer business of SMC to the Company. See Related Party Transactions for descriptions of the terms of these a greements. SUPPLY OF PACKAGI.G MATERIALS The Company principally sources its packaging requirements from SMYPC, SMRPC and SMYAC. The Company currently has several outstanding purchase orders of various packaging materials from these suppliers with delivery dates averaging 15 days. The terms and conditions of these purchase orders provide, among others, that the Company reserves the right to reject or return any shipment of packaging materials not in conformity with the orders, standards and specifications of the Company. Payment term for these purchases, unless agreed otherwise, is 30 days after delivery date and presentation of invoices and delivery receipts. A performance bond shall be required by the Company, where necessary, which shall be forfeited in favor of the Company in the event of breach by the suppliers. The Company may terminate the orders at any time in the event of breach by the sellers of any of the terms and conditions of the purchase orders, without prejudice to the right of the Company to recover amounts due, such as, one percent of the cost of delayed deliveries in the event that the Company accepts late deliveries. See also Related Party Transactions.

110

RELATED STOCKHOLDER MATTERS HOLDER OF THE COMPA.YS COMMO. SHARES As of January 31, 2009, the following are the top 20 stockholders of the Company: Stockholder .ame San Miguel Corporation ................................................................ PCD Nominee Corporation (Non-Filipino) .................................. PCD Nominee Corporation (Filipino) .......................................... San Miguel Brewery Inc. Retirement Plan .................................... Henry Sy, Sr ................................................................................... Syntrix Holdings, Inc ..................................................................... Isaias G. Lumanta &/or Melinda F. Lumanta .............................. Marilyn D. Maranon ...................................................................... Virgilio A. Salonoy ........................................................................ Common Shares 14,524,332,960 629,242,736 136,535,764 89,582,000 12,500,000 12,500,000 132,000 124,000 82,000 75,000 63,000 62,500 62,000 62,000 62,000 62,000 62,000 60,000 50,000 50,000 % to O/S 94.249718 4.083213 0.885993 0.581306 0.081114 0.081114 0.000857 0.000805 0.000532 0.000487 0.000409 0.000406 0.000402 0.000402 0.000402 0.000402 0.000402 0.000389 0.000324 0.000324

1 2 3 4 5 6 7 8 9

10 Victor Martin Soriano &/or Grace Llane ....................................... 11 Macario Enriquez Asistio III .......................................................... 12 Ponciano V. Cruz, Jr ....................................................................... 13 Marivic L. Almeda ......................................................................... 14 Rene Michael S. French ................................................................. 15 Cecilio D. Hipolito Sr .................................................................... 16 Rosario Montaner Lovero ............................................................... 17 Mario Ong ....................................................................................... 18 Florito F. Santos ............................................................................. 19 Mariano P. Blanco &/or Ligaya V. Blanco ..................................... 20 Ramon C. Garcia ............................................................................. Description of Principal Shareholder

SMC is a publicly listed food, beverage and packaging holding company in the Philippines. Established in 1890 as a single-product brewery, the SMC Group today has over 100 facilities in the Philippines, Southeast Asia and China. The SMC Groups extensive product portfolio includes beer, hard liquor, water, powdered juice and juice drinks, processed and packaged food products, meat, poultry, dairy products, snack foods, cooking oil, coconut oil, pet food, animal and aquatic fees and a number of packaging products. Kirin, one of the largest beer manufacturing companies in Japan, has a significant stake in SMC. The SMC Group also has strategic partnerships with international companies, among them Hormel Foods Corporation of the United States, Nihon Yamamura Glass Company, Ltd. (NYG), Rengo Co., Ltd. of Japan and Super Coffeemix Manufacturing Ltd. of Singapore. On January 31, 2008, SMC further expanded its partnership with NYG with the completion of the sale of its 35% interest in the packaging businesses comprised of its domestic businesses under SMPSI and regional operations under San Miguel Packaging Interna tional, Ltd. (SMPIL). SMPSI and SMPIL were later renamed San Miguel Yamamura Packaging Corporation and San Miguel Yamamura Packaging International Limited. On January 19, 2009, SMC signed a Memorandum of Agreement with Kirin. Under the terms of the agreement, Kirin will enter into exclusive negotiations with SMC to acquire from SMC shares representing approximately 43.25% shares representing 43.25% of the issued and outstanding capital stock of the Company. On February 20, 2009, SMC and Kirin signed a share purchase agreement for the acquisition by Kirin of a 43.249% stake in the Company. Under the terms of the agreement, Kirin will purchase shares in the Company from SMC at a purchase price of P8.841 per share, for a total acquisition price of P58.9 billion. Kirin will launch a tender offer 111

to purchase additional shares from all existing shareholders of the Company at the same purchase price offered to SMC. The details of the tender offer will be announced by Kirin once determined. Further to the agreement, SMC, Kirin and the Company will undertake to negotiate exclusively for the Companys potential purchase of shares in SMCs overseas beer business. The exclusivity period is for six months following SMCs offer to sell the shares in its overseas beer business. Beverage The domestic beer operations of SMC are carried out by the Company. The international beer operations, on the other hand, are carried out by SMC through its foreign subsidiary, San Miguel Brewing International Limited, and its other subsidiaries, which include San Miguel Brewery Hong Kong Limited, PT Delta Djarkarta Tbk and San Miguel Beer (Thailand) Limited. SMC maintains three breweries in Southeast Asia and two breweries in China for its international operations. Apart from beer, SMC also produces hard liquor through its majority-owned subsidiary, GSMI. GSMI is not only the leader in the domestic hard liquor market, but also the worlds largest gin producer by volume and the fourth largest spirits company by volume. SMC participates in the non-carbonated beverage business in the Philippines, Thailand and Indonesia through its wholly owned subsidiary, SMBI. Food The SMC Groups domestic food and agribusiness operations are comprised of SMPFC and its major subsidiaries, which include San Miguel Foods, Inc. and its subsidiary, San Miguel Mills, Inc.; The Purefoods Hormel Company, Inc.; Magnolia, Inc.; Monterey Foods Corporation; San Miguel Super Coffeemix Co., Inc. and Star Dari, Inc. The SMC Groups business portfolio offers a complete line of food products and services for both individual and food service customers. Its businesses range from vegetable oils, feeds, flour, poultry, fresh and processed meats, coffee, snacks, and dairy products, to food service. The SMC Group carries some of the best -known brands in the Philippine food and agribusiness industry, among them Magnolia, Monterey, Star, Purefoods, Dari Crme, and B-Meg. SMC expanded its food operations in the Southeast Asian region with the increase in equity participation of SMPFC in P.T. San Miguel Pure Foods Indonesia (formerly P.T. Purefoods Suba Indah), a company engaged in the manufacture and trade of processed meats and related products in Indonesia and its 51% investment in San Miguel Pure Foods Investment (BVI) Limited, which wholly owns San Miguel Pure Foods (VN) Co., Ltd., (formerly TTC (VN) Co. Ltd.), a hogs and feed mill business in Binh Duong, Vietnam. Packaging The San Miguel Packaging Group is a Total Packaging Solutions business servicing many of the regions leading food, pharmaceutical, chemical, beverages, and personal care manufacturers. The San Miguel Packaging Group serves clients in the Asia-Pacific, Middle East, and U.S. markets, and manufactures glass bottles, PET bottles, corrugated cartons, paperboard, paper pallets, flexible packaging, plastic crates and pallets, plastic caps, plastic poultry flooring, plastic pails and trays, plastic films, industrial laminates, woven bags, metal closures, two-piece aluminum beverage cans; and offers filling services, as well as graphics design and testing services. Apart from supplying the internal requirements of the SMC Group, the San Miguel Packaging Group also supplies major Philippine-based multinational corporations such as Nestl, Unilever, Kraft, Diageo, Del Monte, Coca-Cola and Pepsi-Cola Products Phils., Inc. The San Miguel Packaging Group also competes in the international market through its packaging businesses in Vietnam, Malaysia and China: San Miguel Plastic Films Sdn Bhd, San Miguel Packaging & Printing Sdn Bhd., San Miguel Woven Products Sdn Bhd, Packaging Research Center Sdn Bhd, San Miguel Yamamura Haiphong Glass Co., Ltd., San Miguel Phu Tho Packaging Company Ltd. and Zhaoqing San Miguel Glass Co., Ltd. It has five international packaging plants located in China (glass, metal, plastic), Vietnam (glass, metal), Indonesia 112

(plastic) and Malaysia (corrugated carton and paperboard, composites, plastic films, laminates and woven bags). Property SMPI is SMCs primary property subsidiary, currently owned 98.45% by SMC. SMPI is presently engaged in the development, sale and lease of real properties. It is the corporate real estate arm of the SMC Group. It is also a principal shareholder of Bank of Commerce (BOC), currently holding a 30% stake in BOC. +ew Businesses In line with SMCs plans to participate in high -growth industries such as mining, power, infrastructure, water and other utilities, SMC entered into a sale and purchase agreement with the Government Service Insurance System (GSIS) in 2008 to acquire GSIS 27% stake in the Manila Electric Company. SMC likewise entered into an option agreement with SEA Refinery Holdings B.V. (SEA BV) for an option to acquire and purchase from SEA BV up to 100% of its interests in SEA Refinery Corporation (SRC). SRC is a wholly -owned subsidiary of SEA BV, which in turn currently owns 50.1% of the outstanding shares of Petron Corporation. The option may be exercised by SMC within a period of two (2) years from December 24, 2008. SMC and SEA BV have agreed that SMC shall have representation in the board and management of Petron Corporation. SMC is currently in talks with Qatar Telecom for a possible investment in Liberty Telecoms Holdings. DIVIDE.DS A.D DIVIDE.D POLICY The table below sets forth the cash dividends declared by the Companys Board of Directors from February 2008 to January 2009. Declaration Date February 4, 2008 April 10, 2008 July 24, 2008 October 16, 2008 January 27, 2009 Payment Date February 8, 2008 April 18, 2008 August 22, 2008 November 12, 2008 February 23, 2009 Amount of Cash Dividends Per share Total P0.15 P0.16 P0.14 P0.15 P0.19 P2.300 billion P2.453 billion P2.157 billion P2.312 billion P2.928 billion

The Company is allowed under Philippine laws to declare dividends, subject to certain requirements. These requirements include, for example, that the Companys Board of Directors is authorized to declare div idends only from its unrestricted retained earnings. Dividends may be payable in cash, shares or property, or a combination of the three, as the Board of Directors shall determine. The declaration of stock dividends is subject to the approval of shareholders holding at least two-thirds of the Companys outstanding capital stock. The Companys Board of Directors may not declare dividends which will impair its capital. The cash dividend policy of the Company entitles the holders of its Common Shares to receive annual cash dividends equivalent to 100% of the prior years recurring net income, which is net income calculated without respect to extraordinary events that are not expected to recur, based on the recommendation of the Boa rd of Directors. Such recommendation will take into consideration factors such as the implementation of business plans, debt service requirements, operating expenses, budgets, funding for new investments and acquisitions, appropriate reserves and working capital, among others. The cash dividend policy is subject to review and may be changed by the Companys Board of Directors at any time. MARKET PRICE OF COMPA.YS COMMO. EQUITY The Company's Common Shares are traded in the PSE. Such shares were listed on the Main Board of the PSE on May 12, 2008. The Companys high and low closing prices for the following quarters are as follows: 2008 2nd High 8.60 113 Low 7.90

3rd 4th

12.50 11.50

8.20 8.10

RECE.T SALES OF U.REGISTERED OR EXEMPT SECURITIES The following are issuances of Common Shares constituting an exempt transaction under the SRC which were made by the Company since its incorporation on July 26, 2007 to the date of this prospectus: (1) The Company was incorporated on July 26, 2007 with an authorized capital stock of P100,000,000 divided into 1,000,000 Common Shares with a par value of P100.00 per Common Share. SMC subscribed to 250,000 Common Shares (then with a par value of P100.00 per Common Share) prior to the incorporation of the Company to comply with the requirements under the Corporation Code as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered with the SEC. The subscription is an exempt transaction pursuant to Section 10.1 (i) of the SRC.

(2) The Company subsequently approved the increase in its authorized capital from P 100,000,000 to P25,000,000,000, the decrease of the par value of its shares from P 100.00 to P 1.00, and the issuance of a total of 15,308,416,960 Common Shares, comprising of 75,000,000 Common Shares from its unissued authorized capital stock and 15,233,416,960 Common Shares from the increase in its authorized capital stock, in exchange for the net assets of the domestic beer business of SMC with a net book value equivalent to P 15,308,416,960. The transfer of the net assets is pursuant to a Master Deed of Assignment of Domestic Beer Assets dated August 23, 2007 between SMC and the Company as amended by an Amendment to the Master Deed of Assignment of Domestic Beer Assets between the same parties dated September 7, 2007. The issuance of these Common Shares is an exempt transaction under Section 10.1 (e) of SRC. Under the Corporation Code, where the consideration for the issuance of shares is other than actual cash, the valuation thereof shall initially be determined by the Board of Directors, subject to the approval of the SEC. The SEC approved the valuation of the net assets of SMC as full payment of the 15,308,416,960 Common Shares issued on September 27, 2007. However, 2,557,573,242 Common Shares issued by the Company to SMC in exchange for motor vehicles and receivables out of the entire 15,308,416,960 Common Shares issued by the Company pursuant to the transfer of the net assets of the domestic beer business by SMC to the Company are held in escrow by the SEC and shall only be released upon presentation of the transfer of ownership of such motor vehicles in the name of the Company and the proof of collection of receivables. The holding of such Common Shares in escrow is a standard condition of the SEC for approval of applications for increase in authorized capital where the payment for the shares issued pursuant to such increase is made in the form of motor vehicles and receivables. For more information on the transfer of the assets and liabilities of the domestic beer division of SMC to the Company, see the section entitled Business Overview. (3) The issuance of 5,000 Common Shares to each of the independent directors of the Company is an exempt transaction under Section 10.1 (c) of the SRC. SECURITY OW.ERSHIP OF CERTAI. BE.EFICIAL OW.ERS A.D MA.AGEME.T Security Ownership of Record and Beneficial Owners Owners of more than 5% of the Companys voting securities as of the date of this prospectus are as follows:
.ame of Beneficial Owner and Relationship with Record Owner

Title of Class

.ame, Address of Record Owner and Relationship with Issuer

Citizenship

.umber of Shares Held

Percent

Common

San Miguel Corporation, 40 San Miguel Avenue,

Not applicable

Filipino

14,524,367,960

94.25%

114

Mandaluyong City 1550 Philippines, parent company

Security Ownership of Management The following are the number of Common Shares comprising the Companys capital stock (all of which are voting shares) owned of record by the directors and key executive officers of the Company, as of the date of this prospectus:
Title of Class .ame of Owner Amount and .ature of Ownership Citizenship %
__(1) __(1) __(1) __(1) __(1) __(1) __(1) __(1) __(1)

Common Common Common Common Common Common Common Common Common _________

Ramon S. Ang Ferdinand K. Constantino Francis H. Jardeleza Virgilio S. Jacinto Joseph N. Pineda Roberto N. Huang Rosabel Socorro T. Balan Iigo Zobel Carmelo L. Santiago

5,000 (Direct) 5,000 (Direct) 5,000 (Direct) 5,000 (Direct) 5,000 (Direct) 5,000 (Direct) 5,000 (Direct) 5,000 (Direct) 5,000 (Direct)

(1) Shareholding represents less than 0.01% of the Companys capital stock.

Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino

Except for the two independent directors, each of whom hold 5,000 Common Shares, all directors are nominees of the Company and hold nominee shares in their names. The beneficial ownership of the nominee shares held by such nominee directors remain with the Company. VOTI.G TRUST HOLDERS OF 5% OR MORE As of the date of this prospectus, there were no persons holding more than 5% of the Common Shares under a voting trust or similar agreement.

115

REGULATORY FRAMEWORK REGULATORY MATTERS Various government agencies in the Philippines regulate the different aspects of the Companys beer manufacturing, sales and distribution business. The Bureau of Food and Drugs (under the Department of Health) administers and enforces the law, and issues rules and circulars, on safety and good quality supply of food, drug and cosmetic to consumers; and regulation of the production, sale, and traffic of the same to protect the health of the people. Pursuant to this, food manufacturers are required to obtain a license to operate as such. The law further requires food manufacturers to obtain a certificate of product registration for each product. The Department of Health also prescribed the Guidelines on Current Good Manufacturing Practice in Manufacturing, Packing, Repacking, or Holding Food for food manufacturers. The Consumer Act of the Philippines, the provisions of which are principally enforced by the Department of Trade and Industry, seeks to protect consumers against hazards to health and safety and against deceptive, unfair and unconscionable sales acts and practices; and provide information and education to facilitate sound choice and the proper exercise of rights by the consumer. This law imposes rules to regulate such matters as (i) consumer product and safety; (ii) the production, sale, distribution and advertisement of food, drugs, cosmetics and devices as well as substances hazardous to the consumers health and safety; (iii) fair, honest consumer transactions and consumer protection against deceptive, unfair and unconscionable sales acts or practices; (iv) practices relative to the use of weights and measures; (v) consumer product and service warranties; (vi) compulsory labeling, and fair packaging; (vii) liabilities for defective products and services; (viii) consumer protection against misleading advertisements and fraudulent sales promotion practices; and (ix) consumer credit transactions. The Standards of Trade Practices and Conduct in the Advertising Industry as formulated by the Philippine Advertising Board, a voluntary association of various companies and groups engaged in the fields of advertising, marketing and media in the Philippines, prescribe rules on the advertising activities of its members. Under the SRC, the SEC has jurisdiction and supervision over all corporations, partnerships or associations that are grantees of primary franchises, license to do business or other secondary licenses. As the government agency regulating the Philippine securities market, the SEC issues regulations on the registration and regulation of securities exchanges, the securities market, securities trading, the licensing of securities brokers and dealers and reportorial requirements for publicly listed companies and the proper application of SRC provisions, as well as the Corporation Code, and certain other statutes. E.VIRO.ME.TAL MATTERS The operations of the Company are subject to various Philippines legislation, which are promulgated for the protection of the environment. The Company is required to comply with the provisions of the Philippine Environmental Impact Statement System (EIS Law). The EIS Law is the general regulatory framework for any project or undertaking that is either (i) classified as environmentally critical; or (ii) is situated in an environmentally critical area. The law is implemented by the DENR. Under the EIS Law, an entity that will undertake any such declared environmentally critical project or operate in any such declared environmentally critical area is required to submit an Environmental Impact Statement and secure an Environmental Compliance Certificate (ECC). This ECC requirement is applicable to each of the five (5) breweries that the Company operates throughout the Philippines.

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The Company is also subject to the provisions of the Philippine Clean Water Act of 2004 (Clean Water Act) and its implementing rules and regulations. The Clean Water Act requires the Company to secure a wastewater discharge permit, which authorizes it to discharge liquid waste and/or pollutants of specified concentration and volume from its breweries into any water or land resource for a specified period of time. The Environmental Management Bureau of the DENR is responsible for issuing discharge permits and monitoring and inspection of the facilities of the grantee of the permit. The provisions of the Philippine Clean Air Act and its implementing rules and regulations are likewise applicable to the Company. The Clean Air Act provides that before any business may be allowed to operate facilities and equipment, which emit regulated air pollutants, the establishment must first obtain a Permit to Operate Air Pollution Source and Control Installations. The Environmental Management Bureau is responsible for issuing permits to operate air pollution source and control installations as well as monitoring and inspection of the facilities of the grantee of the permit. Other regulatory environmental laws and regulations applicable to the Company are as follows: The Water Code, which governs the appropriation and use by any entity of water within the Philippines. Water permits are issued by the National Water Resources Board. Toxic Substances and Hazardous and Nuclear Wastes Control Act of 1990 and its implementing rules and regulations, which requires waste generators to register with the Environmental Management Bureau. The law aims to regulate the management of hazardous wastes generated by various establishments such as the Company.

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PHILIPPI.E TAXATIO. The following is a discussion of the material Philippine tax consequences of the acquisition, ownership and disposition of the Bonds. This general description does not purport to be a comprehensive description of the Philippine tax aspects of the Bonds and no information is provided regarding the tax aspects of acquiring, owning, holding or disposing of the Bonds under applicable tax laws of other applicable jurisdictions and the specific Philippine tax consequence in light of particular situations of acquiring, owning, holding and disposing of the Bonds in such other jurisdictions. This discussion is based upon laws, regulations, rulings, and income tax conventions (treaties) in effect at the date of this prospectus. The tax treatment of a holder of Bonds may vary depending upon such holders particular situation, and certain holders may be subject to special rules not discussed below. This summary does not purport to address all tax aspects that may be important to a Bondholder. PROSPECTIVE PURCHASERS OF THE BO,DS ARE URGED TO CO,SULT THEIR OW, TAX ADVISORS AS TO THE PARTICULAR TAX CO,SEQUE,CES OF THE OW,ERSHIP A,D DISPOSITIO, OF A BO,D, I,CLUDI,G THE APPLICABILITY A,D EFFECT OF A,Y LOCAL OR FOREIG, TAX LAWS. As used in this section, the term resident alien refers to an individual whose residence is within the Philippines and who is not a citizen thereof; a non -resident alien is an individual whose residence is not within the Philippines and who is not a citizen of the Philippines. A non-resident alien who is actually within the Philippines for an aggregate period of more than 180 days during any calendar year is considered a non resident alien doing business in th e Philippines, otherwise, such non -resident alien who is actually within the Philippines for an aggregate period of 180 days or less during any calendar year is considered a non -resident alien not doing business in the Philippines. A resident foreign corporation is a non -Philippine corporation engaged in trade or business within the Philippines; and a non -resident foreign corporation is a non Philippine corporation not engaged in trade or business within the Philippines. TAXATIO. OF I.TEREST The Tax Code provides that interest-bearing obligations of Philippine residents are Philippine sourced income subject to Philippine income tax. Interest income derived by Philippine resident individuals from the Bonds is thus subject to income tax, which is withheld at source, at the rate of 20% based on the gross amount of interest. Generally, interest on the Bonds received by non-resident aliens engaged in trade or business in the Philippines is subject to a 20% final withholding tax while that received by non-resident aliens not engaged in trade or business is subject to a final withholding tax rate of 25%. Interest income received by domestic corporations and resident foreign corporations from the Bonds is subject to a final withholding tax rate of 20%. Interest income received by non-resident foreign corporations from the Bonds is subject to a 30% final withholding tax. The foregoing rates are subject to further reduction by any applicable tax treaties in force between the Philippines and the country of residence of the non-resident owner. Most tax treaties to which the Philippines is a party generally provide for a reduced tax rate of 15% in cases where the interest which arises in the Philippines is paid to a resident of the other contracting state. However, most tax treaties also provide that reduced withholding tax rates shall not apply if the recipient of the interest who is a resident of the other contracting state, carries on business in the Philippines through a permanent establishment and the holding of the relevant interest-bearing instrument is effectively connected with such permanent establishment. TAX-EXEMPT STATUS OR E.TITLEME.T TO PREFERE.TIAL TAX RATE Bondholders who are exempt from or are not subject to final withholding tax on interest income may claim such exemption by submitting the necessary documents. Said Bondholder shall submit the following requirements: (i) certified true copy of the tax exemption certificate, ruling or opinion issued by the BIR confirming the exemption or preferential rate; (ii) with respect to tax treaty relief, proof to support applicability of reduced tax rates, such as the consularized proof of tax domicile issued by the relevant tax authority of the Bondholder, and original or SEC-certified true copy of the SEC confirmation that the relevant entity is not doing business in the Philippines; (iii) a duly notarized undertaking to immediately notify the Issuer, the Registrar and the Paying Agent of any suspension or revocation of the tax exemption certificate, certificate, ruling or opinion issued by the BIR, executed using the prescribed form, with a declaration and warranty of its tax-exempt status or entitlement to a preferential tax rate, and an agreement to indemnify and hold the Issuer, the Registrar and the 118

Paying Agent free and harmless against any claims, actions, suits, and liabilities resulting from the nonwithholding or incorrect withholding of the required tax; and (iv) such other documentary requirements as may be required under the applicable regulations of the relevant taxing or other authorities; provided, that the Issuer, the Registrar and the Paying Agent shall have the exclusive discretion to decide whether the documents submitted are sufficient for purposes of applying the exemption or the reduced rate being claimed by the Bondholder on the interest payments to such Bondholder; provided further that, all sums payable by the Issuer to tax-exempt entities shall be paid in full without deductions for taxes, duties, assessments, or government charges, subject to the submission by the Bondholder claiming the benefit of any exemption of the required documents and of additional reasonable evidence of such tax-exempt status to the Registrar. The foregoing requirements shall be submitted, (i) in respect of an initial issuance of Bonds, to the underwriters or selling agents who shall then forward the same with the Application to Purchase to the Registrar; or (ii) in respect of a transfer from a Bondholder to a purchaser, to the Registrar within three days from settlement date. VALUE-ADDED TAX Gross receipts arising from the sale of the Bonds in the Philippines by dealers in securities shall be subject to a 12% value-added tax. GROSS RECEIPTS TAX Bank and non-bank financial intermediaries performing quasi-banking functions are subject to gross receipts tax on gross receipts derived from sources within the Philippines in accordance with the following schedule: On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived: Maturity period is five years or less Maturity period is more than five years 5% 1%

Non-bank financial intermediaries not performing quasi-banking functions doing business in the Philippines are likewise subject to gross receipts tax. Gross receipts of such entities derived from sources within the Philippines from interests, commissions and discounts from lending activities are taxed in accordance with the following schedule based on the remaining maturities of the instruments from which such receipts are derived: Maturity period is 5 years or less Maturity period is more than 5 years 5% 1%

In case the maturity period of the instruments held by banks, non-bank financial intermediaries performing quasi-banking functions and non-bank financial intermediaries not performing quasi-banking functions is shortened through pre-termination, then the maturity period shall be reckoned to end as of the date of pretermination for purposes of classifying the transaction and the correct rate shall be applied accordingly. Net trading gains realized within the taxable year on the sale or disposition of the Bonds by banks and non-bank financial intermediaries performing quasi-banking functions shall be taxed at 7%. DOCUME.TARY STAMP TAX A documentary stamp tax is imposed upon the issuance of debt instruments issued by Philippine companies, such as the Bonds, at the rate of P1.00 for each P200, or fractional part thereof, of the issue price of such debt instruments; provided that, for debt instruments with terms of less than one year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ratio of its term in number of days to 365 days. The documentary stamp tax is collectible wherever the document is made, signed, issued, accepted, or transferred, when the obligation or right arises from Philippine sources, or the property is situated in the Philippines. Any applicable documentary stamp taxes on the original issue shall be paid by the Issuer for its own account.

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TAXATIO. O. SALE OR OTHER DISPOSITIO. OF THE BO.DS Income Tax Any gain realized from the sale, exchange or retirement of bonds will, as a rule, form part of the gross income of the sellers, for purposes of computing the relevant taxable income subject to the regular rates of 32%, 25%, or 30%, as the case may be. If the bonds are sold by a seller, who is an individual and who is not a dealer in securities, who has held the bonds for a period of more than 12 months prior to the sale, only 50% of any capital gain will be recognized and included in the sellers gross taxable income. However, under the Tax Code, any gain realized from the sale, exchange or retirement of bonds, debentures and other certificates of indebtedness with an original maturity date of more than five years (as measured from the date of issuance of such bonds, debentures or other certificates of indebtedness) shall not be subject to income tax. Moreover, any gain arising from such sale, regardless of the original maturity date of the bonds, may be exempt from income tax pursuant to various income tax treaties to which the Philippines is a party, and subject to procedures prescribed by the Bureau of Internal Revenue for the availment of tax treaty benefits. Estate and Donors Tax The transfer by a deceased person, whether a Philippine resident or a non-Philippine resident, to his heirs of the Bonds shall be subject to an estate tax which is levied on the net estate of the deceased at progressive rates ranging from 5% to 20%, if the net estate is over P200,000. A Bondholder shall be subject to donors tax based on the net gift on the transfer of the Bonds by gift at either (i) 30%, where the donee or beneficiary is a stranger, or (ii) at progressive rates ranging from 2% to 15% if the net gifts made during the calendar year exceed P100,000 and where the donee or beneficiary is not a stranger. For this purpose, a stranger is a person who is not a: (a) brother, sister (whether by whole or half-blood), spouse, ancestor or lineal descendant; or (b) relative by consanguinity in the collateral line within the fourth degree of relationship. The estate or donors taxes payable in the Philippines may be credited with the amount of any estate or donor's taxes imposed by the authority of a foreign country, subject to limitations on the amount to be credited, and the tax status of the donor. The estate tax and the donors tax, in respect of the Bonds, shall not be collected (a) if the deceased, at the time of death, or the donor, at the time of the donation, was a citizen and resident of a foreign country which, at the time of his death or donation, did not impose a transfer tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country; or (b) if the laws of the foreign country of which the deceased or donor was a citizen and resident, at the time of his death or donation, allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in the foreign country. In case the Bonds are transferred for less than an adequate and full consideration in money or money's worth, the amount by which the fair market value of the Bonds exceeded the value of the consideration may be deemed a gift and may be subject to donors taxes. Documentary Stamp Tax No documentary stamp tax is imposed on the subsequent sale or disposition of the Bonds, trading the Bonds in a secondary market or though an exchange. However, if the transfer constitutes a renewal of the Bonds, documentary stamp tax is payable anew.

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LEGAL MATTERS Certain Philippine legal matters in connection with the Offer have been passed upon for the Company by Picazo Buyco Tan Fider & Santos, Makati, Philippines, and for the Joint Issue Managers and for the Joint Lead Managers and Underwriters by SyCip Salazar Hernandez & Gatmaitan, Makati, Philippines. Neither Picazo Buyco Tan Fider & Santos nor SyCip Salazar Hernandez & Gatmaitan, has or will receive any direct or indirect interest in the Company or in any securities thereof (including options, warrants, or rights thereto) pursuant to, or in connection with, the Offer. Neither Picazo Buyco Tan Fider & Santos nor SyCip Salazar Hernandez & Gatmaitan has acted or will act as promoter, underwriter, voting trustee, offic er or employee of the Company.

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EXPERTS Canadean, a leading global beverage research company, provided certain information and statistics set forth in this prospectus. Canadean does not own any interests in the Company.

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I.DEPE.DE.T PUBLIC ACCOU.TA.TS The examined pro forma consolidated financial statements of the Company as of and for the year ended December 31, 2008 and the historical financial statements which comprise the balance sheets as at December 31, 2008 and 2007, and the statements of income, statements of changes in equity and statements of cash flows for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007, including the notes thereto which are incorporated by reference included in this prospectus, have been examined and audited, as the case may be, without qualification by Manabat Sanagustin & Co., auditors as stated in their reports appearing herein. The Company has not had any disagreements on accounting and financial disclosures with its curren t external auditors for the same periods or any subsequent interim periods. Manabat Sanagustin & Co., one of the top four auditing firms in the Philippines, has acted as the auditors of San Miguel Corporation (SMC), the parent company where the historical information of the Company was carved-out since 2006. The shareholders approved the appointment of Manabat Sanagustin & Co. as the Companys external auditors upon the recommendation of the management. The Company has also engaged the services of Manabat Sanagustin & Co. for the public offering of its Common Shares. The Companys management recommended and engaged Manabat Sanagustin & Co.s services based on their professionalism, efficient services and cost competitiveness. Jose P. Javier, Jr. is the Engagement Partner. Manabat Sanagustin & Co. has neither shareholdings in the Company nor any right, whether legally enforceable or not, to nominate persons or to subscribe for the securities in the Company. Manabat Sanagustin & Co. will not receive any direct or indirect interest in the Company or in any securities thereof (including options, warrants or rights thereto) pursuant to or in connection with the Offer. The foregoing is in accordance with the Code of Ethics for Professional Accountants in the Philippines set by the Board of Accountancy and approved by the Professional Regulation Commission. AUDIT A.D AUDIT-RELATED FEES The Companys audit and audit-related fees are as indicated in the table below:
(in P)

Audit and Audit Related Fees Professional fees related to the statutory reports as of December 31, 2008 ......... Professional fees related to the examined pro forma consolidated financial statements of the Company as of and for the years ended December 31, 2008 ................................................................................................................ Total ..........................................................................................................................

6,000,000

2,000,000 8,000,000

Apart from the foregoing, no other services were rendered or fees billed by the Companys auditors as of and for the year ended December 31, 2008. Manabat Sanagustin and Co. does not have any direct or indirect interest in the Company.

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ISSUER San Miguel Brewery Inc. 40 San Miguel Avenue Mandaluyong City Philippines JOI.T ISSUE MA.AGERS The Development Bank of the Philippines DBP Bldg., Sen. Gil Puyat Ave. Makati City, Philippines The Hongkong and Shanghai Banking Corporation Limited 8/F The Enterprise Center, Tower I, 6766 Ayala Avenue cor. Paseo de Roxas, Makati City

JOI.T LEAD MA.AGERS A.D U.DERWRITERS The Development Bank of the Philippines DBP Bldg., Sen. Gil Puyat Ave. Makati City, Philippines The Hongkong and Shanghai Banking Corporation Limited 8/F The Enterprise Center, Tower I, 6766 Ayala Avenue cor. Paseo de Roxas, Makati City

BDO Capital & Investment Corporation BDO Corporate Center 7899 Makati Avenue, Makati City

BPI Capital Corporation 8/F BPI Building Ayala Avenue corner Paseo de Roxas Makati City

China Banking Corporation China Bank Building 8745 Paseo de Roxas corner Villar Street, Makati City

First Metro Investment Corporation 45/F GT Tower International 6813 Ayala Avenue corner H.V. Dela Costa St., Makati City

I.G Bank ..V. 21/F Tower One, Ayala Triangle, Ayala Avenue Makati City

Landbank of the Philippines 1598 M.H. del Pilar corner Dir. J. Quintos Sts., Malate, Manila

Philippine Commercial Capital, Inc. PCCI Corporate Centre 118 LP Leviste St, Salcedo Village Makati City

RCBC Capital Corporation 7/F Yuchengco Tower, RCBC Plaza, 6819 Ayala Avenue, Makati City

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Standard Chartered Bank 8/F and 9/F, Standard Chartered Bank Building 6788 Ayala Avenue, Makati City

Union Bank of the Philippines UnionBank of Plaza Meralco Ave. cor. Onyx St., Ortigas Center, Pasig City

PARTICIPATI.G U.DERWRITERS SB Capital Investment Corp. LEGAL COU.SEL TO THE COMPA.Y Picazo Buyco Tan Fider & Santos 18th Floor Liberty Center 104 H. V. Dela Costa Street Salcedo Village, Makati City, Philippines LEGAL COU.SEL TO THE JOI.T ISSUE MA.AGERS A.D THE JOI.T LEAD MA.AGERS A.D U.DERWRITERS SyCip Salazar Hernandez & Gatmaitan SSHG Law Centre 105 Paseo de Roxas, Makati City, Philippines

I.DEPE.DE.T CERTIFIED PUBLIC ACCOU.TA.TS Manabat Sanagustin & Co. 9th Floor, The KPMG Center, 6787 Ayala Avenue Makati City, Philippines

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I.DEX TO FI.A.CIAL STATEME.TS

Examined Pro Forma Consolidated Financial Statements as of and for the year ended December 31, 2008, and notes to the Pro Forma Consolidated Financial Statements ................................................. Appendix A - Audited Financial Statements as at December 31, 2008 and 2007, and for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007, and the notes to the Audited Financial Statements .........................................................................................................

F-1

F-58

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SA. MIGUEL BREWERY I.C. A.D SUBSIDIARIES (A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation)
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008

F-1

Manabat Sanagustin & Co. Certified Public Accountants The KPMG Center, 9/F 6787 Ayala Avenue Makati City 1226, Metro Manila, Philippines Branches Subic Cebu Bacolod Iloilo

Telephone Fax Internet E-Mail

+63 (2) 885 7000 +63 (2) 894 1985 www.kpmg.com.ph manila@kpmg.com.ph

PRC-BOA Registration No. 0003 SEC Accreditation No. 0004-FR-2 BSP Accredited

REPORT OF I.DEPE.DE.T AUDITORS

The Stockholders and Board of Directors San Miguel Brewery Inc. 40 San Miguel Avenue Mandaluyong City We have examined the pro forma financial information reflecting the transactions as described in Note 2 to the pro forma consolidated financial statements, including the appropriate adjustments to the historical amounts in the assembly of the accompanying pro forma consolidated balance sheet of San Miguel Brewery Inc. (the Parent Company) and Subsidiaries as of December 31, 2008, and the pro forma consolidated statement of income, pro forma consolidated statement of changes in equity and pro forma consolidated statement of cash flows for the year then ended. The 2008 historical financial statements are derived from the balance sheet of San Miguel Brewery Inc. as of December 31, 2008 and the statement of income, statement of changes in equity and statement of cash flows for the year then ended. These historical financial statements of San Miguel Brewery Inc. were audited by us, of which our report thereon dated January 30, 2009, expressed an unqualified opinion with respect to those statements which are attached and labeled as Appendix A. The pro forma adjustments are based on Parent Companys management assumptions as described in Note 2 to the pro forma consolidated financial statements. The Parent Companys management is responsible for the pro forma financial information. Our responsibility is to express an opinion on the pro forma financial information based on our examination. Our examination was conducted in accordance with the Philippine Standard on Assurance Engagements 3000, Assurance Engagements Other than Audits or Review of Historical Financial Information and Philippine Securities and Exchange Commission Memorandum Circular No. 2, Series of 2008, Guidelines on Reporting and Attestation of Pro Forma Financial Information and, accordingly, included such procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. The objective of this pro forma financial information is to show what the significant effects on the audited financial statements might have been had the transactions described in Note 2 to the pro forma consolidated financial statements occurred at an earlier date. However, the pro forma consolidated financial statements are not necessarily indicative of the consolidated financial performance or related effects on the consolidated financial position and consolidated cash flows that would have been attained had the above-mentioned transactions actually occurred earlier.

Manabat Sanagustin & Co., certified public accountants, a professional partnership established under Philippine law, is a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

In our opinion, Parent Companys management assumptions to the pro forma consolidated information provide a reasonable basis for presenting the significant effects directly attributable to the above-mentioned transactions described in Note 2 to the pro forma consolidated financial statements, the related pro forma adjustments give appropriate effect to those assumptions, and the pro forma column reflects the proper application of those adjustments to the audited financial statements amounts in the pro forma consolidated balance sheet of San Miguel Brewery Inc. and Subsidiaries as of December 31, 2008 and the pro forma consolidated statement of income, pro forma consolidated statement of changes in equity and pro forma consolidated statement of cash flows for the year then ended. MA.ABAT SA.AGUSTI. & CO.

JOSE P. JAVIER, JR. Partner CPA License No. 0070807 SEC Accreditation No. 0678-A Tax Identification No. 112-071-224 BIR Accreditation No. 08-001987-16-2007 Issued December 11, 2007; Valid until December 10, 2010 PTR No. 1564061MB Issued January 5, 2009 at Makati City

February 12, 2009 Makati City, Metro Manila

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SA. MIGUEL BREWERY I.C. A.D SUBSIDIARIES (A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation) PRO FORMA CO.SOLIDATED BALA.CE SHEET DECEMBER 31, 2008 (In Millions)

,ote ASSETS Current Assets Cash and cash equivalents Trade and other receivables - net Inventories - net Prepaid expenses and other current assets Total Current Assets .oncurrent Assets Property, plant and equipment - net Intangible assets Deferred tax assets Other noncurrent assets - net Total .oncurrent Assets 2, 5, 26, 27 2, 4, 6, 26, 27 4, 7 2, 8, 27 P6,427 3,662 3,279 379 13,747 12,932 32,011 312 4,894 50,149 P63,896

2, 4, 9 2, 4, 10 2, 4, 14 2, 4, 11, 27

LIABILITIES A.D EQUITY Current Liabilities Accounts payable and accrued expenses Income and other taxes payable Total Current Liabilities .oncurrent Liabilities Long-term debt - net of debt issue costs Other noncurrent liabilities Total .oncurrent Liabilities
Forward

2, 12, 26, 27 2, 14

P3,000 1,518 4,518 38,447 9 38,456

2, 13, 26, 27 2

F-4

,ote Equity Capital stock Additional paid-in capital Cumulative translation adjustments Retained earnings Total Equity Attributable to Equity Holders of the Parent Company Minority Interests Total Equity 15 27 2 2 2 P15,410 515 (45) 4,800 20,680 242 20,922 P63,896

San Miguel Brewery Inc. (Parent Company) was incorporated on July 26, 2007. The net assets of the Domestic Beer Division of San Miguel Corporation were transferred to the Parent Company on October 1, 2007. Commercial operations of the Parent Company likewise started on October 1, 2007. As explained in +ote 2 to the pro forma consolidated financial statements, the commercial operations of the subsidiaries was assumed to start on January 1, 2008. See +otes to the Pro Forma Consolidated Financial Statements.

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SA. MIGUEL BREWERY I.C. A.D SUBSIDIARIES (A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation) PRO FORMA CO.SOLIDATED STATEME.T OF I.COME FOR THE YEAR E.DED DECEMBER 31, 2008 (In Millions, Except Basic Earnings Per Share)

,ote SALES COST OF SALES GROSS PROFIT ADMI.ISTRATIVE A.D SELLI.G EXPE.SES I.TEREST EXPE.SE A.D OTHER FI.A.CI.G CHARGES I.TEREST I.COME OTHER I.COME (EXPE.SE) - Net I.COME BEFORE I.COME TAX I.COME TAX EXPE.SE .ET I.COME Attributable to: Equity holders of the Parent Company Minority interests Basic Earnings Per Share, attributable to equity holders of the Parent Company 2, 14 20 2, 17 2, 13 16 P48,787 24,800 23,987 (7,288) (3,484) 264 (377) 13,102 4,303 P8,799 P8,787 12 P8,799 P0.57

2, 24 2

24

San Miguel Brewery Inc. (Parent Company) was incorporated on July 26, 2007. The net assets of the Domestic Beer Division of San Miguel Corporation were transferred to the Parent Company on October 1, 2007. Commercial operations of the Parent Company likewise started on October 1, 2007. As explained in +ote 2 to the pro forma consolidated financial statements, the commercial operations of the subsidiaries was assumed to start on January 1, 2008. See +otes to the Pro Forma Consolidated Financial Statements.

F-6

SA. MIGUEL BREWERY I.C. A.D SUBSIDIARIES (A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation) PRO FORMA CO.SOLIDATED STATEME.T OF CHA.GES I. EQUITY FOR THE YEAR E.DED DECEMBER 31, 2008 (In Millions, Except for Par Value and Number of Shares of Stock)

,ote CAPITAL STOCK - P1 par value Authorized - 25,000,000,000 shares Balance at beginning of year Issuances during the year Balance at end of year ADDITIO.AL PAID-I. CAPITAL CUMULATIVE TRA.SLATIO. ADJUSTME.TS RETAI.ED EAR.I.GS Balance at beginning of year Net income for the year Cash dividends Balance at end of period TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARE.T COMPA.Y MI.ORITY I.TERESTS Balance at beginning of year Pre-acquisition carrying amount of minority interests Share in equity during the year Cash dividends Balance at end of year 27 15 P15,333 77 15,410 515 (45) 2,310 8,787 (6,297) 4,800

2, 28

20,680 239 12 (9) 242 P20,922

San Miguel Brewery Inc. (Parent Company) was incorporated on July 26, 2007. The net assets of the Domestic Beer Division of San Miguel Corporation were transferred to the Parent Company on October 1, 2007. Commercial operations of the Parent Company likewise started on October 1, 2007. As explained in +ote 2 to the pro forma consolidated financial statements, the commercial operations of the subsidiaries was assumed to start on January 1, 2008. See +otes to the Pro Forma Consolidated Financial Statements.

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SA. MIGUEL BREWERY I.C. A.D SUBSIDIARIES (A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation) PRO FORMA CO.SOLIDATED STATEME.T OF CASH FLOWS FOR THE YEAR E.DED DECEMBER 31, 2008 (In Millions)

,ote CASH FLOWS FROM OPERATI.G ACTIVITIES Income before income tax Adjustments for: Interest expense and other financing charges Depreciation and amortization Interest income Reversal of allowance for doubtful accounts, inventory losses and others Gain on sale of property, plant and equipment - net Operating income before working capital changes Decrease (increase) in: Trade and other receivables Inventories Prepaid expenses and other current assets Increase (decrease) in: Accounts payable and accrued expenses Income and other taxes payables Cash generated from operations Interest paid Income taxes paid Net cash flows from operating activities CASH FLOWS FROM I.VESTI.G ACTIVITIES Additions to property, plant and equipment Proceeds from sale of property, plant and equipment Increase in intangible assets Increase in other noncurrent assets Interest received Net cash flows used in investing activities
Forward

P13,102 18 6, 7 20 3,484 1,758 (264) (127) (17) 17,936 65 (751) (199) (307) 332 17,076 (3,392) (4,723) 8,961

(8,002) 44 (32,012) (963) 259 (40,674)

F-8

,ote CASH FLOWS FROM FI.A.CI.G ACTIVITIES Proceeds from issuance of long-term debt Decrease in other noncurrent liabilities Proceeds from issuances of capital stock Dividends paid to minority shareholders Cash dividends paid Increase in minority interests Net cash flows provided by financing activities .ET I.CREASE I. CASH A.D CASH EQUIVALE.TS CASH A.D CASH EQUIVALE.TS AT BEGI..I.G OF YEAR CASH A.D CASH EQUIVALE.TS AT E.D OF YEAR

15 28

P38,355 (3) 592 (9) (6,296) 239 32,878 1,165 5,262

P6,427

San Miguel Brewery Inc. (Parent Company) was incorporated on July 26, 2007. The net assets of the Domestic Beer Division of San Miguel Corporation were transferred to the Parent Company on October 1, 2007. Commercial operations of the Parent Company likewise started on October 1, 2007. As explained in +ote 2 to the pro forma consolidated financial statements, the commercial operations of the subsidiaries was assumed to start on January 1, 2008. See +otes to the Pro Forma Consolidated Financial Statements.

F-9

SA. MIGUEL BREWERY I.C. A.D SUBSIDIARIES (A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation) .OTES TO THE PRO FORMA CO.SOLIDATED FI.A.CIAL STATEME.TS (Amounts in Millions, Except Per Share and Number of Shares Data)

1. Reporting Entity San Miguel Brewery Inc. (the Parent Company) [formerly the domestic beer division of San Miguel Corporation (SMC)] was registered with the Philippine Securities and Exchange Commission (SEC) on July 26, 2007. The pro forma consolidated financial statements as of and for the year ended December 31, 2008 comprise the financial statements of the Parent Company and its Subsidiaries (collectively referred to as the Group). The Parent Company is engaged in manufacturing, selling and distribution of fermented and malt-based beverages and its Subsidiaries (Note 2) are engaged in the business of selling, managing, developing and dealing in real estate properties and in manufacturing, selling or dealing in alcoholic and non-alcoholic beverages and acquiring, licensing or owning trademarks and intellectual property rights necessary for such business. The registered office address of the Parent Company is 40 San Miguel Avenue, Mandaluyong City, Philippines. The Parent Company is 94.25% owned and controlled by SMC. SMC is the ultimate parent company. On July 24, 2007, the stockholders of SMC, during the annual stockholders meeting, approved the transfer of SMCs domestic Philippine beer business assets to a whollyowned subsidiary of SMC, the Parent Company, in exchange for shares of stock. The assets transferred to the Parent Company comprise the domestic beer business net assets as of June 30, 2007 excluding land, brands, and income and other taxes payable. The transfer of SMCs domestic beer business net assets to the Parent Company is pursuant to the listing with the Philippine Stock Exchange (PSE) and the public offering of the shares of the Parent Company. The actual transfer of the net assets in exchange for shares of stock took effect on October 1, 2007. On May 12, 2008, the Parent Companys shares were listed with the PSE. The pro forma consolidated financial statements as of and for the year ended December 31, 2008 were approved and authorized for issue by the Board of Directors (BOD) on February 12, 2009. 2. Basis of Preparation The accompanying pro forma consolidated financial statements have been prepared as if the acquisitions of brands and other intangible assets (trademarks, copyrights, patents and other intellectual property rights and know-how) and parcels of land by the Subsidiaries, start of commercial operations of the Subsidiaries and issuance of long-term debt occurred on January 1, 2008.

F-10

The pro forma consolidated financial statements are based on the historical information of the Parent Company as shown in the audited financial statements as of and for the year ended December 31, 2008, after giving effect to the assumptions and adjustments described below. The pro forma consolidated financial statements are presented in Philippine peso, which is the Parent Companys functional and presentation currency, and all values are rounded to the nearest million (P000,000), except when otherwise indicated. The accompanying pro forma consolidated financial statements are for informational purposes only and do not purport to present what the financial position, financial performance and cash flows would have been had the acquisitions of intangible assets (trademarks, copyrights, patents and other intellectual property rights and know-how) and parcels of land by the Subsidiaries and issuance of long-term debt actually occurred on January 1, 2008 or purport to project the financial position, financial performance and cash flows for any future period. The pro forma adjustments arising from the transactions described in the succeeding paragraph represent the significant effects directly attributable to those transactions which have been determined based upon available information and certain assumptions that management believes to be reasonable. The accompanying pro forma consolidated financial statements assume that: (i) the Parent Company acquired on January 1, 2008 all the interests of SMC in Iconic Beverages, Inc. (IBI) after SMC has transferred to IBI certain Philippine beer and malt-based beverages brands and other intangible assets, including trademarks, copyrights, patents and other intellectual property rights and knowhow of SMC; the Parent Company also acquired on January 1, 2008 all the interests of SMC in Brewery Properties Inc. (BPI) after SMC has transferred c ertain parcels of land used in the domestic beer operations of the Company to BPI; IBI is a wholly-owned subsidiary of the Parent Company, with an outstanding capital stock of P10,000 divided into 100,002,500 common shares, fully paid and with a par value of P100 per common share; BPI has an outstanding capital stock of P856 (inclusive of additional paid in capital) divided into 2,389,494 preferred shares with par value of P100 per preferred share and 1,592,996 common shares with par value of P350 per common share; all outstanding common shares of BPI are owned by the Parent Company and all outstanding preferred shares are owned by SMBRP; Brewery Landholdings, Inc. (BLI) is a wholly-owned subsidiary of BPI, with an outstanding capital stock of P239 divided into 2,389,494 common shares, fully paid and with par value of P100 per common share and owns certain parcels of land it has purchased from SMC on which the sales offices of the Parent Company are located; BLI and BPI charged the Parent Company rental fee of 4% of the appraised value of the land for the use of land owned by BPI and BLI by the Parent Company in its operations and the lease is negotiable yearly;
F-11

(ii)

(iii)

(iv)

(v) (vi)

(vii)

(viii)

the dividends for preferred shares of BPI is at a fixed rate of 7% of net income of BPI; BPI and IBI declared 100% of its net income in the month following the end of each quarter as cash dividends; IBI charged the Parent Company royalty fee for the use of the brands and other intellectual property rights owned by IBI at a rate of 5% of the net beer and maltbased beverages sales revenue of the Parent Company; IBI, BPI and, BLI started commercial operations on January 1, 2008; the Parent Company issued multi-tranche peso bonds in the aggregate principal amount of P38,800; the multi-tranche peso bonds issued by the Parent Company carry a fixed rate of 8%, 9% and 10% for tenors of three, five years and one day and ten years, respectively; and the Parent Company declared 70% of its unappropriated retained earnings in the month following the end of each quarter as cash dividends.

(ix)

(x)

(xi) (xii) (xiii)

(xiv)

Statement of Compliance The accompanying pro forma consolidated financial statements were based on the audited financial statements of the Parent Company as of and for the year ended December 31, 2008, which were prepared in compliance with Philippine Financial Reporting Standards (PFRS). PFRS includes statements named PFRS, Philippine Accounting Standards (PAS) and Philippine interpretations from International Financial Reporting Interpretations Committee (IFRIC) issued by the Financial Reporting Standards Council (FRSC).

F-12

The following tables show the effects of the pro forma adjustments to the Parent Companys audited financial statements as of and for the year ended December 31, 2008.
December 31, 2008 Parent Company Audited Balances ASSETS Current Assets Cash and cash equivalents Trade and other receivables - net Inventories - net Prepaid expenses and other current assets Total Current Assets .oncurrent Assets Property, plant and equipment - net Intangible assets Deferred tax assets Other noncurrent assets - net Total .oncurrent Assets Pro Forma Adjustments Pro Forma Consolidated Balances

P6,041 3,661 3,279 418 13,399 5,864 11 427 4,933 11,235 P24,634

P386 1 (39) 348 7,068 32,000 (115) (39) 38,914 P39,262

(1) (2)

P6,427 3,662 3,279 379 13,747

(3)

(4) (5) (6)

(7)

12,932 32,011 312 4,894 50,149 P63,896

LIABILITIES A.D EQUITY Current Liabilities Accounts payable and accrued expenses Income and other taxes payable Total Current Liabilities .oncurrent Liabilities Long-term debt - net of debt issue costs Other noncurrent liabilities Total .oncurrent Liabilities Equity Capital stock Additional paid-in capital Cumulative translation adjustments Retained earnings Total Equity Attributable to Equity Holders of the Parent Company Minority Interests Total Equity

P3,000 2,585 5,585

P (1,067) (1,067)

(8)

P3,000 1,518 4,518

39 39 15,410 515 (45) 3,130

38,447 (30) 38,417 1,670

(9) (10)

38,447 9 38,456 15,410 515

(11)

(45) 4,800

19,010 19,010 P24,634

1,670 242 1,912 P39,262

(12)

20,680 242 20,922 P63,896

F-13

(1)

Represents payment of debt issue costs, interest expense, reversal of rent and royalty, adjustment of income tax expense, dividend payments and other charges Debt issue costs Interest expense Reversal of rent and royalty previously paid to SMC Taxes and other charges Dividends adjustment based on actual payments made versus pro forma assumptions Total (P445) (3,392) 1,147 159 2,917 P386

(2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12)

Represents tax certificate receivables on rent income of BPI and BLI Represents reversal of two months advance rent for the use of the land previously leased from SMC Represents cost of land acquired by BPI and BLI from SMC Represents cost of brands and other intangible assets acquired by IBI from SMC Represents adjustment due to debt issue costs Represents reversal of two months rent deposit for the use of the land previously leased from SMC Represents adjustment of income tax expense due to lower taxable income Represents proceeds from issuance of long-term debt less unamortized debt issue costs Represents reversal of accrued rent on land previously leased from SMC Represents adjustment primarily due to change in dividends declaration from 100% of unappropriated retained earnings to 70%, net of the effect of the other assumptions on net income Represents minority interest of SMBRP in BPI

December 31, 2008 Parent Company Audited Balances P48,787 24,800 23,987 (8,366) 264 (377) 15,508 5,466 P10,042 Pro Forma Consolidated Balances P48,787 24,800 23,987
(13)

SALES COST OF SALES GROSS PROFIT ADMI.ISTRATIVE A.D SELLI.G EXPE.SES I.TEREST EXPE.SE A.D OTHER FI.A.CI.G CHARGES I.TEREST I.COME OTHER EXPE.SE - Net I.COME BEFORE I.COME TAX I.COME TAX EXPE.SE .ET I.COME
(13)

Pro Forma Adjustments P 1,078 (3,484) (2,406) (1,163) (P1,243)

(15)

(7,288)

(14)

(3,484) 264 (377) 13,102 4,303 P8,799

Represents reversal of rental and royalty expense paid to SMC, net of expenses of the two subsidiaries (BPI & IBI) Royalty Rental Taxes and licenses Total P974 188 (84) P1,078

(14) (15)

Represents interest and financing charges and amortization of debt issue costs for the long-term debt Represents adjustment of income tax expense due to lower taxable income

F-14

December 31, 2008 Parent Company Audited Balances .et cash flows from operating activities .et cash flows used in investing activities .et cash flows provided by (used in) financing activities .et increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year
(16) (17) (18)

Pro Forma Adjustments (P2,066) (39,029) 41,481 386 P386

Pro Forma Consolidated Balances

(16)

P11,027 (1,645) (8,603) 779 5,262 P6,041

P8,961 (40,674) 32,878 1,165 5,262 P6,427

(17)

(18)

Represents decrease in net income primarily due to interest expense Represents cash used to purchase land, brands and other intangible assets Represents proceeds from issuance of long-term debt and adjustment due to change in dividends declaration from 100% of unappropriated retained earnings to 70%

Basis of Consolidation The pro forma consolidated financial statements include the accounts of the Parent Company and the following subsidiaries:
Percentage of Ownership Iconic Beverages, Inc. Brewery Properties Inc. and a wholly-owned Subsidiary (Brewery Landholdings, Inc.) 100% 40% Country of Incorporation Philippines Philippines

A subsidiary is an entity controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefit from its activities. In assessing control, potential voting rights that are presently exercisable or convertible are taken into account. The financial statements of the subsidiary are included in the pro forma consolidated financial statements from the date when the Group obtains control, and continue to be consolidated until the date that such control ceases. Following the provisions of PAS 27, Consolidated and Separate Financial Statements , the Parent Company included the accounts of BPI in the consolidation. The pro forma consolidated financial statements are prepared for the same reporting period as the Parent Company, using uniform accounting policies for like transactions and other events in similar circumstances. Intergroup balances and transactions, including intergroup unrealized profits and losses, are eliminated in preparing the pro forma consolidated financial statements. Minority interests represent the portion of profit or loss and net assets not held by the Group and are presented in the pro forma consolidated balance sheet, separately from equity attributable to equity holders of the Parent Company. Minority interests represent the interest not held by the Group in BPI.
F-15

3. Significant Accounting Policies The accounting policies set out below have been applied consistently by the Group to all periods presented in the pro forma consolidated financial statements. Adoption of New Standards, Amendments to Standards and Interpretations The FRSC approved the adoption of new standards, amendment to standards, and interpretations. Amendments to Standard and Interpretation Adopted in 2008 Starting January 1, 2008, the Group adopted the following amendments to standard and Philippine Interpretations from IFRIC: Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions: This interpretation describes how to apply PFRS 2, Share-based Payment to share-based payment arrangements involving an entitys own equity instruments and share-based payment arrangements of subsidiaries involving equity instruments of its parent company. The adoption of this interpretation did not have a material effect on the Groups pro forma consolidated financial statements. Philippine Interpretation IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction: This interpretation provides general guidance on how to assess the limit in PAS 19, Employee Benefits, on the amount of the surplus that can be recognized as an asset. It also explains how the retirement asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The adoption of this interpretation did not have a material effect on the Groups pro forma consolidated financial statements. Amendments to PAS 39, Financial Instruments: Recognition and Measurement and PFRS 7 Financial Instruments: Disclosures: This standard permits an entity to reclassify non-derivative financial assets, other than those designated at fair value through profit or loss upon initial recognition, out of the trading category in certain circumstances. The amendments also permit an entity to transfer from the availablefor-sale category to the loans and receivables category a financial asset that otherwise would have met the definition of loans and receivables, if the entity has the intention and ability to hold that financial asset for the foreseeable future. The adoption of these amendments to standard did not have an effect on the Groups pro forma consolidated financial statements. +ew and Revised Standards and Amendments to Standards +ot Yet Adopted The following are the new and revised standards and amendments to standards which are not yet effective for the year ended December 31, 2008, and have not been applied in preparing these pro forma consolidated financial statements: PFRS 8, Operating Segments, becomes effective for financial years beginning on or after January 1, 2009 and will replace PAS 14, Segment Reporting. This standard introduces the management approach to segment reporting. It will require a change in the presentation and disclosure of segment information based on the internal reports regularly reviewed by the Groups Chief Operating Decision Maker in order to assess each segments performance and to allocate resources to them. The Group has determined that this standard has no impact on its pro forma consolidated financial statements since it operates as one segment only (both in terms of business and geography).
F-16

Revised PAS 1, Presentation of Financial Statements, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to introduce the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement), or in an income statement and a separate statement of comprehensive income. The Group is currently assessing the impact of the revised standard on the pro forma consolidated financial statements when it adopts the standard on January 1, 2009. Revised PAS 23, Borrowing Costs, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to require an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The Group will assess the impact of this revised standard on the pro forma consolidated financial statements when it adopts the standard on January 1, 2009. Amended PFRS 1 and PAS 27, Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, becomes effective for financial years beginning on or after January 1, 2009. The amendments to PFRS 1 allow a first-time adopter, at its date of transition to PFRSs in its separate financial statements, to use deemed cost to account for an investment in a subsidiary, jointly controlled entity or associate. The amendments to PAS 27 remove the definition of cost method currently set out i n PAS 27, and instead require all dividend from a subsidiary, jointly controlled entity or associate to be recognized as income in the separate financial statements of the investor when the right to receive the dividend is established. The Group will assess the impact of this revised standard on the pro forma consolidated financial statements when it adopts the standard on January 1, 2009. Improvements to PFRSs 2008 discusses 35 amendments and is divided into two parts: a) Part I includes 24 amendments that result in accounting changes for presentation, recognition or measurement purposes; and b) Part II includes 11 terminology or editorial amendments that the International Accounting Standards Board expects to have either no or only minimal effects on accounting. These amendments are generally effective for annual periods beginning on or after January 1, 2009. The adoption of the amendments in 2009 is not expected to have any material effect on the Groups pro forma consolidated financial statements. Revised PFRS 3, Business Combinations, incorporates the following changes that are likely to be relevant to the Groups operations: o The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations. o Contingent consideration will be measured at fair value, with subsequent changes therein recognised in profit or loss. o Transaction costs, other than share and debt issue costs, will be expensed as incurred. o Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognised in profit or loss.

F-17

o Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis. Revised PFRS 3, which becomes mandatory for the Groups 2010 pro forma consolidated financial statements, will be applied prospectively and therefore there will be no impact on prior periods in the Groups 2010 pro forma consolidated financial statements. Amended PAS 27, Consolidated and Separate Financial Statement, requires accounting for changes in ownership interests by the Group in a subsidiary, while maintaining control, to be recognised as an equity transaction. When the Group loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognised in profit or loss. The amendments to PAS 27, which become mandatory for the Groups 2010 pro forma consolidated financial statements, are not expected to have a significant impact on the pro forma consolidated financial statements. Amendments to PAS 39, Financial Instruments: Recognition and Measurement Eligible Hedged Items, becomes effective for financial years beginning on or after July 1, 2009. The standard has been amended to provide for the following: a) new application guidance to clarify the existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedge relationship; and b) additional application guidance on qualifying items; assessing hedge effectiveness; and designation of financial items as hedged items. The amendments to PAS 39, which will become mandatory for the Groups 2010 pro forma consolidated financial statements, are not expected to have a significant impact on the pro forma consolidated financial statements. Philippine Interpretation IFRIC 17, Distributions of +on-cash Assets to Owners, becomes effective for financial years beginning on or after July 1, 2009. This interpretation provides guidance on the accounting for non-reciprocal distributions of non-cash assets to owners acting in their capacity as owners. It also applies to distributions in which the owners may elect to receive either the non-cash asset or a cash alternative. The liability for the dividend payable is measured at fair value of the assets to be distributed. The Group will assess the impact of this interpretation on the pro forma consolidated financial statements when it adopts the standard on July 1, 2009. 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 and are subject to an insignificant risk of change in value. Financial Assets and Liabilities Date of Recognition. The Group recognizes a financial asset or a financial liability in the pro forma consolidated balance sheet when it becomes a party to the contractual provisions of the financial instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, are done using settlement date accounting.

F-18

Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The fair value of the consideration given or received is determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rate of interest for similar instruments with similar maturities. The initial measurement of financial instruments, except for those designated at fair value through profit and loss (FVPL), includes transaction costs. Subsequent to initial recognition, the Group classifies its financial assets and liabilities in the following categories: held-to-maturity (HTM) financial assets, available-for-sale (AFS) investments, FVPL financial assets, and loans and receivables. The classification depends on the purpose for which the investments are acquired and whether they are quoted in an active market. Management determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. Determination of Fair Value. The fair value for financial instruments traded in active markets at the balance sheet date is based on their quoted market price or dealer price quotation (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models. Day 1 Profit. Where the transaction price in a non-active market is different from the fair value of the other observable current market transactions for same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 Profit) in the pro forma consolidated statement of income unless it qualifies for recognition as some other type of asset. In cases where use is made of data which are not observable, the difference between the transaction price and model value is only recognized in the pro forma consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the day 1 profit amount. Financial Assets Financial Assets at FVPL. Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition as at FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognized in the pro forma consolidated statement of income.

F-19

Financial assets may be designated by management at initial recognition as at FVPL, when any of the following criteria is met: the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a different basis; or the assets are part of a group of financial assets, financial liabilities or both which are managed and the performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recognized. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. The Group accounts for its derivative transactions (including embedded derivatives) under this category with fair value changes being reported directly to profit or loss, except when the derivative is treated as an effective accounting hedge, in which case the fair value change is deferred in equity under the Cumulative translation adjustments account. The Groups derivative assets are classified under this category (Notes 8 and 27). The carrying values of financial assets under this category amounted to P28 as of December 31, 2008 (Notes 8 and 27). Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not designated as AFS or financial assets at FVPL. Loans and receivables are carried at cost or amortized cost, less impairment in value. Amortization is determined using the effective interest method. The Groups cash and cash equivalents, trade and other receivables and noncurrent receivables are included in this category (Notes 5, 6 and 11). The carrying values of financial assets under this category amounted to P10,100 as of December 31, 2008 (Note 27). HTM Investments. HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Groups management 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 classified as AFS investments. After initial measurement, these investments are measured at amortized cost using the effective interest method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. Gains and losses are recognized in the pro forma consolidated statement of income when the HTM investments are derecognized or impaired, as well as through the amortization process.

F-20

The Group has no investments classified as HTM investments as of December 31, 2008. AFS Investments. AFS investments are non-derivative financial assets that are designated in this category or are not classified in any of the other categories. Subsequent to initial recognition, AFS investments are carried at fair value in the pro forma consolidated balance sheet. Changes in the fair value of such assets are reported in the equity section of the pro forma consolidated balance sheet until the investment is derecognized or the investment is determined to be impaired. On derecognition or impairment, the cumulative gain or loss previously reported in equity is transferred to the pro forma consolidated statement of income. Interest earned on holding AFS investments is recognized in the pro forma consolidated statement of income using effective interest rate. The Group has no investments classified under this category as of December 31, 2008. Financial Liabilities Financial Liabilities at FVPL. Financial liabilities are classified in this category if these result from trading activities or derivative transactions that are not accounted for as accounting hedges, or when the Group elects to designate a financial liability under this category. Included in this category are the Groups derivative financial instruments with negative fair values (Notes 12 and 27). The carrying values of financial liabilities under this category amounted to P273 as of December 31, 2008 (Notes 12 and 27). Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings. Financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs. Included in this category are the Groups accounts payable and accrued expenses and long-term debt (Notes 12, 13 and 27). The carrying values of financial liabilities under this category amounted to P41,174 as of December 31, 2008 (Notes 12, 13 and 27). Debt Issue Costs Debt issue costs are shown as deduction against the related debt and are amortized over the terms of the related borrowings using the effective interest method.

F-21

Derivative Financial Instruments and Hedge Freestanding Derivatives For the purpose of hedge accounting, hedges are classified as either: a) fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment (except for foreign currency risk); b) cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment; or c) hedges of a net investment in foreign operations. At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the e ntity will assess the hedging instruments effectiveness in offsetting the exposure to changes in the hedged items fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Fair Value Hedge. Derivatives classified as fair value hedges are carried at fair value with corresponding change in fair value recognized in the pro forma consolidated statement of income. The carrying amount of the hedged asset or liability is also adjusted for changes in fair value attributable to the hedged item and the gain or loss associated with that remeasurement is also recognized in the pro forma consolidated statement of income. When the hedge ceases to be highly effective, hedge accounting is discontinued and the adjustment to the carrying amount of a hedged financial instrument is amortized immediately. As of December 31, 2008, the Group has no outstanding derivatives accounted for as fair value hedges. Cash Flow Hedge. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are included in the pro forma consolidated statement of changes in equity under the Cumulative translation adjustments account. The ineffective portion is immediately recognized in the pro forma consolidated statement of income. If the hedged cash flow results in the recognition of an asset or a liability, all gains and losses previously recognized directly in equity are transferred from equity and included in the initial measurement of the cost or carrying value of the asset or liability. Otherwise, for all other cash-flow hedges, gains and losses initially recognized in equity are transferred from equity to net income in the same period or periods during which the hedged forecasted transaction or recognized asset or liability affect the pro forma consolidated statement of income.

F-22

When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that has been reported directly in equity is retained in equity until the forecasted transaction occurs. When the forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in equity is recognized in the pro forma consolidated statement of income. As of December 31, 2008, the Group has outstanding commodity options designated as effective cash flow hedges amounting to P59. +et Investment Hedge. As of December 31, 2008, the Group has no hedge of a net investment in a foreign operation. For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value of derivatives are taken directly to profit or loss during the year incurred. Embedded Derivatives The Group assesses whether embedded derivatives are required to be separated from host contract when the Group becomes a party to the contract. An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Derecognition of Financial Assets and Liabilities Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: the rights to receive cash flows from the asset have expired; the 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. When 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 Groups continuing involvement in the asset. Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired.

F-23

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such 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 pro forma consolidated statement of income. Impairment of Financial Assets The Group assesses at balance sheet date whether a financial asset or group of financial assets is impaired. Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of loss is measured as the difference between the assets carrying amount and the pr esent value of estimated future cash flows (excluding future credit losses) discounted at the financial assets 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 use of an allowance account. The amount of loss shall be recognized in the pro forma consolidated statement of income. 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, 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 pro forma 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 of an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or of a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. AFS Financial Assets. If an AFS financial asset is impaired, an amount comprising the difference between the cost (net of any principal payment and amortization) and its current fair value, less any impairment loss on that financial asset previously recognized in the pro forma consolidated statement of income, is transferred from equity to the pro forma consolidated statement of income. Reversals in respect of equity instruments classified as AFS are not recognized in profit or loss. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in the pro forma consolidated statement of income.

F-24

Classification of Financial Instruments Between Debt and Equity A financial instrument is classified as debt if it provides for a contractual obligation to: deliver cash or another financial asset to another entity; or exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Group; or satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the pro forma 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 not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the pro forma consolidated balance sheet. Inventories Finished goods, goods in process and materials and supplies are valued at the lower of cost and net realizable value. Costs incurred in bringing each inventory to its present location and conditions are accounted for as follows: Finished goods and goods in process cost includes direct materials and labor and a proportion of manufacturing overhead costs based on normal operating capacity but excluding borrowing costs; cost is determined using the moving-average method; at cost using the moving-average method.

Materials and supplies

Net realizable value of finished goods and goods in process 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. Net realizable value of materials and supplies is the current replacement cost. Containers (i.e., returnable bottles and shells) are stated at deposit values. The excess of the acquisition cost of the containers over their deposit value is presented under deferred containers included under Other noncurrent assets account in the pro forma consolidated balance sheet and is amortized over the estimated useful lives of ten (10) years. Amortization of deferred containers is included under Administrative and selling expenses account in the pro forma consolidated statement of income.

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Property, Plant and Equipment Property, plant and equipment, except land, are stated at cost less accumulated depreciation and amortization and any accumulated impairment in value. Such cost includes the cost of replacing part of the property, plant and equipment at the time that cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing. Land is stated at cost less any impairment in value. The initial cost of property, plant and equipment comprises of its purchase price, including import duties, taxes and any directly attributable costs in bringing the asset to its working condition and location for its intended use. Cost also includes any related asset retirement obligation and interest incurred during the construction period on funds borrowed to finance the construction of the projects. Expenditures incurred after the asset has been put into operation, such as repairs, maintenance and overhaul costs, are normally recognized as expense in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have improved the condition of the asset beyond the originally assessed standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment. Construction in progress represents structures under construction and is stated at cost. This includes the costs of construction and equipment and other direct costs. Borrowing costs that are directly attributable to the construction of property, plant and equipment are capitalized during the construction period. Construction in progress is not depreciated until such time that the relevant assets are ready for use. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives of the assets: Number of Years Machinery and equipment Buildings and improvements Transportation equipment Office equipment, furniture and fixtures Tools and small equipment Leasehold improvements 10 - 40 5 - 50 5-7 2-6 2-5 5 - 50 or term of the lease, whichever is shorter

The remaining useful lives, residual values and depreciation and amortization method are reviewed and adjusted, if appropriate, at each financial year-end to ensure that such periods and method of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of property, plant and equipment. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization is credited or charged to current operations. When each major inspection is performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied.

F-26

An item of property, plant and equipment is derecognized when either it has been disposed or when it is permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gains or losses arising on the retirement and disposal of an item of property, plant and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) are included in the pro forma consolidated statement of income in the period of retirement or disposal. Business Combinations For Entities Under Common Control Business combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established. The assets and liabilities acquired are recognized at the carrying amounts recognized previously in the Group controlling shareholders consolidated financial statements. Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is charged against profits in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the pro forma consolidated statement of income in the expense category consistent with the function of the intangible asset. Amortization of computer software and licenses is computed using the straight-line method of over 2-8 years. The Group assessed the useful life of the trademarks and brand names to be indefinite because based on an analysis of all the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate cash inflows for the Group. Intangible assets with indefinite useful lives, such as trademarks, brands and licenses, are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. Gains or losses arising from disposition of an intangible asset are measured as the difference between the disposal proceeds and the carrying amount of the asset and are recognized in the pro forma consolidated statement of income when the asset is disposed.

F-27

Impairment of Non-financial Assets with Definite Useful Lives The carrying values of property, plant and equipment, containers, intangible assets with definite useful lives and idle assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists, and if the carrying value exceeds the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of the asset is the greater of fair value less costs to sell or value in use. The fair value less costs to sell is the amount obtainable from the sale of an asset in an arms-length transaction less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses of continuing operations are recognized in the pro forma 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 assets recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization charge is adjusted in future periods to allocate the assets revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Provisions Provisions are recognized only when the Group has (a) a present obligation (legal or constructive) as a result of past event; (b) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense. Where the Group expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the receipt of the reimbursement is virtually certain. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Sales. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably, which is normally upon delivery. Interest. Interest is recognized as the interest accrues, taking into account the effective yield on the asset.

F-28

Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Group as Lessee. Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the pro forma consolidated statement of income. Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the assets or the respective lease terms, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term. Leases which do not transfer to the Group 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 pro forma consolidated statement of income on a straight-line basis over the lease term. Associated costs such as maintenance and insurance are expensed as incurred. Group as Lessor. Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Lease income from operating leases is recognized as income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenues in the period in which they are earned. Borrowing Costs Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized. Research and Development Costs Research costs are expensed as incurred. Development cost incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Any expenditure carried forward is amortized in line with the expected future sales from the related project. The carrying value of development cost is reviewed for impairment annually when the related asset is not yet in use. Otherwise, this is reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

F-29

Share-based Transactions Under SMCs Employee Stock Purchase Plan (ESPP), employees of the Group receive remuneration in the form of share-based payments transactions, whereby the employees render services as consideration for equity instruments of SMC. Such transactions are handled centrally by SMC. Share-based transactions in which SMC grants option rights to its equity instruments direct to the Groups employees are accounted for as equity -settled transactions. SMC charges the Group for the costs related to such transactions with its employees. The amount is charged to operations by the Group. The cost of ESPP is measured by reference to the market price at the time of the grant less subscription price. The cumulative expense recognized for share-based transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and SMCs best estimate of the number of equity instruments that will ultimately vest. Where the terms of a share-based award are modified, as a minimum, an expense is recognized as if the terms had not been modified. In addition, an expense is recognized for any modification, which increases the total fair value of the share-based payment agreement, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award. Retirement Costs The Parent Company has a funded, noncontributory retirement plan, administered by a trustee, covering all permanent employees. Retirement costs are actuarially determined using the projected unit credit method. This method reflects service rendered by employees to the date of valuation and incorporates assumptions concerning employees projected salaries. Retirement cost includes current service cost, interest cost, expected return on plan assets, amortization of unrecognized past service costs, recognition of actuarial gains and losses, and effect of any curtailments or settlements. The past service cost, if any, 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, the plan, past service cost is recognized immediately as an expense. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses of the plan at the end of the previous reporting year exceed 10% of the higher of the present value 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 defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized, 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 resulting 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.

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If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognized immediately. Foreign Currency Transactions and Translations The Groups pro forma consolidated financial statemen ts are presented in Philippine peso, which is also the Groups functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are recorded using the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated using the closing rate of exchange at balance sheet date. All differences are taken to the pro forma consolidated statement of 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. Taxes Current tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at balance sheet date. Deferred tax. Deferred income tax is provided using the balance sheet liability method on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except: where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and with respect to taxable temporary differences associated with investments in subsidiaries, associates 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.

F-31

Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits - Minimum Corporate Income Tax (MCIT) and unused tax losses - Net Operating Loss Carry Over (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 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 with respect to deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred 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. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred 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 balance sheet date. Income tax relating to items recognized directly in equity is recognized in equity and not in the pro forma consolidated statement of income. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Value Added Tax (VAT). Revenues, expenses and assets are recognized net of the amount of VAT, except: where the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables that are stated with the amount of tax included. The net amount of tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the pro forma consolidated balance sheet. Related Parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Transactions between related parties are on an arms length basis in a manner similar to transactions with non-related parties.

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Earnings Per Share (EPS) Basic EPS is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period, with retroactive adjustments for any stock dividends declared. Contingencies Contingent liabilities are not recognized in the pro forma consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the pro forma consolidated financial statements but are disclosed when an inflow of economic benefits is probable. Subsequent Events Post year-end events that provide additional information about the Groups position at balance sheet date (adjusting events) are reflected in the pro forma consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the pro forma consolidated financial statements when material.

4. Significant Accounting Judgments, Estimates and Assumptions The Groups pro forma consolidated financial statements requires management to make judgments, estimates and assumptions that affect amounts reported in the pro forma consolidated financial statements and related notes, at the reporting date. However, uncertainty about these estimates and assumptions could result in outcome that could require a material adjustment to the carrying amount of the affected asset or liability in the future. Judgments In the process of applying the Groups 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 pro forma consolidated financial statements: Operating Leases. The Group has entered into various lease agreements as a lessee. The Group has determined that the lessor retains all significant risks and rewards of ownership of these properties which are leased out under operating lease arrangements. Rent expense charged to operations amounted to P450 as of December 31, (Note 17). 2008

Estimates The key estimates and assumptions used in the pro forma consolidated financial statements are based on managements evaluation of relevant facts and circumstan ces as of the date of the Groups pro forma consolidated financial statements. Actual results could differ from such estimates.

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Allowance for Doubtful Accounts. Provisions are made for specific and groups of accounts, where objective evidence of impairment exists. The Group evaluates these accounts on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Groups relationship wi th the customers and counterparties, the customers current credit status based on third party credit reports and known market forces, average age of accounts, collection experience, and historical loss experience. The amount and timing of recorded expenses for any period would differ if the Group made different judgments or utilized different methodologies. An increase in allowance for doubtful accounts would increase the recorded administrative and selling expenses and decrease current assets. The allowance for doubtful accounts amounted to P647 as of December 31, 2008 (Note 6). The carrying value of trade and other receivables amounted to P3,662 as of December 31, 2008 (Note 6). Allowance for Inventory Losses. The Group provides allowance for inventory losses whenever net realizable value becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes. Estimates of net realizable value are based on the most reliable evidence available at the time the estimates are made of the amount the inventories are expected to be realized. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after balance sheet date to the extent that such events confirm conditions existing at balance sheet date. The allowance account is reviewed periodically to reflect the accurate valuation in the financial records. The allowance for inventory losses amounted to P335 as of December 31, 2008. The carrying value of inventories amounted to P3,279 as of December 31, 2008 (Note 7). Estimated Useful Lives of Containers and Property, Plant and Equipment. The Group estimates the useful lives of containers and property, plant and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of containers and property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. In addition, estimation of the useful lives of containers and property, plant and equipment is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of containers and property, plant and equipment would increase recorded cost of sales and administrative and selling expenses and decrease noncurrent assets. Accumulated depreciation and amortization of property, plant and equipment amounted to P15,682 as of December 31, 2008. Property, plant and equipment, net of accumulated depreciation and amortization, amounted to P12,932 as of December 31, 2008 (Note 9). Deferred containers, net of accumulated amortization, amounted to P4,537 as of December 31, 2008 (Note 11).

F-34

Estimated Useful Lives of Intangible Assets with Finite Lives. The useful lives of intangible assets are assessed at the individual asset level as having either a finite or indefinite life. Intangible assets are regarded to have an indefinite useful life when, based on analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group. Intangible assets with finite useful life amounted to P11 as of December 31, 2008 (Note 10). Impairment of Brands and Other Intangible Assets with Indefinite Lives. The Group determines whether brands, including trademarks, copyrights, patents and other intellectual property rights and know- how are impaired at least annually. This requires the estimation of the value in use of brands and other intangible assets. Estimating value in use requires management to make an estimate of the expected future cash flows from the cash-generating unit and from the brands and other intangible assets and to choose a suitable discount rate to calculate the present value of those cash flows. The carrying values of brands and other intangible assets amounted to P32,000 as of December 31, 2008 (Note 10). Realizability of Deferred Tax Assets. The Group reviews its deferred tax assets at each balance sheet date and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. The Groups assessment on the recognition of def erred tax assets on deductible temporary difference and carryforward benefits of MCIT and NOLCO is based on the projected taxable income in the following periods. Deferred tax assets amounted to P312 as of December 31, 2008 (Note 14). Impairment of Other +on-financial Assets. PFRS require that an impairment review be performed on property, plant and equipment, containers and intangible assets with definite useful lives when events or changes in circumstances indicate that the carrying value may not be recoverable. Determining the net recoverable value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. While it is believed that the assumptions used in the estimation of fair values reflected in the pro forma consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations. There were no impairment losses of property, plant and equipment and other nonfinancial assets recognized as of December 31, 2008. The aggregate amount of property, plant and equipment, deferred containers and intangible assets with definite useful lives amounted to P17,480 as of December 31, 2008 (Notes 9, 10 and 11). Present Value of Defined Benefit Obligation. The present value of the retirement obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. These assumptions are described in Note 23 to the pro forma consolidated financial statements and include discount rate, expected return on plan assets and salary increase rate. Actual results that differ from the assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods.

F-35

The assumption of the expected return on plan assets is determined on a uniform basis, taking into consideration the long-term historical returns, asset allocation and future estimates of long-term investment returns. The Group determines the appropriate discount rate at the end of each year. It is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the retirement obligations. In determining the appropriate discount rate, the Group considers the interest rates on government bonds that are denominated in the currency in which the benefits will be paid. The terms to maturity of these bonds should approximate the terms of the related retirement liability. Other key assumptions for retirement obligations are based in part on current market conditions. While it is believed that the Groups assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Groups retirement and other retirement obligations. The Group has a net cumulative unrecognized actuarial losses amounting to P379 as of December 31, 2008 (Note 23). Financial Assets and Liabilities. The Group carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgment. Significant components of fair value measurement were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates). The amount of changes in fair value would differ if the Group utilized different valuation methodologies and assumptions. Any change in the fair value of these financial assets and liabilities would affect net income and equity. Fair value of financial assets and liabilities are discussed in Note 27. Asset Retirement Obligation. Determining asset retirement obligation requires estimation of the cost of dismantling property, plant and equipment and other costs of restoring the leased properties to their original condition. The Group determined that there are no significant asset retirement obligations as of December 31, 2008. Provisions and Contingencies. The Group, in the ordinary course of business, sets up appropriate provisions for its present legal or constructive obligations, if any, in accordance with its policies on provisions and contingencies. In recognizing and measuring provisions, management takes risk and uncertainties into account. 5. Cash and Cash Equivalents This account consists of:

Cash in banks and on hand Short-term investments

P2,554 3,873 P6,427

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.
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6. Trade and Other Receivables This account consists of: ,ote Trade - net Receivables Amounts owed by related parties Nontrade Amounts owed by related parties Others - net P2,340 569 149 604 P3,662

21 21

Trade receivables are non-interest bearing and are generally on 30 days credit term. As at December 31, 2008, the aging of trade and other receivables and the related allowance provided is as follows:
Owed by related parties P446 182 38 2 92 P760

Current Past due Less than 30 days 30-60 days 61-90 days Over 90 days

Trade P2,685 22 67 6 150 P2,930

.on-trade P582 2 35 P619

Total P3,713 206 105 8 277 P4,309

Allowance P340 23 67 6 211 P647

The movements in the allowance for doubtful accounts in 2008 are as follows:

Balance at beginning of year Unused amounts reversed/reclassified Balance at end of year

P693 (46) P647

Allowance for doubtful accounts related to amounts owed by related parties as of December 31, 2008 amounted to P42 (Note 21). Various collaterals for trade receivables such as bank guarantees, time deposits and real estate mortgage are held by the Group for credit limits exceeding P0.275.

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7. Inventories This account consists of:

Finished goods and goods in process - at cost Containers - at net realizable value Materials and supplies - at net realizable value Total inventories at lower of cost and net realizable value

P866 1,093 1,320 P3,279

The cost of containers and materials and supplies as of December 31, 2008 amounted to P1,413 and P1,335, respectively. 8. Prepaid Expenses and Other Current Assets This account consists of: ,ote Prepaid taxes and licenses Derivative assets Prepaid insurance Prepaid rentals Others 26, 27 P274 28 6 3 68 P379

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9. Property, Plant and Equipment The movements in this account are as follows:
Machinery and Equipment P16,063 868 (60) 16,871 Office Equipment, Furniture and Fixtures P362 11 (4) 369 Tools and Small Equipment P9 9

Land Cost: January 1, 2008 Additions for the year Disposals/reclassifications December 31, 2008 Accumulated depreciation and amortization: January 1, 2008 Depreciation and amortization for the year Disposals/reclassifications December 31, 2008 .et book value: December 31, 2008 P7,068 P7,068 7,068

Buildings and Improvements P3,533 52 (53) 3,532

Transportation Equipment P394 3 (24) 373

Leasehold Improvements P81 (19) 62

Construction in Progress P337 (7) 330

Total P27,847 934 (167) 28,614

13,003 529 (65) 13,467 P3,404

1,419 101 (40) 1,480 P2,052

340 19 (24) 335 P38

42 4 (7) 39 P23

351 6 (4) 353 P16

8 8 P1

P330

15,163 659 (140) 15,682 P12,932

Depreciation and amortization charged to operations amounted to P659 in 2008 (Note 18). No interest was capitalized in 2008.

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10. Intangible Assets This account consists of:

Brands and other intangible assets Computer software - net

P32,000 11 P32,011

The value of brands and other intangible assets was based on an independent valuation study and analysis made by UBS Investments Philippines Inc. (UBS). UBS identified and applied different methodologies to value the SMB Brands. However, the royalty relief (based on commercial rates) and advertising spend methodologies were viewed to be generally more relevant. Compared to the other methodologies used to value the SMB Brands, such methodologies have fewer assumptions and less reliance on subjective reasoning, as key assumptions come from primary sources based on the Companys filings and projections, actual industry precedents and industry common practice. The Company arrived at the purchase price of P32 billion after giving due consideration to the valuation study and analysis of UBS. The purchase price agreed upon is within the value range yielded by the royalty relief and advertising spend methodologies, which value range is P25 to P32 billion. The movements in the brands and other intangible assets are as follows: ,ote Balance at beginning of year Additions resulting from business acquisition Balance at end of year P 2 32,000 P32,000

The recoverable amount of the brands and other intangible assets has been determined based on a valuation using cash flow projections covering a five year period based on long range plans approved by management. Cash flows beyond the five year period are extrapolated using a determined constant growth rate. This growth rate is consistent with the long-term average growth rate for the industry. The discount rate applied to after tax cash flow projection is 12% in December 31, 2008. Management believes that any reasonably possible change in the key assumptions on which the recoverable amount of brands and other intangible assets is based would not cause its carrying amount to exceed its recoverable amount. The calculations of value in use are most sensitive to the following assumptions: Gross Margins. Gross margins are based on average values achieved in period immediately before the budget period. These are increased over the budget period for anticipated efficiency improvements. Values assigned to key assumptions reflect past experience, except for efficiency improvement. Raw Material Price Inflation. Forecast consumer price are obtained from indices during the budget period from which raw materials are purchased. Value assigned to key assumption is consistent with external sources of information.

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Management assessed that there is no impairment loss in value of brands and other intangible assets in 2008.

11. Other .oncurrent Assets This account consists of: ,ote Deferred containers - net Bottles Shells Retirement asset Others 23 22, 26 P3,187 1,350 4,537 41 316 P4,894

The movements in the deferred containers are as follows: ,ote Gross carrying amount: Beginning balance Additions Ending balance Accumulated amortization: Beginning balance Amortization for the year Ending balance P4,814 939 5,753 209 1,007 1,216 P4,537

18

12. Accounts Payable and Accrued Expenses This account consists of: ,ote Trade Payables Amounts owed to related parties Nontrade Amounts owed to related parties Derivative liabilities Accrued payroll Accrued utilities Accrued materials Others P1,250 622 327 273 234 44 15 235 P3,000

21 21 26, 27

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13. Long-term Debt This account consists of the following obligations of the Parent Company:

Unsecured term notes peso-denominated: Fixed interest rate of 8% Fixed interest rate of 9% Fixed interest rate of 10%

P14,881 18,620 4,946 P38,447

The amount represents unsecured long-term debt incurred by the Parent Company to finance its acquisition of the shares of stocks of IBI and BPI. Unamortized debt issue costs related to these long-term debt amounted to P353 as of December 31, 2008. The debt agreements contain, among others, covenants relating to maintenance of certain financial ratios and controlling interests of SMC in the Parent Company; redemption or reduction of capital stock; and restrictions on payments of dividends, indebtedness, loans and guarantees, encumbrances and liens on properties and disposal of all or substantially all of the Parent Companys assets. As of December 31, 2008, the Group is in compliance with the covenants of the debt agreements. The movements in debt issue costs are as follows:

Balance at beginning of year Addition Less amortization Balance at end of year

P 445 92 P353

Repayment Schedule As of December 31, 2008, the annual maturities of the long-term debt are as follows: Year 2010 2012 2017 Gross Amount P15,000 18,800 5,000 P38,800 Debt Issue Cost P119 180 54 P353 .et P14,881 18,620 4,946 P38,447

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14. Income Taxes Deferred tax assets arise from the following:

Allowance for doubtful accounts Allowance for inventory losses Derivatives Debt issue costs Others

P194 101 113 (106) 10 P312

The components of the income tax expense are shown below:

Current Deferred

P4,198 105 P4,303

The reconciliation of statutory income tax rate on income before income tax and the Groups effective income tax rates are as follows:

Statutory income tax rate Increase (decrease) in income tax rate resulting from: Change in tax rate Income subjected to final tax Others Effective income tax rate

35.00% 0.39 (2.93) 0.38 32.84%

15. Capital Stock In their respective meetings on August 9, 2007 and September 7, 2007, at least a majority of the BOD of the Company and stockholders owning or representing at least 2/3 of the subscribed and outstanding capital stock approved the increase in the authorized capital stock from P100 to P25,000, the decrease of the par value of its shares from P100 to P1 and the issuance of a total of 15,308,416,960 common shares, comprising of 75,000,000 common shares from its unissued authorized capital stock and 15,233,416,960 common shares from the increase in its authorized capital stock in exchange for the net assets of the domestic beer business of SMC as of June 30, 2007 with a net book value of P15,308. The transfer of the net assets is pursuant to a Master Deed of Assignment of Domestic Beer Assets dated August 23, 2007 between SMC and the Company with amendments dated September 7, 2007.

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On September 27, 2007, the SEC approved the increase in authorized capital stock and decrease in par value of shares. As a standard condition of the SEC for approval of applications for increase in authorized capital stock, where the payment for the shares issued pursuant to such increase is made in the form of motor vehicles and receivables, 2,557,573,242 common shares that were issued by the Parent Company to SMC in exchange for motor vehicles and receivables out of the 15,308,416,960 common shares issued by the Parent Company were held in escrow by the SEC pending the transfer of ownership of those motor vehicles in the name of the Parent Company and proof of collection of receivables. On November 5, 2008, the Parent Company submitted to the SEC the required documentation for the transfer of ownership of motor vehicles and proof of collection of receivables. As of January 30, 2009, this is being reviewed by the SEC. Pursuant to the registration statement rendered effective by SEC on April 28, 2008 and the listing approval of the PSE, 77,052,000 common shares were sold by the Company to the public under a primary offering at P8.00 per share in April-May 2008. The movements in the number of issued shares of capital stock are as follows:

Balance at beginning of year Issuance during the year Balance at end of year

15,333,426,960 77,052,000 15,410,478,960

16. Cost of Sales This account consists of: ,ote Taxes and licenses Inventories Communications, light, fuel and water Personnel Depreciation and amortization Repairs and maintenance Others P14,523 6,956 1,538 797 535 353 98 P24,800

19 18

17. Administrative and Selling Expenses Administrative and selling expenses consist of:

Administrative Selling

P3,768 3,520 P7,288

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Administrative expenses consist of: ,ote 4, 18 19

Depreciation and amortization Personnel Advertising and promotion Management fees Breakages and losses Repairs and maintenance Professional fees Taxes and licenses Communications, light, fuel and water Rent Others

4, 22

P1,173 903 389 295 172 149 144 106 80 35 322 P3,768

Selling expenses consist of: ,ote Freight, trucking and handling Personnel Advertising and promotion Rent Taxes and licenses Communication, light, fuel and water Repairs and maintenance Depreciation and amortization Others 19 4, 22 P1,485 691 436 415 103 102 71 50 167 P3,520

18

18. Depreciation and Amortization Depreciation and amortization are distributed as follows:

Cost of sales: Property, plant and equipment Administrative and selling expenses: Property, plant and equipment Deferred containers Others

P535 124 1,007 92 1,223 P1,758

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19. Personnel Expenses This account consists of: ,ote Salaries and wages Retirement cost Other employee benefits 23 P1,457 157 777 P2,391

Personnel expenses are distributed as follows:

Cost of sales Administrative expenses Selling expenses

P797 903 691 P2,391

20. Other Income (Expense) This account consists of: ,ote Foreign exchange gain - net Rental income Gain on sale of property, plant and equipment - net Marked-to-market loss - net Others 22 26 P62 15 17 (469) (2) (P377)

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21. Related Party Disclosures The Group, in the normal course of business, purchases products and services from and sells products to related parties. Transactions with related parties are made at normal market prices.
Relationship with Related Parties San Miguel Corporation San Miguel Yamamura Packaging Corporation (formerly San Miguel Packaging Specialists, Inc.) San Miguel Rengo Packaging Corporation SMC Shipping and Lighterage Corporation SMITS, Inc. and a subsidiary San Miguel Yamamura Asia Corporation Ginebra San Miguel, Inc. and a subsidiary San Miguel Beverages, Inc. San Miguel International Ltd. and subsidiaries San Miguel Pure Foods Company, Inc., and subsidiaries Others Parent Company Revenue From Related Parties P2,020 Purchases From Related Parties P499 Amounts Owed by Related Parties P606 Amounts Owed to Related Parties P261

Under common control Under common control Under common control Under common control Under common control Under common control Under common control Under common control Under common control Under common control

44 3 3 8 11 3 28 P2,120

1,991 29 415 98 96 1 16 P3,145

21 4 1 7 28 73 20 P760

469 6 92 60 21 3 5 4 21 7 P949

a. Purchases consist of purchase of materials, bottles, shells, cartons and services rendered from related parties. b. Amounts owed by related parties consist of trade receivables, share in expenses and tolling services. c. Amounts owed to related parties consist of trade payables, professional fees, insurance and management fees. d. The compensation of key management personnel of the Group, by benefit type, follows:

Short-term employee benefits Retirement costs

P81 6 P87

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22. Leasing Agreements Finance Leases Leases as Lessor The Group leases some of its machinery and equipment under finance lease agreements to a third party logistics provider. The Group provides the lessee the option to purchase the equipment at a beneficial price. The current and noncurrent portion of financ e lease receivables included under Trade and other receivables and Other noncurrent assets accounts, respectively, in the balance sheet are as follows: Minimum lease receivable P6 5 P11

Within one year After one year but not more than five years

Interest P1 P1

Principal P5 5 P10

23. Retirement Plan The Parent Company has a funded, noncontributory retirement plan covering all of its permanent employees. Contributions and costs are determined in accordance with the actuarial studies made for the plan. Annual cost is determined using the projected unit credit method. The Parent Companys latest actuarial valuation date is December 31, 2008. Valuations are obtained on a periodic basis. Retirement costs charged by the Parent Company to operations amounted to P157 in 2008. The Parent Companys annual contribution to the retirement plan consists of payments covering the current service cost and amortization of past service liability. The components of retirement cost recognized in the pro forma consolidated statement of income and the amounts recognized in the pro forma consolidated balance sheet are as follows:

Interest cost Current service cost Net actuarial loss to be recognized Expected return on plan assets Net retirement cost Actual return on plan assets

P295 179 24 (341) P157 P243

F-48

The retirement cost is recognized in the following line items in the pro forma consolidated statement of income:

Cost of sales Administrative and selling expenses

P53 104 P157

The reconciliation of the assets and liabilities recognized in the pro forma consolidated balance sheet is as follows:

Present value of defined benefit obligation Fair value of plan assets Unrecognized actuarial losses Net retirement asset

P4,000 3,662 338 (379) (P41)

The movements in the present value of the defined benefit obligation are as follows:

Beginning balance Interest cost Current service cost Transfer from other plan Actuarial gains Benefits paid Transfer to other plan Ending balance The movements in the fair value of the plan assets are as follows:

P4,175 295 179 47 (463) (204) (29) P4,000

Beginning balance Expected return on plan assets Contributions by employer Transfer from other plan Benefits paid Actuarial losses Transfer to other plan Ending balance Plan assets consist of the following:

P3,407 341 198 47 (204) (98) (29) P3,662

Fixed income portfolio Stock trading portfolio

In Percentages 79 21

The overall expected rate of return is determined based on historical performance of investments.
F-49

The principal actuarial assumptions used to determine retirement benefits are as follows: In Percentages 8.1 6.0 9.0

Discount rate Salary increase rate Expected return on plan assets

The historical information of the amounts for the current and previous period is as follows:

Present value of the defined benefit obligation Fair value of plan assets Deficit in the plan Experience adjustments on plan liabilities Experience adjustments on plan assets

P4,000 3,662 (338) 463 (98)

The Parent Company expects to pay P220 in contributions to the defined benefit plan in 2009.

24. Basic Earnings Per Share Basic EPS is computed as follows:

Net income attributable to equity holders of the Parent Company (a) Weighted average number of shares Outstanding (in millions) - basic (b) Basic EPS (a/b) As of December 31, 2008, the Group has no dilutive debt or equity instruments.

P8,787 15,372 P0.57

25. Employee Stock Purchase Plan SMC offers shares of stocks to employees of SMC and its subsidiaries under the Employees Stock Purchase Plan (ESPP). Under the ESPP, all permanent Philippine based employees of SMC and its subsidiaries who have been employed for a continuous period of one year prior to the subscription period will be allowed to subscribe at a price equal to the weighted-average of the daily closing prices for three months prior to the offer period less 15% discount. A participating employee may acquire at least 100 shares of stock through payroll deductions. The ESPP requires the subscribed shares and stock dividends accruing thereto to be pledged to SMC until the subscription is fully-paid. The right to subscribe under the ESPP cannot be assigned or transferred. A participant may sell his shares after the second year from exercise date. The ESPP also allows subsequent withdrawal and cancellation of participants subscriptions under certain terms and conditions.
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Expenses for share-based payments charged to operations under Management fees account amounted to P0.429 in 2008.

26. Financial Risk Management Objectives and Policies Objectives and Policies The Groups principal financial instruments other than derivatives include cash and cash equivalents, trade receivables, trade payables and long-term debt, which arise directly from its operations. The main purpose of these financial instruments is to raise financing for the Groups operations. The Group also enters into derivative transactions such as commodity options. The Group uses derivatives to manage its exposures to commodity price risks arising from the Groups operations. The main risks arising from the use of financial instruments are credit risk, liquidity risk and market risk - interest rate risk, foreign currency risk and commodity price risk. The BOD has the overall responsibility for the establishment and oversight of the Groups risk management framework. The Groups risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Groups activities. The Groups accounting policies in relation to derivatives are set out in Note 3. Interest Rate Risk The Groups exposure to changes in interest rates relates primarily to the Groups long term debt obligations. The Groups policy is to manage its interest cost using fixed rate debts. In managing interest rate, the Group aims to reduce the impact of short-term fluctuations and the Groups earnings. Over the longer term, however, permanent changes in interest rates would have an impact on consolidated earnings. The sensitivity to reasonably possible 1% increase in the interest rates, with all other variables held constant, would have decreased the Groups profit before tax (through the impact on floating rate borrowings) by P387 as of December 31, 2008. A 1% decrease in the interest rate would have had the equal but opposite effect. There is no impact on the Groups equity. As at December 31, 2008, the Groups long-term debt, presented by maturity profile, are as follows: Fixed rate Philippine peso Interest rate P15,000 8% 18,800 9% 5,000 10% P38,800

1 - 3 years > 3 - 5 years > 5 years

F-51

Foreign Currency Risk The Groups exposure to foreign currency risk results from its business transactions and purchase of materials denominated in foreign currency. The Group uses a combination of natural hedges and derivative hedges to manage its foreign currency exposure. It uses currency derivatives to reduce earnings volatility related to foreign exchange movements. Information on the Groups foreign currency-denominated monetary assets and liabilities and their Philippine peso equivalents are as follows: U.S. Dollar* Peso Equivalent Assets Cash and cash equivalents Trade and other receivables Liabilities Accounts payable and accrued expenses Net foreign currency-denominated monetary assets
*

$5 4 2 $7

P243 181 77 P347

U.S dollar equivalent of foreign currency-denominated balances as of balance sheet date.

With the translation of these foreign currency-denominated assets and liabilities, the Group reported net foreign exchange gain amounting to P62 in 2008. These resulted from the movements of the Philippine peso against the US dollar as shown in the following table: Peso to US Dollar 47.52

December 31, 2008

The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Groups profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Groups equity as of December 31, 2008 are as follows:
P1 decrease in the US dollar exchange rate Effect on Income before Effect on Income Tax Equity (P5) P (4) 12 3 Accounts payable and accrued expenses Derivative liabilities 2 11 13 (P10) (1) (1) P1 P1 increase in the US dollar exchange rate Effect on Income before Effect on Income Tax Equity P5 P 4 (11) (2) (2) (13) (15) P13 1 1 (P1)

Cash and cash equivalents Trade and other receivables Derivative assets

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Commodity Price Risk The Group enters into various commodity derivatives to manage its price risks on strategic commodities. Commodity hedging allows stability in prices, thus offsetting the risk of volatile market fluctuations. Through hedging, prices of commodities are fixed at levels acceptable to the Group, thus protecting raw material cost and preserving margins. For hedging transactions, if prices go down, hedge positions may show marked-to-market losses; however, any loss in the marked-to-market positions is offset by the resulting lower physical raw material cost. SMC enters into commodity derivative transactions in behalf of the Group to reduce cost by optimizing purchasing synergies within the SMC Group of Companies and managing inventory levels of common materials. Commodity Options. Commodity options are used to manage the Groups exposures to volatility in prices of certain commodities such as fuel oil. Liquidity Risk Liquidity risk arises from the possibility that the Group may encounter difficulties in raising funds to meet commitments from financial instruments or that a market for derivatives may not exist in some circumstances. The Groups objectives to manage its liquidity profile are: a) to ensure that adequate funding is available at all times; b) to meet commitments as they arise without incurring unnecessary costs; c) to access funding when needed at the least possible cost; and d) to maintain an adequate time spread of refinancing maturities. The table below summarizes the maturity profile of the Groups financial liabilities as of December 31, 2008 based on contractual undiscounted payments:
.on-derivative financial liabilities Accounts payable and accrued expenses Long-term debt, gross of debt issue costs Carrying Contractual amount cash flow P2,727 38,800 P2,727 52,468 >1 1 year year - 2 or less years P2,679 3,392 P48 18,392 >2 years Over 5 years 5 years P 23,684 P 7,000

Credit Risk Credit risk or the risk of counterparties defaulting is controlled by the application of credit approvals, limits and monitoring procedures. It is the Groups policy to enter into transactions with a diversity of creditworthy parties to mitigate any significant concentration of credit risk. The Group ensures that sales of products are made to customers with appropriate credit history and has internal mechanism to monitor the granting of credit and management of credit exposures. The Group has made provisions, where necessary, for potential losses on credits extended. Where appropriate, the Group obtains collateral or arranges master netting agreements. With respect to credit risk arising from the other financial assets of the Group, which comprise of cash and cash equivalents and certain derivative instruments, the Groups exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amount of these instruments, net of the value of collaterals, if any. Financial information on the Groups maximum exposure to credit ris k as of December 31, 2008, without considering the effects of collaterals and other risk mitigation techniques is presented below.
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,ote Cash and cash equivalents Trade and other receivables - net Derivative assets Noncurrent receivables 5 6 8 11 P6,427 3,662 28 11 P10,128

The Group has no significant concentration of credit risk with any counterparty. Capital Management The primary objective of the Groups capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes adjustments to it, in the 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. The Group defines capital as paid-in capital stock, additional paid-in capital, retained earnings, both appropriated and unappropriated. Other components of equity such as treasury stock and translation are excluded from capital for purposes of capital management. The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles for capital ratios are set in the light of changes in the Groups external environment and the risks underlying the Groups business, operation and industry. The Group monitors capital on the basis of debt-to-equity ratio, which is calculated as total debt divided by total equity. Total debt is equivalent to current and noncurrent liabilities. Total equity comprises of equity including capital stock, additional paid-in capital, cumulative translation adjustments and retained earnings. There were no changes in the Groups approach to capital management during the year. The Group is not subject to externally imposed capital requirements.

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27. Financial Assets and Liabilities The table below presents a comparison by category of carrying amounts and fair values of all of the Groups financial instruments as of December 31, 2008: Carrying Amount Assets Cash and cash equivalents Trade and other receivables - net Derivative assets (included under Prepaid expenses and other current assets account in the balance sheet) Noncurrent receivables and deposits - net (included under Other noncurrent assets account in the balance sheet) Liabilities Accounts payable and accrued expenses Derivative liabilities (included under Accounts payable and accrued expenses account in the balance sheet) Long-term debt P6,427 3,662 28 Fair Value P6,427 3,662 28

11 2,727 273 38,447

11 2,727 273 42,481

The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents, Trade and Other Receivables and +oncurrent Receivables and Deposits. The carrying amount of cash and cash equivalents and receivables approximates fair value primarily due to the relatively short-term maturity of these financial instruments. In the case of long-term receivables, the fair value is based on the present value of expected future cash flows using the applicable discount rates. Derivatives. The fair values of forward exchange contracts are calculated by reference to current forward exchange rates. The fair values of commodity derivatives are determined based on prices obtained from the market and counterparties. Fair values are also based on standard valuation models. Accounts Payable and Accrued Expenses. The carrying amount of accounts payable and accrued expenses approximates fair value due to the relatively short-term maturity of these financial instruments. Long-term Debt. The fair value of the long-term debt is based on the discounted value of expected future cash flows using the applicable rates for similar types of long-term debt as of balance sheet date. As of December 31, 2008, discount rates used are from 8% to 10%.

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Derivative Financial Instruments The Groups derivative financial instruments according to the type of financial risk being managed and the details of freestanding and embedded derivative financial instruments that are categorized into those accounted for as hedges and those that are not designated as hedges are discussed as follows: The Group enters into various commodity options to manage its exposure on commodity price risk covering the Groups requirement on fuel oil. Derivative Instruments Accounted for as Hedges Cash Flow Hedges Commodity Options As of December 31, 2008, the Group has outstanding option agreements covering its fuel oil requirements with notional quantities of 3,391. The call and put options can be exercised at various dates in 2009 with specific quantities on each calculation date. The net unrealized fair value change (after tax) deferred under Cumulative translation adjustments account on these call options as of December 31, 2008 amounted to P45. Derivative Instruments Not Designated as Hedges The Group enters into certain derivatives as economic hedges of certain underlying exposures. These include freestanding and embedded derivatives found in host contracts, which are not designated as accounting hedges. Changes in fair value of these instruments are accounted for directly in the pro forma consolidated statement of income. Details are as follows: Freestanding Derivatives Freestanding derivatives consist of commodity options entered into by the Group. Commodity Options As of December 31, 2008, the Group has outstanding bought and sold options covering its fuel oil requirements with notional quantities of 10,174. These options can be exercised at various calculation dates in 2009 with specific quantities on each calculation date. The net negative fair value of these options as of December 31, 2008 amounted to P212. Embedded Derivatives The Groups embedded derivatives include currency derivatives (forwards ) embedded in nonfinancial contracts. Embedded Currency Forwards As of December 31, 2008, the total outstanding notional amount of currency forwards embedded in nonfinancial contracts amounted to US$31. These nonfinancial contracts consist mainly of foreign-currency denominated purchase orders, sales agreements and capital expenditures. As of December 31, 2008, the net negative fair value of these embedded currency forwards amounted to P33.

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Fair Value Changes on Derivatives The net movements in fair value changes of all derivative instruments are as follows:

Beginning balance Net changes in fair value of derivatives: Designated as accounting hedges Not designated as accounting hedges Less fair value of settled instruments Ending balance

(P16) (62) (470) (548) (303) (P245)

Hedge Effectiveness Results The effective fair value changes, net of tax, on the Groups cash flow hedges that were deferred in equity as of December 31, 2008 amounted to P45.

28. Cash Dividends Cash dividends declared and paid for the period ended December 31, 2008 amounted to P0.41 per share. 29. Other Matters a. Commitments The outstanding purchase commitments of the Group as of December 31, 2008 amounted to P522. Amount authorized but not yet disbursed for capital projects as of December 31, 2008 is approximately P238. b. Foreign Exchange Rate The foreign exchange rate of P47.52 was used in translating the U.S. dollar monetary assets and liabilities to Philippine peso as of December 31, 2008.

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Appendix A Page 1 of 50

SA. MIGUEL BREWERY I.C.

(A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation)

FINANCIAL STATEMENTS December 31, 2008 and 2007

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Appendix A Page 2 of 50
Manabat Sanagustin & Co. Certified Public Accountants The KPMG Center, 9/F 6787 Ayala Avenue Makati City 1226, Metro Manila, Philippines Branches Subic Cebu Bacolod Iloilo Telephone Fax Internet E-Mail +63 (2) 885 7000 +63 (2) 894 1985 www.kpmg.com.ph manila@kpmg.com.ph

PRC-BOA Registration No. 0003 SEC Accreditation No. 0004-FR-2 BSP Accredited

REPORT OF I.DEPE.DE.T AUDITORS The Stockholders and the Board of Directors San Miguel Brewery Inc. No. 40 San Miguel Avenue Mandaluyong City We have audited the accompanying financial statements of San Miguel Brewery Inc. [a subsidiary of San Miguel Corporation (SMC) and formerly the Domestic Beer Division of SMC], which comprise the balance sheets as at December 31, 2008 and 2007, and the statements of income, statements of changes in equity and statements of cash flows for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007 and a summary of significant accounting policies and other explanatory notes. Managements Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Manabat Sanagustin & Co., certified public accountants, a professional partnership established under Philippine law, is a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.

Appendix A Page 3 of 50 Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of San Miguel Brewery Inc. as of December 31, 2008 and 2007, and its financial performance and its cash flows for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007 in accordance with Philippine Financial Reporting Standards. MA.ABAT SA.AGUSTI. & CO.

JOSE P. JAVIER, JR. Partner CPA License No. 0070807 SEC Accreditation No.: 0678-A Tax Identification No. 112-071-224 BIR Accreditation No. 08-001987-16-2007 Issued December 11, 2007; Valid until December 10, 2010 PTR No. 1564061MB Issued January 5, 2009 at Makati City

January 30, 2009 Makati City, Metro Manila

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Appendix A Page 4 of 50

SA. MIGUEL BREWERY I.C.

(A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation)

BALA.CE SHEETS
(In Millions)

December 31 ,ote ASSETS Current Assets Cash and cash equivalents Trade and other receivables - net Inventories - net Prepaid expenses and other current assets Total Current Assets .oncurrent Assets Plant and equipment - net Intangible assets Deferred tax assets Other noncurrent assets - net Total .oncurrent Assets 5, 24, 25 4, 6, 24, 25 4, 7 8, 25 P6,041 3,661 3,279 418 13,399 5,864 11 427 4,933 11,235 P24,634 P5,262 3,676 2,447 180 11,565 5,616 3 398 5,026 11,043 P22,608 2008 2007*

4, 9 4 4, 12 4, 10, 25

LIABILITIES A.D EQUITY Current Liabilities Accounts payable and accrued expenses Income and other taxes payable Total Current Liabilities .oncurrent Liabilities Equity Capital stock Additional paid-in capital Cumulative translation adjustments Retained earnings Total Equity 13 25 11, 24, 25 12 P3,000 2,585 5,585 39 15,410 515 (45) 3,130 19,010 P24,634 P3,243 1,710 4,953 12 15,333 2,310 17,643 P22,608

*The Company was incorporated on July 26, 2007. The net assets of the Domestic Beer Division of San Miguel Corporation were transferred to the Company on October 1, 2007. Actual commercial operations likewise started on October 1, 2007. See +otes to the Financial Statements.

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Appendix A Page 5 of 50

SA. MIGUEL BREWERY I.C.

(A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation)

STATEME.TS OF I.COME
(In Millions, Except Basic Earnings Per Share)

,ote SALES COST OF SALES GROSS PROFIT ADMI.ISTRATIVE A.D SELLI.G EXPE.SES I.TEREST I.COME OTHER I.COME (EXPE.SE) - Net I.COME BEFORE I.COME TAX I.COME TAX EXPE.SE .ET I.COME Basic Earnings Per Share 12 22 18 15 14

For the Year Ended December 31, 2008 P48,787 24,800 23,987 (8,366) 264 (377) 15,508 5,466 P10,042 P0.65

For the Period from July 26 to December 31, 2007* P12,180 6,333 5,847 (2,349) 36 15 3,549 1,239 P2,310 P0.15

*The Company was incorporated on July 26, 2007. The net assets of the Domestic Beer Division of San Miguel Corporation were transferred to the Company on October 1, 2007. Actual commercial operations likewise started on October 1, 2007. See +otes to the Financial Statements.

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Appendix A Page 6 of 50

SA. MIGUEL BREWERY I.C.

(A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation)

STATEME.TS OF CHA.GES I. EQUITY

(In Millions, Except for Par Value and Number of Shares of Stock)

,ote CAPITAL STOCK - P1 par value Authorized - 25,000,000,000 shares Balance at beginning of period Issuances during the period Balance at end of period ADDITIO.AL PAID-I. CAPITAL CUMULATIVE TRA.SLATIO. ADJUSTME.TS RETAI.ED EAR.I.GS Balance at beginning of period Net income for the period Cash dividends Balance at end of period 25 13

For the Year Ended December 31, 2008

For the Period from July 26 to December 31, 2007*

P15,333 77 15,410 515 (45) 2,310 10,042 (9,222) 3,130 P19,010

P 15,333 15,333 2,310 2,310 P17,643

26

*The Company was incorporated on July 26, 2007. The net assets of the Domestic Beer Division of San Miguel Corporation were transferred to the Company on October 1, 2007. Actual commercial operations likewise started on October 1, 2007. See +otes to the Financial Statements.

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Appendix A Page 7 of 50

SA. MIGUEL BREWERY I.C.

(A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation)

STATEME.TS OF CASH FLOWS

(In Millions)

,ote CASH FLOWS FROM OPERATI.G ACTIVITIES Income before income tax Adjustments for: Depreciation and amortization Interest income Reversal of allowance for doubtful accounts, inventory losses and others Gain on sale of plant and equipment - net Operating income before working capital changes Decrease (increase) in: Trade and other receivables Inventories Prepaid expenses and other current assets Increase (decrease) in: Accounts payable and accrued expenses Income and other taxes payables Cash generated from operations Income taxes paid Net cash flows from operating activities CASH FLOWS FROM I.VESTI.G ACTIVITIES Increase in other noncurrent assets Increase in intangible assets Additions to plant and equipment Proceeds from sale of plant and equipment Interest received Net cash flows used in investing activities
Forward

For the Year Ended December 31, 2008

For the Period from July 26 to December 31, 2007*

P15,508 16 1,758 (264) (127) (17) 16,858 66 (751) (238) (307) 453 16,081 (5,054) 11,027

P3,549 415 (36) (8) 3,920 (930) 607 218 1,556 466 5,837 (6) 5,831

18

(1,002) (12) (934) 44 259 (1,645)

(448) (208) 10 36 (610)

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Appendix A Page 8 of 50

,ote CASH FLOWS FROM FI.A.CI.G ACTIVITIES Increase in noncurrent liabilities Proceeds from issuances of capital stock Cash dividends paid Net cash flows provided by (used in) financing activities .ET I.CREASE I. CASH A.D CASH EQUIVALE.TS CASH A.D CASH EQUIVALE.TS AT BEGI..I.G OF PERIOD CASH A.D CASH EQUIVALE.TS AT E.D OF PERIOD

For the Year Ended December 31, 2008

For the Period from July 26 to December 31, 2007*

13 26

P27 592 (9,222) (8,603) 779 5,262

P12 29 41 5,262 P5,262

P6,041

*The Company was incorporated on July 26, 2007. The net assets of the Domestic Beer Division of San Miguel Corporation were transferred to the Company on October 1, 2007. Actual commercial operations likewise started on October 1, 2007. See +otes to the Financial Statements.

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Appendix A Page 9 of 50

SA. MIGUEL BREWERY I.C. (A Subsidiary of San Miguel Corporation and Formerly the Domestic Beer Division of San Miguel Corporation) .OTES TO THE FI.A.CIAL STATEME.TS (Amounts in Millions, Except Per Share and Number of Shares Data)

1. Reporting Entity San Miguel Brewery Inc. (the Company or SM Brewery) [formerly the domestic beer division of San Miguel Corporation (SMC or the Parent Company)] was registered with the Philippine Securities and Exchange Commission (SEC) on July 26, 2007. The Company is engaged in manufacturing, selling and distribution of fermented and maltbased beverages. The registered office address of the Company is 40 San Miguel Avenue, Mandaluyong City, Philippines. SMC is the ultimate parent company. On July 24, 2007, the stockholders of SMC, during the annual stockholders meeting, approved the transfer of SMCs domestic Philippine beer business assets to a whollyowned subsidiary of SMC, the Company, in exchange for shares of stock. The assets transferred to the Company comprise the domestic beer business net assets as of June 30, 2007 excluding land, brands, and income and other taxes payable. The transfer of SMCs domestic beer business net assets to the Company is pursuant to the listing with the Philippine Stock Exchange (PSE) and the public offering of the shares of the Company. The actual transfer of the net assets in exchange for shares of stock took effect on October 1, 2007. On May 12, 2008, the Companys shares were listed with the PSE. The financial statements as of and for the year ended December 31, 2008 were approved and authorized for issue by the Board of Directors (BOD) on January 30, 2009.

2. Basis of Preparation The financial statements of the Company have been prepared on a historical cost basis, except for derivative financial instruments which are measured at fair value. The financial statements are presented in Philippine peso, which is the Companys functional and presentation currency, and all values are rounded to the nearest million (P000,000), except when otherwise indicated. Statement of Compliance The financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRSs). PFRS includes statements named PFRS and Philippine Accounting Standards (PAS), including Philippine Interpretations from International Financial Reporting Interpretation Committee (IFRIC), issued by the Financial Reporting Standards Council (FRSC).

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Appendix A Page 10 of 50 3. Significant Accounting Policies The accounting policies set out below have been applied consistently by the Company to all periods presented in the financial statements. Adoption of New Standards, Amendments to Standards and Interpretations The FRSC approved the adoption of new standards, amendment to standards, and interpretations. Amendments to Standard and Interpretation Adopted in 2008 Starting January 1, 2008, the Company adopted the following amendments to standard and Philippine Interpretations from IFRIC: Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions: This interpretation describes how to apply PFRS 2, Share-based Payment to share-based payment arrangements involving an entitys own equity instruments and share-based payment arrangements of subsidiaries involving equity instruments of its parent company. The adoption of this interpretation did not have a material effect on the Companys financial statements. Philippine Interpretation IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction: This interpretation provides general guidance on how to assess the limit in PAS 19, Employee Benefits, on the amount of the surplus that can be recognized as an asset. It also explains how the retirement asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The adoption of this interpretation did not have a material effect on the Companys financial statements. Amendments to PAS 39, Financial Instruments: Recognition and Measurement and PFRS 7 Financial Instruments: Disclosures: This standard permits an entity to reclassify non-derivative financial assets, other than those designated at fair value through profit or loss upon initial recognition, out of the trading category in certain circumstances. The amendments also permit an entity to transfer from the availablefor-sale category to the loans and receivables category a financial asset that otherwise would have met the definition of loans and receivables, if the entity has the intention and ability to hold that financial asset for the foreseeable future. The adoption of these amendments to standard did not have an effect on the Companys financial statements. +ew and Revised Standards and Amendments to Standards +ot Yet Adopted The following are the new and revised standards and amendments to standards which are not yet effective for the year ended December 31, 2008, and have not been applied in preparing these financial statements: PFRS 8, Operating Segments, becomes effective for financial years beginning on or after January 1, 2009 and will replace PAS 14, Segment Reporting. This standard introduces the management approach to segment reporting. It will require a change in the presentation and disclosure of segment information based on the internal reports regularly reviewed by the Companys Chief Operating Decision Maker in order to assess each segments performance and to allocate resources to them. The Company has determined that this standard has no impact on its financial statements since it operates as one segment only (both in terms of business and geography).

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Appendix A Page 11 of 50 Revised PAS 1, Presentation of Financial Statements, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to introduce the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement), or in an income statement and a separate statement of comprehensive income. The Company is currently assessing the impact of the revised standard on the financial statements when it adopts the standard on January 1, 2009. Revised PAS 23, Borrowing Costs, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to require an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The Company will assess the impact of this revised standard on the financial statements when it adopts the standard on January 1, 2009. Amended PFRS 1 and PAS 27, Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, becomes effective for financial years beginning on or after January 1, 2009. The amendments to PFRS 1 allow a first-time adopter, at its date of transition to PFRSs in its separate financial statements, to use deemed cost to account for an investment in a subsidiary, jointly controlled entity or associate. The amendments to PAS 27 remove the definition of cost method currently set out in PAS 27, and instead require all dividend from a subsidiary, jointly controlled entity or associate to be recognized as income in the separate financial statements of the investor when the right to receive the dividend is established. The Company will assess the impact of this revised standard on the financial statements when it adopts the standard on January 1, 2009. Improvements to PFRSs 2008 discusses 35 amendments and is divided into two parts: a) Part I includes 24 amendments that result in accounting changes for presentation, recognition or measurement purposes; and b) Part II includes 11 terminology or editorial amendments that the International Accounting Standards Board expects to have either no or only minimal effects on accounting. These amendments are generally effective for annual periods beginning on or after January 1, 2009. The adoption of the amendments in 2009 is not expected to have any material effect on the Companys financial statements. Revised PFRS 3, Business Combinations, incorporates the following changes that are likely to be relevant to the Companys operations: The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations. Contingent consideration will be measured at fair value, with subsequent changes therein recognized in profit or loss. Transaction costs, other than share and debt issue costs, will be expensed as incurred. Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognized in profit or loss.

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Appendix A Page 12 of 50 Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis. Revised PFRS 3 will be applied prospectively and therefore there will be no impact on prior periods in the Companys financial statements. Amended PAS 27, Consolidated and Separate Financial Statement, requires accounting for changes in ownership interests by the Company in a subsidiary, while maintaining control, to be recognized as an equity transaction. When the Company loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in profit or loss. The amendments to PAS 27 are not expected to have a significant impact on the Companys financial statements. Amendments to PAS 39, Financial Instruments: Recognition and Measurement Eligible Hedged Items, becomes effective for financial years beginning on or after July 1, 2009. The standard has been amended to provide for the following: a) new application guidance to clarify the existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedge relationship; and b) additional application guidance on qualifying items; assessing hedge effectiveness; and designation of financial items as hedged items. The amendments to PAS 39, which will become mandatory for the Companys 2010 financial statements, are not expected to have a significant impact on the financial statements. Philippine Interpretation IFRIC 17, Distributions of +on-cash Assets to Owners, becomes effective for financial years beginning on or after July 1, 2009. This interpretation provides guidance on the accounting for non-reciprocal distributions of non-cash assets to owners acting in their capacity as owners. It also applies to distributions in which the owners may elect to receive either the non-cash asset or a cash alternative. The liability for the dividend payable is measured at fair value of the assets to be distributed. The Company will assess the impact of this interpretation on the financial statements when it adopts the standard on July 1, 2009. 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 and are subject to an insignificant risk of change in value. Financial Assets and Liabilities Date of Recognition. The Company recognizes a financial asset or a financial liability in the balance sheets when it becomes a party to the contractual provisions of the financial instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, are done using settlement date accounting.

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Appendix A Page 13 of 50 Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The fair value of the consideration given or received is determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rate of interest for similar instruments with similar maturities. The initial measurement of financial instruments, except for those designated at fair value through profit and loss (FVPL), includes transaction costs. Subsequent to initial recognition, the Company classifies its financial assets and liabilities in the following categories: held-to-maturity (HTM) financial assets, availablefor-sale (AFS) investments, FVPL financial assets, and loans and receivables. The classification depends on the purpose for which the investments are acquired and whether they are quoted in an active market. Management determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. Determination of Fair Value. The fair value for financial instruments traded in active markets at the balance sheet date is based on their quoted market price or dealer price quotation (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models. Day 1 Profit. Where the transaction price in a non-active market is different from the fair value of the other observable current market transactions for same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 Profit) in the statements of income unless it qualifies for recognition as some other type of asset. In cases where use is made of data which are not observable, the difference between the transaction price and model value is only recognized in the statements of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the day 1 profit amount. Financial Assets Financial Assets at FVPL. Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition as at FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognized in the statements of income.

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Appendix A Page 14 of 50 Financial assets may be designated by management at initial recognition as at FVPL, when any of the following criteria is met: the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a different basis; or the assets are part of a group of financial assets, financial liabilities or both which are managed and the performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recognized. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. The Company accounts for its derivative transactions (including embedded derivatives) under this category with fair value changes being reported directly to profit or loss, except when the derivative is treated as an effective accounting hedge, in which case the fair value change is deferred in equity under the Cumulative translation adjustments account. The Companys derivative assets are classified under this category (Notes 8 and 25). The carrying values of financial assets under this category amounted to P28 and P66 as of December 31, 2008 and 2007, respectively (Notes 8 and 25). Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not designated as AFS or financial assets at FVPL. Loans and receivables are carried at cost or amortized cost, less impairment in value. Amortization is determined using the effective interest method. The Companys cash and cash equivalents, trade and other r eceivables and noncurrent receivables and deposits are included in this category (Notes 5, 6 and 10). The carrying values of financial assets under this category amounted to P9,752 and P8,988 as of December 31, 2008 and 2007, respectively (Note 25). HTM Investments. HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Companys management has the positive intention and ability to hold to maturity. Where the Company sells other than an insignificant amount of HTM investments, the entire category would be tainted and classified as AFS investments. After initial measurement, these investments are measured at amortized cost using the effective interest method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. Gains and losses are recognized in the statements of income when the HTM investments are derecognized or impaired, as well as through the amortization process.

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Appendix A Page 15 of 50 The Company has no investments classified as HTM investments as of December 31, 2008 and 2007. AFS Investments. AFS investments are non-derivative financial assets that are designated in this category or are not classified in any of the other categories. Subsequent to initial recognition, AFS investments are carried at fair value in the balance sheets. Changes in the fair value of such assets are reported in the equity section of the balance sheets until the investment is derecognized or the investment is determined to be impaired. On derecognition or impairment, the cumulative gain or loss previously reported in equity is transferred to the statements of income. Interest earned on holding AFS investments is recognized in the statements of income using effective interest rate. The Company has no investments classified under this category as of December 31, 2008 and 2007. Financial Liabilities Financial Liabilities at FVPL. Financial liabilities are classified in this category if these result from trading activities or derivative transactions that are not accounted for as accounting hedges, or when the Company elects to designate a financial liability under this category. Included in this category are the Companys derivative financial instruments with negative fair values (Notes 11 and 25). The carrying values of financial liabilities under this category amounted to P273 and P82 as of December 31, 2008 and 2007, respectively (Notes 11 and 25). Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings. Financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs. Included in this category are the Companys accounts payable and accrued expenses (Notes 11 and 25). The carrying values of financial liabilities under this category amounted to P2,727 and P3,161 as of December 31, 2008 and 2007, respectively (Note 25). Derivative Financial Instruments and Hedging Freestanding Derivatives For the purpose of hedge accounting, hedges are classified as either: a) fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment (except for foreign currency risk); b) cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment; or c) hedges of a net investment in foreign operations.

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Appendix A Page 16 of 50 At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instruments effectiveness in offsetting the exposure to changes in the hedged items fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Fair Value Hedge. Derivatives classified as fair value hedges are carried at fair value with corresponding change in fair value recognized in the statements of income. The carrying amount of the hedged asset or liability is also adjusted for changes in fair value attributable to the hedged item and the gain or loss associated with that remeasurement is also recognized in the statements of income. When the hedge ceases to be highly effective, hedge accounting is discontinued and the adjustment to the carrying amount of a hedged financial instrument is amortized immediately. As of December 31, 2008 and 2007, the Company has no outstanding derivatives accounted for as fair value hedges. Cash Flow Hedge. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are included in the statements of changes in equity under the Cumulative translation adjustments account. The ineffective portion is immediately recognized in the statements of income. If the hedged cash flow results in the recognition of an asset or a liability, all gains and losses previously recognized directly in equity are transferred from equity and included in the initial measurement of the cost or carrying value of the asset or liability. Otherwise, for all other cash-flow hedges, gains and losses initially recognized in equity are transferred from equity to net income in the same period or periods during which the hedged forecasted transaction or recognized asset or liability affect the statements of income. When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that has been reported directly in equity is retained in equity until the forecasted transaction occurs. When the forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in equity is recognized in the statements of income. As of December 31, 2008, the Company has outstanding commodity options designated as effective cash flow hedges amounting to P59. As of December 31, 2007, the Company has no commodity options designated as effective cash flow hedges. +et Investment Hedge. As of December 31, 2008 and 2007, the Company has no hedge of a net investment in a foreign operation. For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value of derivatives are taken directly to profit or loss during the year incurred.

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Appendix A Page 17 of 50 Embedded Derivatives The Company assesses whether embedded derivatives are required to be separated from host contract when the Company becomes a party to the contract. An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at fair value through profit or loss. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Derecognition of Financial Assets and Liabilities Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: the rights to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a pass through arrangement; or the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Companys continuing involvement in the asset. Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such 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 statements of income. Impairment of Financial Assets The Company assesses at balance sheet date whether a financial asset or group of financial assets is impaired. Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses) discounted at the financial assets 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 use of an allowance account. The amount of loss shall be recognized in the statements of income.

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Appendix A Page 18 of 50 The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that 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, 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 statements 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 of an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or of a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. AFS Financial Assets. If an AFS financial asset is impaired, an amount comprising the difference between the cost (net of any principal payment and amortization) and its current fair value, less any impairment loss on that financial asset previously recognized in the statements of income, is transferred from equity to the statements of income. Reversals in respect of equity instruments classified as AFS are not recognized in profit or loss. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in the statements of income. Classification of Financial Instruments Between Debt and Equity A financial instrument is classified as debt if it provides for a contractual obligation to: deliver cash or another financial asset to another entity; or exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Company; or satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the balance sheets if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the balance sheets.

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Appendix A Page 19 of 50 Inventories Finished goods, goods in process and materials and supplies are valued at the lower of cost and net realizable value. Costs incurred in bringing each inventory to its present location and conditions are accounted for as follows: Finished goods and goods in process cost includes direct materials and labor and a proportion of manufacturing overhead costs based on normal operating capacity but excluding borrowing costs; cost is determined using the moving-average method; at cost using the moving-average method.

Materials and supplies

Net realizable value of finished goods and goods in process 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. Net realizable value of materials and supplies is the current replacement cost. Containers (i.e., returnable bottles and shells) are stated at deposit values. The excess of the acquisition cost of the containers over their deposit value is presented under deferred containers included under Other noncurrent assets account in the balance sheets and is amortized over the estimated useful lives of ten (10) years. Amortization of deferred containers is included under Administrative and selling expenses account in the statements of income. Plant and Equipment Plant and equipment are stated at cost less accumulated depreciation and amortization and any accumulated impairment in value. Such cost includes the cost of replacing part of the plant and equipment at the time that cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing. The initial cost of plant and equipment comprises of its purchase price, including import duties, taxes and any directly attributable costs in bringing the asset to its working condition and location for its intended use. Cost also includes any related asset retirement obligation and interest incurred during the construction period on funds borrowed to finance the construction of the projects. Expenditures incurred after the asset has been put into operation, such as repairs, maintenance and overhaul costs, are normally recognized as expense in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have improved the condition of the asset beyond the originally assessed standard of performance, the expenditures are capitalized as an additional cost of plant and equipment. Construction in progress represents structures under construction and is stated at cost. This includes the costs of construction and equipment and other direct costs. Borrowing costs that are directly attributable to the construction of plant and equipment are capitalized during the construction period. Construction in progress is not depreciated until such time that the relevant assets are ready for use.

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Appendix A Page 20 of 50 Depreciation and amortization are computed using the straight-line method over the following estimated useful lives of the assets: Number of Years 10 - 40 5 - 50 5-7 2-6 2-5 5 - 50 or term of the lease, whichever is shorter

Machinery and equipment Buildings and improvements Transportation equipment Office equipment, furniture and fixtures Tools and small equipment Leasehold improvements

The remaining useful lives, residual values and depreciation and amortization method are reviewed and adjusted, if appropriate, at each financial year-end to ensure that such periods and method of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of plant and equipment. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization is credited or charged to current operations. When each major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. An item of plant and equipment is derecognized when either it has been disposed or when it is permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gains or losses arising on the retirement and disposal of an item of plant and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) are included in the statements of income in the period of retirement or disposal. Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is charged against profits in the year in which the expenditure is incurred. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statements of income in the expense category consistent with the function of the intangible asset.

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Appendix A Page 21 of 50 Amortization of computer software and licenses is computed using the straight-line method of over 2-8 years. Intangible assets with indefinite useful lives, such as trademarks, brands and licenses, are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. Gains or losses arising from disposition of an intangible asset are measured as the difference between the disposal proceeds and the carrying amount of the asset and are recognized in the statements of income when the asset is disposed. Impairment of Non-financial Assets with Definite Useful Lives The carrying values of plant and equipment, containers, intangible assets with definite useful lives and idle assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists, and if the carrying value exceeds the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of the asset is the greater of fair value less costs to sell or value in use. The fair value less costs to sell is the amount obtainable from the sale of an asset in an arms-length transaction less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses of continuing operations are recognized in the statements 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 assets recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization charge is adjusted in future periods to allocate the assets revised carrying amount, less any residual value, on a systematic basis over its remaining useful life. Provisions Provisions are recognized only when the Company has (a) a present obligation (legal or constructive) as a result of past event; (b) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense. Where the Company expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the receipt of the reimbursement is virtually certain.
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Appendix A Page 22 of 50 Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: Sales. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably, which is normally upon delivery. Interest. Interest is recognized as the interest accrues, taking into account the effective yield on the asset. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Company as Lessee. Finance leases, which transfer to the Company substantially all the risks and rewards incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the statements of income. Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the assets or the respective lease terms, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term. Leases which do not transfer to the Company substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the statements of income on a straight-line basis over the lease term. Associated costs such as maintenance and insurance are expensed as incurred. Company as Lessor. Leases where the Company does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Lease income from operating leases is recognized as income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenues in the period in which they are earned. Research and Development Costs Research costs are expensed as incurred. Development cost incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Any expenditure carried forward is amortized in line with the expected future sales from the related project. The carrying value of development cost is reviewed for impairment annually when the related asset is not yet in use. Otherwise, this is reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

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Appendix A Page 23 of 50 Share-based Transactions Under SMCs Employee Stock Purchase Plan (ESPP), employees of the Company receive remuneration in the form of share-based payments transactions, whereby the employees render services as consideration for equity instruments of SMC. Such transactions are handled centrally by SMC. Share-based transactions in which SMC grants option rights to its equity instruments direct to the Companys employees are accounted for as equity-settled transactions. SMC charges the Company for the costs related to such transactions with its employees. The amount is charged to operations by the Company. The cost of ESPP is measured by reference to the market price at the time of the grant less subscription price. The cumulative expense recognized for share-based transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and SMCs best estimate of the number of equity instruments that will ultimately vest. Where the terms of a share-based award are modified, as a minimum, an expense is recognized as if the terms had not been modified. In addition, an expense is recognized for any modification, which increases the total fair value of the share-based payment agreement, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award. Retirement Costs The Company has a funded, noncontributory retirement plan, administered by a trustee, covering all permanent employees. Retirement costs are actuarially determined using the projected unit credit method. This method reflects service rendered by employees to the date of valuation and incorporates assumptions concerning employees projected salaries. Retirement cost includes current service cost, interest cost, expected return on plan assets, amortization of unrecognized past service costs, recognition of actuarial gains and losses, and effect of any curtailments or settlements. The past service cost, if any, 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, the plan, past service cost is recognized immediately as an expense. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses of the plan at the end of the previous reporting year exceed 10% of the higher of the present value 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 defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized, 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 resulting 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. If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized
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Appendix A Page 24 of 50 immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognized immediately. Foreign Currency Transactions and Translations The Companys financial statements are presented in Philippine peso, which is also the Companys functional and presentation currency. Transactions in foreign currencies are recorded using the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated using the closing rate of exchange at balance sheet date. All differences are taken to the statements of 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. Taxes Current tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at balance sheet date. Deferred tax. Deferred income tax is provided using the balance sheet liability method on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except: where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and with respect to taxable temporary differences associated with investments in subsidiaries, associates 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 tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits - Minimum Corporate Income Tax (MCIT) and unused tax losses - Net Operating Loss Carry Over (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 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

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Appendix A Page 25 of 50 with respect to deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred 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. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred 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 balance sheet date. Income tax relating to items recognized directly in equity is recognized in equity and not in the statements of income. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Value Added Tax (VAT). Revenues, expenses and assets are recognized net of the amount of VAT, except: where the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and receivables and payables that are stated with the amount of tax included. The net amount of tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheets. Related Parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Transactions between related parties are on an arms length basis in a manner similar to transactions with non-related parties. Earnings Per Share (EPS) Basic EPS is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period, with retroactive adjustments for any stock dividends declared. Contingencies Contingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow of economic benefits is probable.

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Appendix A Page 26 of 50 Subsequent Events Post year-end events that provide additional information about the Companys position at balance sheet date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to the financial statements when material. 4. Significant Accounting Judgments, Estimates and Assumptions The Companys financial statements prepared in accordance with PFRS requires management to make judgments, estimates and assumptions that affect amounts reported in the financial statements and related notes, at the reporting date. However, uncertainty about these estimates and assumptions could result in outcome that could require a material adjustment to the carrying amount of the affected asset or liability in the future. Judgments In the process of applying the Companys 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: Operating Leases. The Company has entered into various lease agreements as a lessee. The Company has determined that the lessor retains all significant risks and rewards of ownership of these properties which are leased out under operating lease arrangements. Rent expense charged to operations amounted to P638 and P175 as of December 31, 2008 and 2007, respectively (Note 15). Estimates The key estimates and assumptions used in the financial statements are based on managements evaluation of relevant facts and circumstances as of the date of the Companys financial statements. Actual results could differ from such estimates. Allowance for Doubtful Accounts. Provisions are made for specific and groups of accounts, where objective evidence of impairment exists. The Company evaluates these accounts on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Companys relationship with the customers and counterparties, the customers current credit status based on third party credit reports and known market forces, average age of accounts, collection experience, and historical loss experience. The amount and timing of recorded expenses for any period would differ if the Company made different judgments or utilized different methodologies. An increase in allowance for doubtful accounts would increase the recorded administrative and selling expenses and decrease current assets. The allowance for doubtful accounts amounted to P647 and P693 as of December 31, 2008 and 2007, respectively (Note 6). The carrying value of trade and other receivables amounted to P3,661 and P3,676 as of December 31, 2008 and 2007, respectively (Note 6). Allowance for Inventory Losses. The Company provides allowance for inventory losses whenever net realizable value becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes.

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Appendix A Page 27 of 50 Estimates of net realizable value are based on the most reliable evidence available at the time the estimates are made of the amount the inventories are expected to be realized. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after balance sheet date to the extent that such events confirm conditions existing at balance sheet date. The allowance account is reviewed periodically to reflect the accurate valuation in the financial records. The allowance for inventory losses amounted to P335 and P416 as of December 31, 2008 and 2007, respectively. The carrying value of inventories amounted to P3,279 and P2,447 as of December 31, 2008 and 2007, respectively (Note 7). Estimated Useful Lives of Containers and Plant and Equipment. The Company estimates the useful lives of containers and plant and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of containers and plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. In addition, estimation of the useful lives of containers and plant and equipment is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of containers and plant and equipment would increase recorded cost of sales and administrative and selling expenses and decrease noncurrent assets. Accumulated depreciation and amortization of plant and equipment amounted to P15,682 and P15,163 as of December 31, 2008 and 2007, respectively (Note 9). Plant and equipment, net of accumulated depreciation and amortization, amounted to P5,864 and P5,616 as of December 31, 2008 and 2007, respectively (Note 9). Deferred containers, net of accumulated amortization, amounted to P4,537 and P4,605 as of December 31, 2008 and 2007, respectively (Note 10). Estimated Useful Lives of Intangible Assets with Finite Lives. The useful lives of intangible assets are assessed at the individual asset level as having either a finite or indefinite life. Intangible assets are regarded to have an indefinite useful life when, based on analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Company. Intangible assets with finite useful life amounted to P11 and P3 as of December 31, 2008 and 2007, respectively. Realizability of Deferred Tax Assets. The Company reviews its deferred tax assets at each balance sheet date and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. The Companys assessment on the recognition of deferred tax assets on deductible temporary difference and carryforward benefits of MCIT and NOLCO is based on the projected taxable income in the following periods. Deferred tax assets amounted to P427 and P398 as of December 31, 2008 and 2007, respectively (Note 12).

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Appendix A Page 28 of 50 Impairment of Other +on-financial Assets. PFRS require that an impairment review be performed on plant and equipment, containers and intangible assets with definite useful lives when events or changes in circumstances indicate that the carrying value may not be recoverable. Determining the net recoverable value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. While it is believed that the assumptions used in the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations. There were no impairment losses of plant and equipment and other non-financial assets recognized as of December 31, 2008 and 2007. The aggregate amount of plant and equipment, deferred containers and intangible assets with definite useful lives amounted to P10,412 and P10,224 as of December 31, 2008 and 2007, respectively (Notes 9 and 10). Present Value of Defined Benefit Obligation. The present value of the retirement obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. These assumptions are described in Note 21 to the financial statements and include discount rate, expected return on plan assets and salary increase rate. Actual results that differ from the assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. The assumption of the expected return on plan assets is determined on a uniform basis, taking into consideration the long-term historical returns, asset allocation and future estimates of long-term investment returns. The Company determines the appropriate discount rate at the end of each year. It is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the retirement obligations. In determining the appropriate discount rate, the Company considers the interest rates on government bonds that are denominated in the currency in which the benefits will be paid. The terms to maturity of these bonds should approximate the terms of the related retirement liability. Other key assumptions for retirement obligations are based in part on current market conditions. While it is believed that the Companys assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Companys retirement and other retirement obligations. The Company has a net cumulative unrecognized actuarial losses amounting to P379 and P768 as of December 31, 2008 and 2007, respectively (Note 21). Financial Assets and Liabilities. The Company carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgment. Significant components of fair value measurement were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates). The amount of changes in fair value would differ if the Company utilized different valuation methodologies and assumptions. Any change in the fair value of these financial assets and liabilities would affect net income and equity. Fair value of financial assets and liabilities are discussed in Note 25.
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Appendix A Page 29 of 50 Asset Retirement Obligation. Determining asset retirement obligation requires estimation of the cost of dismantling plant and equipment and other costs of restoring the leased properties to their original condition. The Company determined that there are no significant asset retirement obligations as of December 31, 2008 and 2007. Provisions and Contingencies. The Company, in the ordinary course of business, sets up appropriate provisions for its present legal or constructive obligations, if any, in accordance with its policies on provisions and contingencies. In recognizing and measuring provisions, management takes risk and uncertainties into account. 5. Cash and Cash Equivalents This account consists of: 2008 P2,168 3,873 P6,041 2007 P803 4,459 P5,262

Cash in banks and on hand Short-term investments

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 Company, and earn interest at the respective short-term investment rates. 6. Trade and Other Receivables This account consists of: ,ote Trade - net Receivables Amounts owed by related parties Nontrade Amounts owed by related parties Others - net 2008 P2,340 569 149 603 P3,661 2007 P2,301 537 476 362 P3,676

19 19 20

Trade receivables are non-interest bearing and are generally on 30 days credit term.

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Appendix A Page 30 of 50 As at December 31, 2008, the aging of trade and other receivables and the related allowance provided is as follows:
Owed by related parties P446 182 38 2 92 P760

Current Past due Less than 30 days 30-60 days 61-90 days Over 90 days

Trade P2,685 22 67 6 150 P2,930

.on-trade P581 2 35 P618

Total P3,712 206 105 8 277 P4,308

Allowance P340 23 67 6 211 P647

As at December 31, 2007, the aging of trade and other receivables and the related allowance provided is as follows:
Owed by related parties P947 63 31 56 P1,097

Trade Current Past due Less than 30 days 30-60 days 61-90 days Over 90 days P2,623 15 6 29 217 P2,890

Non-trade P341 31 10 P382

Total P3,911 109 47 29 273 P4,369

Allowance P393 59 1 11 229 P693

The movements in the allowance for doubtful accounts in 2008 and 2007 are as follows: 2008 P693 (46) P647 2007 P 693 P693

Balance at beginning of period Transferred from SMC Unused amounts reversed/reclassified Balance at end of period

Allowance for doubtful accounts related to amounts owed by related parties as of December 31, 2008 and 2007 amounted to P42 and P84, respectively (Note 19). Various collaterals for trade receivables such as bank guarantees, time deposits and real estate mortgage are held by the Company for credit limits exceeding P0.275.

7. Inventories This account consists of: 2008 P866 1,093 1,320 P3,279 2007 P689 1,291 467 P2,447

Finished goods and goods in process - at cost Containers - at net realizable value Materials and supplies - at net realizable value Total inventories at lower of cost and net realizable value
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Appendix A Page 31 of 50 The cost of containers as of December 31, 2008 and 2007 amounted to P1,413 and P1,677, respectively. The cost of materials and supplies as of December 31, 2008 and 2007 amounted to P1,335 and P497, respectively.

8. Prepaid Expenses and Other Current Assets This account consists of: ,ote Prepaid taxes and licenses Prepaid rentals Derivative assets Prepaid insurance Others 2008 P274 41 28 6 69 P418 2007 P42 40 66 11 21 P180

24, 25

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Appendix A Page 32 of 50

9. Plant and Equipment The movements in this account are as follows:

Office Equipment, Furniture and Fixtures P362 1 (1) 362 11 (4) 369 Tools and Small Equipment P9 9 9

Machinery and Buildings and Equipment Improvements Cost: Transferred from SMC Additions for the year Disposals/reclassifications December 31, 2007 Additions for the year Disposals/reclassifications December 31, 2008 Accumulated depreciation and amortization: Transferred from SMC Additions for the year Disposals/reclassifications December 31, 2007 Additions for the year Disposals/reclassifications December 31, 2008 .et book value: December 31, 2007 December 31, 2008 P16,083 62 (82) 16,063 868 (60) 16,871 P3,502 18 13 3,533 52 (53) 3,532

Transportation Equipment P401 2 (9) 394 3 (24) 373

Leasehold Improvements P81 81 (19) 62

Construction in Progress P212 125 337 (7) 330

Total P20,650 208 (79) 20,779 934 (167) 21,546

12,923 151 (71) 13,003 529 (65) 13,467 P3,060 P3,404

1,391 25 3 1,419 101 (40) 1,480 P2,114 P2,052

343 6 (9) 340 19 (24) 335 P54 P38

41 1 42 4 (7) 39 P39 P23

350 2 (1) 351 6 (4) 353 P11 P16

8 8 8 P1 P1

P337 P330

15,056 185 (78) 15,163 659 (140) 15,682 P5,616 P5,864

Depreciation and amortization charged to operations amounted to P659 and P185 in 2008 and 2007, respectively (Note 16). No interest was capitalized in 2008 and 2007.

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Appendix A Page 33 of 50 10. Other .oncurrent Assets This account consists of: ,ote Deferred containers - net Bottles Shells Retirement asset Amounts owed by related parties Others 21 19 20, 24 2008 P3,187 1,350 4,537 41 39 316 P4,933 2007 P3,110 1,495 4,605 39 382 P5,026

The movements in the deferred containers are as follows: ,ote Gross carrying amount: Beginning balance Transferred from SMC Additions Ending Balance Accumulated amortization: Beginning balance Amortization for the period Ending Balance 2008 P4,814 939 5,753 209 1,007 1,216 P4,537 2007 P 4,422 392 4,814 209 209 P4,605

16

11. Accounts Payable and Accrued Expenses This account consists of: ,ote Trade Payables Amounts owed to related parties Nontrade Amounts owed to related parties Derivative liabilities Accrued expenses Payroll Utilities Materials Others 2008 P1,250 622 327 273 234 44 15 235 P3,000 2007 P879 610 900 82 290 23 54 405 P3,243

19 19 25

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Appendix A Page 34 of 50 12. Income Taxes Deferred tax assets arise from the following: 2008 P194 101 113 19 P427 2007 P242 146 3 7 P398

Allowance for doubtful accounts Allowance for inventory losses Derivatives Others

The components of the income tax expense are shown below: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 P5,476 P1,249 (10) (10) P5,466 P1,239

Current Deferred

The reconciliation of statutory income tax rate on income before income tax and the Companys effective income tax rates are as follows: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 35.00% 35.00% 0.43 (0.25) 0.06 35.24%

Statutory income tax rate Increase (decrease) in income tax rate resulting from: Change in tax rate Interest income subjected to final tax Others Effective income tax rate

(0.12) 0.03 34.91%

13. Capital Stock In their respective meetings on August 9, 2007 and September 7, 2007, at least a majority of the BOD of the Company and stockholders owning or representing at least 2/3 of the subscribed and outstanding capital stock approved the increase in the authorized capital stock from P100 to P25,000, the decrease of the par value of its shares from P100 to P1 and the issuance of a total of 15,308,416,960 common shares, comprising of 75,000,000 common shares from its unissued authorized capital stock and 15,233,416,960 common shares from the increase in its authorized capital stock in exchange for the net assets of the domestic beer business of SMC as of June 30, 2007 with a net book value of P15,308. The transfer of the net assets is pursuant to a Master Deed of Assignment of Domestic Beer Assets dated August 23, 2007 between SMC and the Company with amendments dated September 7, 2007.

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Appendix A Page 35 of 50 On September 27, 2007, the SEC approved the increase in authorized capital stock and decrease in par value of shares. As a standard condition of the SEC for approval of applications for increase in authorized capital stock, where the payment for the shares issued pursuant to such increase is made in the form of motor vehicles and receivables, 2,557,573,242 common shares that were issued by the Company to SMC in exchange for motor vehicles and receivables out of the 15,308,416,960 common shares issued by the Company were held in escrow by the SEC pending the transfer of ownership of those motor vehicles in the name of the Company and proof of collection of receivables. On November 5, 2008, the Company submitted to the SEC the required documentation for the transfer of ownership of motor vehicles and proof of collection of receivables. As of January 30, 2009, this is being reviewed by the SEC. Pursuant to the registration statement rendered effective by the SEC on April 28, 2008 and the listing approval of the PSE, 77,052,000 common shares were sold by the Company to the public under a primary offering at P8.00 per share in April-May 2008. The movements in the number of issued shares of capital stock are as follows: 2008 15,333,426,960 77,052,000 15,410,478,960 2007 15,333,426,960 15,333,426,960

Balance at beginning of period Issuance during the period Balance at end of period

14. Cost of Sales This account consists of: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 P14,523 P3,918 6,956 1,473 1,538 405 797 194 535 149 353 85 98 109 P24,800 P6,333

,ote Taxes and licenses Inventories Communications, light, fuel and water Personnel Depreciation and amortization Repairs and maintenance Others

17 16

15. Administrative and Selling Expenses Administrative and selling expenses consist of: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 P4,846 P1,584 3,520 765 P8,366 P2,349
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Administrative Selling

Appendix A Page 36 of 50 Administrative expenses consist of: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 P1,173 P246 974 243 903 183 389 421 295 159 223 73 172 149 28 144 52 80 16 22 151 322 12 P4,846 P1,584

Depreciation and amortization Royalty Personnel Advertising and promotion Management fees Rent Breakages and losses Repairs and maintenance Professional fees Communications, light, fuel and water Taxes and licenses Others

,ote 4, 16 17 4, 20

Selling expenses consist of: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 P1,485 P338 691 158 436 25 415 102 103 22 102 27 71 29 50 20 167 44 P3,520 P765

,ote Freight, trucking and handling Personnel Advertising and promotion Rent Taxes and licenses Communication, light, fuel and water Repairs and maintenance Depreciation and amortization Others 17 4, 20

4, 16

16. Depreciation and Amortization Depreciation and amortization are distributed as follows: For the Year Ended December 31, 2008 Cost of sales: Plant and equipment Administrative and selling expenses: Plant and equipment Deferred containers Others P535 124 1,007 92 1,223 P1,758
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For the Period from July 26 to December 31, 2007 P149 36 209 21 266 P415

Appendix A Page 37 of 50 17. Personnel Expenses This account consists of: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 P1,457 P215 157 42 777 278 P2,391 P535

,ote Salaries and wages Retirement cost Other employee benefits 21

Personnel expenses are distributed as follows: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 P797 P194 903 183 691 158 P2,391 P535

Cost of sales Administrative expenses Selling expenses

18. Other Income (Expense) This account consists of: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 P62 (P12) 15 4 17 8 (469) 14 (2) 1 (P377) P15

,ote Foreign exchange gain (loss) - net Rental income Gain on sale of plant and equipment - net Marked-to-market gain (loss) - net Others 20 25

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Appendix A Page 38 of 50 19. Related Party Disclosures The Company, in the normal course of business, purchases products and services from and sells products to related parties. Transactions with related parties are made at normal market prices.
Relationship with Related Parties San Miguel Corporation San Miguel Yamamura Packaging Corporation (formerly San Miguel Packaging Specialists, Inc.) Parent Company Revenue Purchases From From Related Related Parties Parties P2,020 654 P1,660 450 Amounts Owed by Related Parties P645 955 Amounts Owed to Related Parties P298 892

Year 2008 2007

Under common control Under common control Under common control Under common control Under common control Under common control Under common control Under common control Under common control Under common control

2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007

44 55 3 3 8 2 11 3 3 25 28 24 P2,120 P763

1,991 499 29 10 415 102 98 26 96 29 5 1 1 16 2 P4,306 P1,124

21 62 2 4 1 1 7 20 28 18 73 60 20 16 2 P799 P1,136

469 497 6 10 92 53 60 27 21 21 3 5 7 4 21 1 7 11 P986 P1,519

San Miguel Rengo Packaging Corporation

SMC Shipping and Lighterage Corporation

SMITS, Inc. and a subsidiary

San Miguel Yamamura Asia Corporation

Ginebra San Miguel, Inc. and a subsidiary

San Miguel Beverages, Inc.

San Miguel International Ltd. and subsidiaries

San Miguel Pure Foods Company, Inc. and subsidiaries

Others

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Appendix A Page 39 of 50 a. Purchases consist of purchase of materials, bottles, shells, cartons and services rendered from related parties.

b. Amounts owed by related parties consist of trade receivables, share in expenses, tolling services and rental. Amounts owed by related parties included under Other noncurrent assets account amounted to P39 as of December 31, 2008 and 2007. c. Amounts owed to related parties consist of trade payables, professional fees, insurance, rental, royalties and management fees. Amounts owed to related parties included under Noncurrent liabilities account amounted to P37 and P9 as of December 31, 2008 and 2007, respectively. d. The compensation of key management personnel of the Company, by benefit type, follows: 2008 P81 6 P87 2007 P15 4 P19

Short-term employee benefits Retirement costs

20. Leasing Agreements Finance Leases Leases as Lessor The Company leases some of its machinery and equipment under finance lease agreements to a third party logistics provider. The Company provides the lessee the option to purchase the equipment at a beneficial price. The current and noncurrent portion of finance lease receivable included under Trade and other receivables and Other noncurrent assets accounts, respectively in the balance sheets are as follows: December 31, 2008 Minimum lease receivable Interest Principal P6 P1 P5 5 P11 P1 December 31, 2007 Minimum lease receivable P6 11 P17 5 P10

Within one year After one year but not more than five years

Within one year After one year but not more than five years

Interest P1 1 P2

Principal P5 10 P15

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Appendix A Page 40 of 50 Operating Leases Leases as Lessee The Company leases the land where its breweries and some of its sales offices and a number of offices and warehouses are situated under operating leases arrangements. The leases typically run for a period of one to five years. The escalation clause for the lease of the land is reviewed every five years. Some lease agreements provide an option to renew the lease at the end of the lease term and are subject to review to reflect current market rentals. Lease payments for the lease of the land are as follows: 2008 P174 570 P744 2007 P158 744 P902

Within one year After one year but not more than five years

As of December 31, 2008 and 2007, the Company has no non-cancellable operating leases.

21. Retirement Plan The Company has a funded, noncontributory retirement plan covering all of its permanent employees. Contributions and costs are determined in accordance with the actuarial studies made for the plan. Annual cost is determined using the projected unit credit method. The Companys latest actuarial valuation date is December 31, 2008. Valuations are obtained on a periodic basis. Retirement costs charged by the Company to operations amounted to P157 and P42 in 2008 and 2007, respectively. The Companys annual contribution to the retirement plan consists of payments covering the current service cost and amortization of past service liability. The components of retirement cost recognized in the statements of income and the amounts recognized in the balance sheets are as follows: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 P295 P 179 42 24 (341) P157 P42 P243 P0.531

Interest cost Current service cost Net actuarial loss to be recognized Expected return on plan assets Net retirement cost Actual return on plan assets

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Appendix A Page 41 of 50 The retirement cost is recognized in the following line items in the statements of income: For the Year For the Period Ended from July 26 to December 31, December 31, 2008 2007 P53 P12 104 30 P157 P42

Cost of sales Administrative and selling expenses

The reconciliation of the assets and liabilities recognized in the balance sheets included under the Other noncurrent assets account is as follows: 2008 P4,000 3,662 338 (379) (P41) 2007 P4,175 3,407 768 (768) P -

Present value of defined benefit obligation Fair value of plan assets Unrecognized actuarial losses Net retirement asset

The movements in the present value of the defined benefit obligation are as follows: 2008 P4,175 295 179 47 (463) (204) (29) P4,000 2007 P 42 3,448 769 (84) P4,175

Beginning balance Interest cost Current service cost Transfer from other plan Actuarial losses (gains) Benefits paid Transfer to other plan Ending balance

The movements in the fair value of the plan assets are as follows: 2008 P3,407 341 198 47 (204) (98) (29) P3,662 2007 P 42 3,448 (84) 1 P3,407

Beginning balance Expected return on plan assets Contributions by employer Transfer from other plan Benefits paid Actuarial gains (losses) Transfer to other plan Ending balance

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Appendix A Page 42 of 50 Plan assets consist of the following: In Percentages 2008 2007 79 100 21 -

Fixed income portfolio Stock trading portfolio

The overall expected rate of return is determined based on historical performance of investments. The principal actuarial assumptions used to determine retirement benefits are as follows: In Percentages 2008 2007 8.1 7.1 6.0 6.0 9.0 10.0

Discount rate Salary increase rate Expected return on plan assets

The historical information of the amounts for the current and previous period is as follows: 2008 P4,000 3,662 (338) 463 (98) 2007 P4,175 3,407 (768) 769 1

Present value of the defined benefit obligation Fair value of plan assets Deficit in the plan Experience adjustments on plan liabilities Experience adjustments on plan assets

The Company expects to pay P220 in contributions to defined benefit plan in 2009. 22. Basic Earnings Per Share Basic EPS is computed as follows: 2008 P10,042 15,372 P0.65 2007 P2,310 15,333 P0.15

Net income (a) Weighted average number of shares outstanding (in millions) - basic (b) Basic EPS (a/b)

As of December 31, 2008, the Company has no dilutive debt or equity instruments.

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Appendix A Page 43 of 50 23. Employee Stock Purchase Plan SMC offers shares of stocks to employees of SMC and its subsidiaries under the Employees Stock Purchase Plan (ESPP). Under the ESPP, all permanent Philippine-based employees of SMC and its subsidiaries who have been employed for a continuous period of one year prior to the subscription period will be allowed to subscribe at a price equal to the weightedaverage of the daily closing prices for three months prior to the offer period less 15% discount. A participating employee may acquire at least 100 shares of stock through payroll deductions. The ESPP requires the subscribed shares and stock dividends accruing thereto to be pledged to SMC until the subscription is fully-paid. The right to subscribe under the ESPP cannot be assigned or transferred. A participant may sell his shares after the second year from exercise date. The ESPP also allows subsequent withdrawal and cancellation of participants subscriptions under certain terms and conditions. Expenses for share-based payments charged to operations under Management fees account amounted to P0.429 in 2008.

24. Financial Risk Management Objectives and Policies Objectives and Policies The Companys principal financial instruments other than derivatives include cash and cash equivalents, receivables and trade payables, which arise directly from its operations. The main purpose of these financial instruments is to raise financing for the Companys operations. The Company also enters into derivative transactions such as commodity options. The Company uses derivatives to manage its exposures to commodity price risks arising from the Companys operations. The main risks arising from the use of financial instruments are credit risk, liquidity risk and market risk - foreign currency risk and commodity price risk. The BOD has the overall responsibility for the establishment and oversight of the Companys risk management framework. The Companys risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Companys activities. The Companys accounting policies in relation to derivatives are set out in Note 3. Foreign Currency Risk The Companys exposure to foreign currency risk results from its business transactions and purchase of materials denominated in foreign currency. The Company uses a combination of natural hedges and derivative hedges to manage its foreign currency exposure. It uses currency derivatives to reduce earnings volatility related to foreign exchange movements.

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Appendix A Page 44 of 50 Information on the Companys foreign currency -denominated monetary assets and liabilities and their Philippine peso equivalents are as follows:
December 31, 2008 December 31, 2007 U.S. Peso Peso Dollar* Equivalent U.S. Dollar Equivalent Assets Cash and cash equivalents Trade and other receivables Liabilities Accounts payable and accrued expenses Net foreign currency - denominated monetary assets $5 4 2 $7 P243 181 77 P347 $ 3 1 $2 P 127 29 P98

*U.S. Dollar equivalent of foreign currency-denominated balances as of balance sheet date

With the translation of these foreign currency-denominated assets and liabilities, the Company reported net foreign exchange gain (loss) amounting to P62 and (P12) in 2008 and 2007, respectively. These resulted from the movements of the Philippine peso against the US dollar as shown in the following table:
Peso to US Dollar December 31, 2007 December 31, 2008 41.28 47.52

The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Companys profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Companys equity as of December 31, 2008 and 2007 are as follows: 2008
P1 decrease in the US dollar exchange rate Effect on Income before Effect on Income Tax Equity (P5) P (4) 12 3 Accounts payable and accrued expenses Derivative liabilities 2 11 13 (P10) (1) (1) P1 P1 increase in the US dollar exchange rate Effect on Income before Effect on Income Tax Equity P5 P 4 (11) (2) (2) (13) (15) P13 1 1 (P1)

Cash and cash equivalents Trade and other receivables Derivative assets

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Appendix A Page 45 of 50 2007

P1 decrease in the US dollar exchange rate Effect on Income before Effect on Income Tax Equity Cash and cash equivalents Trade and other receivables Derivative assets Accounts payable and accrued expenses Derivative liabilities P (3) (27) (30) 1 (9) (8) (P22) P P P1 increase in the US dollar exchange rate Effect on Income before Effect on Income Tax Equity P 3 (48) (45) (1) 9 8 (P53) P P -

Commodity Price Risk The Company enters into various commodity derivatives to manage its price risks on strategic commodities. Commodity hedging allows stability in prices, thus offsetting the risk of volatile market fluctuations. Through hedging, prices of commodities are fixed at levels acceptable to the Company, thus protecting raw material cost and preserving margins. For hedging transactions, if prices go down, hedge positions may show marked-to-market losses; however, any loss in the marked-to-market positions is offset by the resulting lower physical raw material cost. SMC enters into commodity derivative transactions in behalf of the Company to reduce cost by optimizing purchasing synergies within the SMC Group of Companies and managing inventory levels of common materials. Commodity Options. Commodity options are used to manage the Companys exposures to volatility in prices of certain commodities such as fuel oil. Liquidity Risk Liquidity risk arises from the possibility that the Company may encounter difficulties in raising funds to meet commitments from financial instruments or that a market for derivatives may not exist in some circumstances. The Companys objectives to manage its liquidity profile are: a) to ensure that adequate funding is available at all times; b) to meet commitments as they arise without incurring unnecessary costs; c) to access funding when needed at the least possible cost; and d) to maintain an adequate time spread of refinancing maturities.

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Appendix A Page 46 of 50 The table below summarizes the maturity profile of the Companys financial liabilities as of December 31, 2008 and 2007 based on contractual undiscounted payments: 2008
.on-derivative financial liabilities Accounts payable and accrued expenses Carrying Contractual 1year > 1 year - >2 years Amount cash flow or less 2 years - 5 years P2,727 P2,727 P2,679 P48 P Over 5 years P -

2007
Non-derivative financial liabilities Accounts payable and accrued expenses Carrying Amount P3,161 Contractual cash flow 1year or less > 1 year 2 years P >2 years - 5 years P Over 5 years P -

P3,161 P3,161

Credit Risk Credit risk or the risk of counterparties defaulting is controlled by the application of credit approvals, limits and monitoring procedures. It is the Companys policy to enter into transactions with a diversity of creditworthy parties to mitigate any significant concentration of credit risk. The Company ensures that sales of products are made to customers with appropriate credit history and has internal mechanism to monitor the granting of credit and management of credit exposures. The Company has made provisions, where necessary, for potential losses on credits extended. Where appropriate, the Company obtains collateral or arranges master netting agreements. With respect to credit risk arising from the other financial assets of the Company, which comprise of cash and cash equivalents and certain derivative instruments, the Companys exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amount of these instruments, net of the value of collaterals, if any. Financial information on the Companys maximum exposure to credit risk as of December 31, 2008 and 2007, without considering the effects of collaterals and other risk mitigation techniques is presented below. ,ote 5 6 8 10 2008 P6,041 3,661 28 50 P9,780 2007 P5,262 3,676 66 50 P9,054

Cash and cash equivalents Trade and other receivables - net Derivative assets Noncurrent receivables

The Company has no significant concentration of credit risk with any counterparty. Capital Management The primary objective of the Companys capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Company manages its capital structure and makes adjustments to it, in the light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

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Appendix A Page 47 of 50 The Company defines capital as paid-in capital stock, additional paid-in capital, retained earnings, both appropriated and unappropriated. Other components of equity such as treasury stock and translation are excluded from capital for purposes of capital management. The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles for capital ratios are set in the light of changes in the Companys external environment and the risks underlying the Companys business, operation and industry. The Company monitors capital on the basis of debt-to-equity ratio, which is calculated as total debt divided by total equity. Total debt is equivalent to current and noncurrent liabilities. Total equity comprises of equity including capital stock, additional paid-in capital, cumulative translation adjustments and retained earnings. There were no changes in the Companys approach to capital management during the year. The Company is not subject to externally imposed capital requirements.

25. Financial Assets and Liabilities The table below presents a comparison by category of carrying amounts and fair values of all of the Companys financial instruments as of December 31, 2008 and 2007:
2008 Carrying Amount Fair Value Financial Assets Cash and cash equivalents Trade and other receivables - net Derivative assets (included under Prepaid expenses and other current assets account in the balance sheets) Noncurrent receivables and deposits - net (included under Other noncurrent assets account in the balance sheets) Financial Liabilities Accounts payable and accrued expenses Derivative liabilities (included under Accounts payable and accrued expenses account in the balance sheets) P6,041 3,661 28 P6,041 3,661 28 2007 Carrying Amount Fair Value P5,262 3,676 P5,262 3,676

66

66

50 2,727 273

50 2,727 273

50 3,161

50 3,161

82

82

The following methods and assumptions are used to estimate the fair value of each class of financial instruments: Cash and Cash Equivalents, Trade and Other Receivables and +oncurrent Receivables and Deposits. The carrying amount of cash and cash equivalents and receivables approximates fair value primarily due to the relatively short-term maturity of these financial instruments. In the case of long-term receivables, the fair value is based on the present value of expected future cash flows using the applicable discount rates. Derivatives. The fair values of forward exchange contracts are calculated by reference to current forward exchange rates. The fair values of commodity derivatives are determined based on prices obtained from the market and counterparties. Fair values are also based on standard valuation models.

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Appendix A Page 48 of 50 Accounts Payable and Accrued Expenses. The carrying amount of accounts payable and accrued expenses approximates fair value due to the relatively short-term maturity of these financial instruments. Derivative Financial Instruments The Companys derivative financial instruments according to the type of financial risk being managed and the details of freestanding and embedded derivative financial instruments that are categorized into those accounted for as hedges and those that are not designated as hedges are discussed as follows: The Company enters into various commodity options to manage its exposure on commodity price risk covering the Companys requirement on fuel oil. Derivative Instruments Accounted for as Hedges Cash Flow Hedges Commodity Options As of December 31, 2008, the Company has outstanding option agreements covering its fuel oil requirements with notional quantities of 3,391. The call and put option can be exercised at various dates in 2009 with specific quantities on each calculation date. The net unrealized fair value change (after tax) deferred under Cumulative translation adjustments account on these call options as of December 31, 2008 amounted to P45. As of December 31, 2007, the Company has no outstanding options designated as hedge on the purchase of commodity. Derivative Instruments Not Designated as Hedges The Company enters into certain derivatives as economic hedges of certain underlying exposures. These include freestanding and embedded derivatives found in host contracts, which are not designated as accounting hedges. Changes in fair value of these instruments are accounted for directly in the 2008 and 2007 statements of income. Details are as follows: Freestanding Derivatives Freestanding derivatives consist of commodity options entered into by the Company. Commodity Options As of December 31, 2008, the Company has outstanding bought and sold options covering its fuel oil requirements with notional quantities of 10,174. These options can be exercised at various calculation dates in 2009 with specific quantities on each calculation date. The net negative fair value of these options as of December 31, 2008 amounted to P212. As of December 31, 2007, the Company has no outstanding options on the purchase of commodity. Embedded Derivatives The Companys embedded derivatives include currency derivatives (forwards) embedded in nonfinancial contracts.

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Appendix A Page 49 of 50 Embedded Currency Forwards As of December 31, 2008 and 2007, the total outstanding notional amount of currency forwards embedded in nonfinancial contracts amounted to US$31 and US$14, respectively. These nonfinancial contracts consist mainly of foreign-currency denominated purchase orders, sales agreements and capital expenditures. As of December 31, 2008 and 2007, the net negative fair value of these embedded currency forwards amounted to P33 and P16, respectively. Fair Value Changes on Derivatives The net movements in fair value changes of all derivative instruments are as follows: 2008 Beginning balance Net changes in fair value of derivatives: Designated as accounting hedges Not designated as accounting hedges Less fair value of settled instruments Ending balance (P16) (62) (470) (548) (303) (P245) 2007 (P2) (13) (15) 1 (P16)

Hedge Effectiveness Results The effective fair value changes, net of tax, on the Companys cash flow hedges that were deferred in equity as of December 31, 2008 amounted to P45. As of December 31, 2007, the Company has no outstanding derivatives designated as hedge.

26. Cash Dividends Cash dividends declared and paid for the period ended December 31, 2008 amounted to P0.60 per share. On January 27, 2009, the Company declared cash dividends of P0.19 per share payable to stockholders of record as of February 13, 2009 to be paid on February 23, 2009.

27. Subsequent Events On January 27, 2009, the Companys BOD approved the purchase of a ll the interests of SMC in Iconic Beverages, Inc. (IBI), a wholly-owned subsidiary of SMC, after completion of the transfer by SMC to IBI of certain Philippine beer and malt-based beverages brands, including related trademarks, copyrights, patents and other intellectual property rights and know-how of SMC (IP Rights) pursuant to a Deed of Assignment of Domestic Intellectual Property Rights dated December 16, 2008 as supplemented by a Supplement to the Deed of Assignment of Domestic Intellectual Property Rights dated January 23, 2009 executed between IBI and SMC, in exchange for common shares in IBI. The purchase price is P32,000, and the proposed acquisition will be financed by the Company through borrowings. The transfer by SMC of the IP Rights to IBI in exchange for IBI common shares is pending approval of the SEC. The sale of SMCs interest in IBI to the Company will be implemented after obtaining all required approvals from the appropriate regulatory agencies.

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Appendix A Page 50 of 50 On the same date, the Companys BOD also approved the purchase of all the interests of SMC in Brewery Properties Inc. (BPI) after (i) SMC has transferred certain land used in the domestic beer operations of the Company to BPI in exchange for BPI common shares, and (ii) San Miguel Brewery Inc. Retirement Plan has transferred its shares in Brewery Landholdings, Inc. (BLI) to BPI in exchange for BPI preferred shares. The purchase price will be the appraised value of the land transferred by SMC to BPI amounting to P6,829. The proposed acquisition will be financed by the Company through borrowings. The sale of SMCs interests in BPI to the Company will be implemented after obtaining all the required approvals from the appropriate regulatory agencies. 28. Other Matters a. Commitments The outstanding purchase commitments of the Company as of December 31, 2008 and 2007 amounted to P522 and P3,491, respectively. Amount authorized but not yet disbursed for capital projects as of December 31, 2008 and 2007 is approximately P238 and P801, respectively. b. Foreign Exchange Rate The foreign exchange rate of P47.52 and P41.28 was used in translating the U.S. dollar monetary assets and liabilities to Philippine peso as of December 31, 2008 and 2007, respectively.

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