securities and exchange commission sec ... - morningstar, inc

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17

OF THE SECURITIES REGULATION CODE AND SECTION 141 OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended 2003

2. SEC Identification Number PW 000277 3. BIR Tax Identification No. 041-000-060-741-V 4. Exact name of issuer as specified in its charter SAN MIGUEL CORPORATION 5. Philippines 6. Province, Country or other jurisdiction of

incorporation or organization Industry Classification Code:

7. No. 40 San Miguel Avenue, Mandaluyong City 1550 Address of principal office Postal Code 8. (02) 632-3000 Issuer's telephone number, including area code 9. N/A Former name, former address, and former fiscal year, if changed since last report. 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA Title of Each Class Number of Shares of Common Stock

Outstanding (as of December 31,2003) Class “A” Common Shares 1,731,720,713 Class “B” Common Shares 1,109,984,229

________________ 2,841,704,942

Amount of Debt Outstanding (as of December 31, 2003) – P60,205 Million 11. Are any or all of these securities listed on a Stock Exchange? Yes [√ ] No [ ] If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange Common 12. Check whether the issuer: (a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports);

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Yes [√ ] No [ ] (b) has been subject to such filing requirements for the past ninety (90) days.

Yes [ √ ] No [ ] 13. The aggregate market value of the voting stock held by non-affiliates of the Company as of

1st quarter of 2004 is P 170.35 billion.

DOCUMENTS INCORPORATED BY REFERENCE 14. The following documents are attached and incorporated by reference: None

PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business

San Miguel Corporation (“SMC” or “Company”) is the Philippines’ largest publicly held food, beverage, and packaging company. Together with its subsidiaries, SMC generated about 3.2% and 3.4% of the Philippines’ gross national product and gross domestic product, respectively, in 2003. Since its establishment in 1890, the Company has expanded significantly. Today, SMC and its subsidiaries (the “SMC Group”) have established operations in production and marketing of beer, soft drinks, hard liquor, mineral and distilled water, fruit juices and juice drinks, butter, margarine, cheese, animal feeds, chicken, feeds, flour, processed and semi-processed meats and packaging products; hog and cattle breeding and fattening; and management and development of real properties. The Company’s major operating facilities include five breweries, four glass plants, two metal closure and lithography plants, two plastic case plants and a coconut oil mill. These facilities are supported by a network of sales offices and buying stations and storage facilities.

The SMC Group is one of the nation’s biggest private employers with over 26,400 employees. In addition, it sustains a network of hundreds of third party haulers, shippers, stevedores and suppliers of raw materials and finished goods.

Major developments in the Company are discussed in Management’s Discussion and

Analyses of Financial Conditions and Results of Operations, attached herein as Annex “F”, and in Note 7 of the Audited Consolidated Financial Statements, attached herein as Annex “D”.

B e v e r a g e s

San Miguel Beer Division (“SMBD”) has five breweries in the Philippines. These are in Valenzuela City, Metro Manila; San Fernando, Pampanga; Bacolod, Negros Occidental; Mandaue, Cebu; and Sta. Cruz, Davao.

Although its brewing operations are largely based in the Philippines, the Company also has significant presence in the Asia-Pacific region through Beer International’s operations. Beer


International operates one brewery each in Indonesia, Australia and Vietnam, and four breweries in China, including Hong Kong.

Joint-venture operations and licensing agreements have been forged by the Company with respected establishments offshore, forming companies such as P.T. Delta Djakarta in Indonesia; Guangzhou San Miguel Brewery, San Miguel Shunde Brewery Company, Ltd., and San Miguel Bada Baoding in Guangdong, and Hebei provinces in China. These alliances have produced brands such as Guang’s Draft, Double Happiness Beer, Guang’s Pineapple Beer, Dragon, Blue Star and Valor in China; and Anker Bir, Anker Stout, Sodaku, Batavia and Carlsberg in Indonesia. Meanwhile, the wholly-owned operations of Beer International in Hong Kong has brought brands such as San Miguel Dark and Lowenbrau into the Hong Kong market. SMBD exports to more than 43 countries (including Singapore, Malaysia, Cambodia, USA, India), and produces the leading brands in southern China and Indonesia.

Apart from beer, the Company also produces hard liquor through its majority-owned subsidiary, Ginebra San Miguel, Inc. (“GSMI”). GSMI’s operations span the entire country and accounts for over half of the domestic gin and rum market, with products such as Ginebra San Miguel, Vino Kulafu, Oxford London Dry Gin, Añejo Rum, Tondeña Manila Rum, and San Miguel Bravo Rum.

GSMI acquired the Company’s juice business in 1996. Since then, it has become a major player in the fruit juice business and a leading manufacturer in the ready-to-drink segment with the Magnolia and Funchum brands. The consolidation of Sugarland Beverage Corporation (“SBC”) in mid-2000, on the other hand, resulted in huge gains in GSMI’s juice business.

In 2001, SMC restructured its non-alcoholic beverage businesses under GSMI. This

involved the sale of SMC’s ownership interest in SBC to GSMI and the subsequent spin-off by GSMI of the various assets related to its non-alcoholic beverage business. Philippine Beverage Partners, Inc. (“Philbev’), one of the spin-off companies, was subsequently sold to Coca-Cola Bottlers Philippines, Inc. (“CCBPI”). In May 2003, GSMI sold its shares of stock in Sugarland Corporation, another spin-off company, to Magnolia, Inc.

In 2001, the Company, through a foreign subsidiary, bought back substantial ownership

interest in CCBPI through transactions involving cash and debt. In January 2002, the Company (through a subsidiary of CCBPI, Philippine Bottlers, Inc.),

together with The Coca Cola Company (through its subsidiary, Atlantic Industries, Inc.) acquired majority of the total outstanding capital stock of Cosmos Bottling Corporation (“Cosmos”). In May 2003, the authorized capital stock of Cosmos was decreased from P2,800 million to P1,388 million by returning the entire shareholdings of Atlantic Industries, Inc. With the decrease in the authorized capital stock of Cosmos, it became a 98.21%-owned subsidiary of Philippine Bottlers, Inc. (“PBI”) while SMC’s effective ownership of Cosmos became 65%.

With the reaquisition of CCBPI and acquisition of Cosmos, the Company now produces

carbonated soft drinks, thus widening its beverage portfolio. Philbev’s VIVA! and Wilkins brands are the market leaders in the local mineral water and distilled water segments, respectively.

Below are the Company’s Beverage Business subsidiaries:

San Miguel Brewing International Ltd. and subsidiaries - including: San Miguel Brewery Hong Kong Limited PT Delta Djakarta Tbk

J. Boag & Son Limited Ginebra San Miguel, Inc. and a subsidiary


Distileria Bago, Inc. Coca-Cola Bottlers Philippines, Inc. and subsidiaries - including:

Philippine Beverage Partners, Inc. Philippine Bottlers, Inc. and subsidiaries - including:

Cosmos Bottling Corporation and subsidiaries - including:

Cosmos Bacolod Bottlers, Inc. Cosmos Visayas Bottlers, Inc.

Luzviminda Land Holdings, Inc. Marangal Properties, Inc. CBC Landholdings, Inc. Philbev Realty, Inc.

F o o d

The Company’s food and agribusiness operations comprise the San Miguel Food Group

(the “Food Group”). The operations of the Food Group include poultry operations, processing and marketing of refrigerated and canned meat products, manufacturing and wholesaling of flour and feed products, and manufacturing and marketing of butter, margarine, cheese, jellies and desserts, coconut oil and other related products. The Food Group carries some of the best-known brands in the Philippine food and agribusiness industry, among them Purefoods, Magnolia, CampoCarne, Monterey, Star margarine, Dari Crème, Jelly Ace and B-Meg feeds.

The Food Group operates through the following subsidiaries / operating divisions: San Miguel Pure Foods Company, Inc. (“SMPFC”) is a 99.75%-owned business engaged in

processing and sale of poultry and feeds, processed meats and flour milling. It was consolidated in April 2001.

San Miguel Foods Inc. (“SMFI”) is a 64-36%-owned business by SMPFC and SMC

engaged in integrated poultry operation, production and marketing of feeds and flour. The Purefoods-Hormel Company, Inc. (“PF-Hormel”) is a 60-40 joint venture between

SMPFC and Hormel Netherlands B.V. PF-Hormel produces and markets fresh processed meats (hotdogs, hams, bacons, cold cuts and gourmet meat) and canned meat products (corned beef, luncheon meat, Vienna sausage, pork and beans, liver and meat spreads) under the following brands: Pure Foods, Iberico, Hormel, Gusto, Vida, Chef’s and Spam.

Magnolia, Inc. (“Magnolia”), a 51-49%-owned business by SMPFC and SMC,

manufactures butter, margarine and cheese and is the exclusive manufacturer and distributor of SMC-owned Star Dari, Inc.’s Star Margarine and Dari Crème. Magnolia accounts for a substantial share of the cheese market, through the Magnolia brands. In May 2003, Sugarland Corporation (“Sugarland”) became a wholly-owned subsidiary of Magnolia, after its acquisition from GSMI. Sugarland currently toll manufactures the products of Magnolia, which handles the selling and marketing of the Jelly Ace products.

Monterey Foods Corporation (“MFC”) is a 69-29%-owned business of SMC and SMPFC.

MFC is considered a major player in the highly fragmented domestic pork and beef industries. Fresh produce from the MFC’s farms is sold in Monterey meat shops located in major cities throughout the country.

Star Dari, Inc., a wholly owned subsidiary of SMC produces Dari Crème and Star

margarine.


The Coconut Oil Milling and Refinery Operation, an operating division of SMC, is a

leading manufacturer and exporter of crude coconut oil. San Miguel CampoCarne Corporation (“SMCC”) formerly a 60-40 joint venture between

SMC and Conservera Campofrio S.A. of Spain is 100% owned by SMC since April 2001. SMCC was into manufacturing of processed meat products such as hotdogs, hams, cold cuts, bacon and canned meats until it ceased commercial operations in July 2002.

TTCV Investment (BVI) Co., Ltd. (“TTCV”), which wholly owns TTC (Vietnam) Co. Ltd., a

hogs and feedmill business in Binh Duong, Vietnam, is a wholly-owned subsidiary of SMC. TTCV was acquired in November 2003 through its foreign subsidiary, San Miguel Foods and Beverage International Limited.

Below are the Company’s subsidiaries’ under the Food Group:

San Miguel Foods and Beverage International Limited - including TTCV Investment (BVI) Co., Ltd.

Star Dari, Inc. San Miguel CampoCarne Corporation San Miguel Pure Foods Company, Inc. and subsidiaries -

including: San Miguel Foods, Inc. The Purefoods-Hormel Company, Inc. Magnolia, Inc. and a subsidiary

Sugarland Corporation Monterey Foods Corporation

P a c k a g i n g

San Miguel Packaging Products (“SMPP”) is the producer and market leader in its

diversified packaging businesses of glass, metal, plastics, PET, paper and composites.

The Company has three (3) wholly-owned packaging companies, namely: (1) Premium Packaging International, Inc., which produces glass containers; (2) Rightpak International Corporation (“Rightpak”), which produces composites for the food, beverage and healthcare industries, and Polyethelene Terephthalate (“PET”) pre-forms for the production of PET bottles for carbonated softdrinks and water industries and PET closures for the water industry; and (3) Beverage Packaging Specialists, Inc. (“BPSI”), which produces PET bottles.

SMPP is the dominant supplier for the Philippines’ glass container and metal closure requirements. Aside from supplying the internal requirements of the Company, which now includes CCBPI and SMPFC, SMPP also supplies to major multinational corporations, such as Nestle, Procter & Gamble, Unilever, Del Monte and Pepsi-Cola Products Phils. Inc.

Glass. The glass business is the largest business segment of SMPP. It has four glass manufacturing facilities in the Philippines and one glass mold plant serving the requirements of the beverage, food, pharmaceutical, personal care and health care industries. Bulk of the glass bottle requirements served by SMPP is for the softdrink and beverage industries.


In July 1991, SMPP embarked on a joint venture with then Yamamura Glass Co., Ltd (now Nihon Yamamura Glass Co. [“NYG”]) of Japan, incorporating San Miguel Yamamura Asia Corporation, rated as the country’s most technologically advanced glass manufacturing facility. Another strategic alliance forged by SMPP was with NYG and Fuso Machine and Molds Manufacturing Co., Ltd. of Japan, forming SMC Yamamura Fuso Molds Corporation (“SMYFMC”). SMYFMC today is considered to be one of the most advanced glass container-mold manufacturing facilities in Asia, outside of Japan.

Metal. SMPP’s metal business manufactures metal caps, crowns, resealable caps and two-piece aluminum beverage cans for a range of industries, which includes beer and softdrinks.

San Miguel Yamamura Ball Corporation, a strategic alliance with NYG and Ball Corporation of the U.S., is the country’s only aluminum can plant in the Philippines and the pioneer in the production of two-piece cans and ends for the beverage segment.

Plastics. The plastics business is the third-largest revenue contributor for SMPP. The business provides plastic crates and pallets to the domestic beverage segment and caters to the requirements of SMC’s brewing operations in Vietnam and China. The plastics business segment also manufactures PET pre-forms for the softdrink and water industries.

PET. The PET business, under BPSI, is the newest addition to SMPP’s portfolio. Construction of the facilities in Cebu has been completed in 2003.

Paper. San Miguel Rengo Packaging Corporation, a joint venture with Rengo Co. (“Rengo”) of Japan, and Mindanao Corrugated Fibreboard Inc., a joint venture with Rengo and Macondray Fibreboard, Inc., supply the packaging needs of the food, beverage and pharmaceutical industries.

Composites. Through Rightpak, SMPP manufactures packaging of flexibles for the food, beverage and healthcare industries.

SMPP today has six (6) international packaging plants located in China (glass, metal, plastic), Vietnam (glass, metal) and Indonesia (plastic). Aside from extending the reach of the packaging business overseas, these facilities also serve the packaging requirements of SMC breweries in China and Vietnam.

Below are the Company’s subsidiaries under SMPP: San Miguel Packaging International Limited

and subsidiaries – including: San Miguel Yamamura Haiphong Glass Co., Ltd. Zhaoqing San Miguel Glass Company Limited

Premium Packaging International Inc. Rightpak International Corporation San Miguel Yamamura Ball Corporation San Miguel Rengo Packaging Corporation Mindanao Corrugated Fibreboard Inc. San Miguel Yamamura Asia Corporation SMC Yamamura Fuso Molds Corporation Beverage Packaging Specialists, Inc.


P r o p e r t i e s

San Miguel Properties, Inc. (“SMPI”) is the Company’s primary property subsidiary,

currently owned 99% by SMC. SMPI was formed by a merger of San Miguel Properties Philippines, Inc. and publicly-listed Monterey Farms Corporation in January 30, 1998, where Monterey Farms Corporation emerged as the surviving entity. Upon the merger’s effectivity, Monterey Farms Corporation changed its name to San Miguel Properties, Inc. SMPI is presently engaged in development, sale and lease of real properties. Principal products or services

The principal products of the Company are attached herein as Annex “A”.

Percentage of Sales or Revenues and Net income contributed by foreign sales

The Company’s 2003 foreign operations contributed about 10.15% of consolidated sales

and (9.36%) of consolidated net income. Foreign sales is broken down by market as follows:

% to Consolidated Sales Market 2003 2002 2001

China 4.25 5.60 6.28 Indonesia 1.68 1.60 1.63 Australia 1.93 1.57 1.42 Vietnam 0.72 0.99 0.71 Others 1.57 0.84 4.26 Distribution Methods

The Company employs various means to ensure product availability at all times. It distributes through a network of dealers, wholesalers, and various retailers. The Company owns, as well as, contracts third party fleet of trucks, delivery vans, barges, to ensure timely and cost efficient distribution of its various products, from food to beverages. Status of any publicly-announced new product or service

The Company plans to build not only the hard infrastructure but also the software capabilities to establish a number of logistics centers nationwide. While the Company endeavors to provide logistics, shipping and cargo handling services, it will also facilitate transactions among suppliers, manufacturers and distributors through electronic commerce technology. Competition The Company enters 2003 from a position of strength. The Company has the leading brands with the highest quality in the industry, substantial market share leads, successful pricing strategies and a strong financial position. Competition by major business is discussed in the Management’s Discussion and Analyses of Financial Conditions and Results of Operations, attached herein as Annex “F”. Sources and Availability of Raw Materials and Supplies

The Company obtains its principal raw materials on a competitive basis from various

suppliers here and abroad. The Company is not aware of any dependency upon one or a limited number of suppliers for essential raw materials as it continuously looks for new suppliers and negotiations are done on a regular basis. The Company has contracts with various suppliers for varying periods from a related party and third parties ranging from 3 to 12 months. All contracts contain renewal options.


Among the Company’s major strategic raw materials and suppliers for such are as follows:

Strategic Raw Material Supplier/s

Sugar Busco Sugar Milling Malt Joe White Maltings Pty Ltd. Molasses Progressive Chemical Trade, Inc. Schuurmans and Van Ginneken B.V. Soybean and soybean meals Louis Dreyfus Asia Pte Ltd. Cattle meat Australian Rural Exports Hogs Foremost Farms Indian buffalo meat Allanasons Ltd. Hind Agro Industries AL Kabeer Pvt. Ltd. Silica sand Syarikat Sebangun Tin free steel JFE Metal One Dongyang steel Macrolite Korea Corp. Dongbu steel Heindrich Aluminum Sumitomo Corporation KSL Alcoa Aluminum Company Hulett HDPE Resins JG Summit Petrochemical Corporation B.P. Malaysia Polyethelyne Malaysia SDN BHD Chemical Commerce Company, Ltd. Perochem Industrial, Inc.

Dependency upon a single customer or a few customers Due to a constant drive towards customer satisfaction and continuous improvement, the Company is able to maintain its wide base of customers. The Company is not dependent upon a single or a few customers. Transactions with and /or dependence on related parties The Company and certain related parties, in the normal course of business, purchase products and services from one another. Please see Note 22 of the Consolidated Financial Statements. Registered Trademarks/Patents, Etc.

All marks used by the Company in its principal products are either registered or pending registration in the name of the Company or its subsidiaries in the Philippines and foreign markets of said products. Government Approval

The Company has obtained all necessary permits, licenses and government approvals to manufacture and sell its products. Government Regulation The Company has no knowledge of recent or impending legislation, the implementation of which can result in a material adverse effect on the Company’s business or financial condition.


Research & Development

The Company’s expenses for research and development is about 2% of consolidated Net income. Compliance with Environmental Laws The Company has no knowledge that it is in violation of any applicable environmental laws. Compliance with these laws is not expected to materially affect the Company’s financial position. Human Resources and Labor Matters

As of December 31, 2003, the SMC Group has about 26,400 employees as against 27,200 as of end 2002. There are 119 existing CBA’s for the SMC Group as of December 31, 2003. Of the 119 CBAs, one (1) is under negotiation, fourteen (14) expired in 2002, thirty-one (31) expired in 2003, twenty-nine (29) are expiring in 2004, thirty-nine (39) are expiring in 2005, four (4) are expiring in 2006 and one (1) is expiring in 2007.

The list of CBAs entered into by the Company and its subsidiaries with its different

employee unions is attached herein as Annex “B”.

The Company does not expect any significant change in its existing manning level within the ensuing twelve (12) months, except for the ongoing PET project.

The Company provides to qualified employees rice subsidy and clothing allowance.

Major Business Risk/s

The major business risks facing the Company are as follows: a) Competitor Risks

New and existing competitors can erode the Company’s competitive advantage through

the introduction of new products, improvement of product quality, increase in production efficiency, new or updated technologies, costs reductions and the reconfiguration of the industry’s value chain. The Company has responded with the corresponding introduction of new products in practically all businesses; improvement in product propositions and packaging; and in redefining how it is distributing its products.

b) Catastrophic and Environmental Risks

War, terrorism, fire, severe weather conditions, health issues and other similar events that are completely beyond the control of the Company - Health scares such as SARS which was encountered, more particularly, in China and Hong Kong was mitigated with the re-channeling of volumes from mostly on-premise outlets to retail stores. On-premise outlets are the primary outlets for the Company’s beer products in China and Hong Kong.

c) Political Risks

The risk of adverse consequences through political actions by way of discouraging

alcoholic consumption in Indonesia where the Company has a sizeable investment in a brewery is being gradually addressed with the introduction of a non-alcoholic beverage that can cater to the predominantly Muslim population. Marketing and distribution efforts have focused only in outlets where alcoholic beverages are allowed to be sold and consumed.


d) Regulatory Risks

Changes in regulations and actions by national or local regulators can result in increased

competitive pressures, such as the pending legislation on excise tax increases for alcoholic beverages. The Company has continued to study options on how these legislative proposals can temper any negative effect on consumption patterns.

e) Social and Cultural Risks

The way people live, work and behave as consumers can affect the industry’s products and services. For example, more women in the workplace, concerns about drug use, increasing crime rate, increased health consciousness, etc. The Company has introduced products that try to address or are attuned to the evolving lifestyles and needs of our consumers. A few years back, the Beer Division introduced San Mig Light to address increasing health consciousness; and in 2003 there was San Miguel Strong Ice Beer for the upwardly mobile market. Initiatives similar to this have been pushed in the food and packaging division for years.

f) Sourcing Risks

Alternative sources of raw materials are used in the Company’s operations to avoid and manage risks on shortages and higher costs. This is true for most of businesses that have foreign denominated raw material requirements.

g) Financial Market and Financial Management Risks

Prudent fund management is employed to temper exposure to changes in earnings as a

result of fluctuations of interest rates, currency rates, etc.

Cash flows and financial risks are managed to provide adequate liquidity to the Company. Accounts receivables and inventory are monitored to ensure liquidity Item 2. Properties A summary information on the Company and its significant subsidiaries’ principal plants and conditions thereof is attached hereto as Annex “C”. The Company and its significant subsidiaries, GSMI and CCBPI, have no principal properties, which are subject to a lien or mortgage. There are no imminent acquisitions of any material property, which cannot be funded by working capital of the Company or its significant subsidiaries. Item 3. Legal Proceedings

The Company or any of its subsidiaries or affiliates is not a party to, and its properties are not the subject of, any material pending legal proceeding that could be expected to have a material adverse effect on the Company or its results of operations. Item 4. Submission of Matters to a Vote of Security Holders None


PART II - OPERATIONAL AND FINANCIAL INFORMATION Item 5. Market for Issuer's Common Equity and Related Stockholder Matters The Company’s common equity is traded in the Philippine Stock Exchange.

The Company’s high and low prices for each quarter of the last two (2) fiscal years are as follows:

Quarter 2002 2003 Class A Class B Class A Class B High Low High Low High Low High Low

1st 51.00 42.50 69.00 53.00 59.50 55.50 68.00 61.00 2nd 50.00 44.50 64.50 50.50 58.00 53.50 67.50 61.50 3rd 54.00 45.50 58.50 50.50 55.00 51.00 64.00 58.50 4th 60.00 51.50 66.00 56.00 57.00 53.50 64.00 59.50

The closing prices as of January 30, 2004 are as follows: Class A P= 57.00 Class B P= 71.00

The approximate number of shareholders as of January 31, 2004 is 50,056. Common shares outstanding as of January 31, 2004 are 1,731,719,124 for Class "A" shares and 1,109,984,390 for Class “B" shares. The number of Treasury Shares as of January 31, 2004 is 228,096,980 for Class “A” shares and 122,032,916 for Class “B” shares.

The top 20 stockholders as of December 31, 2003 are as follows: Rank Name of Stockholder Class “A” Class “B” Total No. of

Shares % of

Total O/S 1 Kirin Brewery Co., Ltd. 0 442,560,000 442,560,000 15.57% 2 PCD Nominee Corporation

(Filipino) 1 232,059,599 122,839,136 354,898,735 12.49%

3 SM Investments Corporation 178,499,200 0 178,499,200 6.28% 4 ASC Investors, Inc. 144,673,424 20,736,065 165,409,489 5.82% 5 PCD Nominee Corporation

(Non-Filipino) 0 126,128,019 126,128,019 4.44%

6 Social Security System 116,155,279 46,464 116,201,743 4.09% 7 Primavera Farms, Inc. 94,738,250 13,426,216 108,164,466 3.81% 8 ARC Investors, Inc. 12,107,362 85,018,726 97,126,088 3.42% 9 Toda Holdings, Inc. 74,880,174 0 74,880,174 2.64%

10 Black Stallion Ranch, Inc. 63,158,769 8,950,856 72,109,625 2.54% 11 Misty Mountain Agricultural

Corp. 63,158,769 8,950,856 72,109,625 2.54%

12 Pastoral Farms, Inc. 63,158,769 8,950,856 72,109,625 2.54% 13 Te Deum Resources, Inc. 58,483,000 4,385 58,487,385 2.06% 14 Meadow-Lark Plantations, Inc. 47,369,039 6,713,177 54,082,216 1.90% 15 Silver-Leaf Plantations, Inc. 47,369,061 6,713,153 54,082,214 1.90% 16 Rock Steel Resources, Inc. 4,138,792 49,180,556 53,319,348 1.88%

1 Registered owner of shares held by participants in the Philippine Central Depository, Inc., a private company organized to implement an automated book entry system of handling securities in the Philippines. None of the holders of the Company’s common shares registered under the name of PCD Nominee Corporation owns more than 5% of the Company’s common shares.


Rank Name of Stockholder Class “A” Class “B” Total No. of

Shares % of

Total O/S 17 San Miguel Officer Corps., Inc. 35,719,434 16,494,183 52,213,617 1.84% 18 Roxas Shares, Inc. 6,392,776 41,620,433 48,013,209 1.69% 19 AP Holdings, Inc. 33,592,251 979,231 34,571,482 1.22% 20 Valhalla Properties Limited, Inc. 13,700,183 16,101,514 29,801,697 1.05%

Cash dividends per share amounted to P=1.30 in 2003 and P=1.55 in 2002.

In 2001, the Company distributed 10% stock dividends and obtained exemption from registration therefor from the Securities and Exchange Commission (“SEC”).

On May 5, 1994, the SEC approved the Company’s Long-term Incentive Stock Option Plan (“LTIP”) covering 14,250,000 common shares consisting of Class “A” and Class “B” shares. On the same date, the SEC approved the licensing of the shares covered by the LTIP.

Description of the following securities of the Company may be found in the indicated Notes to the 2003 audited Consolidated Financial Statements, attached herein as Annex “D”: Long-term Debt Note 13 Stockholders’ Equity Note 16 Employee Stock Plans Note 27

There were no securities sold by the Company within the past three (3) years, which were not registered under the Securities Regulation Code. Item 6. Management's Discussion and Analysis or Plan of Operation. The information required by Item 6 may be found on Annex “F” hereof. Item 7. Financial Statements

The Audited Consolidated Financial Statements are attached as Annex “D” hereof with the Supplementary Schedules attached as Annex “E” hereof. The auditors’ PTR, name of certifying partner and address are attached as Annex “D-1” hereof. Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure As of December 31, 2003, Sycip Gorres Velayo and Co. (“SGV”) has been the Company’s external auditors for the last five (5) years. In compliance with SEC Memorandum Circular No. 8, Series of 2003, changes were made in the assignment of SGV’s engagement partners for the Company during the five (5)-year period. There are no other matters to be reported under this item.


PART III - CONTROL AND COMPENSATION INFORMATION Item 9. Directors and Executive Officers of the Issuer Directors and Executive Officers The names of the incumbent directors and executive officers, of the Company, and their respective citizenships, ages, periods of service and directorships in other reporting companies are as follows: Eduardo M. Cojuangco, Jr., Filipino, 68 Eduardo M. Cojuangco, Jr. is Chairman and Chief Executive Officer of the Company, a position he has held since July 7, 1998. Other affiliated positions include: Chairman and Chief Executive Officer of Ginebra San Miguel, Inc. (since October 21, 1998); and Chairman of San Miguel Pure Foods Company, Inc. (since May 22, 2001) and Coca-Cola Bottlers Philippines, Inc. (since July 13, 2001). Mr. Cojuangco is also Chairman of ECJ and Sons Agricultural Enterprises, Inc., the Eduardo Cojuangco, Jr. Foundation, Inc. and Cainaman Farms, Inc. Ramon S. Ang, Filipino, 50 Ramon S. Ang is Vice Chairman (since January 28, 1999), President and Chief Operating Officer (since March 6, 2002) of the Company. Mr. Ang is also concurrently Director of Ginebra San Miguel, Inc. (since April 16, 2000); Chairman of Cosmos Bottling Corporation (since May 9, 2003), Rightpak International Corporation, San Miguel Yamamura Asia Corporation, Premium Packaging International Inc., San Miguel Rengo Packaging Corporation, San Miguel Yamamura Ball Corporation, SMC Yamamura Fuso Molds Corporation, Mindanao Corrugated Fibreboard Inc. (1999 to the present), Magnolia Inc. (May 15, 2000 to present), Anchor Insurance Brokerage Corporation (August 4, 2000 to present), and San Miguel Properties, Inc. (May 28, 2002 to present); Director of San Miguel Pure Foods Company, Inc. (since May 22, 2001) and Coca-Cola Bottlers Philippines, Inc. (since July 13, 2001); and Chairman and Chief Executive Officer of Cyber Bay Corporation. Estelito P. Mendoza, Filipino, 74 Atty. Estelito P. Mendoza has been a Director of the Company since April 21, 1998 and for the years 1991 to 1993. Atty. Mendoza, a former Solicitor General, Justice Minister, Member, Batasang Pambansa and Provincial Governor, Province of Pampanga, heads the E.P. Mendoza Law Office. Manuel M. Cojuangco, Filipino, 58 Manuel M. Cojuangco has been a Director of the Company since April 21, 1998. Mr. Cojuangco is also the President of Jewelmer International Corporation, J & E Development Corporation and Island Artcrafts, Inc.; Executive Vice President of Agricultural Investors, Inc.; Vice President and Director of Bankmer Realty Corporation; and Director of Paniqui Sugar Corporation and ECJ & Sons Agricultural Enterprises, Inc. Iñigo Zobel, Filipino, 47 Iñigo Zobel has been a Director of the Company since May 5, 1999. Mr. Zobel is also President and Chief Operating Officer of E. Zobel, Inc.; President of Diamond Star Agro Products, Inc.; Board Chairman of Green Produce Phils., Inc.; Vice President and Director of Calatagan Golf Club, Inc.; Vice Chairman, Ex-com and Vice President of Calatagan Resort, Inc.; Executive Vice


President and Director of Calatagan Gulf Realty, Inc.; President and Director of Hacienda Bigaa, Inc., Alfonso Land Corporation, Enzo Condominium Corporation and Ayala International Properties, Inc.; Director of Ayala International España, Mermac, Inc. and All Asia Airlines; President and Trustee of E. Zobel Foundation, Inc.; Founder, New Beginnings Foundation Inc.; Chairman/President of Tropic Power Sales Corporation; and Vice Chairman/President of Tropic Power Inc. Winston F. Garcia, Filipino, 45 Atty. Winston F. Garcia has been a Director of the Company since February 1, 2001. Atty. Garcia is the President and General Manager of the Government Service Insurance System. He is a practising lawyer since 1983. Corazon C. Santos-de la Paz, Filipino, 63 Corazon C. Santos-de la Paz has been a Director of the Company since October 25, 2001. Ms. de la Paz is the President and Chief Executive Officer of the Social Security System (since August 2001); and Vice-Chairperson of the Social Security Commission (since August 2001). She is also Vice-Chairperson of Equitable PCIBank, Inc.; and Director of the Philippine Long Distance Telephone Co., Ionics, Inc., Equitable Cardnetwork, Inc., Republic Glass Holdings Corporation, Makati Medical Center, Philex Mining Corporation, Philex Gold Inc., PCI Leasing and Finance Inc., and Philippine Health Insurance Corporation. She was previously the Chairman and Senior Partner of Joaquin Cunanan & Co./PwC-Philippines. Menardo R. Jimenez, Filipino, 71 Menardo R. Jimenez has been a Director of the Company since February 27, 2002. Mr. Jimenez is also the Chairman of Majalco Finance & Investments, Inc., Pan-Phil Aquaculture Corp., Southwest Resources, Inc. and Food Pro Asia, Inc.; President of Albay-Agro Industrial Development Corporation; Director of CCC Insurance Corporation, First Metro Investment Corporation, Mabuhay Phils. Satellite Corporation, Malayan Savings & Mortgage Bank, Unicapital Inc., Unicapital Securities, Inc., Philippine National Oil Company, Television International Corporation, Majent Management and Development Corporation, Majent Agro Industrial Corporation, San Miguel Pure Foods Company, Inc. (since April 25, 2002) and Coca-Cola Bottlers Philippines, Inc. (since July 31, 2002); Commissioner of Pasig River Rehabilitation Commission; and Governor of Philippine National Red Cross. Pacifico M. Fajardo, Filipino, 60 Pacifico M. Fajardo has been a Director of the Company since February 27, 2002. He is also concurrently a Director of Cosmos Bottling Corporation. He previously served as Congressman of the 3rd District of Nueva Ecija (July 1992 to June 30, 2001); City Mayor (May 1988 to May 1992) and Officer-in-Charge/City Mayor (May 15 to November 30, 1986) of Palayan City, Nueva Ecija. Hector L. Hofileña, Filipino, 74 Former Associate Justice Hector L. Hofileña has been a Director of the Company since February 27, 2002. He is also concurrently a Director of San Miguel Properties, Inc. He served as Associate Justice of the Court of Appeals from March 24, 1999 to December 30, 1999. He is also a Lecturer at the Ateneo de Manila and the Philippine Judicial Academy.


Leo S. Alvez, Filipino, 61 Ret. Maj. General Leo S. Alvez has been a Director of the Company since February 27, 2002. He is also concurrently Director of Ginebra San Miguel, Inc. (since April 24, 2002), and San Miguel Pure Foods Company, Inc. (since April 25, 2002). His work experience includes the following: Security Consultant to the Prosecution Panel of the Senate Impeachment Trial of President Joseph Estrada (November 24, 2000 to February 15, 2001); Vice Commander of the Philippine Army (1998); and Division Commander of the 7th Infantry Division (1996 to 1998). Juan B. Santos, Filipino, 65 Juan B. Santos has been a Director of the Company since February 27, 2002. Mr. Santos is also the Chairman and Chief Executive Officer of Nestle Philippines, Inc.; Chairman of Goya, Inc., Galderma Philippines, Inc., Nestle Asean Philippines, Inc., Penpro Inc., and Rockpenpro, Inc.; President of CPW Philippines, Inc.; Director of Alcon Laboratories, Inc. and Cosmos Bottling Corporation; and Member of the Advisory Boards of Philippine Long Distance Telephone Co. and Equitable PCIBank, Inc. Shigeki Ota, Japanese, 54 Shigeki Ota has been a Director of the Company since March 6, 2002. Mr. Ota is also an Executive Director of the Company. His previous work experience includes the following: Chief Operating Officer of Kirin International (since March 1998); and Chairman of Taiwan Kirin Company Ltd. (since December 2000). Hitoshi Oshima, Japanese, 56 Hitoshi Oshima has been a Director of the Company since June 26, 2003. Mr. Oshima is also concurrently Chief Executive Officer of Kirin International; Chairman of Taiwan Kirin Company, Ltd. and Four Roses LLC; Director of Kirin Brewery of America, LLC, Kirin Holdings, Inc., Kirin Europe GmbH, Lion Nathan Limited and Zhuhai Kirin President Brewery Co., Ltd. His work experience in Kirin Brewery Co., Ltd. includes the following: General Manager, Corporate Communication Department (1997); General Manager, Corporate Planning Department (2000); General Manager, Planning Department, Sales and Marketing Division (2002); and Executive Officer of Kirin Brewery Co. Ltd. and Chief Executive Officer of Kirin International (2003). Henry Sy, Jr., Filipino, 50 Henry Sy, Jr. has been a Director of the Company since January 29, 2004. Mr. Sy is also Director/Executive for Real Estate Development of SM Prime Holdings, Inc.; and Director of SM Development Corporation, Highlands Prime Inc. and China Banking Corporation. Faustino F. Galang, Filipino, 57 Faustino F. Galang is the President of San Miguel Beer Division. Mr. Galang is concurrently the Chairman of J. Boag & Son, Pacific Beverages Pte. Ltd. and San Miguel (China) Investment Co., Ltd.; and Director of San Miguel (Vietnam) Ltd., San Miguel Australia Holdings Pty Ltd., The Specialty Beer Co. Ltd., San Miguel Malaysia (L) Pte. Ltd., Guangzhou San Miguel Brewery Co., Ltd., San Miguel Properties, Inc., San Miguel Brewing International Ltd., Neptunia Corporation Ltd., Best Investments International, San Miguel Brewery Hongkong Ltd. He previously served the Company as Executive Vice President and Chief Business Strategist (June 1997 to December 1998); and Executive Vice President and Division President of San Miguel Brewing Group (1995 to 1997).


Ferdinand K. Constantino, Filipino, 52 Ferdinand K. Constantino is the Senior Vice President, Chief Finance Officer and Treasurer of the Company since January 1, 2001. Mr. Constantino is also concurrently the Senior Vice President and Chief Finance Officer, San Miguel Beer Division; Chairman and President of San Miguel Logistics Asia Corporation (since August 1, 2001); and Director of San Miguel Pure Foods Company, Inc., Cosmos Bottling Corporation, San Miguel Properties, Inc., San Miguel Foods, Inc., Magnolia, Inc., Anchor Insurance Brokerage Corporation, San Miguel Rengo Packaging Corporation, Mindanao Corrugated Fibreboard, Inc., San Miguel Yamamura Ball Corporation and SMITS, Inc. His previous work experience includes the following: Senior Vice President and Comptroller of San Miguel Corporation (July 1997 to December 31, 1999) and Senior Vice President and Finance Director of San Miguel Brewing Group (1995 to 1997). Enrique A. Gomez, Jr., Filipino, 52 Enrique A. Gomez, Jr. is the President of San Miguel Pure Foods Company, Inc., a position he has held since May 22, 2001. Mr. Gomez is also concurrently Chairman and President of San Miguel Foods, Inc.; Chairman of Monterey Foods Corporation, Philippine Prime Meat Marketing Corporation and Philippine Nutrition Technology, Inc.; Vice Chairman of The Purefoods-Hormel Company, Inc.; and Director of Magnolia, Inc. His previous work experience includes the following: President of then La Tondeña Distillers, Inc. (now named Ginebra San Miguel, Inc.) (March 1, 2000 to May 21, 2001); President of San Miguel Packaging Products (July 1, 1998 to February 29, 2000) and Senior Vice President and General Manager of San Miguel Packaging Products (1995 to 1998). He was also Director of San Miguel Yamamura Asia Corporation and SMC Yamamura Fuso Molds Corporation from 1989 to March 2000; and Director of Rightpak International Corporation, San Miguel Rengo Packaging Corporation, Mindanao Corrugated Fibreboard, Inc., and Premium Packaging International Inc. from 1989 to 2002. Arnaldo L. Africa, Filipino, 54 Arnaldo L. Africa is the President and Chief Operating Officer of Ginebra San Miguel, Inc. since July 27, 2001. Prior to this, he was President of San Miguel Food Group (August 16, 1999 to July 16, 2001); Officer-in-Charge, San Miguel Food Group (January 1, 1999 to August 15, 1999), Vice President and Executive Assistant, Office of the President and COO of San Miguel Corporation (February 15, 1997 to December 31, 1998) and President of San Miguel Campocarne Corporation (February 7, 1996 to February 14, 1997). Alberto O. Villa-Abrille, Jr., Filipino, 56 Alberto O. Villa-Abrille, Jr. is the President of San Miguel Packaging Products, a position he has held since March 2000. He is concurrently President and Director of San Miguel Yamamura Asia Corporation, Premium Packaging International, Inc., Rightpak International Corporation, San Miguel Yamamura Ball Corporation, SMC Yamamura Fuso Molds Corporation, Mindanao Corrugated Fibreboard, Inc. and San Miguel Rengo Packaging Corporation. He has previously served the Company in the following positions: Senior Vice President of Corporate Technical Services (October 26, 1999 to February 2000); Senior Vice President and Manager for Technical Services and Plant Operations, San Miguel Brewing Philippines (1998); and Executive Vice President, China Operations of San Miguel Brewing International Ltd. (BVI) (October 1, 1995 to February 1, 1997). Roberto N. Huang, Filipino, 55 Roberto N. Huang is the President of Coca-Cola Bottlers Philippines, Inc., a position he has held since December 31, 2003. Mr. Huang is concurrently President of Cosmos Bottling Corporation


since January 23, 2004. His previous work experience in the Company includes the following: Senior Vice President, Corporate Sales (June 27, 2002 to November 23, 2003 ; Vice President and Director, Corporate Sales (November 1, 2001 to June 26, 2002); and Vice President, Sales and Marketing Manager, San Miguel Beer Division (September 17, 1999 to December 31, 2001). Francis H. Jardeleza, Filipino, 54 Atty. Francis H. Jardeleza is the Company’s Corporate Secretary (since April 2, 2001) and Senior Vice-President and General Counsel (since 1996). Atty. Jardeleza is also the Corporate Secretary of Ginebra San Miguel, Inc. (since October 21, 1998), Coca-Cola Bottlers Philippines, Inc. (since July 13, 2001), The Purefoods-Hormel Co., Inc. (since May 22, 2001), San Miguel Pure Foods Company, Inc. (since May 22, 2001), Cosmos Bottling Corporation (since January 3, 2002) and San Miguel Properties, Inc. (since May 28, 2002). A complete list of the officers of the Company are attached herein as Annex “G”. Directorships in Other Reporting Companies 1. Eduardo M. Cojuangco, Jr. - Chairman and Chief Executive Officer,

Ginebra San Miguel, Inc. Chairman, San Miguel Pure Foods Company, Inc.

2. Ramon S. Ang - Director, Ginebra San Miguel, Inc. Director, San Miguel Pure Foods Company, Inc. Chairman and Chief Executive Officer, Cyber Bay

Corporation Chairman, San Miguel Properties, Inc.

Chairman, Cosmos Bottling Corporation 3. Leo S. Alvez - Director, Ginebra San Miguel, Inc.

Director, San Miguel Pure Foods Company, Inc. 4. Menardo R. Jimenez - Director, San Miguel Pure Foods Company, Inc. 5. Pacifico M. Fajardo - Director, Cosmos Bottling Corporation 6. Hector M. Hofileña - Director, San Miguel Properties, Inc. 7. Juan B. Santos - Director, Cosmos Bottling Corporation 8. Corazon C. Santos-de la Paz - Vice-Chairperson, Equitable PCIBank, Inc.

Director, Philippine Long Distance Telephone Co. Director, Ionics, Inc. Director, Republic Glass Holdings Corporation Director, Philex Mining Corporation Director, PCI Leasing and Finance, Inc.

9. Henry Sy, Jr. - Director, SM Prime Holdings, Inc.

Director, SM Development Corporation Director, Highlands Prime, Inc. Director, China Banking Corporation


Term of Office Pursuant to the Company By-Laws, the directors are elected at each annual stockholders’ meeting by stockholders entitled to vote. Each director holds office until the next annual election and until his successor is duly elected, unless he resigns, dies or is removed prior to such election. Independent Directors The independent directors of the Company are as follows:

1. Iñigo Zobel 2. Winston F. Garcia 3. Corazon C. Santos-de la Paz 4. Henry Sy, Jr.

Significant Employees The Company has no employee who is not an executive officer but is expected to make a significant contribution to the business. Family Relationships Mr. Eduardo M. Cojuangco, Jr., Chairman of the Board and Chief Executive Officer, is the brother of Mr. Manuel M. Cojuangco, Director. Involvement in Certain Legal Proceedings The directors and executive officers of the Company have not been involved in any legal proceedings during the last five (5) years, which are material to the evaluation of the ability or integrity of any director or executive officer of the Company. Item 10. Executive Compensation The aggregate compensation paid or incurred during the last two fiscal years and estimated to be paid in the ensuing fiscal year to the Chief Executive Officer, and senior executive officers of the Company are as follows:

NAME YEAR SALARY BONUS OTHERS TOTAL Total Compen-sation of the Chief Executive Officer and Senior Executive Officers2

2004 (estimated) 2003 2002

P 109.9 Million P 102.4 Million P 89.7 Million




All other officers and directors as a group unnamed

2004 (estimated) 2003 2002





2 The Chief Executive Officer and senior officers of the Company are as follows: Eduardo M. Cojuangco, Jr., Ramon S. Ang, Faustino F. Galang, Ferdinand K. Constantino, Enrique A. Gomez, Jr., Alberto O. Villa-Abrille, Jr., Arnaldo L. Africa, Roberto N. Huang and Francis H. Jardeleza.


NAME YEAR SALARY BONUS OTHERS TOTAL

TOTAL 2004 (estimated) 2003 2002





Section 10 of the Amended By-Laws of the Company provides that the Board of Directors shall receive as compensation no more than 2% of the profits obtained during the year after deducting therefrom general expenses, renumeration to officers and employees, depreciation on buildings, machineries, transportation units, furniture and other properties. Such compensation shall be apportioned among the directors in such manner as the Board deems proper. The Long-Term Incentive Plan for Stock Options (“LTIP”) of the Company grants stock options to eligible senior and key management officers of the Company as determined by the Committee administering the said Plan. Its purpose is to further and promote the interests of the Company and its shareholders by enabling the Company to attract, retain and motivate senior and key management officers, and to align the interests of such officers and the Company’s shareholders. In 2003, the Company approved the grant of stock options to 184 executives of about 3.85 million shares based on the closing price of the Company’s shares, computed in accordance with the LTIP. No options were granted for 2001 and 2002. As of December 31, 2003, options to purchase 1.91 million shares were outstanding. Options which were exercised and cancelled totaled about 1.14 million shares and 1.35 million shares in 2003 and 2002, respectively. The price is adjusted for any stock dividend declaration. Table on outstanding options as of December 31, 2003 is attached as Annex “H”. Item 11. Security Ownership of Certain Beneficial Owners and Management Owners of more than 5% of the Company’s voting securities as of December 31, 2003 were as follows:

Amount and Nature of Ownership Title of Class

Name/Address/Citizenship Of Owner3 Class A

Class B Total No. of

Shares

Percent of

Class Common CIIF Companies4

Filipino c/o 16/F, UCPB Building, Makati City

445,759,294 279,443,346 725,202,640 25.52%

3 The authorized designates of the corporate owners are not known to the Company as of the filing of this Proxy Statement with the Securities and Exchange Commission and the Philippine Stock Exchange. Said authorized designates are only known to the Company upon its receipt of either the duly accomplished proxy form or board resolution providing the authority to vote from the corporate owners. 4 ASC Investors, Inc., ARC Investors, Inc., Anglo Ventures Corp., AP Holdings, Inc., Fernandez Holdings, Inc., First Meridian Development, Inc., Randy Allied Ventures, Inc., Rock Steel Resources Inc., Roxas Shares, Inc., San Miguel Officers Corps. Inc., Soriano Shares, Inc., Te Deum Resources, Inc., Toda Holdings, Inc., and Valhalla Properties Limited, Inc. None of these companies owns more than 5% of the Company’s voting securities except ASC Investors, Inc. which has 144,673,424 Class “A” shares and 20,736,065 Class “B” shares or a total of 165,409,489 shares equivalent to 5.82% of the Company’s voting securities as of December 31, 2003. The administrator of the CIIF Companies is the United Coconut Planters Bank and the Chairman of the Board or its President or the designate of the Chairman is authorized to vote in person or by proxy the shares registered in the name of the CIIF Companies.


Amount and Nature of Ownership Title of Class

Name/Address/Citizenship Of Owner Class A

Class B Total No. of

Shares

Percent of

Class Common ECJ Companies5

Filipino 18/F, Northeast Tower, The Goldloop Tower, One Goldloop Plaza, Ortigas Center, Pasig City

473,332,727 73,334,357 546,667,084 19.24%

Common Kirin Brewery Co., Ltd.6 Japanese 10-1 Shinkawa, 2-Chome, Chuo-Ku, Tokyo, Japan

0 442,560,000

442,560,000 15.57%

Common SM Investments Corporation7 Filipino Rm. 426, Makati Stock Exchange Building, Ayala Ave., Makati City

178,499,200 0 178,499,200 6.28%

Common Government Service Insurance System8 Filipino Rm.410, 4/F, GSIS Building, Aroceros, Manila

146,012,896 41,736,140 187,749,036 6.61%

Common Social Security System9 Filipino East Avenue, Diliman, Quezon City

147,110,972 2,252,204 149,363,176 5.26%

Common Others10 341,005,624 270,658,182 611,663,806 21.52%

5 Primavera Farms Inc., Misty Mountain Agricultural Corp., Black Stallion Ranch Inc., Pastoral Farms Inc., Meadow-Lark Plantations Inc., Silver-Leaf Plantations Inc., Agricultural Consultancy Services, Inc., Archipelago Realty Corporation, Balete Ranch, Inc., Christensen Plantation Corporation, Discovery Realty Corporation, Dream Pastures, Inc., Echo Ranch, Inc., Far East Ranch, Inc., First United Transport, Inc., Habagat Realty Development Corporation, Kalawakan Resorts, Incorporated, Kaunlaran Agricultural Corp., Labayug Air Terminals, Incorporated, Land Air International Marketing Corporation, LHL Cattle Corp., Lucena Oil Factory, Inc., Metroplex Commodities, Inc., Northeast Contract Traders, Inc., Northern Carriers Services Management Corporation, Oceanside Maritime Enterprises, Inc., Oro Verde Services, Inc., PCY Oil Manufacturing Corp., Philippine Technologies, Inc., Punong Bayan Housing Development Corporation, Pura Electric Co., Inc., Radio Audience Developers Integrated Org., Inc., Radyo Pilipino Corporation, Rancho Grande, Inc., Reddee Developers, Inc., San Esteban Development Corp., Southern Service Traders, Inc., Southern Star Cattle Corp., Spade One Resorts Corporation, Unexplored Land Developers, Inc., Verdant Plantations, Inc., Vesta Agricultural Corporation, and Wings Resort Corporation. None of these corporations owns more than 5% of the voting securities of the Company. The shares owned by these companies are voted, either in person or by proxy, by the authorized designate of their respective Boards. 6 The shares owned by Kirin Brewery Co. Ltd. are voted in person or by proxy, by its authorized designate. 7 The shares owned by SM Investments Corporation are voted in person or by proxy, by its authorized designate. 8 Includes shares lodged with the Philippines Central Depository Inc. (PCD). The shares owned by GSIS are voted in person or by proxy, by its authorized designate. 9 Includes shares lodged with the PCD. The shares owned by the Social Security System are voted, in person or by proxy, by its authorized designate. 10 These include shares lodged with the PCD and the other registered stockholders of the Company. None of these stockholders has shares registered in their names equivalent to more than 5% of the voting securities of the Company.


The following are the number of shares comprising the Company’s capital stock (all of which are voting shares) owned of record by the directors, Chief Executive Officer and key officers of the Company, as of March 1, 2004:

Amount and Nature of

Ownership

Title of Class

Name of Owner

Citizenship

Class A CLASS B

Total No. of Shares

Common Eduardo M. Cojuangco,

Jr. Filipino 265,808 0 265,808 (r)

Common Ramon S. Ang Filipino 6,050 0 6,050 (r)Common Estelito P. Mendoza Filipino 31,972 0 31,972 (r)Common Manuel M. Cojuangco Filipino 0 115,568 115,568 (r) Common Iñigo Zobel Filipino 6,050 0 6,050 (r) Common Winston F. Garcia Filipino 5,500 0 5,500 (r)Common Corazon S. de la Paz Filipino 5,001 0 5,001 (r)Common Menardo R. Jimenez Filipino 5,000 0 5,000 (r)Common Pacifico M. Fajardo Filipino 5,000 0 5,000 (r)Common Hector L. Hofileña Filipino 5,000 0 5,000 (r)Common Leo S. Alvez Filipino 14,326 0 14,326 (r) Common Juan B. Santos Filipino 5,000 0 5,000 (r) Common Hitoshi Oshima Japanese 0 5,000 5,000 (r) Common Shigeki Ota Japanese 0 5,000 5,000 (r)Common Henry Sy, Jr. Filipino 5,000 0 5,000 (r)Common Faustino F. Galang Filipino 165,042 5,270 170,312 (r)Common Ferdinand K. Constantino Filipino 64,224 0 64,224 (r)Common Enrique A. Gomez, Jr. Filipino 14,676 1,900 16,576 (r)Common Roberto N. Huang Filipino 3,800 0 3,800 (r)Common Arnaldo A. Africa Filipino 150,289 0 150,289 (r)Common Alberto O. Villa-Abrille, Jr. Filipino 107,479 2 107,481 (r)Common Francis H. Jardeleza Filipino 6,665 3,800 10,465 (r)

The aggregate number of shares owned of record by the Chief Executive Officer, key officers and directors as a group as of January 31, 2004 is 1,008,422 shares or approximately 0.03873% of the Company’s outstanding capital stock.

The aggregate number of shares owned by all officers and directors as a group as of

January 31, 2004 is 1,605,578 shares or approximately 0.0565% of the Company’s outstanding capital stock.

There were no employment contracts between the Company and a named executive

officer. There were neither compensatory plans nor arrangements with respect to a named

executive officer. Changes in Control The Company is not aware of any change in control or arrangement that may result in a change in control of the Company since the beginning of its last fiscal year.


Item 12. Certain Relationships and Related Transactions

See Note 22 (Related Party Disclosures) of the Notes to the Consolidated Financial Statements.

There were no transactions with directors, officers or any principal stockholders (owning

at least 10% of the total outstanding shares of the Company) not in the ordinary course of business.

PART IV – CORPORATE GOVERNANCE

Item 13. Corporate Governance The evaluation by the Company to measure and determine the level of compliance of the Board of Directors and top level management with its Manual of Corporate Governance is vested by the Board of Directors in the Compliance Officer. The Compliance Officer is mandated to monitor compliance by all concerned with the provisions and requirements of the Manual of Corporate Governance. The Compliance Officer on January 30, 2004 certified that there is such level of compliance. The Company considers its Manual of Corporate Governance to be in line with leading practices on good corporate governance, and as such, is in full compliance. There are no deviations from the Company’s Manual of Corporate Governance. The Company will improve its Corporate Governance when appropriate and warranted, in its best judgment.

PART V - EXHIBITS AND SCHEDULES

Item 14. Exhibits and Reports on SEC Form 17-C (a) Exhibits The Audited Consolidated Financial Statements are attached as Annex “D” and the Supplementary Schedules are attached as Annex “E” hereof. The other Schedules as indicated in the Index to Schedules are either not applicable to the Company or require no answer. A summary list of the reports on Form 17-C filed during the last six month period covered by this report is attached as Annex “I”.


SIGNATURES

Pursuant to the requirements of Section 17 of the Code and Section 141 of the Corporation Code, this report is signed on behalf of the issuer by the undersigned, thereunto duly authorized, in the City of Mandaluyong on April 13, 2004. By: (OUT OF THE COUNTRY) (ORIGINAL SIGNED) EDUARDO M. COJUANGCO, JR. RAMON S. ANG Chairman and Chief Executive Officer Vice Chairman, President and Chief Operating

Officer (ORIGINAL SIGNED) FERDINAND K. CONSTANTINO Chief Finance Officer

(ORIGINAL SIGNED) FRANCIS H. JARDELEZA Corporate Secretary

(ORIGINAL SIGNED) BELLA O. NAVARRA Comptrollership Manager/Principal Accounting Officer

SUBSCRIBED AND SWORN to before me this 13th day of April 2004 affiants exhibiting to me their Residence Certificates, as follows:

NAME RES. CERT. NO. DATE OF ISSUE PLACE OF ISSUE Eduardo M. Cojuangco Jr.

04325313 February 5, 2004 Pontevedra, Negros Occidental

Ramon S. Ang 15183821 January 15, 2004 Makati City Ferdinand K. Constantino

22308855 February 27, 2004 Pasig City

Francis H. Jardeleza 13875812 January 21, 2004 Quezon City Bella O. Navarra 14228865 February 26, 2004 Mandaluyong City Doc. No. 57___; (ORIGINAL NOTARIZED) Page No. 21 __; FETLEWORK S. BALITE Book No. I____; NOTARY PUBLIC Series of 2004. Until December 31, 2005 PTR NO. 0347901; 1/30/04; Mandaluyong City TIN 201655534


ANNEX “A”


ANNEX “B“

SAN MIGUEL CORPORATION AND SUBSIDIARIES List of Collective Bargaining Agreements

A. San Miguel Corporation

1. Samahang Manggagawa ng San Miguel Beer-Worker’s Alliance Trade Union (SMSMB-AWATU)

2. Ilaw at Buklod ng Manggagawa (IBM) SMC Chapter 3. San Miguel Corporation Employees Union - PTGWO 4. San Miguel Bacolod Brewery Employees Union 5. Philippine Agricultural, Commercial and Industrial Workers Union 6. San Fernando Complex Monthly-paid Employees Union IBM No. 48 7. New San Miguel Corporation Sales Force Union 8. IBM Local No. 42 – San Fernando Beer Bottling Plant Chapter 9. Congress of Independent Organizations-Associated Labor Unions (CIO-ALU)

– SMC Bacolod Region Employees Union 10. Buklod ng Manggagawang Pilipino (BMP) – Central Visayas Provincial Sales

Force Chapter 11. IBM – Mandaue Chapter (Dailies - SMBD) 12. IBM – Mandaue Chapter (Dailies - SMPP) 13. New SMC Sales Force Union - Cebu

B. Anchor Insurance Brokerage Corporation (AIBC)

1. AIBC Employees Independent Union

C. Mindanao Corrugated Fibreboard, Inc. (Mincorr)

1. Mincorr Independent Workers Union (MIWU) D. Premium Packaging International, Inc.

1. IBM – 85, Primepak Chapter (Monthlies) 2. IBM – Primepak Chapter (Dailies)

E. Rightpak International Corporation

1. Independent Rightpak Employees Union F. San Miguel Rengo Packaging Corporation

1. San Miguel Rengo Employees Labor Union - AWATU G. SMC Shipping and Lighterage Corporation

1. SMC Wharf Shipping and Lighterage Independent Union H. SMC Stock Transfer Services Corporation

1. SMC Stock Transfer Service Corporation Employees Union (SMCSTSCEU) – Alliance of Demacratic Free Labor Organizational (ADFLOR) (SMCSTSCEU-ADFLO)


I. Ginebra San Miguel, Inc. 1. Nagkakaisang Lakas Manggagawa ng LTDI-CIO-ALU 2. Nagkakaisang Lakas Manggagawa ng LTDI (Cabuyao Plant) Independent Union 3. Free Workers Association (Freewas) Daily 4. Mandaue Laborers Union

5. Kapisanan at Samahan ng mga Manggagawa (KASAMA) 6. La Tondeña Distillers, Inc. Workers Union 7. CIO-ALU Distileria Bago Employees Union Chapter 8. Sama-Samang Lakas Mangagawa ng LTDI-Ind. Union

J. Magnolia, Inc.

1. Progressive Workers’ Union (PWU) IBM Local 49 2. PDPC Employees Union IBM Local 85 3. Jellyace Workers Union-Tupas

K. Monterey Foods Corporation 1. Bukluran ng Manggagawa sa Monterey - Ilaw at Buklod ng Manggagawa (BMM-IBM) Monterey Meat Plt. Loc. 70 2. Bukluran ng Manggagawa sa Monterey - Ilaw at Buklod ng Manggagawa (BMM-IBM) Head Office Local 71 3. Bukluran ng Manggagawa sa Monterey - Ilaw at Buklod ng Manggagawa (BMM-IBM) IBM Local 69 4. Monterey Farms Senior Employees Union-Independent 5. Purefoods Sta. Maria Farm Workers Union – (PFSMPFWU- PULO)-Independent L. The Purefoods-Hormel Company, Inc. 1. Purefoods-Hormel Company Administrative Marketing Employees Union (PHCAMEU) 2. Nagkakaisang Samahang Manggawang Purefoods-Hormel Rank and File (NAGSAMA-PHC-PULO)-Independent M. San Miguel Foods, Inc.

1. Iwag sa Baroganan sa Mamumuo (IBM) sa SMFI Inc. 2. Kapisanan ng mga Manggagawa sa Purefoods (KAMPU)-

Independent 3. Magnolia Poultry Farm Employees Labor Union (MAPFELU)-

IBM Local No. 67 4. SMFI Employees Union (SMFIEU)-PTGWO 5. Magnolia Poultry Employees Union-PTGWO 6. Iwag sa Baroganan sa Mamumuo (IBM) sa MPP-Cebu 7. SMFI-Magnolia Poultry Processing Plant Workers Union-IBM Local 79 8. Magnolia Poultry Processing Plant Monthly Employees Union (MPPPMEU) 9. The Confederation of Filipino Workers-Purefoods Hatchery Chapter (CFW) 10. SMFI-Magnolia Poultry Products Sales Force Union


N. Coca-Cola Bottlers Philippines, Inc.

1. Cagayan Coca-Cola Plant Salesmen Union –AWATU 2. Ilaw at Buklod ng Manggagawa (IBM) Local No. 1 – KMU 3. New Independent Workers Association (NIWO) Independent 4. CCBPI Cebu Supervisory Employees Union-AWATU 5. Bacolod Coca-Cola Supervisors Union – PACIWU-TUCP 6. Tacloban Coca-Cola Plant Labor Union-AWATU 7. United Sales Force Union-SMC Beverage Federated Labor

Unions-Plant Area Unit-AWATU 8. Bacolod CCBPI Sales Force Union-CIO-ALU 9. Cebu Royal Plant Sales Force Employees Union-AWATU 10. Samahan ng Manggagawa ng Coca-Cola (SAMA-COKE)

Independent 11. Independent Zamboanga Coca-Cola Plant Labor Union-

AWATU-TUCP 12. Calasiao Monthlies Union-CAILU 13. CCBPI-Carlatan Monthlies Union-CAILU 14. Ilocos Monthlies Union-CAILU 15. Royal Plant Workers Union – FFW 16. Davao Workers Union-Bajada & Ulas Sales Office-Ind. 17. Davao Workers Union – Bislig Sales Office – Independent 18. Davao Workers Union – National – Independent 19. Davao Workers Union – Digos Sales Office – Independent

20. Davao Workers Union-Francisco Sales Office – Independent 21. Davao Workers Union – Kidapawan Sales Union – Independent 22. Davao Workers Union-Mati Sales Office – Independent 23. Davao Workers Union – Tagum Sales Office – Independent 24. Davao Workers Union – Tandang Sales Office – Independent 25. CCBPI-Ilocos Plant Employees Union 26. Marbel Sales Force Union – Tupas 27. Samahan ng Manggagawa ng Carlatan – CCBPI-CAILU 28. Samahan ng Roteros sa Carlatan 29. Calasiao Sales Force Union – Independent 30. Cotabato Sales Force Union – Tupas 31. Gen. Santos Coca-Cola Plant Free Workers Union 32. Gen. Santos Sales Force Union – Tupas 33. Midsayap Sales Force Union – Tupas 34. Tacurong Sales Force Union – Tupas 35. Iloilo Coca-Cola Plant Employees Union – Independent 36. Congress of Independent Iloilo Coca-Cola Sales Force Union,

Panay Chapter – CIO-ALU 37. Ilagan Coca-Cola Monthlies Employees Association- CAILU 38. Kasapian ng Malayang Manggagawa sa Coca-Cola

(KASAMA-CCO) – Meucauyan Chapter – CAILU 39. CCBPI Post Mix Workers Union – NLU 40. CCBPI Employees Union (Manila) – Independent 41. Kasapian ng Malayang Manggagawa sa Coca-Cola

(KASAMMA-CCO)-Independent 42. CCBPI-Calamba Fountain Free Workers Union – NLU 43. CCBPI Monthly employees Union – NLU 44. Meycauayan Sales Force Union – Independent 45. Coca-Cola Bottlers Monthlies Clerical Employees Association

(CCBMCEA)-NLU 46. Coca-Cola Sales Force Union (CCSU) – PTGWO 47. CCBPI Sales Force Union – PTGWO 48. Tagbilaran Coca-Cola Plant Employees and Workers Union-

AWATU 49. Ilagan Coca-Cola Plant Employees Association – CAILU


50. Zamboanga Coca-Cola Reg. One Sales Force Union- AWATU

51. Ilagan Coca-Cola Plant and Sales Office Sales Force Union 52. Calasiao Workers Union – Tupas – FSM – CAILU 53. Cagayan Coca-Cola Free Workers Union – FFW 54. Nagkaisang Manggagawa ng Coca-Cola sa Baguio – Ind. 55. Kapisanan ng Malayang Manggagawa ng Coca-Cola

Salesmen, Truck Drivers at Helpers (KMM) – FFW 56. Sta. Rosa Coca-Cola Plant Employees Union – KMU 57. Ilocos Sales Force Union – CAILU 58. Free Labor Union of Calamba IBM Loc. No. 57 (FLUC) - IBM

#57 – KMU 59. Coca-Cola Workers Union – Bicol Region (CCWU-BR) -

Independent O. Cosmos Bottling Corporation 1. Cosmos Workers Union of San Jacinto – national Federation of Labor Unions/ NCL 2. Nagkakaisang Lakas Manggagawa sa Cosmos – Independent 3. Cosmos Visayas Iloilo Plant Labor Union - National Federation of Labor Unions - NCL 4. Cosmos Bacolod Employees Independent Union 5. Samahang Manggagawa ng Cosmos sa Canlubang - National Federation of Labor Unions/NCLl

6. Cosmos Independent Workers Union 7. Cosmos Visayas Bottlers, Inc. – Cebu Plant Employees Union -

ALU-TUCP 8. Cosmos Supervisory Labor-Union-Independent

P. Philippine Beverage Partners, Inc. 1. Tupas Loc. Chapter No. 1437 (Sugarland Emp. Union) 2. Buklod ng Manggagawa ng Wilkins (BMW)


ANNEX “C”

Company Name / Subsidiary Address Rented / Owned

Terms of Lease Condition

SAN MIGUEL CORPORATION – Brewing

Polo Brewery Marulas McArthur High-way Valenzuela City

Owned Good

San Fernando Brewery SMC Complex, Quebiawan, San Fernando, Pampanga

Owned Good

Mandaue Brewery SMC Mandaue Complex, Hi-way, Mandaue City, Cebu

Owned Good

Bacolod Brewery Sta. Fe, Bacolod City Owned Good

Davao Brewery Darong, Sta. Cruz, Davao del Sur

Owned Good

SAN MIGUEL CORPORATION – Packaging

Manila Glass Plant Muelle dela Industria St., Binondo Manila

Owned Good

Manila Plastic Case Plant Tomas Claudio St., Beata, Pandacan, Manila

Owned Good

Metal Closure & Lithography Plant

Silang Canlubang Industrial Park, Canlubang Laguna

Owned Good

Closure and Lithography Plant SMC San Fernando Complex, Quebiauan, San Fernando City

Owned Good

Mandaue Glass Plant SMC Mandaue Complex, Hi-way, Mandaue City, Cebu

Owned Good

Mandaue Metal Closure & Lithography Plant

SMC Mandaue Complex, Hi-way, Mandaue City, Cebu

Owned Good

Closure and Lithography Plant SMC San Fernando Complex Quebiauan, San Fernando City

Owned Good

Mandaue Power Plant SMC Mandaue Complex, Hi-way, Mandaue City, Cebu

Owned Good

Mandaue Plastic Case Plant SMC Mandaue Complex, Hi-way, Mandaue City, Cebu

Owned Good

SAN MIGUEL CORPORATION - Agribusiness

Iligan Coconut Oil Mill Sta. Filomena, Iligan City Owned Good

COCA-COLA BOTTLERS PHILIPPINES, INC.

Canlubang Silangan Industrial Estate, Canlubang, Calamba, Laguna

Owned Good


Company Name / Subsidiary Address Rented / Owned

Terms of Lease Condition

Meycauayan Muralla Industrial Park, Bo. Perez, Libtong, Meycauayan, Bulacan

Owned Good

Naga 157 Concepcion Pequeña, Naga City

Owned Good

Sta. Rosa I Bo. Pulong Sta. Cruz Sta. Rosa, Laguna

Owned Good

Sta. Rosa II Bo. Pulong Sta. Cruz Sta. Rosa, Laguna

Owned Good

Calasiao Bued, Calasiao, Pangasinan Owned Good

Carlatan Carlatan, San Fernando City, La Union

Owned Good

Iligan Brgy. Ginatan, Ilagan, Isabela

Owned Good

Ilocos Brgy. Catuguing, San Nicolas, Ilocos Norte

Owned Good

San Fernando Brgy. Saguin, Mc Arthur Hi-way, San Fernando Pampanga

Owned Good

Bacolod National Hi-way Brgy. Mansilingan, Bacolod City

Owned Good

Cebu Hi-way, Mandaue City, Cebu

Owned Good

Iloilo Brgy. Ungka, Pavia, Iloilo Owned Good

Tacloban Fatima Village, San Jose, Tacloban City

Owned Good

Tagbilaran 154 CPG Avenue North, Cogon District, Tagbilaran City, Bohol

Owned Good

Cagayan CM Recto Avenue, Lapasan, Cagayan de Oro

Owned Good

Davao Ulas, Davao City Owned Good

General Santos Bula Road, General Santos City

Owned Good

Zamboanga Tetuan Hi-way, Zamboanga City

Owned Good

GINEBRA SAN MIGUEL, INC.

Canlubang Canlubang Industrial Park, Cabuyao, Laguna

Owned Good

Lucena Bgy. Gulang-gulang, Lucena, Quezon

Owned Good

Sta. Barbara Bgy. Tebag, Sta. Barbara, Pangasinan

Owned Good

Cebu Subang Daku, Mandaue City, Cebu

Owned Good

DBI Km 105 Bgy. Taloc, Bago City, Negros Occidental

Owned Good


ANNEX “D” SAN MIGUEL CORPORATION AND SUBSIDIARIES Consolidated Financial Statements December 31, 2003 and 2002 And Years Ended December 31, 2003, 2002 and 2001 And Report of Independent Auditors


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SAN MIGUEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Amounts in Millions)

December 31

2003

2002(As restated -

Note 2)

ASSETS

Current Assets

Cash and cash equivalents (Note 4) P=21,826 P=28,563Receivables - net (Note 5) 28,693 25,348Inventories - net (Note 6) 31,274 25,362Prepaid expenses and other current assets - net (Note 15) 4,719 2,971 Total Current Assets 86,512 82,244

Noncurrent Assets

Investments - net (Note 7) 2,768 7,620Property, plant and equipment - net (Note 8) 69,661 61,968Intangible assets - net (Note 9) 12,350 11,154Other noncurrent assets - net (Note 10) 14,044 14,225 Total Noncurrent Assets 98,823 94,967

P=185,335 P=177,211

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Drafts and loans payable (Notes 11 and 29) P=17,436 P=14,897Accounts payable and accrued expenses (Note 12) 19,131 18,789Income and other taxes payable (Note 15) 3,886 2,540Dividends payable 1,366 1,244Current maturities of long-term debt (Notes 13 and 29) 1,457 3,014 Total Current Liabilities 43,276 40,484

Noncurrent Liabilities

Long-term debt - net of current maturities (Notes 13 and 29) 10,069 12,809Other noncurrent liabilities - net (Note 14) 6,860 6,851 Total Noncurrent Liabilities 16,929 19,660

Minority Interests in Consolidated Subsidiaries 20,774 20,113

Stockholders’ Equity (Notes 16 and 27) Capital stock 15,959 15,922Additional paid-in capital 27,566 27,237Cumulative translation adjustment 14,516 11,162Retained earnings: Appropriated for expansion projects 5,325 5,418 Unappropriated 61,714 57,939Treasury stock (20,724) (20,724) Total Stockholders’ Equity 104,356 96,954

P=185,335 P=177,211 See accompanying Notes to Consolidated Financial Statements.


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CONSOLIDATED STATEMENTS OF INCOME (Amounts in Millions, Except Per Share Data)

Years Ended December 31

2003

2002(As restated -

Note 2)

2001(As restated -

Note 2)

SALES (Note 22) P=148,590 P=136,050 P=121,588

COST OF SALES (Note 17) 102,560 93,927 84,344

GROSS PROFIT 46,030 42,123 37,244

OPERATING EXPENSES (Note 18) 31,670 29,420 26,800

INCOME FROM OPERATING ACTIVITIES 14,360 12,703 10,444

OTHER INCOME (CHARGES) Interest expense and financing charges

(Notes 28 and 29) (1,906) (3,110) (4,738)Interest income 1,049 1,361 2,032 Equity in net earnings of associates (Note 7) 37 171 476 Others - net (Note 21) (894) (257) 3,618 (1,714) (1,835) 1,388

INCOME FROM ORDINARY ACTIVITIES

BEFORE INCOME TAX AND MINORITY

INTEREST 12,646 10,868 11,832

PROVISION FOR INCOME TAX (Note 15) 4,162 2,844 3,172

INCOME FROM ORDINARY ACTIVITIES 8,484 8,024 8,660

MINORITY INTEREST (1,111) (1,144) (1,749)

NET INCOME P=7,373 P=6,880 P=6,911

Basic Earnings Per Share (Notes 16 and 25) P=2.60 P=2.49 P=2.80 See accompanying Notes to Consolidated Financial Statements.


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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Amounts in Millions)

Years Ended December 31

2003

2002(As restated -

Note 2)

2001(As restated -

Note 2)

CAPITAL STOCK (Notes 16 and 27) Balance at beginning of year P=15,922 P=13,700 P=12,573 Issuances 37 2,222 2 Stock dividends (10% based on par value) – – 1,125 Balance at end of year 15,959 15,922 13,700

ADDITIONAL PAID-IN CAPITAL

Balance at beginning of year 27,237 1,498 1,480 Issuances 329 25,739 18 Balance at end of year 27,566 27,237 1,498

CUMULATIVE TRANSLATION ADJUSTMENT Balance at beginning of year 11,162 9,563 9,556 Net effect of translation adjustment 3,354 1,599 7 Balance at end of year 14,516 11,162 9,563

RETAINED EARNINGS Appropriated for expansion projects: Balance at beginning of year 5,418 4,925 5,096 Additions to (reversal of) appropriations during

the year - net (93) 493 (171) Balance at end of year 5,325 5,418 4,925 Unappropriated (Note 16): Balance at beginning of year, as previously reported 58,106 56,365 53,215 Effect of change in accounting for preoperating

expenses of subsidiaries (Note 2) (167) (419) (862) Balance at beginning of year, as restated 57,939 55,946 52,353 Net income 7,373 6,880 6,911 Cash dividends (Note 24) (3,691) (4,394) (2,364) Stock dividends (10% based on par value) – – (1,125) Reversals of (addition to) appropriations during

the year - net 93 (493) 171 Balance at end of year 61,714 57,939 55,946 67,039 63,357 60,871

TREASURY STOCK (Note 16) Balance at beginning of year (20,724) (20,724) (16,008)Repurchase of capital stock – – (4,716)Balance at end of year (20,724) (20,724) (20,724)

P=104,356 P=96,954 P=64,908 See accompanying Notes to Consolidated Financial Statements.


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CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Millions) Years Ended December 31

2003

2002(As restated -

Note 2)

2001(As restated -

Note 2)CASH FLOWS FROM OPERATING ACTIVITIES Income from ordinary activities before income tax and

minority interest P=12,646 P=10,868 P=11,832 Adjustments for: Depreciation, amortization and others - net 8,773 7,421 10,687 Gain on sale of investments and property and equipment (75) (61) (7,102) Equity in net earnings of associates (37) (171) (476) Interest expense and financing charges 1,906 3,110 4,738 Interest income (1,049) (1,361) (2,032)Operating income before working capital changes 22,164 19,806 17,647 Changes in noncash current assets, certain current liabilities

and others (Note 26a) (5,074) (2,869) (6,590)Cash generated from operations 17,090 16,937 11,057 Income taxes paid (3,119) (2,807) (2,824)Interest paid (1,963) (3,381) (4,943)Net cash flows from operating activities 12,008 10,749 3,290 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property, plant and equipment (9,665) (5,664) (4,575)Additions to investments, net of cash acquired (3,172) (5,497) (14,936)Proceeds from sale of investments and property and

equipment 1,199 920 7,906 Interest received 1,097 1,299 2,296 Decrease (increase) in other noncurrent assets (969) (890) 203 Dividends received – 74 740 Net cash flows used in investing activities (11,510) (9,758) (8,366)CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from: Short-term borrowings 25,086 15,498 33,679 Long-term borrowings 3,116 4,929 6,411 Payments of: Short-term borrowings (24,381) (22,870) (33,516) Long-term borrowings (7,620) (18,087) (12,197)Cash dividends paid (3,517) (3,780) (1,999)Dividends paid to minority shareholders (415) (336) (241)Issuance of capital stock 366 27,961 20 Decrease in minority interest in consolidated subsidiaries (97) (1,390) (617)Repurchase of capital stock – – (4,716)Net cash flows provided by (used in) financing activities (7,462) 1,925 (13,176)EFFECT OF EXCHANGE RATE CHANGES

ON CASH AND CASH EQUIVALENTS 227 152 711`NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS (6,737) 3,068 (17,541)CASH AND CASH EQUIVALENTS AT BEGINNING OF

YEAR 28,563 25,495 43,036 CASH AND CASH EQUIVALENTS AT END OF YEAR P=21,826 P=28,563 P=25,495 See accompanying Notes to Consolidated Financial Statements.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

San Miguel Corporation (the Parent Company) is incorporated in the Philippines. The Parent Company and its subsidiaries (the Group) are primarily engaged in the production, processing and marketing of beverage, food and packaging products. The Group is also engaged in the management and development of real estate properties. The number of employees of the Group is about 26,400 and 27,200 as of December 31, 2003 and 2002, respectively. The registered office address of the Parent Company is No. 40 San Miguel Avenue, Mandaluyong City, Philippines.

The accompanying consolidated financial statements of the Group were authorized for issue by the Board of Directors on January 29, 2004.

2. Summary of Significant Accounting and Financial Reporting Policies

Basis of Preparation The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the Philippines using the historical cost basis, except for certain derivatives instruments which are carried at fair value.

Changes in Accounting Policies On January 1, 2003, the Group adopted the following Statements of Financial Accounting Standards (SFAS)/International Accounting Standards (IAS):

�� SFAS 38/IAS 38, Intangible Assets, establishes the criteria for the recognition and measurement of intangible assets. It also requires that expenditures on research, start-up, training, advertising and relocation be expensed as incurred. The Group changed its method of accounting for preoperating expenses and, accordingly, reversed the unamortized balances of preoperating expenses to conform to the standard. Previously, such expenses were deferred and amortized. The change in accounting policy has been accounted for retroactively and the comparative statements for 2002 and 2001 have been restated. The change increased net income for 2003, 2002 and 2001 by P=167 million, P=252 million and P=443 million, respectively. Retained earnings as of January 1, 2001 has been reduced by P=862 million, the unamortized preoperating expenses prior to 2001. For income tax reporting purposes, preoperating expenses are continued to be amortized over five to ten years.

�� SFAS 22/IAS 22, Business Combinations, requires that an acquisition where an acquirer can be identified should be accounted for by the purchase method. Any goodwill arising from the acquisition will be amortized generally over 20 years. The adoption of this standard has no effect on the Group’s amortization period of goodwill.

�� SFAS 37/IAS 37, Provisions, Contingent Liabilities and Contingent Assets, provides the criteria for the recognition and bases for measurement of provisions, contingent liabilities and contingent assets. The adoption of the standard has no effect on the Group’s consolidated financial statements.

�� SFAS 10/IAS 10, Events After the Balance Sheet Date, prescribes the accounting and disclosures related to adjusting and non-adjusting subsequent events. Additional disclosures required by the standard were included in the consolidated financial statements, principally the date of authorization for release of the consolidated financial statements.


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New Accounting Standards Effective Subsequent to 2003 The Accounting Standards Council has approved the following accounting standards which will be effective subsequent to 2003:

�� SFAS 21/IAS 21, The Effects of Changes in Foreign Exchange Rates, provides restrictive conditions for the capitalization of foreign exchange losses. The Group will adopt the standard in 2005 on a retroactive basis. As of December 31, 2003, the undepreciated capitalized foreign exchange losses included in property, plant and equipment amounted to P=351 million. Upon adoption in 2005, any undepreciated capitalized foreign exchange losses will be adjusted against beginning retained earnings and prior years’ consolidated financial statements presented will be restated.

�� SFAS 12/IAS 12, Income Taxes, prescribes the accounting treatment for current and deferred income taxes. The standard requires the use of a balance sheet liability method in accounting for deferred income taxes. It requires the recognition of a deferred tax liability and, subject to certain conditions, asset for all temporary differences with certain exceptions. The standard provides for the recognition of a deferred tax asset when it is probable that taxable income will be available against which the deferred tax asset can be used. It also provides for the recognition of a deferred tax liability with respect to asset revaluations. The Group will adopt SFAS 12/IAS 12 in 2004 but has not yet determined the financial impact of the adoption of the standard.

�� SFAS 17/IAS 17, Leases, prescribes the accounting policies and disclosures to apply to finance and operating leases. Finance leases are those that transfer substantially all risks and rewards of ownership to the lessee.

A lessee is required to capitalize finance leases as assets and recognize the related liabilities at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The lessee should also depreciate the leased asset. On the other hand, lessees should expense lease payments.

The Group will adopt SFAS 17/IAS 17 in 2004. Due to the significant number of leases that the Group is a party to and the assessments that need to be made as to whether these would qualify as finance leases, the Group has not yet determined the financial statement impact of the adoption of the standard.

Basis of Consolidation The consolidated financial statements include the accounts of the Parent Company and its subsidiaries. The major subsidiaries include the following:

Percentage

of Ownership Country

of Incorporation

Beverage Business San Miguel Brewing International Ltd. and

subsidiaries (including San Miguel Brewery Hong Kong Limited and PT Delta Djakarta Tbk)* 100 British Virgin Islands

J. Boag & Son Limited* 100 Australia Ginebra San Miguel, Inc. (GSMI), formerly La

Tondeña Distillers, Inc., and subsidiaries (a) 79.62 Philippines

(Forward)


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Percentage


of Incorporation Coca-Cola Bottlers Philippines, Inc. (CCBPI)

and subsidiaries [including Philippine Beverage Partners, Inc. (PhilBev), Philippine Bottlers, Inc. (PBI), Luzviminda Land Holdings, Inc., Marangal Properties, Inc. and Philbev Realty, Inc.] 65 Philippines

Food Business San Miguel Foods and Beverage International

Limited [including TTCV Investment (BVI) Co., Ltd. (TTCV)*] 100 British Virgin Islands

Star Dari, Inc. 100 Philippines San Miguel Campocarne Corporation** 100 Philippines San Miguel Pure Foods Company, Inc. (SMPFC)

(formerly Pure Foods Corporation) and subsidiaries [including San Miguel Foods, Inc. (SMFI)*** and Magnolia, Inc. (Magnolia)] 99.75 Philippines

Monterey Foods Corporation (MFC) 98 Philippines

Packaging Business San Miguel Packaging International Limited

and subsidiaries (including San Miguel Yamamura Haiphong Glass Co., Ltd. and Zhaoqing San Miguel Glass Company Limited)* 100 British Virgin Islands

Premium Packaging International, Inc.* 100 Philippines Rightpak International Corporation* 100 Philippines San Miguel Yamamura Ball Corporation

(SMYBC) 99 Philippines San Miguel Rengo Packaging Corporation

(SMRPC)* 70 Philippines Mindanao Corrugated Fibreboard, Inc.

(Mincorr)* (b) 73.33 Philippines San Miguel Yamamura Asia Corporation

(SMYAC) 60 Philippines SMC Yamamura Fuso Molds Corporation

(SMYFMC)* 60 Philippines Beverage Packaging Specialists, Inc. (BPSI) 100 Philippines Real Estate Business San Miguel Properties, Inc. (SMPI) and

subsidiaries* 99 Philippines Seaside Industrial Estate, Inc. (Seaside)**** 100 Philippines

(Forward)


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Percentage


of Incorporation Others ArchEn Technologies Inc.*** 100 Philippines Challenger Aero Air Corp. 100 Philippines SMC Logistics Asia and subsidiaries* 100 Philippines SMC Stock Transfer Service Corporation 100 Philippines SMITS, Inc.* 100 Philippines SM Bulk Water Company, Inc. (SMBWCI) 100 Philippines Philippine Breweries Corporation 100 Philippines Pacific Central Properties, Inc. 100 Philippines SMC Shipping and Lighterage Corporation

(SMCSLC) 70 Philippines Anchor Insurance Brokerage Corporation (AIBC)* 58 Philippines * The financial statements of this subsidiary were audited by other independent auditors.

** Ceased commercial operations in July 2002.

*** The 2002 and 2001 financial statements of this subsidiary were audited by other independent

auditors.

**** Incorporated in 2003 and not yet operating as of December 31, 2003.

(a) Ownership in 2002 was 78.81%.

(b) Ownership in 2002 was 60%.

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.

The consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Intercompany balances and transactions, including intercompany and unrealized profits and losses, are eliminated.

Minority interests represent the interests not held by the Group in GSMI, CCBPI, SMPFC, MFC, SMYBC, SMRPC, Mincorr, SMYAC, SMYFMC, SMPI, SMCSLC and AIBC.

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.

Trade Receivables Trade receivables are recognized and carried at original invoice amounts less allowance for any uncollectible amount. An estimate for doubtful accounts is made when collection of the full amount is no longer probable.

Inventories Finished goods and in process and materials and supplies are valued at the lower of cost (computed using the moving-average method) or net realizable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows:

Materials and supplies - purchase cost on a moving-average method;

Finished goods and in process - cost includes direct materials and labor and a proportion of manufacturing overhead costs based on normal operating capacity but excluding borrowing costs.


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Net realizable value for finished goods and 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 for materials and supplies represents the current replacement cost.

Containers (returnable bottles and shells) are stated at deposit value. The excess of the acquisition cost of the containers over their deposit value is presented under “Deferred containers expense” account (included under “Other noncurrent assets” account in the consolidated balance sheets) and is amortized over the estimated useful lives of five to ten years.

The account “Deferred containers expense - net of accumulated amortization,” which was previously included in the consolidated balance sheets under the caption “Inventories” account, has been reclassified to “Other noncurrent assets” account for all periods presented. The effect of such reclassification is a decrease in total current assets and an increase in total noncurrent assets as of December 31, 2003 and 2002 by P=8,556 million and P=7,675 million, respectively.

Investments The Group’s investments in its associates are accounted for under the equity method. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture of the Group. The investments in associates are carried in the consolidated balance sheets at cost plus post-acquisition changes in the Group’s share in the net assets of the associates, less any impairment in value. The consolidated statements of income include the Group’s share in the results of operations of the associates. Unrealized gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the associates. Unrealized losses are eliminated similarly but only to the extent that there is no evidence of impairment of the asset transferred. The Group’s investments in its associates include goodwill (net of accumulated amortization and impairment loss, if any) on acquisition, which is treated in accordance with the accounting policy for goodwill.

Other long-term investments in stocks are carried at cost less any significant and apparently permanent decline in value.

Business Combinations Business acquisitions are accounted for using the purchase method of accounting.

Goodwill represents the excess of the acquisition cost of investments in subsidiaries and associates over the fair market value of their identifiable net assets at the date of acquisition. The amount is amortized on a straight-line basis over periods not exceeding 20 years. With respect to investments in associates, goodwill is included in the carrying amount of investments. Goodwill is stated at cost less accumulated amortization and any impairment in value. The carrying value of goodwill is evaluated periodically in relation to the operating performance and expected future net cash flows of the underlying business, and any impairment in value is recognized accordingly.

Negative goodwill which is not in excess of the fair values of acquired identifiable nonmonetary assets of subsidiaries and associates is amortized to income on a straight-line basis over the remaining weighted average useful life of the identifiable acquired depreciable/amortizable assets.

Transfers of assets between commonly controlled entities are accounted for under historical cost accounting.

Property, Plant and Equipment Property, plant and equipment, except land, are stated at cost less accumulated depreciation and amortization and any impairment in value. Land is stated at cost less any impairment in value.


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The initial cost of property, plant and equipment consists 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. The cost also includes exchange adjustments up to 1996 on foreign currency-denominated liabilities specifically identified with the acquisition of property, plant and equipment. Expenditures incurred after the item 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 property, plant and equipment beyond the originally assessed standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment.

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

Depreciation and amortization are computed using the straight-line method over the following estimated useful lives of the assets:

Land improvements 5 - 10 years Buildings and improvements 10 - 50 years Machinery and equipment 5 - 20 years Transportation equipment 5 - 70 years Tools and small equipment 20 years Office equipment, furniture and fixtures 2 - 50 years Molds 2 - 50 years Leasehold improvements 5 - 50 years or term of the lease,

whichever is shorter

The useful life and depreciation and amortization method are reviewed periodically to ensure that the period and method of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of property, plant and equipment.

Construction in progress is stated at cost. This includes the costs of construction, property 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 completed and put into operational use.

Intangible Assets Intangible assets acquired separately from a business are capitalized at cost. Intangible assets acquired as part of the acquisition of a business are recognized separately from goodwill if the fair value can be measured reliably at the date of acquisition, subject to the constraint that, unless the asset has a readily ascertainable market value, the fair value is limited to an amount that does not create or increase any negative goodwill arising at the date of acquisition. Intangible assets, excluding development costs, created within the business are not capitalized and expenditure is charged against income in the year in which it is incurred.

Trademarks are stated at cost less accumulated amortization and any impairment in value. These are being amortized on a straight-line basis generally over 20 years.

The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.


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Breeding Stock Poultry and livestock breeders are carried at accumulated cost, net of amortization. The costs and expenses incurred up to the start of the productive stage are accumulated and amortized over the estimated productive lives of the breeder stocks.

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, or when events or changes in circumstances indicate that the carrying value may not be recoverable.

Asset Impairment The carrying values of property, plant and equipment and other long-lived 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 amount. The recoverable amount of the asset is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. 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 loss, if any, is charged to income.

Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an 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:

Sale of Goods. 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. Revenue is recognized as the interest accrues, taking into account the effective yield on the asset.


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Dividends. Dividend income is recognized when the right to receive the payment is established.

Retirement Costs The Group has funded, noncontributory retirement plans, administered by trustees, covering its permanent employees. Retirement costs are actuarially determined using the projected unit cost method. These include current service cost plus amortization of past service cost, experience adjustments and changes in actuarial assumptions over the expected average remaining working lives of the covered employees. The Group funds retirement costs.

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 recorded.

Leases Operating lease payments are recognized as expense based on the terms of the lease agreement.

Foreign Currency Transactions and Translations 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 consolidated statements of income. Exchange adjustments incurred until 1996 on foreign currency-denominated liabilities specifically identified with the acquisition of property, plant and equipment were capitalized as part of the cost of the asset. Any undepreciated capitalized foreign exchange losses in 2005 will be adjusted against beginning retained earnings in accordance with SFAS 21/IAS 21 (see New Accounting Standards Effective Subsequent to 2003).

The financial statements of foreign consolidated subsidiaries that are not integral to the operations of the Group are translated at year-end exchange rates with respect to balance sheet accounts and at the average exchange rates for the year with respect to income and expense accounts. The resulting translation differences are included in the consolidated statements of changes in stockholders’ equity. On disposal of a foreign entity, the accumulated exchange differences are recognized in the consolidated statements of income as a component of the gain or loss on disposal.

Financial Instruments The Group uses derivatives to manage its exposures to currency, interest rate and commodity price risks.

Currency Risk

Currency Forwards. Short-term currency forward contracts (deliverable and non-deliverable) are entered into to manage foreign currency risks arising from importations, revenue and expense transactions, and other foreign currency-denominated obligations. Translation gains and losses on these currency forwards are recognized in the same period as the underlying hedged transactions. Premiums on the currency forwards are amortized over the life of the contracts and charged or credited to current operations. Mark-to-market values are not recognized in net income but are disclosed in the related notes to consolidated financial statements.


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Commodity Price Risk

The Group enters into various commodity derivatives to manage the price risk on major strategic commodities. Commodity hedging allows predictability 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 mark-to-market losses, however, any loss in the mark-to-market positions is offset by the resulting lower physical raw material cost.

Commodity Swaps and Futures. Commodity swaps and futures are used to manage the Group’s exposures to volatility in prices of certain commodities such as sugar, aluminum, wheat and fuel oil. The realized gains or losses on these contracts are recognized directly in earnings. The mark-to-market values of outstanding derivative instruments are not recognized in net income but are disclosed in the related notes to consolidated financial statements.

Commodity Forwards. The Group enters into forward purchases of various commodities. The prices of the commodity forwards are fixed either through direct agreement with suppliers or by reference to a relevant commodity price index. The resulting purchases are recorded at the fixed prices. Future delivery of the commodities covered by the forwards is expected.

Commodity Options. The Group purchases options to protect itself from fluctuations in prices of certain commodities. Premiums paid on the options are recognized in net income over the term of the option contract. Mark-to-market values of outstanding options are not recognized in net income but are disclosed in the related notes to consolidated financial statements.

Other derivative financial instruments entered into that are not designated as hedges are marked to market, with the revaluation gains and losses credited or charged to current operations.

Income Taxes Deferred income tax is provided using the balance sheet liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to: (a) the temporary differences between financial reporting bases of assets and liabilities and their related tax bases, and (b) the carryforward benefits of the net operating loss carryover (NOLCO) and the minimum corporate income tax (MCIT) over the regular corporate income tax.

The temporary differences principally relate to provisions for doubtful accounts, inventory obsolescence and other losses; capitalized interest on long-term borrowings incurred during the construction period; capitalized foreign exchange losses on long-term foreign currency-denominated liabilities specifically identified with the acquisition of property, plant and equipment; unrealized foreign exchange gains or losses; unamortized past service cost; and equity in the undistributed net earnings of foreign subsidiaries, except for the portion of net earnings for reinvestment.

Deferred tax assets and liabilities are measured using the tax rate expected to apply to taxable income in the years in which (a) those temporary differences are expected to be recovered or settled and (b) the carryforward benefits of NOLCO and MCIT are expected to be applied. A valuation allowance is provided for deferred tax assets when it is probable that the deferred tax assets will not be realized in the future.

Earnings Per Share Basic earnings per share is computed by dividing the net income by the weighted average number of common shares outstanding during the year, with retroactive adjustments for any stock dividends declared.


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Diluted earnings per share is computed in the same manner, adjusted for the effect of the shares issuable to employees and senior and key management officers under the Parent Company’s Employee Stock Purchase Plan and Long-term Incentive Plan for Stock Options, respectively, which are assumed to be exercised at the date of grant.

Segments The Group’s operating businesses are organized and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. Financial information on business and geographical segments is presented in Note 3.

3. Business and Geographical Segments

Business Segments For management purposes, the Group is organized into three major business segments - beverage, food and packaging. These are also the basis of the Group in reporting its primary segment information.

The beverage segment produces and markets alcoholic and nonalcoholic beverages.

The food segment includes, among others, the breeding, hatching, processing and marketing of chicken; production and marketing of feeds and flour, dairy products and processed meats; and processing and marketing of basic and value-added meat products.

The packaging segment is involved in the production and marketing of metal closures, two-piece aluminum cans, plastic crates, pallets, corrugated cartons, composites, glass containers, glass molds and polyethelene terephthalate (PET) plastic bottles.

Geographical Segments The Group’s major businesses primarily operate in the following geographical areas - Philippines, China, Indonesia, Australia and Vietnam.

Segment Assets and Liabilities Segment assets include all operating assets used by a segment and consist principally of operating cash, receivables, inventories and property, plant and equipment, net of allowances and provisions. Segment liabilities include all operating liabilities and consist principally of accounts, wages, taxes currently payable and accrued liabilities. Segment assets and liabilities do not include deferred income taxes. Segment assets and operating results of the segments for 2002 and 2001 have been restated to reflect the effect of change in policy with respect to accounting for preoperating expenses to conform with SFAS 38/IAS 38, Intangible Assets (see Note 2).

Inter-segment Transactions Segment revenues, expenses and performance include transfers between business segments and between geographical segments. Such transfers are eliminated in consolidation.


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-

��

Fina

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Geographical Segments

Sales Segment Assets Capital Expenditures

2003 2002 2001 2003

2002(As restated -

see Note 2) 2003 2002 (In Millions)

Philippines P=133,502 P=121,628 P=104,202 P=123,090 P=118,446 P=6,407 P=5,334China 6,316 7,613 7,639 31,778 28,516 1,035 225Indonesia 2,494 2,174 1,979 3,447 2,396 64 41Australia 2,869 2,138 1,724 4,834 1,649 126 56Vietnam 1,074 1,349 860 2,934 786 2,033 8Others 2,335 1,148 5,184 2,331 4,898 – – P=148,590 P=136,050 P=121,588 P=168,414 P=156,691 P=9,665 P=5,664

4. Cash and Cash Equivalents

Cash and cash equivalents consist of:

2003 2002

(In Millions)

Cash in banks and on hand P=5,780 P=5,826Short-term placements 16,046 22,737 P=21,826 P=28,563

Cash in banks earn interest at the respective bank deposit rates. Short-term placements 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 placement rates.

5. Receivables

Receivables consist of:

2003 2002

(In Millions)

Trade P=25,729 P=22,013Amounts owed by related parties (see Note 22) 82 424Others (see Notes 10 and 27) 6,176 5,670 31,987 28,107Less allowance for doubtful accounts 3,294 2,759 P=28,693 P=25,348


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6. Inventories

Inventories consist of:

2003

2002(As restated -

see Note 2)

(In Millions)

Finished goods and in process P=7,365 P=5,891Containers 8,923 5,130Materials and supplies 15,248 14,562 31,536 25,583Less allowance for losses and obsolescence 262 221 P=31,274 P=25,362

7. Investments

Investments in Subsidiaries The Parent Company’s investments in subsidiaries have the following developments during the periods:

a. TTCV

In November 2003, the Parent Company, through a foreign subsidiary, acquired TTCV, which wholly owns TTC (Vietnam) Co. Ltd., a hogs and feedmill business in Binh Duong, South Vietnam. The business was acquired and paid in cash from internally generated funds of about US$35.5 million. The goodwill arising from this transaction amounting to P=369 million, net of amortization, is presented as part of “Goodwill” under “Intangible assets” account in the consolidated balance sheets (see Notes 9 and 26b).

b. Cosmos Bottling Corporation (Cosmos)

In January 2002, the Parent Company, through PBI, and The Coca- Cola Company (TCCC), through its subsidiary, Atlantic Industries, Inc. (AI), acquired about 83% of the total outstanding capital stock of Cosmos based on a total enterprise value of P=14 billion. This acquisition resulted in PBI owning 32% interest in Cosmos. Subsequent acquisitions of additional shares from the minority shareholders increased PBI’s ownership interest in Cosmos to 38.33% as of December 31, 2002.

In 2003, the authorized capital stock of Cosmos was decreased from P=2,800 million to P=1,388 million. The decrease in authorized capital stock was effected with AI returning its entire shareholdings in Cosmos common shares amounting to P=1,412 million (60.96%) in exchange for trademarks held by Cosmos amounting to P=209 million. The excess of the value of the returned capital stock over the carrying amounts of trademarks was recognized as additional paid-in capital by Cosmos. As a result, Cosmos became a 98.21%-owned subsidiary of PBI while the Parent Company’s effective ownership interest in Cosmos became 65% effective May 8, 2003. The excess of the total acquisition cost over the Group’s share in the fair value of net assets of Cosmos amounting to P=207 million, net of amortization, is presented as part of “Goodwill” under “Intangible assets” account in the consolidated balance sheets (see Note 9).


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c. Mincorr

In October 2003, the Parent Company invested P=200 million in Mincorr, raising the Group’s ownership interest to 73.33%.

d. Seaside

In 2003, the Parent Company invested P=62 million in Seaside.

e. Magnolia

In June 2002, the Parent Company, through its domestic subsidiary, SMPFC, acquired an additional 30% ownership interest in Magnolia from New Zealand Dairy Board for P=200 million, raising the Parent Company’s effective ownership interest to 100%.

f. GSMI

In 2002, GSMI acquired treasury shares from minority shareholders amounting to P=2,564 million. The acquisition increased the Parent Company’s ownership in GSMI to 78.81% (79.62% in 2003 due to various acquisitions of treasury shares by GSMI). The goodwill arising from this transaction amounting to P=709 million, net of amortization, is presented as part of “Goodwill” under “Intangible assets” account in the consolidated balance sheets (see Note 9).

g. SMCSLC

In 2002, the Parent Company acquired an additional 30% ownership interest in SMCSLC for P=66 million, raising the Group’s ownership interest to 70%. The excess of the acquisition cost over the fair value of the net assets acquired amounting to P=39 million, net of amortization, is presented as part of “Goodwill” under “Intangible assets” account in the consolidated balance sheets (see Note 9).

h. BPSI

In 2002, the Parent Company invested P=62 million in BPSI.

i. SMPFC

In December 2001, SMPFC and SMFI, then a wholly-owned subsidiary of the Parent Company, executed a Deed of Assignment in connection with the transfer of certain assets (at historical book value) and liabilities of SMPFC’s Feeds, Flour and Poultry Divisions as deposit for subscription to a proposed increase in authorized capital stock of SMFI. The transaction resulted in SMFI being a 63.89%-owned subsidiary of SMPFC effective January 1, 2002. The transfer was regarded as reorganization of companies under common control and was accounted for at historical cost in a manner similar to a pooling of interests. The Securities and Exchange Commission (SEC) approved the foregoing transaction in March 2002.

j. CCBPI/Coca-Cola Amatil Limited (CCA)

In 1997, the Parent Company exchanged its shares in CCBPI, then a 70% owned subsidiary, with shares of CCA, an Australian company. As part of the exchange, the Parent Company and a foreign subsidiary entered into a noncompetition agreement with CCA and received CCA shares valued at Australian $207 million, which was recognized as unearned income to be realized over the term of the agreement (see Note 21). As a result, CCBPI became a wholly-owned subsidiary of CCA while the Parent Company became a 25% stockholder of CCA.


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In 2001, the Parent Company, through a foreign subsidiary, bought back substantial ownership interest in CCBPI through transactions involving CCA shares, cash and debt. The acquisition of the above investment was accounted for at fair value resulting in a gain of P=6,153 million, presented as part of “Other income (charges)” account in the 2001 consolidated statement of income (see Note 21).

k. PhilBev/Sugarland Corporation (SC)

In 2001, in line with the Parent Company’s objective of achieving operational efficiency, the Parent Company restructured its local nonalcoholic beverage businesses under GSMI. The restructuring involved the sale of the Parent Company’s ownership interest in SC to GSMI and the spin-off by GSMI of the various assets related to the nonalcoholic beverage business. As a result, the tangible operating assets were acquired by PhilBev, a subsidiary of CCBPI; the intangible assets were acquired by TCCC; and the parcels of land were acquired by another subsidiary of CCBPI. The total transaction value was US$141 million resulting in a gain amounting to P=684 million, included under “Other income (charges)” account in the 2001 consolidated statement of income (see Note 21).

The fair values of the identifiable assets and liabilities of entities acquired in 2003 follow:

(In Millions)

Cash and cash equivalents P=354Receivables 1,620Inventories 1,796Prepaid expenses and other current assets 37Property, plant and equipment 4,293Intangible assets 303Other noncurrent assets 2,536 Loans payable (1,250)Accounts payable and other current liabilities (2,138)Income and other taxes payable (51)Long-term debt (309)Other noncurrent liabilities (178)Fair value of net assets 7,013Goodwill arising on acquisition 591Total consideration P=7,604

From the dates of acquisition, the entities acquired in 2003 have contributed P=69 million to the consolidated net income of the Group.

The goodwill on the foregoing investments is amortized on a straight-line basis over periods not exceeding 20 years.


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Investments in Associates and Other Investments Investments in associates and other investments consist of:

2003 2002

(In Millions)

Investments in associates - at equity: Acquisition cost P=392 P=6,163 Accumulated equity in net earnings: Balance at beginning of year 473 372

Equity in net earnings during the year 37 171 Dividends received – (74) Accumulated equity on investments

disposed of and others (104) 4 Balance at end of year 406 473 Share in cumulative translation adjustment (46) (4) 752 6,632Other investments - at cost - net 2,016 988 P=2,768 P=7,620

The carrying values of investments in associates follow:

Percentage

of Ownership 2003 2002 (In Millions)

KSA Realty Corporation 29.38 P=440 P=827Jardine Land, Inc. 20.00 220 222Cosmos* 24.70 in 2002 – 5,309Others Various 92 274 P=752 P=6,632

* Acquired in 2002; effective ownership interest increased to 65% in 2003 which qualifies the subsidiary for

consolidation.

Following are the condensed financial information of the associates:

2003 2002 (In Millions)

Current assets P=553 P=6,042Current liabilities 219 3,293Noncurrent assets 8,574 11,316Noncurrent liabilities 1,518 317Revenue 507 9,536Net income 114 954


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8. Property, Plant and Equipment

Property, plant and equipment consist of:

Balance,December 31,

2002 AdditionsDisposals

(Reclassifications)

CurrencyTranslationAdjustment

Balance,

December 31,

2003

(In Millions)

Cost: Land and improvements P=10,657 1,575 (251) 211 P=12,192

Buildings and improvements 19,999 391 1,516 539 22,445

Machinery and equipment 64,016 587 6,627 715 71,945

Transportation equipment 4,408 84 504 18 5,014

Tools and small equipment 6,082 1,412 13 216 7,723

Office equipment, furniture and fixtures 3,986 33 228 23 4,270

Molds 1,309 96 99 7 1,511

Leasehold improvements 1,417 14 (1,040) – 391

Construction in progress 2,801 5,473 (2,717) 5 5,562

114,675 9,665 4,979 1,734 131,053

Accumulated depreciation and amortization:

Land improvements 1,083 216 (102) 9 1,206

Buildings and improvements 4,068 742 267 65 5,142

Machinery and equipment 34,746 2,708 1,765 242 39,461

Transportation equipment 3,312 822 (199) 13 3,948

Tools and small equipment 4,577 1,476 (7) 82 6,128

Office equipment, furniture and fixtures 3,128 470 2 14 3,614

Molds 1,130 235 6 9 1,380

Leasehold improvements 663 102 (253) 1 513

52,707 6,771 1,479 435 61,392

Net book value P=61,968 P=2,894 P=3,500 P=1,299 P=69,661

Depreciation and amortization charged to operations amounted to P=6,771 million in 2003, P=6,030 million in 2002 and P=5,774 million in 2001 (see Note 19). These amounts include annual amortizations of capitalized interest and foreign exchange losses amounting to P=76 million and P=216 million, respectively.

Interest capitalized in 2003 amounted to P=26 million (see Note 13a). 9. Intangible Assets

Intangible assets consist of:

2003 2002

(In Millions)

Goodwill - net P=11,145 P=10,416Trademarks - net 1,205 738Net book value P=12,350 P=11,154


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a. The movements in goodwill, including the effects of foreign exchange translations, follow:


Cost: Balance at beginning of year P=12,811 P=11,452 Additions 759 1,174 Currency translation adjustment 570 185 Balance at end of year 14,140 12,811

Accumulated amortization: Balance at beginning of year 2,395 1,806 Amortization for the year 542 555

Currency translation adjustment 58 34 Balance at end of year 2,995 2,395Net book value P=11,145 P=10,416

b. The movements in trademarks, including the effects of foreign exchange translations, follow:


Cost: Balance at beginning of year P=744 P=670 Additions 284 –

Currency translation adjustment 212 74 Balance at end of year 1,240 744 Accumulated amortization: Balance at beginning of year 6 – Amortization for the year 28 2 Currency translation adjustment 1 4 Balance at end of year 35 6 Net book value P=1,205 P=738

10. Other Noncurrent Assets

Other noncurrent assets consist of:

2003

2002(As restated -

see Note 2) (In Millions)

Deferred containers expense - net of accumulated amortization P=8,556 P=7,675

Idle assets - net 1,546 1,611Noncurrent receivables and deposits (see Note 27) 1,194 1,751Breeding stock - net of accumulated amortization 781 855Deferred tax - net (see Note 15) 646 831Others - net 1,321 1,502 P=14,044 P=14,225


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Noncurrent receivables and deposits include matured short-term placements of the Parent Company and certain subsidiaries with a local bank, which was placed under receivership on April 26, 2000. The placements amounted to P=829 million in 2003 and P=758 million in 2002. The bank and its subsidiary have since been merged with another commercial bank and was opened to the public on September 3, 2001. Under the terms and conditions of the repayment plan, placements will be settled as follows:

i. Seventy-five percent will be converted into time deposits withdrawable within three years from public opening date at 30% at the end of year 1, 30% on year 2 and 40% on year 3; and

ii. The remaining balance of 25% will be paid in equal amortizations over three years, which is on the fourth, fifth and sixth year from public opening date.

In accordance with the repayment plan, the Parent Company and certain subsidiaries received an initial amount of P=9.5 million in 2001. In addition, placements withdrawable in year 1 (2002) totaling P=299 million were discounted with another bank at 13% (peso denominated) and 6.5% (dollar denominated) in 2001.

The placements withdrawable in year 3 (2004) amounting to P=452 million are presented as part of “Receivables - others” account (see Note 5).

11. Drafts and Loans Payable

Drafts and loans payable mainly represent unsecured peso and foreign currency-denominated amounts payable to local and foreign banks with interests ranging from 6% to 8% in 2003 and 5% to 7% in 2002.

12. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of:


Trade (see Note 22) P=9,528 P=9,713Non-trade 7,511 6,892Accrued expenses (see Note 23) 2,092 2,184 P=19,131 P=18,789


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13. Long-term Debt

Long-term debt consists of:


Parent Company Unsecured term notes: Peso denominated: Interest rate of 7.75%; with maturities up to

2008 [see (a) below] P=1,700 P=– Floating interest rate based on 91-day

Philippine treasury bill rate plus an agreed margin; with maturities up to 2006 172 455

Interest rate of 14%; originally maturing in 2005; preterminated in 2003 – 1,110

Foreign currency-denominated - floating interest rate based on LIBOR plus an agreed margin; with maturities up to 2006 [see (c) below] – 4,260

1,872 5,825Subsidiaries Unsecured term notes: Peso denominated [see (b) below]: Floating interest rate based on 91-day

Philippine treasury bill rate plus an agreed margin, with a portion swapped from fixed interest rate; with maturities up to 2007 P=7,831 P=7,815

Interest rates of 11%; with maturities up to 2005 – 240

Foreign currency-denominated - floating interest rate based on SIBOR and HIBOR plus an agreed margin, with a portion swapped to fixed interest rate; with maturities up to 2006 1,823 1,943

9,654 9,998 11,526 15,823Less current maturities 1,457 3,014 P=10,069 P=12,809

a. In 2003, the Parent Company signed a P=5,000 million unsecured syndicated term loan facility, of which P=1,700 million was drawn to finance the construction of certain plants and facilities and the acquisition of certain machinery and equipment to be used for the manufacturing and recycling of PET bottles by BPSI (see Note 8).

b. In October 2003, a domestic subsidiary of the Parent Company converted its long-term loan from a fixed interest rate loan to a floating interest rate loan which is at a lower rate.


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c. In 2001, the Parent Company signed a US$200 million senior unsecured term loan facility, of which US$120 million was intended to refinance the Parent Company’s term loan which matured in November 2002 and, US$80 million (P=4,135 million) was drawn to finance the acquisition of Cosmos. The loan was subsequently preterminated in October 2003 due to high interest costs.

In 2002, the undrawn balance of the facility was cancelled. The Parent Company also paid its US$120 million term loan and preterminated certain long-term debt.

The long-term debt agreements (Agreements) contain, among others, provisions regarding merger and consolidation, maintenance of certain financial ratios, working capital requirements, incurrence of additional long-term indebtedness or guarantees, disposal of a substantial portion of assets, significant changes in the ownership or control of subsidiaries, payments of dividends and redemption of capital stock.

As of December 31, 2003, the Group is in compliance with the covenants of the Agreements.

The annual maturities of long-term debt as of December 31, 2003 follow:

Year Amount

(In Millions)

2004 P=1,4572005 5,5602006 2,4062007 1,1012008 1,002 P=11,526

14. Other Noncurrent Liabilities

Other noncurrent liabilities consist of:

2003 2002

(In Millions)

Deferred tax (see Note 15) P=5,517 P=5,482Customers’ deposits 303 273Others - net 1,040 1,096 P=6,860 P=6,851


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15. Income Taxes

a. Deferred tax assets and liabilities arise from the following:

2003 2002

(In Millions)

Undistributed net earnings of foreign subsidiaries (P=3,903) (P=4,265)Allowance for doubtful accounts and inventory

losses and obsolescence 1,138 954Valuation allowance (376) (392)MCIT 193 243NOLCO 185 398Undepreciated capitalized foreign exchange

losses and others (1,604) (1,069) (P=4,367) (P=4,131)

The above amounts are reported in the consolidated balance sheets as follows:

2003 2002

(In Millions)

Prepaid expenses and other current assets P=1,098 P=809Other noncurrent assets (see Note 10) 646 831Income and other taxes payable (594) (289)Other noncurrent liabilities (see Note 14) (5,517) (5,482) (P=4,367) (P=4,131)

b. As of December 31, 2003, the NOLCO and MCIT of certain subsidiaries that can be claimed as deduction from future taxable income and deduction from corporate income tax due, respectively, follow:

Year Incurred/Paid Carryforward Benefits up to NOLCO MCIT

(In Millions)

2001 December 31, 2004 P=282 P=52002 December 31, 2005 284 672003 December 31, 2006 13 121 P=579 P=193

c. The components of the provision for (benefit from) income tax are shown below:

2003 2002 2001

(In Millions)

Current P=3,926 P=3,037 P=3,226Deferred 236 (193) (54) P=4,162 P=2,844 P=3,172

The Parent Company reinvested a portion of the proceeds from the sale of certain investments in 1998 (for which a provision for deferred income tax was set up for the gain) to finance the acquisitions of new businesses, expansion of existing businesses and future needs of certain foreign subsidiaries. Accordingly, corresponding to the amount reinvested, the Parent Company reverted to income in 2002 a portion of the deferred income tax provision accrued in 1998 amounting to P=916 million.


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d. The reconciliations between the statutory income tax rate on income from ordinary activities before income tax and minority interest and the Group’s effective income tax rates follow:

2003

2002(As restated -

see Note 2)

2001(As restated -

see Note 2) Statutory income tax rate 32.00% 32.00% 32.00% Increase (decrease) in income tax rate

resulting from: Amortization of goodwill 1.37 1.63 0.40 Change in valuation allowance 0.13 0.84 (0.88) Equity in net earnings of associates (0.09) (0.50) (1.29) Provision for (reversal of) deferred

income tax on undistributed net earnings of foreign subsidiaries – (8.43) 7.92

Others, mainly income subjected to different tax rates - net (0.50) 0.63 (11.34)

Effective income tax rates 32.91% 26.17% 26.81% 16. Stockholders’ Equity

a. The Parent Company’s authorized capital stock consists of 3,150 million Class “A” shares and 1,350 million Class “B” shares with par value of P=5.00 a share. Class “A” and Class “B” shares have the same rights and privileges. Only Filipino citizens or corporations or associations that are at least 60% owned by Filipino citizens can own Class “A” shares.

The movements in the number of issued shares of capital stock are as follows:

2003 2002 2001Class “A” Balance at beginning of year 1,954,744,504 1,953,283,948 1,796,162,494Issuances during the year 5,073,189 1,460,556 305,773Stock dividends (10%) – – 156,815,681Balance at end of year 1,959,817,693 1,954,744,504 1,953,283,948

2003 2002 2001

Class “B” Balance at beginning of year 1,229,600,024 786,757,952 718,428,483Issuances during the year 2,417,121 442,842,072 58,778Stock dividends (10%) – – 68,270,691Balance at end of year 1,232,017,145 1,229,600,024 786,757,952


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b. Treasury shares are stated at acquisition costs. The movements in the number of shares of treasury stock are as follows:

2003 2002 2001Class “A” and “B” Balance at beginning of year 350,129,896 350,129,896 263,856,896Repurchase of capital stock – – 86,273,000Balance at end of year 350,129,896 350,129,896 350,129,896

Out of the total treasury shares, 25.45 million common shares (15.27 million Class “A” shares and 10.18 million Class “B” shares), with an acquisition cost of P=481 million, [net of the cost of the one million shares paid to Presidential Commission on Good Government (PCGG) as arbitral fee pursuant to the Compromise Agreement, as herein defined] were reverted to treasury in 1991 upon implementation of the Compromise Agreement and Amicable Settlement executed by the Parent Company with the United Coconut Planters Bank and the Coconut Industry Investment Fund Holding Companies (Compromise Agreement) in connection with the purchase of the Parent Company shares under an agreement executed on March 26, 1986.

Certain parties have opposed the Compromise Agreement. The right of such parties to oppose, as well as the propriety of their opposition, have been the subject matters of cases pending before the Sandiganbayan and the Supreme Court.

On September 14, 2000, the Supreme Court upheld a Sandiganbayan resolution requiring the Parent Company to deliver the 25.45 million common shares that were reverted to treasury in 1991 to the PCGG and to pay the corresponding dividends on the said shares.

On October 10, 2000, the Parent Company filed a motion for reconsideration in the Supreme Court to be allowed to comply with the delivery and payment of the dividends on the treasury shares only in the event that another party, other than the Parent Company, is declared owner of the said shares in the case for forfeiture (Civil Case) filed by the Philippine government.

On April 17, 2001, the Supreme Court denied the motion for reconsideration. The Civil Case, remains pending with the Sandiganbayan. The Parent Company will litigate the validity of the Compromise Agreement and its ownership of the said shares in the Civil Case. In the meantime, the Parent Company has available cash and shares of stocks for the dividends payable on the treasury shares.

On September 19, 2003, the PCGG wrote the Parent Company to deliver to PCGG stock certificates and cash and stock dividends under the Sandiganbayan resolution upheld by the Supreme Court. The Parent Company referred the matter to external financial advisor and external legal counsel for due diligence and advice. The external financial advisor presented to the Parent Company Board of Directors on December 4, 2003 the financial impact of compliance with the resolution considering “with and without due compensation” scenarios, and applying different rates of return to the original amount paid by the Parent Company. The financial advisor stated that if the Parent Company is not compensated for the conversion of the treasury shares, there will be (a) a negative one-off EPS impact in 2003 of approximately 17.5%, (b) net debt increase of approximately P=2.1 billion, and (c) a negative EPS impact of 6.9% in 2004. The external legal counsel at the same meeting advised the Parent Company Board of Directors that, among others, the facts reviewed showed that (a) the compromise


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shares had not been validly sequestered, (b) no timely direct action was filed to nullify the transaction, (c) no rescission can be effected without a return of consideration, (d) more importantly, requiring the Parent Company to deliver what it acquired from the sellers without a substantive ground to justify it, and a direct action in which the Parent Company is accorded full opportunity to defend its rights, would appear contrary to its basic property and due process rights. The external legal advisor concluded that the Parent Company has “legal and equitable grounds to challenge the enforcement” of the Sandiganbayan resolution.

On January 29, 2004, the external legal counsel made the additional recommendation that the Parent Company should file a Complaint-in-Intervention in the Civil Case (now particularly identified as SB Case No. 033-F), the forfeiture case brought by the government involving the so-called CIIF block of SMC shares of stock of which the treasury shares are a portion. The Complaint-in-Intervention would pray that any judgment in the Civil Case forfeiting the CIIF block of SMC shares of stock should exclude the treasury shares.

At its January 29, 2004 meeting, the Board of Directors of the Parent Company unanimously decided to (a) deny the PCGG demand of September 19, 2003, and (b) authorize the filing of the Complaint-in-Intervention. Accordingly, the external counsel informed the PCGG of the decision of the Parent Company and the Complaint-in-Intervention was filed in the Civil Case.

c. The Parent Company’s unappropriated retained earnings include its accumulated equity in net earnings of subsidiaries and associates amounting to P=26,917 million in 2003, P=24,408 million in 2002 and P=22,329 million in 2001. Such amounts are not available for declaration as dividends until declared by the respective investees.

The Parent Company’s unappropriated retained earnings is further restricted in the amount of P=20,724 million representing the cost of shares held in treasury.

17. Cost of Sales

Cost of sales consists of:

2003 2002 2001

(In Millions)

Inventory (see Note 22) P=69,510 P=64,950 P=57,847Taxes and licenses 13,879 11,643 11,667Personnel expenses (see Note 20) 4,676 4,182 3,473Depreciation and amortization

(see Note 19) 4,570 4,093 3,599Communication, light and water 2,800 2,435 2,154Fuel and oil 2,515 2,244 2,076Repairs and maintenance 2,042 1,891 1,778Others 2,568 2,489 1,750 P=102,560 P=93,927 P=84,344


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18. Operating Expenses

Operating expenses are distributed as follows:

2003

2002(As restated -

see Note 2)

2001(As restated -

see Note 2)

(In Millions)

Selling P=18,414 P=17,573 P=15,953General and administrative 13,256 11,847 10,847 P=31,670 P=29,420 P=26,800

Selling expenses consist of:

2003 2002 2001

(In Millions)

Advertising and promotion P=7,338 P=7,220 P=7,550Personnel expenses (see Note 20) 4,509 4,459 3,701Freight, trucking and handling 1,928 1,803 1,565Depreciation and amortization

(see Note 19) 1,475 1,445 1,331Communication, light and water 853 736 431Rental 663 639 594Repairs and maintenance 627 574 296Taxes and licenses 599 419 310Supplies 234 175 132Professional fees 45 33 25Others 143 70 18 P=18,414 P=17,573 P=15,953

General and administrative expenses consist of:

2003

2002(As restated -

see Note 2)

2001(As restated -


Personnel expenses (see Note 20) P=5,903 P=5,306 P=4,630Depreciation and amortization

(see Note 19) 1,861 1,457 1,912Repairs and maintenance 1,115 1,165 549Advertising and promotion 1,056 1,030 1,604Supplies 729 618 465Professional fees 611 587 536Communication, light and water 535 469 207Freight, trucking and handling 449 335 281Rental 438 401 393Taxes and licenses 241 203 196Others 318 276 74 P=13,256 P=11,847 P=10,847


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19. Depreciation and Amortization

Depreciation and amortization are distributed as follows:

2003

2002(As restated -

see Note 2)

2001(As restated -


Cost of sales - Property, plant and

equipment P=4,570 P=4,093 P=3,599Operating expenses: Property, plant and

equipment 2,201 1,937 2,175 Intangible assets and others 1,135 965 1,068 3,336 2,902 3,243 P=7,906 P=6,995 P=6,842

20. Personnel Expenses

Personnel expenses consist of:

2003 2002 2001 (In Millions)

Salaries and wages P=11,064 P=10,538 P=9,365Employee benefits 3,239 2,955 2,030Retirement costs (see Note 23) 785 454 409 P=15,088 P=13,947 P=11,804

The above amounts are distributed as follows:

2003 2002 2001

(In Millions)

Operating expenses P=10,412 P=9,765 P=8,331Cost of sales 4,676 4,182 3,473 P=15,088 P=13,947 P=11,804


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21. Other Income (Charges)

Other income (charges) consist of:

2003

2002(As restated -

see Note 2)

2001(As restated -


Restructuring costs, write-down in value of goodwill in subsidiaries and others - net (P=970) (P=319) (P=3,798)

Gain on sale of investments and property and equipment (see Note 7) 75 61 7,102

Income on noncompetition agreement (see Note 7) – – 268

Dividend income and others - net 1 1 46 (P=894) (P=257) P=3,618

22. Related Party Disclosures

The Parent Company and certain related parties, in the normal course of business, purchase products and services from one another.

The significant transactions with related parties include the following:

Related Party Year Sales of

Containers

Purchases of Raw

Materials Receivable Payable (In Millions)

2003 P=– P=6,326 P=82 P=839 The Coca-Cola Export Company (TCCEC) 2002 – 6,426 176 796

Cosmos (see Note 7b) 2002 2,177 – 248 45

CCBPI and its subsidiary, PhilBev, purchase raw materials from TCCEC, a wholly-owned subsidiary of TCCC. TCCC owns 35% of CCBPI.

23. Retirement Plans

The Group has funded noncontributory retirement plans covering permanent employees. Contributions and costs are determined in accordance with the actuarial studies made for the plans. The Parent Company’s latest actuarial valuation date is August 31, 2003. The actuarial studies of the subsidiaries are as of various dates. Valuations are normally obtained every two years. Annual cost is determined using the projected unit cost method.


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Retirement costs charged by the Parent Company to operations amounted to P=455 million in 2003, P=145 million in 2002 and P=178 million in 2001, inclusive or net of imputed interest, while those charged by the subsidiaries amounted to P=330 million in 2003, P=309 million in 2002 and P=231 million in 2001. The Group’s annual contribution to the retirement plans consists of payments covering the current service cost and amortization of past service liability.

Following are the plan net assets and past service liability of the Parent Company and significant subsidiaries based on the actuarial valuations made on various dates in 2001 to 2003:

Plan Net Assets

Present Valueof Retirement

Benefits

Overfunded(Underfunded)Present Valueof Retirement

BenefitsPast Service

Liability

(In Millions)

Parent Company P=7,137 P=7,671 (P=534) P=7,671CCBPI and subsidiaries 982 2,099 (1,117) 2,069SMPFC and subsidiaries 772 970 (198) 970GSMI 122 114 8 23

The principal actuarial assumptions used to determine retirement benefits were return on assets ranging from 10% to 12% and salary increase of 6% to 12% compounded annually.

24. Parent Company Dividends

Cash dividends declared per share amounted to P=1.30 in 2003, P=1.55 in 2002 and P=1.00 in 2001, after giving effect to the 10% stock dividends declared in 2001.

25. Basic Earnings Per Share

Basic earnings per share is computed as follows:

2003

2002(As restated -

see Note 2)

2001(As restated -

see Note 2)

Net income (in millions) (a) P=7,373 P=6,880 P=6,911

Weighted average number of shares outstanding (in millions) (b) 2,838 2,760 2,468

Basic earnings per share (a/b) P=2.60 P=2.49 P=2.80

Shares issuable under the Parent Company’s stock purchase and option plans have no dilutive effect on basic earnings per share.


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26. Supplemental Cash Flow Information

Supplemental information with respect to the consolidated statements of cash flows is presented below:

a. Changes in noncash current assets and certain current liabilities and others are as follows (amounts reflect actual cash flows rather than increases/decreases in the consolidated balance sheets):

2003 2002 2001

(In Millions)

Receivables (P=988) (P=69) (P=85)Inventories (1,098) (5,340) (1,556)Prepaid expenses and other

current assets (950) 3 1,227Drafts payable 157 (25) (854)Accounts payable and accrued

expenses (2,628) 753 (4,798)Income and other taxes payable

and others 433 1,809 (524) (P=5,074) (P=2,869) (P=6,590)

b. Additions to and proceeds from sale of investments include cash flows from acquisitions and disposals of subsidiaries (see Note 7a):

2003 2002 2001 Acquisition Acquisition Acquisition Disposal

(In Millions)

Cash and cash equivalents P=17 P=125 P=2,041 (P=32)Receivables and other current

assets - net 23 176 6,562 (104)Inventories - net 356 6 12,782 (8)Property, plant and

equipment - net 1,518 182 17,773 (35)Other noncurrent assets - net 1 146 4,924 (26)Accounts payable, accrued

expenses and other current liabilities (41) (115) (8,886) 30

Short-term and long-term debt (199) – (16,343) – Net assets acquired (disposed of) 1,675 520 18,853 (175)Cash and cash equivalents (17) (125) (2,041) 32 Goodwill in subsidiaries 371 39 6,701 (2,814)Noncash consideration and gain

on disposal – (395) (11,571) (1,188)Net cash flows P=2,029 P=39 P=11,942 (P=4,145)


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27. Employee Stock Plans

Under the Employee Stock Purchase Plan (the Plan), 80.40 million shares (inclusive of stock dividends declared) of the Parent Company’s unissued shares have been reserved for the employees of the Parent Company and its subsidiaries until 2009 (as amended and approved by the SEC in 2001 and 2003, respectively). A participating employee may acquire at least 50 shares of stock through payroll deductions. The subscription price is based on the weighted market value of the shares in the preceding month and is payable in equal installments, over periods of 5 and 7 ½ years.

On December 5, 2002, the Parent Company’s Board of Directors approved amendments to the Plan. Under the amended Plan, all Philippine-based employees of the Parent Company and its subsidiaries will be allowed to subscribe at 15% discount to the market price equal to the weighted average of the daily closing prices for three months prior to the offer period. The amendments to the Plan are prospective in application. Existing subscriptions shall not be entitled to the rights granted by the amendments. The amended Plan was approved by the SEC on February 20, 2003.

The Plan requires the shares subscribed and stock dividends accruing thereto to be pledged to the Parent Company until the subscription is fully paid. The right to subscribe under the Plan cannot be assigned or transferred. A participant may sell his shares after the second year from the exercise date. The current portion of subscriptions receivable as of December 31, 2003 and 2002 amounted to P=77 million and P=20 million, respectively (included under “Receivables - others” account, see Note 5). The noncurrent portion of P=316 million in 2003 and P=101 million in 2002 is reported under “Noncurrent receivables and deposits,” included under “Other noncurrent assets” account in the consolidated balance sheets (see Note 10).

The breakdown of subscribed shares under the Plan as of December 31, 2003 is as follows:

Class “A” Class “B” TotalPaid subscribed shares 27,772,644 1,217,066 28,989,710Unpaid subscriptions 6,355,695 2,458,155 8,813,850Total shares subscribed 34,128,339 3,675,221 37,803,560

The Plan also allows subsequent withdrawal and cancellation of participants’ subscriptions under certain terms and conditions. The shares pertaining to withdrawn or cancelled subscriptions shall remain issued shares and shall revert to the pool of shares available under the Plan.

The Parent Company also maintains a Long-term Incentive Plan for Stock Options (LIP) covering senior and key management officers of the Parent Company and its subsidiaries. The options are exercisable at the fair market value determined at the date of grant, with adjustments depending on the average stock prices of the prior three months. A total of 40.67 million shares are reserved for the LIP over its 10-year life. The LIP is administered by the Executive Compensation Committee of the Board of Directors.

In 2003, the Parent Company approved the grant of stock options to 184 executives of about 3.85 million shares based on the closing price of the Parent Company’s share, computed in accordance with the LIP. No options were granted in 2002. Options to purchase 1.91 million shares and 3.05 million shares in 2003 and 2002, respectively, were outstanding at the end of each year. Options which were exercised and cancelled totaled about 1.14 million shares and 1.35 million shares in 2003 and 2002, respectively.


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28. Derivatives and Hedging Instruments

The Group has the following outstanding derivatives transactions:

a. Currency Forwards

The Group enters into forward buy US dollar (US$) contracts to hedge existing and anticipated US$-denominated obligations. As of December 31, 2003, there are no outstanding forward buy US$ contracts. As of December 31, 2002, the Group had outstanding forward buy US$ contracts with aggregate notional amount of US$12 million and weighted average forward rate of P=53.81.

The Group also enters into forward sell US$ contracts to hedge US$-denominated receivables. Following are the balances as of December 31, 2003 and 2002: 2003 2002

Aggregate notional amount US$5 million US$5 million

Weighted average forward rate P=56.09 P=53.91

The net mark-to-market gains (losses) on the above forward buy and sell US$ contracts as of December 31, 2003 and 2002, as confirmed by the counterparties, amounted to about P=2 million and (P=2) million, respectively. Such unrealized mark-to-market gains (losses) were not included in determining net income for both years.

In 2003, the Group also entered into structured forward contracts to buy Euro and sell US$ to hedge Euro-denominated liabilities arising from importations of equipment. Net gain realized on these contracts during the year amounted to about P=92 million. There are no outstanding structured forward contracts as of December 31, 2003.

b. Short-term Currency Swaps

As of December 31, 2003, the Group has outstanding short-term currency swap transactions with aggregate notional amount of about US$28 million and weighted average swap rate of P=55.84. The net mark-to-market gains on these currency swap transactions as of December 31, 2003, as confirmed by counterparties, amounted to about P=1 million and were credited to current operations. There were no outstanding short-term currency swap transactions as of December 31, 2002.

c. Long-term Currency Swaps

As of December 31, 2003 and 2002, the Group has outstanding long-term currency swap agreements with aggregate notional amounts of about US$32 million and US$55 million, respectively, and weighted average swap rates of P=51.96 and P=51.94, respectively. The long-term currency swaps have maturities of up to October 2004. The net mark-to-market gains (losses) on these currency swap agreements as of December 31, 2003 and 2002, as confirmed by the counterparty, amounted to about P=61 million and (P=64) million, respectively, and were credited or charged to current operations.


- 33 -

��

d. Commodity Derivatives

The Group has outstanding swap agreements covering various commodities. Under the swap agreements, payment is made either by the Group or its counterparties for the difference between the agreed fixed price of the subject commodity and the price based on the relevant price index. Certain swaps agreements provide the counterparty the option to terminate and to knock off the transaction. As of December 31, 2003 and 2002, the outstanding equivalent notional quantities covered by various types of commodity swaps totaled 26,980 and 18,850 metric tons, respectively. The estimated net mark-to-market gains on these outstanding swaps, as confirmed by counterparties, amounted to about P=47 million and P=9 million, respectively. Such unrealized mark-to-market gains are not included in determining net income for both years.

As of December 31, 2003 and 2002, the Group has outstanding options to buy fuel oil with aggregate notional quantities of 25,245 and 59,940 metric tons, respectively. The call options can be exercised at various calculation dates in 2003 and 2004, with specified quantities on each calculation date. As of December 31, 2003 and 2002, the net positive mark-to-market values of the call options, as confirmed by counterparties, amounted to about P=39 million and P=6 million, respectively. Such unrealized mark-to-market values are not included in determining net income for both years.

As of December 31, 2003 and 2002, the Group has written European-type put options on specified quantities of sugar with equivalent notional quantities of 12,500 and 75,000 metric tons, respectively. As of December 31, 2003 and 2002, the net negative mark-to-market values of the written put options, as confirmed by the counterparty, amounted to P=18 million and P=62 million, respectively. Changes in mark-to-market values are credited/ charged or charged immediately to income. Net gains/losses credited/charged to income amounted to about P=41 million gain, P=24 million gain and P=86 million loss in 2003, 2002 and 2001, respectively.

In 2003, the Group entered into futures transactions to hedge wheat and sugar requirements in 2004 and 2005. As of December 31, 2003, the aggregate equivalent notional quantities covered by the futures totaled 36,883 metric tons of sugar and 17,010 metric tons of wheat. The net mark-to-market gains on these futures transactions as of December 31, 2003, as confirmed by the counterparty, amounted to about P=2 million. Such unrealized mark-to-market gain is not included in determining net income for the year.

In 2003, the Group entered into exchange-traded option contracts, the combinations of which resulted into collars, to hedge wheat requirements in 2004. As of December 31, 2003, the aggregate equivalent notional quantity covered by these collars totaled 4,763 metric tons and can be exercised at various calculation dates in 2004, with specified quantities on each calculation date. The net positive mark-to-market value as of December 31, 2003, as confirmed by the counterparty, amounted to about P=2 million. Such unrealized mark to market value is not included in determining net income for the year. To reduce the cost of the above collars, the Group sold options with the same equivalent notional quantities and exercise dates as the collars. The net negative mark-to-market value of these sold options as of December 31, 2003 amounted to about P=1 million, as confirmed by the counterparty.


- 34 -

��

In 2003, the Group entered into a derivative transaction, consisting of a combination of sold and purchased options, to hedge fuel oil requirements in 2004. Under the transaction, the Group sets a floor price and a cap. To reduce the cost of the transaction, the structure incorporates a sold call option. As of December 31, 2003, the aggregate notional quantity covered by this structure totaled 4,320 metric tons and can be exercised at various calculation dates in 2004, with specified quantities on each calculation date. The net positive mark-to-market value as of December 31, 2003, as confirmed by the counterparty, amounted to about P=1 million. Such unrealized mark-to-market value is not included in determining net income for the year.

In 2001, the Group sold European-type swaptions with notional quantity of 9,300 metric tons of aluminum, at an average strike price of US$1,455 per metric ton. The swaptions were exercised in 2002 at a realized loss of P=57 million.

29. Foreign Currency-Denominated Liabilities

The foreign currency-denominated liabilities and their peso equivalents follow:

2003 2002

(In Millions)

Loans payable and current maturities of long-term debt US$29 US$40

Long-term debt - net of current maturities 31 103 US$60 US$143

Peso equivalent P=3,362 P=7,643

Net foreign exchange losses charged to operations amounted to P=110 million in 2003, P=167 million in 2002 and P=203 million in 2001.

30. Other Matters

Contingencies

a. The Parent Company and certain subsidiaries are contingently liable for liabilities arising from lawsuits or claims (mostly labor related cases) filed by third parties which are either pending decision by the courts or are subject to settlement agreements. The outcome of these lawsuits or claims cannot be presently determined. In the opinion of management and its legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material effect on the consolidated financial statements.

b. On January 28, 2004, the Parent Company was assessed by the Bureau of Internal Revenue for deficiency excise tax on one of its beer products. In the opinion of management and its legal counsel, the Parent Company has strong legal grounds to contest the assessment.


- 35 -

��

Commitments

c. The outstanding purchase commitments as of December 31, 2003 amounted to approximately P=12 billion.

Others

d. Amount authorized but not yet disbursed for capital projects as of December 31, 2003 is approximately P=19 billion.

e. The foreign exchange rates used in translating the U.S. dollar accounts of foreign subsidiaries and associates to Philippine peso were P=55.59 in 2003 and P=53.25 in 2002 for balance sheet accounts; and P=53.85 in 2003, P=51.60 in 2002 and P=51.02 in 2001 for income and expense accounts.


ANNEX “E”


INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

DECEMBER 31, 2003 A - MARKETABLE SECURITIES (CURRENT

MARKETABLE EQUITY SECURITIES AND OTHER SHORT-TERM CASH INVESTMENTS)

NOT APPLICABLE

B - AMOUNT RECEIVABLE FROM DIRECTORS, OFFICERS, EMPLOYEES AND PRINCIPAL STOCKHOLDERS (OTHER THAN ASSOCIATES)

NOT APPLICABLE

C - NON-CURRENT MARKETABLE EQUITY SECURITIES, OTHER LONG-TERM INVESTMENT IN STOCKS AND OTHER INVESTMENTS

D - INDEBTEDNESS OF UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATES

NOT APPLICABLE

E - PROPERTY, PLANT AND EQUIPMENT

F - ACCUMULATED DEPRECIATION AND AMORTIZATION

G - INTANGIBLE ASSETS AND OTHER ASSETS

H - LONG-TERM DEBT

I - INDEDTEDNESS TO RELATED PARTIES

NOT APPLICABLE

J - GUARANTEES OF SECURITIES OF OTHER ISSUERS

NOT APPLICABLE

K - CAPITAL STOCK


SA

N M

IGU

EL

CO

RP

OR

ATI

ON

AN

D S

UB

SID

IAR

IES

SC

HE

DU

LE C

: NO

N-C

UR

RE

NT

MA

RK

ETA

BLE

EQ

UIT

Y S

EC

UR

ITIE

S, O

THE

R

LON

G-T

ER

M IN

VE

STM

EN

TS IN

SH

AR

ES

OF

STO

CK

AN

D O

THE

R IN

VE

STM

EN

TS D

EC

EM

BE

R 3

1, 2

003

(Am

ount

s in

Mill

ions

, Exc

ept N

o. o

f Sha

res

Dat

a)

Beg

inni

ng B

alan

ceA

dditi

ons

(Dis

posa

ls)

End

ing

Bal

ance

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

( a )

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

Equ

ity in

Net

E

arni

ngs

Dur

ing

the

Yea

r D

ivid

ends

R

ecei

ved

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

( a

) P

erce

ntag

e of

O

wne

rshi

p

A.

UN

CO

NS

OLI

DA

TED

SU

BS

IDIA

RIE

SN

ot A

pplic

able

B.

OTH

ER

RE

LATE

D P

AR

TIE

S

INV

ES

TME

NTS

IN A

SS

OC

IATE

S

Inve

stm

ents

in a

ssoc

iate

s - a

t equ

ity:

Acq

uisi

tion

Cos

t

San

Mig

uel I

nter

natio

nal L

imite

dC

osm

os B

ottli

ng C

orpo

ratio

n an

d ot

hers

5,17

6

*-

-

-

San

Mig

uel P

rope

rties

Inc.

(SM

PI)

KS

A R

ealty

Cor

p.35

4,86

2

477

(421

)35

4,86

2

56

29

.38%

Jard

ine

Land

Inc.

2,32

0,00

0

26

8

2,

320,

000

26

8

20%

Exc

el U

nifie

d La

nd R

esou

rces

48

0,09

9

186

(186

)-

San

Mig

uel P

ure

Food

s C

ompa

ny, I

nc. (

Pur

efoo

ds)

Pur

efoo

ds S

uba

Inda

h2,

636,

771

45

15

2,63

6,77

1

60

49%

Phi

lippi

ne N

utrit

ion

Tech

nolo

gies

Inc.

12,0

00,0

00

11

(3

)

12,0

00,0

00

8

50%

6,16

3

-

-

39

2

* E

ffect

ive

owne

rshi

p in

tere

st in

crea

sed

to 6

5% in

200

3 (fr

om 2

4.70

% in

200

2) w

hich

qua

lifie

s th

e su

bsid

iary

for c

onso

lidat

ion.

PP

PP

PP

PP

(P 5

,771

)

(P 5

,176

)


SA

N M

IGU

EL

CO

RP

OR

ATI

ON

AN

D S

UB

SID

IAR

IES

SC

HE

DU

LE C

: NO

N-C

UR

RE

NT

MA

RK

ETA

BLE

EQ

UIT

Y S

EC

UR

ITIE

S, O

THE

R

LON

G-T

ER

M IN

VE

STM

EN

TS IN

SH

AR

ES

OF

STO

CK

AN

D O

THE

R IN

VE

STM

EN

TS D

EC

EM

BE

R 3

1, 2

003

(Am

ount

s in

Mill

ions

, Exc

ept N

o. o

f Sha

res

Dat

a)

Beg

inni

ng B

alan

ceA

dditi

ons

(Dis

posa

ls)

End

ing

Bal

ance

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

( a )

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

Equ

ity in

Net

E

arni

ngs

Dur

ing

the

Yea

r D

ivid

ends

R

ecei

ved

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

( a

) P

erce

ntag

e of

O

wne

rshi

p

Acc

umul

ated

Equ

ity in

Ear

ning

s

San

Mig

uel I

nter

natio

nal L

td.

Cos

mos

Bot

tling

Cor

pora

tion

and

othe

rs13

4

*

*-

-

SM

PI

KS

A R

ealty

374

-

44

41

8

29.3

8%Ja

rdin

e(4

6)

(4)

2

(4

8)

20%

Exc

el4

(4)

-

Pur

efoo

ds Pur

efoo

ds S

uba

Inda

h33

28

61

49%

Phi

lippi

ne N

utrit

ion

Tech

nolo

gies

Inc.

(3)

1

(2

)

50%

Tota

l Acc

umul

ated

Equ

ity in

Ear

ning

s49

6

(8

)

75

-

42

9

Unr

ealiz

ed G

ain

(23)

-

-

-

(23)

Cur

renc

y Tr

ansl

atio

n A

djus

tmen

t(4

)

(42)

-

-

(46)

Tota

l Inv

estm

ents

in A

ssoc

iate

s6,

632

38

75

2

* E

ffect

ive

owne

rshi

p in

tere

st in

crea

sed

to 6

5% in

200

3 (fr

om 2

4.70

% in

200

2) w

hich

qua

lifie

s th

e su

bsid

iary

for c

onso

lidat

ion.

PP

PP

P-

P

P

(P 3

7)(P

97)

(P 5

,918

)


SA

N M

IGU

EL

CO

RP

OR

ATI

ON

AN

D S

UB

SID

IAR

IES

SC

HE

DU

LE C

: NO

N-C

UR

RE

NT

MA

RK

ETA

BLE

EQ

UIT

Y S

EC

UR

ITIE

S, O

THE

R

LON

G-T

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M IN

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STM

EN

TS IN

SH

AR

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OF

STO

CK

AN

D O

THE

R IN

VE

STM

EN

TS D

EC

EM

BE

R 3

1, 2

003

(Am

ount

s in

Mill

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, Exc

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o. o

f Sha

res

Dat

a)

Beg

inni

ng B

alan

ceA

dditi

ons

(Dis

posa

ls)

End

ing

Bal

ance

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

( a )

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

Equ

ity in

Net

E

arni

ngs

Dur

ing

the

Yea

r D

ivid

ends

R

ecei

ved

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

( a

) P

erce

ntag

e of

O

wne

rshi

p

C.

OTH

ER

CO

MP

AN

IES

OTH

ER

INV

ES

TME

NTS

- A

T C

OS

TS

an M

igue

l Cor

pora

tion

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bang

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Clu

b9

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9

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( b )

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or In

tern

atio

nal

3,33

4

3

3,

334

3

- do

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po G

olf &

Cou

ntry

Clu

b3

1

3

1

- do

-A

ssoc

iate

d C

attle

Ran

cher

s13

,400

1

13

,400

1

- do

-B

agui

o C

ount

ry C

lub

1

0

1

0

- d

o -

Ban

com

Gro

up In

c99

9,54

6

5

99

9,54

6

5

- do

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atul

ao V

illag

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lub

1

0

1

0

- d

o -

Cal

atag

an G

olf C

lub

1

0

1

0

- d

o -

Cam

p Jo

hn H

ay2

3

2

3

- do

-C

anlu

bang

Gol

f Clu

b3

1

3

1

- do

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apito

l Hill

s G

olf &

Cou

ntry

Clu

b1

1

1

1

- do

-C

asin

o E

span

ol d

e M

anila

2

0

2

0

- d

o -

Ceb

u C

ount

ry C

lub

1

1

1

1

- d

o -

Cel

ebrit

y S

ports

Pla

za3

1

3

1

- do

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lub

Filip

ino

8

1

8

1

- d

o -

Con

tinen

tal P

otas

h7,

909

0

7,90

9

0

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o -

Eve

rcre

st2

2

2

2

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reen

Val

ley

Clu

b - B

agui

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reen

field

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nis

Clu

b3

0

3

0

- do

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ilo G

olf C

lub

1

0

1

0

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o -

Inte

r Isl

and

Bro

adca

stin

g C

orp

4,45

8,92

8

3

4,45

8,92

8

3

- d

o -

Land

golf

Inc

2

0

2

0

- d

o -

Mak

ati E

xecu

tive

Cen

ter

1

0

1

0

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o -

Mak

ati S

ports

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b11

1

11

1

- do

-M

anila

Ban

kers

Life

250,

000

1

250,

000

1

- d

o -

Man

ila E

lect

ric C

ompa

ny10

0,33

1

1

10

0,33

1

1

- do

-M

anila

Gol

f & C

ount

ry C

lub

3

29

3

29

- d

o -

Man

ila P

enin

sula

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el1,

075,

000

9

1,

075,

000

9

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anila

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lub

4

7

(1

)

3

5

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-

( a )

if th

e co

st o

f inv

estm

ent i

s le

ss th

an

500,

000,

the

"am

ount

" co

lum

n w

ill s

how

zer

o.( b

) pe

rcen

tage

of o

wne

rshi

p is

neg

ligib

le.

( c )

no p

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e of

ow

ners

hip

as th

is re

pres

ents

inve

stm

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n bo

nds.P

P

(P 2

)

P


SA

N M

IGU

EL

CO

RP

OR

ATI

ON

AN

D S

UB

SID

IAR

IES

SC

HE

DU

LE C

: NO

N-C

UR

RE

NT

MA

RK

ETA

BLE

EQ

UIT

Y S

EC

UR

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S, O

THE

R

LON

G-T

ER

M IN

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STM

EN

TS IN

SH

AR

ES

OF

STO

CK

AN

D O

THE

R IN

VE

STM

EN

TS D

EC

EM

BE

R 3

1, 2

003

(Am

ount

s in

Mill

ions

, Exc

ept N

o. o

f Sha

res

Dat

a)

Beg

inni

ng B

alan

ceA

dditi

ons

(Dis

posa

ls)

End

ing

Bal

ance

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

( a )

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

Equ

ity in

Net

E

arni

ngs

Dur

ing

the

Yea

r D

ivid

ends

R

ecei

ved

No.

of S

hare

s or

P

rinc

ipal

Am

ount

of

Bon

ds a

nd N

otes

A

mou

nt

( a

) P

erce

ntag

e of

O

wne

rshi

p

Man

ila S

outh

woo

ds G

olf &

Cou

ntry

Clu

b1

2

1

2

( b )

Med

ical

Doc

tors

Inc.

60,0

00

1

12,6

00

72,6

00

1

- d

o -

Mer

chan

t Inv

estm

ent

41,6

60

4

41,6

60

4

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o -

Met

ropo

litan

Clu

b2

0

2

0

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etro

polit

an T

heat

er10

0

0

100

0

- d

o -

Mim

osa

Gol

f & C

ount

ry C

lub

3

2

3

2

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Mon

serr

at T

radi

ng1,

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0

1,00

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0

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Mot

or S

ervi

ces

52,5

00

0

52,5

00

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Nag

a Te

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l Gol

f clu

b6

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orce

m P

hilip

pine

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1

80

,000

1

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rcha

rd G

olf &

Cou

ntry

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b5

10

5

10

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acifi

c C

lub

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pora

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1

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antra

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th E

xpre

ss34

0,99

2

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0,99

2

0

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eopl

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ss1,

500

0

1,50

0

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Phi

lor M

anag

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0

-

0

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hil.

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boni

c C

orp.

-

0

-

0

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o -

Phi

l. C

olum

bian

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b3

0

3

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hil.

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rnat

iona

l Fai

r50

0

0

500

0

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o -

Phi

l. Lo

ng D

ista

nce

Tel.

Co

230,

594

2

230,

594

2

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o -

Phi

l. O

vers

eas

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ourc

es10

,000

0

10

,000

0

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ilipi

no T

elep

hone

600

0

60

0

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San

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San

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in M

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ns)

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t B -

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er N

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t and

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dditi

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Tran

slat

ion

End

ing

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crip

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ance

At C

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ance

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erre

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ners

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umul

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ets

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ent r

ecei

vabl

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epos

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(140

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edin

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ulat

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erre

d ta

x as

set -

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(1

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1,32

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14,2

25

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(P 1

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P PP

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N M

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ATI

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D S

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IAR

IES

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LE H

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NG

-TE

RM

DE

BT

DE

CE

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ER

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mou

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ount

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ount

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ount

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ber

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rize

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rent

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iodi

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F IS

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ntur

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ates

Inst

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Mat

urity

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ent C

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term

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Pes

o de

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inat

ed:

Fixe

d D

evel

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ent B

ank

of th

e P

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pine

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rterly

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ar-0

8

Floa

ting

Sta

ndar

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red

Ban

k41

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140

140

Upo

n m

atur

ity06

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-06

Sta

ndar

d C

harte

red

Ban

k87

-

32

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pon

mat

urity

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ug-0

649

8-

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172

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80

1,87

21,

872

Sub

sidi

arie

sU

nsec

ured

term

not

es:

Pes

o de

nom

inat

ed:

Floa

ting

Ban

k of

the

Phi

lippi

ne Is

land

s1,

000

30

940

97

0Q

uarte

rly23

-Mar

-05

Ban

k of

the

Phi

lippi

ne Is

land

s1,

000

30

940

97

0Q

uarte

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-Apr

-05

Ban

k of

the

Phi

lippi

ne Is

land

s25

038

18

8

226

Qua

rterly

26-N

ov-0

6B

ank

of th

e P

hilip

pine

Isla

nds

400

60

300

36

0Q

uarte

rly11

-Sep

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k of

the

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lippi

ne Is

land

s15

023

112

135

Qua

rterly

25-S

ep-0

6B

ank

of th

e P

hilip

pine

Isla

nds

200

30

15

0

18

0Q

uarte

rly25

-Sep

-06

PC

I Ban

k 40

020

365

385

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

.75%

Qua

rterly

01-J

un-0

5C

itiba

nk75

023

1

461

692

Qua

rterly

04-D

ec-0

6C

itiba

nk15

046

93

13

9Q

uarte

rly27

-Nov

-06

Citi

bank

100

31

61

92Q

uarte

rly27

-Nov

-06

Citi

bank

850

850

850

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

1.50

%Q

uarte

rly02

-Jun

-08

Citi

bank

150

150

150

Qua

rterl y

02-J

un-0

8C

itiba

nk22

822

8

22

8Q

uarte

rl y05

-Dec

-08

Citi

bank

150

150

150

Qua

rterl y

05-D

ec-0

8B

ank

of th

e P

hilip

pine

Isla

nds

378

116

87

203

Qua

rterly

20-J

ul-0

5B

ank

of th

e P

hilip

pine

Isla

nds

600

185

92

27

7Q

uarte

rly12

-May

-05

Ban

k of

the

Phi

lippi

ne Is

land

s32

510

0

50

15

0Q

uarte

rly31

-May

-05

Ban

k of

the

Phi

lippi

ne Is

land

s19

861

30

91Q

uarte

rly27

-Jun

-05

Rho

mbu

s32

934

339

373

Upo

n m

atur

it y20

13U

nite

d C

ocon

ut P

lant

ers

Ban

k30

015

0

150

300

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

1.90

%Q

uarte

rly17

-Nov

-05

Asi

a U

nite

d B

ank

200

66

13

420

0C

ount

rysi

de L

oan

Fund

pas

s on

plu

s .8

85%

28-D

ec-0

6La

nd B

ank

of th

e P

hili p

pine

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0-

200

200

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

1.50

%Q

uarte

rly27

-Dec

-07

Sec

urity

Ban

k an

d Tr

ust C

ompa

ny70

029

321

350

MA

RT

1 pl

us .6

25%

Qua

rterly

09-J

ul-0

7C

itiba

nk30

080

80

160

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

0.90

%Q

uarte

rly24

-Oct

-05

9,00

71,

360

6,47

17,

831

Fore

ign

curr

ency

- de

nom

inat

ed

Hon

g K

ong

and

Sha

ngha

i Ban

king

Cor

pora

tion

1,39

0-

1,39

0

1,39

0H

IBO

R +

.3%

Upo

n m

atur

ity27

-May

-05

Hon

g K

ong

and

Sha

ngha

i Ban

king

Cor

pora

tion

4646

46

2.39

%18

-Jan

-05

Sta

ndar

d C

harte

red

Ban

k64

3627

64

9.70

%Q

uarte

rly01

-Sep

-05

Fore

ign

bank

s32

561

263

324

4.35

-4.6

5%15

-Oct

-06

1,82

497

1,72

51,

824

10,8

311,

457

8,19

69,

655

Tota

l Lon

g-te

rm D

ebt

13,0

291,

457

10,0

6911

,527

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

.987

5%

Mon

ey M

arke

t Ass

ocia

tion

of th

e P

hilip

pine

s P

age

1 (M

AR

T 1)

plu

s .8

75%

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

1.70

%

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

.875

%

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

1.50

%

MA

RT

1 pl

us 1

.50%

PP

PP

PP

PPP

PP

P


SA

N M

IGU

EL

CO

RP

OR

ATI

ON

AN

D S

UB

SID

IAR

IES

SC

HE

DU

LE H

- LO

NG

-TE

RM

DE

BT

DE

CE

MB

ER

31,

200

3(A

mou

nts

in M

illio

ns)

Am

ount

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ount

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ount

Num

ber

ofA

utho

rize

d by

Sho

wn

asS

how

n as

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rent

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iodi

cFi

nal

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E O

F IS

SU

EIS

SU

ER

Inde

ntur

eC

urre

ntLo

ng-t

erm

and

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-ter

mIn

tere

st R

ates

Inst

allm

ents

Mat

urity

Par

ent C

ompa

nyU

nsec

ured

term

not

es:

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o de

nom

inat

ed:

Fixe

d D

evel

opm

ent B

ank

of th

e P

hilip

pine

s1,

700

-

1,

700

1,70

07.

75%

13 Q

uarte

rly in

stal

lmen

ts01

-Mar

-08

Floa

ting

Sta

ndar

d C

harte

red

Ban

k41

1-

140

140

Upo

n m

atur

ity06

-Aug

-06

Sta

ndar

d C

harte

red

Ban

k87

-

32

32U

pon

mat

urity

08-A

ug-0

649

8-

172

172

2,19

80

1,87

21,

872

Sub

sidi

arie

sU

nsec

ured

term

not

es:

Pes

o de

nom

inat

ed:

Floa

ting

Ban

k of

the

Phi

lippi

ne Is

land

s1,

000

30

94

0

97

020

Qua

rterly

inst

allm

ents

23-M

ar-0

5B

ank

of th

e P

hilip

pine

Isla

nds

1,00

030

940

970

20 Q

uarte

rly in

stal

lmen

ts06

-Apr

-05

Ban

k of

the

Phi

lippi

ne Is

land

s25

038

18

8

226

20 Q

uarte

rly in

stal

lmen

ts26

-Nov

-06

Ban

k of

the

Phi

lippi

ne Is

land

s40

060

30

0

360

20 Q

uarte

rly in

stal

lmen

ts11

-Sep

-06

Ban

k of

the

Phi

lippi

ne Is

land

s15

023

112

135

20 Q

uarte

rly in

stal

lmen

ts25

-Sep

-06

Ban

k of

the

Phi

lippi

ne Is

land

s20

030

150

180

20 Q

uarte

rly in

stal

lmen

ts25

-Sep

-06

PC

I Ban

k 40

020

365

385

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

.75%

20 Q

uarte

rly in

stal

lmen

ts01

-Jun

-05

Citi

ban k

750

231

46

1

69

220

Qua

rterly

inst

allm

ents

04-D

ec-0

6C

itiba

nk15

046

93

139

20 Q

uarte

rly in

stal

lmen

ts27

-Nov

-06

Citi

bank

100

31

61

92

20 Q

uarte

rly in

stal

lmen

ts27

-Nov

-06

Citi

bank

850

850

850

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

1.50

%20

Qua

rterly

inst

allm

ents

02-J

un-0

8C

itiba

nk15

015

0

15

020

Qua

rterly

inst

allm

ents

02-J

un-0

8C

itiba

nk22

822

8

22

820

Qua

rterly

inst

allm

ents

05-D

ec-0

8C

itiba

nk15

015

0

15

020

Qua

rterly

inst

allm

ents

05-D

ec-0

8

Ban

k of

the

Phi

lippi

ne Is

land

s37

811

6

87

203

7 Q

uarte

rly in

stal

lmen

ts20

-Jul

-05

Ban

k of

the

Phi

lippi

ne Is

land

s60

018

5

92

277

7 Q

uarte

rly in

stal

lmen

ts12

-May

-05

Ban

k of

the

Phi

lippi

ne Is

land

s32

510

0

50

150

7 Q

uarte

rly in

stal

lmen

ts31

-May

-05

Ban

k of

the

Phi

lippi

ne Is

land

s19

861

30

917

Qua

rterly

inst

allm

ents

27-J

un-0

5R

hom

bus

329

34

33

9

37

3U

pon

mat

urity

2013

Uni

ted

Coc

onut

Pla

nter

s B

ank

300

150

15

030

0ba

sed

on 9

1-da

y P

hilip

pine

trea

sury

bill

rate

plu

s 1.

90%

8 Q

uarte

rly in

stal

lmen

ts17

-Nov

-05

Asi

a U

nite

d B

ank

200

66

13

420

0C

ount

r ysi

de L

oan

Fund

pas

s on

plu

s .8

85%

13 Q

uarte

rly in

stal

lmen

ts28

-Dec

-06

Land

Ban

k of

the

Phi

lippi

nes

200

-

20

0

20

0ba

sed

on 9

1-da

y P

hilip

pine

trea

sury

bill

rate

plu

s 1.

50%

13 Q

uarte

rly in

stal

lmen

ts27

-Dec

-07

Sec

urity

Ban

k an

d Tr

ust C

ompa

ny70

029

321

350

MA

RT

1 pl

us .6

25%

13 Q

uarte

rly in

stal

lmen

ts09

-Jul

-07

Citi

bank

300

80

80

16

0ba

sed

on 9

1-da

y P

hilip

pine

trea

sury

bill

rate

plu

s 0.

90%

8 Q

uarte

rly in

stal

lmen

ts24

-Oct

-05

9,00

71,

360

6,47

17,

831

Fore

ign

curr

ency

- de

nom

inat

ed

Hon

g K

ong

and

Sha

ngha

i Ban

king

Cor

pora

tion

1,39

0-

1,39

0

1,39

0H

IBO

R +

.3%

Upo

n m

atur

ity27

-May

-05

Hon

g K

ong

and

Sha

ngha

i Ban

king

Cor

pora

tion

4646

46

2.39

%18

-Jan

-05

Sta

ndar

d C

harte

red

Ban

k64

3627

64

9.70

%8

Qua

rterly

inst

allm

ents

01-S

ep-0

5O

ther

fore

ign

bank

s32

560

263

323

4.35

-4.6

5%V

ario

us15

-Oct

-06

1,82

496

1,72

51,

823

10,8

311,

456

8,19

69,

654

Tota

l Lon

g-te

rm D

ebt

13,0

291,

456

10,0

6911

,526

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

.987

5%

MA

RT

1 pl

us .

875%

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

1.70

%

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

.875

%

base

d on

91-

day

Phi

lippi

ne tr

easu

ry b

ill ra

te p

lus

1.50

%

Mon

ey M

arke

t Ass

ocia

tion

of th

e P

hilip

pine

s P

age

1 (M

AR

T 1)

plu

s 1.

50%

PP

PP

PP

PPP

PP

P


SA

N M

IGU

EL

CO

RP

OR

ATI

ON

AN

D S

UB

SID

IAR

IES

SC

HE

DU

LE K

- C

AP

ITA

L S

TOC

KD

EC

EM

BE

R 3

1, 2

003

NU

MB

ER

NU

MB

ER

OF

SH

AR

ES

HE

LD B

Y:

NU

MB

ER

NU

MB

ER

NU

MB

ER

OF

SH

AR

ES

DIR

EC

TOR

S,

OF

SH

AR

ES

OF

SH

AR

ES

TRE

AS

UR

YO

F S

HA

RE

SR

ES

ER

VE

D

OFF

ICE

RS

AN

DD

ES

CR

IPTI

ON

AU

THO

RIZ

ED

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UE

DS

HA

RE

SO

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TAN

DIN

GFO

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PTI

ON

S *

AFF

ILIA

TES

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PLO

YE

ES

ISS

UE

D S

HA

RE

S

C

OM

MO

N S

TOC

K "

A"

3,15

0,00

0,00

01,

959,

817,

693

228,

096,

980

1,73

1,72

0,71

384

,126

,982

-

12

,772

,775

C

OM

MO

N S

TOC

K "

B"

1,35

0,00

0,00

01,

232,

017,

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122,

032,

916

1,10

9,98

4,22

936

,937

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-

2,

446,

448

4,50

0,00

0,00

03,

191,

834,

838

350,

129,

896

2,84

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6-

15

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* S

ee N

ote

27 o

f the

Aud

ited

Con

solid

ated

Fin

anci

al S

tate

men

ts o

r pag

e 53

of t

he A

nnua

l Rep

ort.


SAN

MIG

UE

L C

OR

PO

RA

TIO

N (

Par

ent

Onl

y)

AC

CO

UN

TS

RE

CE

IVA

BL

E –

TR

AD

E

AS

OF

DE

CE

MB

ER

31,

200

3 ==

====

====

====

====

====

====

====

TO

TA

L

C

UR

RE

NT

1

-30

DA

YS

3

1-60

DA

YS

O

VE

R 6

0 D

AY

S A

CC

OU

NT

S R

EC

EIV

AB

LE

-T

RA

DE

P4,

831,

171,

379.

34

2,63

9,48

0,26

3.71

88

8,32

1,01

0.30

28

4,34

2,86

2.95

1,

019,

027,

242.

38

AL

LO

W. F

OR

D

OU

BT

FU

L

AC

CO

UN

TS

(623

,855

,449

.57

NE

T

P

4,20

7,31

5,92

9.77


ANNEX “F”

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS INTRODUCTION This discussion summarizes the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of San Miguel Corporation and its subsidiaries (collectively, the “Company” or “San Miguel”) for the three-year period ended December 31, 2003. The following discussion should be read in conjunction with the attached audited consolidated financial statements of the Company as of and for the period ended December 31, 2003. All necessary adjustments to present fairly the consolidated financial position, results of operations, and cash flows of the Company at December 31, 2003, and for all the other periods presented, have been made. I. RESULTS OF OPERATIONS On January 1, 2003, the Company changed its method of accounting for preoperating expenses and, accordingly, reversed the unamortized balances of preoperating expenses to conform to Statement of Financial Accounting Standard No. 38/International Accounting Standard No. 38 on Intangible Assets. Previously, such expenses were deferred and amortized. The change in accounting policy has been accounted for retroactively and the comparative statements for 2002 and 2001 have been restated. The change resulted to an increase in net income for 2003, 2002 and 2001 by P=167 million, P=252 million and P=443 million, respectively. Retained earnings as of January 1, 2001 has been reduced by P=862 million, the amount of unamortized preoperating expenses prior to 2001. Had there been no restatement and the portions of unamortized balances still charged in 2003, net income for 2003 would have been P=7,206 million, 9% higher than the 2002 comparable net income of P=6,628 million. For income tax reporting purposes, preoperating expenses shall continue to be amortized over 5 – 10 years. Please note that discussions on 2002 vs. 2001 results of operations were restated to effect the said change in accounting policy. Comparisons of key operating results for the last three years are summarized in the following tables. (In millions) Years Ended December 31

2002 2001 (As restated - (As restated - 2003 Note 2) Note 2)SALES P=148,590 P=136,050 P=121,588INCOME FROM OPERATING ACTIVITIES 14,360 12,703 10,444OTHER INCOME (CHARGES) (1,714) (1,835) 1,388INCOME FROM OPERATING ACTIVITIES BEFORE INCOME TAX AND MINORITY INTEREST 12,646 10,868 11,832NET INCOME 7,373 6,880 6,911


Management Discussion and Analysis Page 2

2003 vs 2002 The year 2003 was a period of growth for the Company’s domestic and international businesses despite a prolonged period of Severe Acute Respiratory Syndrome (“SARS”) scare in the Asian region, an increase in political uncertainty here in the Philippines and a generally tougher business climate for everyone. The Company’s consolidated net sales revenue grew 9% to P=148,590 million as against P=136,050 million in 2002. This growth was largely driven by the strong volume growth across all businesses: 14% in beverage, 10% in packaging and 4% in the food group. Despite the adverse impact of SARS on beer volumes in Hong Kong and South China; and the weakness in domestic poultry prices - during the first half of 2003, consolidated operating income reached P=14,360 million, 13% higher than the P=12,703 million in 2002. Consolidated net income was up 7% at P=7,373 million. Had there been no restatement and the portions of unamortized balances still charged in 2003, net income for the year would have been P=7,206 million, 9% higher than the 2002 comparable net income of P=6,628 million. EBITDA reached P=20,298 million, 8% better than 2002, while earnings per share for 2003 was at P2.60 against the 2002 level of P2.49. 2002 vs 2001 The year 2002 was a difficult period. Like any other Philippine company, the Company operated in an environment that was beset by both economic and political challenges. Nonetheless, the Company could not have been more prepared for the market realities of 2002. The acquisitions and the subsequent steps the Company undertook to realign and restructure its organization enabled it to maintain, if not strengthen, its market positions across the majority of its businesses. 2002 was a year of consolidation, rationalization and integration of the Company’s various businesses and operations. The Company was focused on integrating systems and maximizing synergies across the businesses thereby enhancing production and operational efficiencies. For the full year 2002, the Company generated consolidated net sales of P=136,050 million, a 12% expansion from last year’s P=121,588 million. Revenue grew across all businesses: 15% for beverage, 18% for the food group and 13% for packaging. Volume performance exhibited robust growth rates of 21% for beverage, 18% for food and 7% for packaging translating to a 19% corporate volume growth for the year. Operating income for the year registered a 22% improvement to P=12,703 million from P=10,444 million. Growth was a direct result of the favorable performance of beer domestic, the glass and metal segments of packaging, and the feeds and processed meats of the food group. Meanwhile, consolidated net income before restructuring costs for the year 2002 amounted to P=7,449 million. The Company, however, will be taking in a one-time restructuring expense, primarily due to Coca-Cola Bottlers Philippines, Inc. (“CCBPI”) and the food group’s retirement and benefit costs of about P=837 million. Taking one-off items into account, net income for the year 2002 was at P=6,880 million.



The operational highlights of the Company for the year 2002, focusing on the synergies that came into fruition, are as follows. o CCBPI and Cosmos Bottling Corporation (“Cosmos”) have worked closely to enhance

efficiencies by reducing operational overlaps and streamlining systems. CCBPI has provided both production and distribution support to Cosmos. Through shared capacities, Cosmos has begun to address the demand-capacity imbalance thereby increasing product availability. It has likewise started to explore new markets on the back of CCBPI’s extensive distribution network. Consolidation of raw material purchases particularly sugar and carbon dioxide, has resulted in efficiency gains through bigger volume discounts.

o The food group underwent dramatic changes last year. The best business and operational

practices are now shared in areas such as: improvements in poultry breeds, selling strategies, maximization of production and research facilities, raw material sourcing, farm procedures in breeding facilities and the rationalization and positioning of brands.

Synergies are also evident on the corporate level, particularly in the areas of distribution and purchasing. Through the Centralized Key Accounts Group, the Company integrated its selling strategies and distribution efforts utilizing a “One Face in the Trade” scheme, effectively leveraging and maximizing distribution of the Company’s entire product portfolio. The centralization of purchasing and other technical services at the corporate level has likewise enabled the Company to realize cost savings. The following are the highlights of the performance and prospects of the individual business segments: 1. BEVERAGES

1a. Beer 2003 vs 2002

San Miguel Beer Division - Philippines (“SMBD-Phil”)

SMBD-Phil managed to sustain the sales momentum of the past seven quarters, posting sales revenue of P=30,597 million, up 13% from 2002 - with full-year sales volume 12% higher than 2002. Indeed, 2003 was a banner year for SMBD-Phil having recorded its highest sales volume since 1994. Robust sales of Red Horse and San Mig Light contributed greatly to the strong volume performance. Various consumer and distribution initiatives designed to increase consumption, expand drinker base, and improve penetration and availability levels contributed to these results. Cost containment efforts and improved raw material usage further enhanced the business’ results with operating income growing 20% to P=5,536 million. To drive volumes in 2003, SMBD-Phil built on its highly successful “Itaas Mo!” campaign that associates San Miguel Beer with the very best of Filipino culture and identity. “SMB Play”, a promotional activity leveraging on music and sports, was also introduced. SMBD-Phil continued to sponsor annual events like the San Miguel Oktoberfest, now recognized by the Philippine Department of Tourism as part of its list of annual Philippine Festivals.



The Company’s Red Horse Beer brand sponsored the most popular rock music festival in the

Philippines, the 5th Annual Red Horse Muziklaban. This band competition has become a much-awaited venue for youth bands in the country as it provides participants significant exposure and opportunities. To excite a growing segment of young upscale drinkers, SMBD-Phil introduced San Mig Strong Ice Beer, another quality product that is fast gaining popularity in the market. In 2004, SMBD-Phil plans to sustain brand innovation activities and expand its consumer base. Creation of new drinking occasions and launch of new marketing programs are further expected to boost per capita consumption. New packaging formats will also be introduced to excite the market. San Miguel Beer Division – International (“SMBD-Int’l”) SMBD-Int’l volume in South China and Hong Kong during the first half of 2003 was greatly affected by the SARS outbreak. From an operating loss of US$8.81 million in the first half of 2003, the business rallied, posting an operating income of US$10.3 million in the second half - 24% better than the comparable period in 2002. Sales volume grew 12% over the same period in 2002 and compensated for the 4% decline in the first half, allowing total-year volume to improve 4% from the previous year. J. Boag & Son in Australia, SMBD-Int’l operations in Vietnam, Indonesia and North China all posted strong results last year offsetting the adverse effects of SARS on the Company’s Hong Kong and South China operations. Total sales revenue amounted to US$235 million, 1% higher than the previous year as trade incentives were provided to stimulate market interest, and because of the higher growth of lower-priced brands. As a result of prudent spending and rationalized advertising and promotions, SMBD-Int’l turned in a consolidated operating income of US$1.46 million. In 2004, the Company’s Blue Star brand in North China will be pushed more aggressively in Baoding City and surrounding counties through channel-specific sales and marketing programs. In South China, SMBD-Int’l will grow volumes and strengthen brand preference for San Miguel through a global campaign and other channel-specific promotions. Dragon Beer, a popular local brand in Guangdong province, particularly in Shunde, has been repositioned as our flagship beer product in the mainstream or popular segment in the region. In Hong Kong, SMBD-Int’l will strengthen its leadership position by enhancing the San Miguel brand through programs that target core markets while strengthening its relationships with loyal patrons. SMBD-Int’l will continue with our multi-brand strategy to aggressively increase market share particularly in the economy segment. For Indonesia, SMBD-Int’l will improve the image and awareness of Anker Bir, its flagship brand in Indonesia, specifically in on-premise outlets. SMBD-Int’l will also create excitement for the portfolio of brands through new products, improved packaging and consumption-building activities. In Vietnam, SMBD-Int’l will strengthen and intensify its beer branding campaign to improve visibility, perception and consumer loyalty. As in other markets, SMBD-Int’l will sponsor sales-generating events and create new venues for beer drinking to push consumption.



2002 vs 2001 SMBD-Phil

SMBD-Phil’s domestic operations achieved a 4% growth in volume sales in 2002, reversing the previous year’s 3% volume decline. The surge in volumes is largely attributable to the effective marketing campaign and ongoing aggressive distribution initiatives. Total revenues improved 4% to P=27,142 million. Strong sales combined with lower raw material costs and cost containment efforts resulted in an operating income of P=4,606 million, 11% higher than last year’s P=4,136 million. SMBD-Phil’s concerted efforts in optimizing trade coverage coupled with the ongoing marketing and sales programs bolstered trade movement and consumption activity in 2002. Per Retail Trade Audit, the Company’s market share continued to register improvements during the year. In 2002, aggressive campaigns were undertaken to refresh the image of beer, making it inspiring and image-enhancing for the drinking consumers. With the drinkership profile changing, coupled with the numerous competitive beverage products in the market, SMBD-Phil embarked on a marketing campaign to restore excitement to the local beer market. SMBD-Phil’s “Itaas Mo!” campaign was a product of purposive and insightful consumer studies, aimed to reinforce the pride in the Filipino and to rejuvenate the brand to connect with the new drinkers. Both San Mig Light and Red Horse beer brands continued their strong showing with sales maintained at robust levels. San Mig Light’s lifestyle marketing, which was rooted on a unique and relevant platform of “right kick but less filling” them, coupled with sponsored innovative events fortified the brand’s hold on the light beer segment. Meanwhile, Red Horse’s success stories goes beyond its successful “bring to market” promotional activities. Its marketing drive has created desirability for a strong beer via a very aspirational image, thus further carving out market share in its category. SMBD-Int’l Significant gains were achieved in some of the international markets. Vietnam, North China, Australia and our export markets registered growth rates of 65%, 25%, 13% and 8%, respectively. However, lower volumes in South China and Indonesia tempered overall volume growth. All told, SMBD-Int’l’s consolidated sales volume for the year 2002 was slightly higher from the previous year’s level. Total net revenues stood at $233 million, a marginal decline from last year’s $238 million. Higher sales volume contribution of lower-priced beer coupled with aggressive trade and marketing incentives resulted in lower average selling prices. Meanwhile, SMBD-Int’l recorded $6.57 million in operating income, a 25% decline versus last year. The drop was mainly due to a margin squeeze brought about by higher beer taxes in Indonesia, lower volumes in South China and weaker average selling prices. North China turned in a 25% growth in volumes largely on the back of increased sales of our local beer brand Blue Star. Meanwhile, the fierce competitive landscape in the South, particularly in Guangzhou, led to an 11% decline in volumes. Aggressive marketing and sales activities in Hong Kong have managed to temper the decline in trade offtake with volumes remaining at 2001 levels.



Meanwhile, the Vietnam operations continued to post gains with volume increasing by 65%. Strong offtake of San Miguel brands, improved outlet coverage and the more efficient market penetration led to this market’s favorable performance. Sales volume in Indonesia, however, declined as the beer market remained weak on account of high taxes and the imposed liquor ban in many areas. Expanded trade coverage and a price increase in April, however, managed to push up net revenues by 8%. Australia’s J. Boag registered a 13% increase in annual volumes, attributed to the strong sales of the newly launched J. Boag Premium Light, Tasman brands and the introduction of San Miguel brands. Revenues for the year grew 22% due to a strong trade turnover coupled with favorable sales mix of higher priced premium brands. 1b. Hard Liquor 2003 vs 2002 Ginebra San Miguel, Inc. (“GSMI”) GSMI’s sales volume grew 6% over 2002 while sales revenue also rose 6% to P=12,088 million. Due to higher alcohol and packaging costs, operating income rose slightly at P=2,714 million. Net income was slightly lower than the previous year at P=1,650 million. In terms of product performance, the Frasco and Frasquito gin formats provided high double-digit volume growths in North Philippines while Vino Kulafu posted a more than 30% increase in volume in the South due to more effective advertising and promotion activities combined with an improved distribution network. This compensated for the temporary downswing of Ginebra San Miguel Round resulting from a product-tampering incident in May 2003. To regain consumer confidence, GSMI pushed for area-focused promotional efforts and engaged in relationship-building activities with specific consumer groups. As a result of these efforts, sales of Ginebra San Miguel Round started to recover. GSMI has also actively pursued opportunities outside its homebase that resulted in substantial exports to Thailand. It is expected that inroads to the Thai liquor market will continue for the long-term. With the increasing trend towards multiple-type drinking, GSMI launched Gran Matador Brandy in 2003 - and it is expected to make significant headway in the emerging brandy segment. A year-long advertising blitz in 2004 will heighten product awareness and further boost consumption. In 2004, GSMI will develop new products and introduce innovative packaging formats as it seeks to satisfy a wider spectrum of discriminating liquor drinkers. Complementing these efforts, GSMI, through its third party dealers, will boost consumption and intensify distribution through increased coverage of retail outlets and wider product availability. With the proceeds from the sale of Sugarland Corporation (“Sugarland”), GSMI further reduced debt levels thereby reducing interest expense. Interest bearing liabilities have gone down from P3,283 million in 2002 to P1,395 million as of end 2003.



2002 vs 2001 GSMI posted strong growth in profit levels with its net income expanding P= 1,669 million. The successful turnaround in South Philippines, a significant reduction in interest expenses and an aggressive cost reduction program were major contributors to last year’s favorable performance. On the strength of continuous marketing and sales push, coupled with higher farm incomes, GSMI turned in 4% volume growth, reversing the 7% decline in 2001. Total sales revenue for 2002 was at P=11,362 million, up 3% from 2001 levels. GSMI experienced a seasonal tightness in molasses supply in the second semester, prompting a shift in favor of the more expensive, imported alcohol. Despite this, operating income in 2002 remained at P=2,708 million, roughly at par with 2001’s levels. Initiatives to enhance cost structures coupled with the improved volume performance helped negate the increase in raw materials costs. Operations in South Philippines achieved its turnaround after a 38% increase in volumes on the back of strong performance of Vino Kulafu and GSM Blue, a product variant of GSMI’s flagship brand Ginebra San Miguel. 1c. Softdrinks, Water and Juice 2003 vs 2002 Coca-Cola Beverage Group (“CCBG”) CCBG’s consolidated net revenue reached P=41,300 million, 17% above 2002. However, operating income was slightly below previous year at P=2,518 million as CCBG continues to build on and put in place the Going-to-Market (“GTM”) program. As of May 2003, Cosmos’ financials have been consolidated with CCBPI. (a) CCBPI

CCBPI’s 2003 volume was 4% below 2002 with sales revenue of P=29,102 million, 3% lower than 2002. Operating income declined 36% to P=1,383 million because of higher discounts offered to dealers in support of the GTM strategy. CCBPI provided supplemental discounts to assist new dealers in acquiring larger warehouse space to accommodate bigger volume requirements. Logistical support was also extended to ease distribution constraints in certain areas. Fine-tuning of the GTM strategy continues to be the business’ top priority in 2004. Strict compliance with basic operational requirements will be enforced to enhance distribution efficiencies. In certain areas, complementing wholesalers will be promoted to mini-dealers to enhance the distribution network.

(b) Cosmos

Cosmos continues to be regarded as the Philippines’ most preferred low-priced cola manufacturer as sales revenue increased 10% to P=9,912 million, with sales volume rising 7%. Operating income rose 9% to P872 million. Cosmos expects to post double-digit volume growth in 2004 as Cosmos widens its geographic scope while leveraging on CCBPI’s manufacturing strength and distribution reach.



(c) Philippine Beverage Partners, Inc. (“PhilBev”)

PhilBev brought in P=200 million in operating income, slightly below 2002. Sales volume of bottled water grew 14%, while juice volume decreased 3%. Total sales revenue was up 3% at P= 5,339 million. In 2004, PhilBev, the Philippines‘ leading non-carbonated beverage manufacturer, plans to tap other segments of the bottled water market. Likewise, its juice business is gearing up to be more active in on-premise outlets as it expands its participation in the fountain or bubbler format.

As CCBG assumes a more integrated approach to its selling and marketing systems, it will sharpen its focus on the trade and the consumer. In 2004, CCBG expects geographic expansion with better channel execution. The main thrust is to have the right product with the right packaging format at the right place and at the right price. While CCBPI introduced several new products in 2003 to excite the market – among them Vanilla Coke, Cherry Coke and other flavors of the Royal soft drinks brand – more product innovations are expected in 2004. New product categories like energy drinks and sparkling juices are also in the pipeline. 2002 vs 2001 (a) CCBPI

CCBPI posted a P=2,144 million operating income during the year, a 10% improvement year-on-year. Controlled fixed costs and price adjustments for the PET, Litro and fountain accounted for the company’s enhanced profit performance. CCBPI volumes, however, declined 7%. Volumes were constrained by basic operational adjustments resulting from production downtime with the upgrading of existing plants and container supply constraints in the last quarter. Upgrades in CCBPI’s plants entailed some delay in production, which hampered our ability to meet the volume requirements per geographic area. Container supply constraints in the fourth quarter likewise limited production output. Meanwhile, sales activities slowed down in the initial months of 2002 as structural transformations, coupled with clean-up efforts on trade inventory, required the reconfiguration of operations to accommodate modifications in distribution processes. A 4.6% improvement in average selling prices that resulted from the price adjustments of PET, Litro and fountain pulled up revenues, alleviating the adverse effect of the company’s weak volume performance. CCBPI ended the year with total revenues of P=30,019 million, 3% lower than P=30,883 million in 2001.

(b) Cosmos

Cosmos has generally benefited from the synergies resulting from its integration with CCBPI’s operations. Efficiency indicators were enhanced as CCBPI provided production and distribution support to the company. Increased product availability and penetration of new markets mainly fueled Cosmos’ favorable performance in 2002.



Total revenues for 2002 reached P=9,031 million, 24% higher versus 2001. Operating income, on the other hand, amounted to P=782 million. Cosmos’ strong showing largely resulted from price adjustments implemented in late 2001. Production efficiencies resulting from the company’s toll production arrangement with CCBPI have likewise enhanced Cosmos’ cost structure.

(c) PhilBev

Philbev posted a full-year operating income of P=203 million, 8% higher in 2001. This was on the back of a 5% and 17% improvement in water and juice volumes, respectively. The company registered sales revenue of P=5,182 million, 9% above 2001. The powdered juice segment remained to be the biggest revenue generator accounting for 63% of total.

2. FOOD 2003 vs 2002 Despite a particularly challenging year for the Company’s food businesses, the Food Group embarked on a series of marketing activities ranging from promotional discounts for feed dealers, to consumer education on the use of flour. Renewed emphasis was placed on developing and strengthening institutional accounts, particularly in the poultry and dairy products segments. To maximize shelf space and expand market reach for its poultry products, the Food Group’s franchised meat shops began carrying Magnolia and Purefoods chicken in 2003. Apart from these initiatives, new products and product variants were introduced and celebrity endorsers were signed up, to boost sales of our food products. As a result of these efforts, the Food Group rallied coming from a weak first half, delivering P=2,036 million in operating income, 9% higher than the P=1,872 million in 2002. (a) Poultry

Poultry revenue reached P=12,276 million, a 9% increase over 2002, while sales volume grew by 2%. The business suffered operating losses well into the second quarter due to weak poultry prices. With improved prices, the poultry business ended 2003 with P=135 million in operating income, a turnaround from the previous year’s loss of P=63 million. The poultry business introduced several new products for 2003. To increase its share in the value-added and branded food segment, a number of ready-to-cook marinated chicken as well as deli-type products such as Chicken Tocino, Chicken Longanisa and Chicken Balls under the Purefoods and Magnolia brands were introduced.

(b) Feeds

The feeds business was greatly affected by a slowdown in hog and broiler-raising activities among backyard growers due to the instability of farmgate prices and volatility in the market supply situation. Given the weak market, millers resorted to price cuts and credit schemes and repositioned sales efforts towards lower-priced feed products. Nonetheless, through more aggressive advertising and grass roots campaigns, the business managed to register sales volume at par with 2002. Sales revenue rose 2% to P=10,432 million. However, the high cost of major raw materials, particularly soybean and fishmeal, reduced operating income to P=545 million.



(c) Basic Meats

Monterey Foods Corporation (“Monterey”) delivered 3% higher total volumes than 2002. Sales revenue was at par with 2002 levels at P=4,575 million. Despite the more efficient use of raw materials and continued cost containment, operating income declined 1% to P=247 million due to higher import-and-feed costs. In recent years, the business has managed to grow its branded segment. In 2003, the branded meats segment accounted for 53% of total volumes, up from 49% in 2002. Thirty-eight new Monterey meatshops were opened in 2003, bringing the total number of meatshops to 273.

(d) Processed Meats

Processed meats volume was 12% higher than 2002, bringing revenue to P=7,362 million, up 14% from 2002. Contributing to these strong results were the sustained growth in the refrigerated meats segment, with the business’ flagship brand, Purefoods Tender Juicy Hotdog, posting record-high market share, and the positive consumer acceptance of the 17 new products and variants launched in this segment. Significant cuts in fixed costs; prudent spending on advertising and promotions; and cost breaks in major raw materials further contributed to a 27% increase in operating income at P=918 million.

Addressing the consumers’ need for variety, affordability and convenience, the processed

meats segment introduced Purefoods Chunkee Corned Beef, the only local corned beef brand with real beef chunks; Purefoods Carne Norte con Patatas, an affordable meat variant with potatoes; and the Purefoods Eezee Links – corned beef, luncheon meat and sisig in a convenient and affordable sausage-like packaging.

(e) Flour

The flour business continued to perform creditably with 11% higher volumes than 2002 despite highly competitive industry prices and increasing wheat and freight costs. Flour sales revenue reached P=4,211 million, 22% higher than 2002 while operating income dropped 16% to P=251 million due to the impact of a weaker peso on the cost of dollar-denominated cost of wheat. In 2003, the business launched the Harina de Pan de Sal flour in support of the Department of Trade and Industry and the Bakers’ Federation’s push for an affordable Pinoy Pandesal program. The year also saw the opening of the business’ Flour Technology Center in Pasig City, the site for product development activities and baking and cooking demonstrations.

(f) Dairy - Butter, Cheese and Margarine

The butter, margarine and cheese business generated P=2,809 million in sales revenue, 16% higher than the previous year. However, operating income declined to P=216 million from P=224 million in 2002 as a result of higher cost of raw materials, and the greater competition stemming from imported goods and the lowering of tariff rates for butter, margarine and cheese. Despite the highly competitive nature of the industry, the business managed to sustain its market leadership in butter, margarine and cheese segments and continues to do so with the introduction of new products, among them, Star Choco Nut, a chocolate and peanut spread.



Prospects for 2004 remain bright for the Food Group. On the domestic front, a number of high-growth businesses will be launched within the year to quickly move the food portfolio into higher value-added and branded categories.

Internationally, the Food Group aims to become an active player in the Asia-Pacific with initial forays into Southeast Asia and China even as it continues to explore other opportunities in the region. In the latter part of 2003, San Miguel, through San Miguel Food and Beverage International, Ltd. (“SMFBIL”), acquired its first food facility in Vietnam – TTC (Vietnam) Co., Ltd. (TTCV), - one of the largest organized feeds and pig farming operations in that country. 2002 vs 2001 Backed by strong volumes of feeds, poultry and basic meats, the Food Group generated total revenues of P=38,491 million in 2002, up 18% from last year. However, profitability levels were affected by weak poultry selling prices. Nonetheless, the favorable performance of feeds, flour and the processed meats segments abated the decline in the Food Group’s consolidated operating income to 12%, from 2001’s P=2,123 million to P=1,872 million. Taking into account the agribusiness division, i.e. our oils and fats business, both revenues and operating income levels of the Food Group should increase by P=5,730 million and P=124 million, respectively. (a) Poultry

Versus 2001, the average selling price of poultry recorded a 9% drop to P=66.58/kdw from P=73.21/kdw. This effectively negated the 10% volume increase on revenues. San Miguel Foods, Inc. (“SMFI”) ended the year with poultry revenues of P=11,299 million, roughly at par with 2001 levels. Cost containment efforts were not enough to soften the impact of lower poultry prices on the business’ gross contribution margin. As such, the business incurred a P=63 million operating loss in 2002 as against 2001’s income of P=748 million.

(b) Feeds Aggressive marketing and sales activities resulted in increased market share for the feeds business. Volume growth in 2002 grew by 17% while revenues grew by 18%. Operating income, meanwhile, expanded by 37% to P=746 million from P=545 million. Higher sales volume and improved selling prices were the main drivers for the business’ enhanced profitability.

(c) Flour

Despite flat volume growth in 2002, total flour revenues finished 16% higher at P=3,447 million. Income from operations was at P=298 million, up 20% from last year. Lower production costs resulting from the hedged position on wheat futures, paired with the sustained industry-led price increases drove up operating income.

(d) Basic Meats

The basic meats business ended the year with total volume posting an average growth rate of 7%. Beef and pork grew by 25% and 8%, respectively. However, production-related problems, resulted in a 14% decline in operating income to P=250 million.



(e) Processed Meats

Operating income of the processed meats business grew by 6% to P=725 million despite flat volume growth. This favorable performance is attributed to the lower cost of beef/meat, cans and packaging. Sales revenue for the year was at P=6,486 million or total volumes of 65.3 million kgs.

(f) Dairy - Butter, Cheese and Margarine

Strong volume gains in margarine countered the weak butter and cheese sales and resulted in a 2% growth in volumes. Total revenues stood at P=2,430 million, a marginal decline of 2%. Operating income, however, was lower by 29% at P=224 million due to fixed costs increases, particularly advertising expenditure for our new brands, Magnolia Gold and Dari Crème Lite. In 2002, San Miguel Pure Foods Company, Inc. bought out the shares of long-time partner New Zealand Dairy Board in Philippine Dairy Products Corporation (now Magnolia, Inc.), the local manufacturer of “Anchor” butter. Consequently, the use of the “Anchor” brand was discontinued. During the first half of 2002, Magnolia, Inc. introduced Magnolia Gold. Encouraged by the positive market response generated upon inception, the company supported the brand further with intensive marketing activities. Resources were likewise channeled to increase advertising expenditure. Based on AC Nielsen’s Retail Trade Audit, the product cornered a 37% share of the butter market as of end of 2002.

3. PACKAGING

2003 vs 2002 San Miguel Packaging Products’ (“SMPP”) sales revenue of P=17,305 million was 13% above 2002 while operating income of P=2,506 million was 30% higher due to tighter cost management and improved efficiencies. Strong volume performance of returnable packaging formats, more specifically glass containers and plastic crates and pallets, resulted in SMPP’s overall 10% volume increase versus 2002. Increased demand from the beverage industry propped up volumes for the packaging group in 2003. In 2004, SMPP will embark on major initiatives to diversify both product and market portfolios. 2002 vs 2001 SMPP’s full-year operations was buttressed by strong sales to the beverage segment and export markets. Except for paper, all business segments registered volume increases: glass at 2%, plastic at 14%, aluminum cans at 8%, metal closures at 17% and composites at 16%. Sales revenue performance posted a 13% improvement from P=13,564 million in 2001 to P=15,381 million in 2002. Effective cost management and savings realized from lower input costs, coupled with strong volume growth and the favorable product mix for glass and metal businesses, resulted in operating income of P=1,922 million, a 22% improvement versus 2001 levels.



II. FINANCIAL CONDITIONS The Company’s consolidated total assets as of December 2003 amounted to P=185,335 million, P=8,124 million higher than the December 2002, mainly due to consolidation of Cosmos in 2003 and additional property, plant and equipment. The effect of change in accounting for preoperating expenses resulted in restatement of 2002 total assets by P=237 million. Illustrated below is the effect of restating 2002 balances, as a result of change in accounting for preoperating expenses. (in millions)

As audited

Restatement

As restated

Total assets P=177,448 (P=237) P=177,211 Total liabilities 60,144 – 60,144 Minority interest 20,183 (70) 20,113 Stockholders’ equity 97,121 (167) 96,954 The Company maintained a strong financial position throughout the year. Current assets expanded by 5% to P=86,512 million. The decrease in the current ratio during the past two years was in large partly due to the additional short-term borrowings to finance inventory, accounts receivable and capital expenditures. Cash position decreased by 24% to P=21,826 million primarily due to payment of long-term debt. Accounts receivable increased by P=3,345 million mainly due to CCBPI and subsidiaries’ and GSMI’s higher credit issuances to dealer accounts and the consolidation of accounts receivable balance of Cosmos. The increase was partially offset by a drop in the accounts receivable balance of SMBD and SMFI due to efficient working capital management and sustained efficiency in credit and collection. Following are the comparative financial data for the Company:

2003 2002 2001 Current ratio 2.00 2.03 1.44 Acid test ratio 1.17 1.33 1.01 Liquidity of receivables Average collection period (days) 54 54 52 Receivable turnover 6.82 6.82 7.04 Liquidity of inventories Average payment period (days) 34 33 25 Inventory turnover 10.66 11.19 14.49 Debt to equity 0.48 0.51 0.93 Return on average stockholders (%) 7.33 8.50 10.64

Major Developments:

a. On February 20, 2003 and April 7, 2003, the Board of Directors and stockholders of Cosmos respectively, approved the proposed decrease in Cosmos’ authorized capital stock from P=2,800 million, to P=1,388 million. The decrease in authorized capital stock was effected by returning the entire shareholdings of Atlantic Industries in Cosmos common shares amounting to P=1,412 million (60.96%) in the form of trademarks held by Cosmos amounting to P=209 million. The excess of the value of the returned capital stock over the carrying amount of trademarks was recognized as additional paid-in capital. The transaction resulted



in Cosmos being a 98.21%-owned subsidiary of Philippine Bottlers Inc. effective May 8, 2003. The Securities and Exchange Commission approved the decrease in Cosmos’ authorized capital stock on May 8, 2003.

b. On March 1, 2003, the Company preterminated P=1,100 million peso-denominated term

notes. c. On August 2003, the Company signed a P=5,000 million unsecured syndicated term loan

facility, of which P=1,700 million was drawn to finance the construction of certain plants and facilities, and the acquisition of certain machinery and equipment to be used for the manufacturing and recycling of PET bottles by Beverage Packaging Specialists, Inc. (“BPSI”).

d. On October 2003, the Company invested P=200 million in Mindanao Corrugated Fibreboard,

Inc., raising the Company’s ownership interest to 73.33%.

e. On October 2003, the Company preterminated its US$80 million (P=4,135 million) unsecured long-term debt due to high interest costs.

f. On November 2003, the Company, through a foreign subsidiary acquired TTCV Investment (BVI) Co., Ltd. (“TTCV”), which wholly owns TTC (Vietnam) Co. Ltd., a hogs and feedmill business in Binh Duong, South Vietnam. The business was acquired for about US$35.5 million, which was paid in cash from internally generated funds. The premium on investment arising from this transaction amounting to P=369 million, net of amortization, is presented as part of “Premium on investments in subsidiaries” account under “Other noncurrent assets” account in the consolidated balance sheets (see Note 9 of the Consolidated Financial Statements).

g. On 2003, the Company invested in government bonds in the amount of US$20 million at a

yield of 3.75% and 5.8% with maturities on February 2005 and November 2006. The yield derived from these investments is higher compared to the prevailing ordinary money market placement rate of 1.0%.

Common Stock: At December 31, 2003, registered common stock shareholders numbered 50,181 compared with 48,339 at end of 2002. See Note 15 of the Consolidated Financial Statements for a summary of common stock activity. III. MATERIAL CHANGES PER LINE OF ACCOUNT Cash and cash equivalents increased to P=21,826 million in 2003 from P=28,563 million in 2002 (see IV. Sources and Uses of Cash). Increase in receivables amounting to P=3,345 million was mainly due to CCBPI and subsidiaries’ and GSMI’s higher credit issuances to dealer accounts and the consolidation of the accounts receivable balance of Cosmos in 2003. The increase was partially offset by a drop in the accounts receivable balance of SMBD - Phil and SMFI due to efficient working capital management and sustained efficiency in credit and collection.



The increase in materials, supplies and containers as well as the drafts and notes payable balance is mainly due to CCBPI’s: a) additional purchases of containers in support of the GTM program and b) the containers inventory balance of Cosmos consolidated in 2003. While the finished goods inventory level of Monterey increased by P=659 million due to higher livestock inventories. The decrease in investment is mainly due to the full consolidation of Cosmos and Excel Unified Land Resources, Inc. (“Excel Land”) in the first semester of 2003. The increase in “Other investments - at cost” represents the Company’s investment in government bonds (see II.g). The increase in the ‘Property, plant and equipment’ account is mainly due to the consolidation of the property, plant and equipment balances of Cosmos, purchases of equipment and construction costs for the PET projects of BPSI, acquisition of additional properties for the Company’s logistics operations and the establishment of a new meat plant in Cavite. “Intangible assets” account increased to P=12,350 million from P=11,154 million mainly due to effect of foreign exchange translations and recognition of goodwill on acquisition of TTCV (see II.a). Total debt amounting to P=28,962 million decreased by P=1,758 million from the December balance of P=30,720 million. Of the total debt, P=28,687 million is interest bearing. Draft and loans payable increased by P=2,539 million primarily due to CCBPI’s additional loan availments to finance the additional container purchases. The Company’s long-term debt amounted to P=11,526 million, of which P= 1,823 million were dollar-denominated. As previously mentioned, the Company preterminated its P=1,100 million peso-denominated term notes and has drawn P=1,700 million from the P= 5,000 million unsecured syndicated term loan facility. Also, the pretermination of the Company’s US$80 million (P=4,390 million) foreign currency denominated term notes basically accounted for the decrease in long-term debt in the amount of P=4,297 million. The increase (decrease) in stockholders’ equity at December 31 is due to:

(In millions) 2003 2002 Issuance of capital stock P=366 P=27,961 Income during the year 7,373 6,880 Declarations of cash dividends (3,691) (4,394) Effect of translation adjustments 3,354 1,599 P=7,402 P=32,046

Consolidated pro forma balance sheet amounts (assuming Cosmos and Excel Land balances were already consolidated into the Company through its domestic subsidiaries as of December 31, 2002 and the audited consolidated numbers as of December 31, 2003) are as follows:

(In millions) Audited Pro forma December December Balance Sheet 2003 2002 Current Assets 86,512 87,969 Investments 2,768 2,065 Property, plant and equipment 69,661 64,440 Other assets - net 26,394 26,457 Current liabilities 43,276 43,512 Noncurrent liabilities 16,929 19,806 Minority interest 20,774 20,492



IV. SOURCES AND USES OF CASH The Company’s strong financial position allows it to pursue its growth strategies while providing substantial direct returns to stockholders. The Company's primary source of liquidity is cash provided from operations. Principal uses of cash are capital expenditures, share repurchases, dividends and business investments. The Company uses debt financing to lower its overall cost of capital. A brief summary of cash flow movements is shown below:

(In millions) Year Ended December 31

2002 (As restated -

2003 Note 2)

Net cash flows from operating activities P=12,008 P=10,749

Net cash flows used in investing activities (11,510) (9,758)

Net cash flows from (used in) financing

activities (7,462) 1,925

(P=

6,964)

P=2,916

Net cash from operations for the year of P=12,008 million basically consist of the income for the period plus non-cash expenses. Net cash used in investing activities in 2003 included the following:

(In millions) Year Ended December 31 2003 2002 Proceeds from sale of investments, property

and equipment P=1,199 P=920

Additions to property, plant and equipment (9,665) (5,664)

Additions to investments, net of cash acquired (3,172) (5,497) Major components of cash flow from (used in) financing activities are as follows:

(In millions) Year Ended December 31 2003 2002

Proceeds from (payments of) borrowing: Short term - net P=705 (P=7,372) Long term - net (4,504) (13,158)

Payments of dividends (3,932) (4,116)



Management believes that the current levels of internally generated funds coupled with cash and the borrowing capability are sufficient to meet the Company's immediate future cash needs and anticipated contract renewal activities.

The foreign exchange rates used in translating the U.S. dollar accounts of foreign subsidiaries and associates to Philippine peso were P=55.59 in 2003 and P=53.25 in 2002 for balance sheet accounts; and P=53.85 in 2003, P=51.60 in 2002 and P=51.02 in 2001 for income and expense accounts. V. ADDITIONAL INFORMATION ON UNAPPROPRIATED RETAINED EARNINGS The following items are not available for declaration as dividends:

(In millions) Year Ended December 31

2002 (As restated -

2003 Note 2)

Accumulated equity in net earnings of subsidiaries and associates (included in the unappropriated retained earnings balance) P=26,917 P=24,408

Treasury stock (20,724) (20,724) VI. OTHER MATTERS

a. This year, the Company invested in a PET Recycling project that will produce environment-friendly packaging materials for the local food and beverage industries. The project will utilize state-of-the-art technology that will be the first of its kind in Asia. Aside from plastic recycling facilities, the project includes facilities for the fabrication of plastic closures.

This will support the government in its solid waste management program and reduce dependence on virgin PET resin. The Company expects to generate foreign currency savings on PET resins and closures via import substitution. The Project’s central recycling plant will be located in San Fernando, Pampanga. Buying stations for the “raw materials” for conversion will be located in Ilocos, San Fernando, Batangas, Cebu, Davao, Cagayan de Oro and Canlubang. Commercial run is scheduled for mid-2004.

b. The Company is currently working towards a more balanced geographical presence for San

Miguel in the Asia-Pacific markets through its Regional Expansion Project. The Company plans to pursue further growth opportunities in neighboring countries such as Vietnam, Malaysia, Thailand, Taiwan, China and Australia.

c. Amount authorized but not yet disbursed for capital projects as of December 31, 2003 is

approximately P=19 billion. These are projects, which have been approved during the current year but are still ongoing and not yet completed as of year-end. This consists of construction, acquisition, upgrade or repair of fixed assets needed for normal operations of the business. The said projects will be carried forward to the following year until its



completion. Sources to fund these projects come from available cash, short and long- term loans.

d. Basic performance indicators are employed across all businesses of the Company.

Comparisons are then made against internal targets and the previous period’s performance. The Company and its majority-owned subsidiaries’ top five (5) key performance indicators are as follows:

1) Volume Growth Measures the percentage change in volume over a designated period of time. Volume growth is regularly monitored based on product and geographic territory. 2) Revenue Growth Measures the percentage change in revenue over a designated period of time. Revenue growth is regularly monitored based on product and geographic territory. 3) Operating Margin Measures pricing strategy and operating efficiency. Calculated as: the ratio of operating income to sales. 4) Gross Contribution Measures the amount available to cover fixed costs. It is the excess of sales over variable costs. Computed as: Net sales less variable costs. 5) Return on Average Funds Employed (“ROFE”)

Measures how much operating profit was earned in relation to the funds employed in the business. Funds-employed in the business is defined as total assets less cash and investments, less non-interest bearing liabilities. ROFE is calculated as the ratio of operating income to average funds employed.

e. The effects of seasonality or cyclicality on the interim operations of the Company’s

businesses are not material.

f. There are no unusual items as to nature and amount affecting assets, liabilities, equity, net income or cash flows, except those stated in Management’s Discussion and Analysis of Financial Conditions and Results of Operations.

g. There were no material changes in estimates of amounts reported in prior interim periods of

the current year or changes in estimates of amounts reported in prior financial years.

h. There were no known trends, demands, commitments, events or uncertainties that will have a material impact on the Company’s liquidity.

i. There were no known trends, events or uncertainties that have had or that are reasonably

expected to have a favorable or unfavorable impact on net sales or revues or income from continuing operation.



j. There were no known events that will trigger direct or contingent financial obligation that is material to the Company, including any default or acceleration of an obligation, except for Notes 16 (b), and 30 (a) and (b) of the Consolidated Financial Statements.

k. There are no material off-balance sheet transactions, arrangements, obligations (including

contingent obligations), and other relationship of the Company with unconsolidated entities or other persons created during the reporting period, except for Note 28 of the Consolidated Financial Statements.


ANNEX “G”

KEY EXECUTIVES

As of February 2004 Eduardo M. Cojuangco, Jr. Chairman & Chief Executive Officer Ramon S. Ang Vice Chairman, President & Chief Operating Officer Ferdinand K. Constantino Chief Finance Officer & Treasurer Francis H. Jardeleza Corporate Secretary & General Counsel CORPORATE STAFF UNITS CORPORATE AFFAIRS OFFICE Vice President Ira Daniel B. Maniquis GROUP AUDIT Vice President Veneranda M. Tomas OFFICE of the GENERAL COUNSEL Vice President Rosabel Socorro T. Balan Baldomero C. Estenzo Roberto T. Ongsiako CORPORATE PLANNING & DEVELOPMENT Senior Vice President Ma. Belen C. Buensuceso CORPORATE QUALITY MANAGEMENT Senior Vice President Alberto A. Manlapit CORPORATE TECHNICAL SERVICES Senior Vice President Lubin B. Nepomuceno Vice President Desiderio M. Grozman


CORPORATE MARKETING Vice President Minerva Lourdes B. Bibonia CORPORATE PROCUREMENT Vice President Gerardo C. Payumo CORPORATE FINANCE Vice President Mercy Marie L. Amador Eleanor P. Blomdahl Teresita V. Chikiamko Ma. Victoria Z. Gimenez Bella O. Navarra Alfredo R. Villacorte CORPORATE HUMAN RESOURCES Senior Vice President David S. Santos CENTRALIZED KEY ACCOUNTS GROUP Vice President Jose Daniel A. Javier CORPORATE EXPORT SALES & BUSINESS DEVELOPMENT Vice President Antonio V. Enriquez, II Lorenzo C. Manabat Sylvia P. Quirino CORPORATE LOGISTICS Vice President Benjamin S. Lagman SAN MIGUEL BEER DIVISION President Faustino F. Galang Vice President Carlos Antonio M. Berba Jesus J. Bitanga, Jr. Josefino C. Cruz Glenn Martin T. Glinoga CHINA BUSINESS OPERATIONS Managing Director Ramon A. de la Llana General Manager – Sales Peter K. Y. Tam


SAN MIGUEL BREWERY HONG KONG, LIMITED Chief Finance Officer Thomas R. Mainwaring GUANGZHOU SAN MIGUEL BREWERY CO., LIMITED Managing Director Bayani B. Gonzales SAN MIGUEL BADA BAODING BREWERY CO., LIMITED Managing Director Wilfredo R. Camaclang SAN MIGUEL SHUNDE BREWERY CO., LIMITED Managing Director Benjamin C. Go Que SAN MIGUEL BREWERY VIETNAM LIMITED. General Manager Joel D. Jumalon J. BOAG & SON, LIMITED Managing Director Patrick Riley Sales & Marketing Director Lyndon Adams Brewery Operations Director Richard Benwell PT DELTA DJAKARTA TBK Acting President Director Manuel M. Moreno GINEBRA SAN MIGUEL, INC. President Arnaldo L. Africa Vice President Davis E. Alamar Marcos B. Mahilum Pablo P. Pacquing COCA COLA BOTTLERS PHILS., INC. President Roberto N. Huang


Vice President Clemente O. Alburo Nelson D. Empalmado Elpidio C. Enrique Virgilio S. de Guzman Ma. Milagros Y. Llorin Jesse N. Macias PHILIPPINE BEVERAGE PARTNERS, INC. General Manager Reynaldo L. Billena Vice President Pacifico M. Castañeda COSMOS BOTTLING CORPORATION Vice President & General Manager Hector P. Guballa Vice President Regnault M. Santos SAN MIGUEL PURE FOODS COMPANY, INC. President Enrique A. Gomez, Jr. Vice President Emmanuel E. Eraña Tomas V. Loanzon SAN MIGUEL FOODS, INC. POULTRY BUSINESS Officer-in-charge Rita Imelda B. Palabyab Vice President Norman C. Ramos FEEDS BUSINESS Vice President & General Manager George A. Nava FLOUR BUSINESS Vice President & General Manager Florentino C. Policarpio AGRIBUSINESS Vice President & General Manager Henry T. Lao


PROCESSED MEATS BUSINESS THE PUREFOODS-HORMEL CO., INC. President Francisco S. Alejo, III Vice President Eduardo B. Martinez PT PUREFOODS SUBA INDAH (Indonesia) General Manager Arlene P. Ledesma MEATS BUSINESS MONTEREY FOODS CORPORATION President & General Manager Arthur O. Juan DAIRY, OILS AND FATS BUSINESS MAGNOLIA, INC. President & General Manager Elias F. Segundo SUGARLAND CORPORATION Operations Manager Jaime F. Tiongson GREAT FOOD SOLUTIONS General Manager Noel M. Tempongko, Jr. REGIONAL EXPANSION - FOOD Senior Vice President Rolando A. Cabredo Vice President Bonifacio O. de Lumen TTC (VIETNAM) COMPANY LIMITED General Director Teddy C. Kho SAN MIGUEL PACKAGING PRODUCTS President Alberto O. Villa-Abrille, Jr. Vice President Renato P. Mabugat Danilo C. Navarro Virgilio C. Ramiscal


GLASS AND PLASTICS CLUSTER OPERATIONS Vice President & Cluster Operations Manager Ferdinand A. Tumpalan Glass Operations PREMIUM PACKAGING INTERNATIONAL, INC. Operations Manager Arnel A. Sarte SAN MIGUEL YAMAMURA ASIA CORPORATION Executive Vice President Noboru Ogawa Plant Manager Renato Y. Cabrera, Jr. SMC YAMAMURA FUSO MOLDS CORPORATION Vice Chairman Shinobu Okita ZHAOQING SAN MIGUEL GLASS CO., LIMITED (China) General Manager Eldred A. Enecio SAN MIGUEL YAMAMURA HAIPHONG GLASS CO., LIMITED (Vietnam) General Director Armando S. Villarama Plastics Operations SAN MIGUEL SHUNDE PACKAGING COMPANY LIMITED (China) Officer-in-Charge Ruben F. Sabado PT SAMPOERNA PACKAGING INDUSTRIES, LIMITED (Indonesia) Operations Director Emmanuel B. Guzman METAL, PAPER, COMPOSITE CLUSTER OPERATIONS Vice President & Cluster Operations Manager Jose Ma. P. Azanza Metal Operations SAN MIGUEL YAMAMURA BALL CORPORATION Plant Manager Rafael V. Lucila, Jr. SAN MIGUEL PHU THO PACKAGING CO., LIMITED (Vietnam) General Manager Romeo A. Reyes


Paper Operations SAN MIGUEL RENGO PACKAGING CORPORATION Executive Vice President Seiji Kajiura Vice President Toshio Wada Plant Manager Denardo M. Cuayo MINDANAO CORRUGATED FIBREBOARD, INC. Plant Manager Marcelo G. Roldan Composite Operations RIGHTPAK INTERNATIONAL CORPORATION Plant Manager Jose Antonio J. Menchaca PET CLUSTER OPERATIONS Vice President and Cluster Operations Manager Enrico C. Wong OTHER BUSINESSES ANCHOR INSURANCE BROKERAGE CORPORATION General Manager Amor C. Iluscupidez SAN MIGUEL PROPERTIES PHILS., INC. President Jeronimo U. Kilayko General Manager Elmer B. Santos SMC STOCK TRANSFER SERVICE CORPORATION Vice President & General Manager Enrique Ll. Yusingco SMITS, INC. President & General Manager Romualdo E. Franco SAN MIGUEL HOLDINGS, INC. Finance Manager Vincent To


SM BULK WATER COMPANY, INC. General Manager Silvio M. Lopez ARCHEN TECHNOLOGIES, INC. General Manager Roscel R. Celestial


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ANNEX “I”

LIST OF REPORTS ON SEC FORM 17-C FOR THE PERIOD JULY TO DECEMBER 2003

Date

Reported Item No. Meeting/Date Subject

July 14, 2003 9 (Press Release)

SMC is among emerging-market champions.


Fiesta San Miguel to Open at Dusit.


SMC embarks on nationwide recycling project


SMC Posts Steady Gains


San Miguel gets Monde Award for Excellence

August 7, 2003

9 (Press Release)

San Miguel’s First Half Earnings Up

August 18, 2003

4 Resignation of Mr. Naomichi Asano as a member of the Board of Directors and election of Mr. Hitoshi Oshima vice Mr. Asano.

September 8, 2003

9 (Press Release)

San Miguel signs deal with Thai property company

September 26, 2003

9 Board Meeting/ September 25, 2003

Declared cash dividend of P0.35 per share payable on November 10, 2003 to all stockholders of record as of October 17, 2003. Closing of stock and transfer book from October 18, 2003 to October 24, 2003.

October 6, 2003

9 (Press Release)

SMC Posts Strong Gains

October 27, 2003

9 SMC signed Share Sale and Purchase Agreement with the Taiwan Tea Corp. for the acquisition of the latter’s 100% shareholding in TTCV Investment (BVI) Co., Ltd. (“TTCV”). SMC will own 100% of TTC (Vietnam) Co., Ltd., a company engaged in pig farming and feed milling in Vietnam. The consideration for the purchase is US$35.5 million. The company is SMC’s first acquisition of a food business in Vietnam. Completion of the purchase is expected by October 30, 2003.

October 27, 2003

9 (Press Release)

SMC acquires first International Food Business in Vietnam.

November 4, 2003

9 Further to disclosure of October 27, 2003, please be informed that the acquisition by San Miguel Corporation (SMC) of Taiwan Tea Corporation’s (100% shareholding in TTCV Investment (BVI) Co., Ltd. (TTCV) was completed on November 4, 2003.


Date Reported

Item No. Meeting/Date Subject

November 10, 2003

9 (Press Release)

SMC Q3 net income up 15%

December 2, 2003

9 (Press Release)

New CCBPI President Named

December 5, 2003

9 Board Meeting/ December 4, 2003

Declared cash dividend of P0.35 per share payable on January 26, 2004 to all stockholders of record as of December 19, 2003. Stock and Transfer books will be closed from December 20, 2003 to December 26, 2003

December 5, 2003

9 Regular Board Meeting/ December

4, 2003

For purposes of regular stockholders meeting:

- deadline for submission of nominations is on January 20, 2004;

- the record date for stockholders entitled to vote will be February 17, 2004;

- the closing of stock and transfer books will be from February 18-27, 2004;

- the deadline for submission of proxies is on April 2, 2004;

- the validation of proxies is on April 13, 2004.

December 23, 2003

Sworn Certification stating that: 1) the following are the 15 members of the Board of Directors of the Corporation, as follows:

- Eduardo Cojuangco, Jr - Ramon S. Ang - Estelito P. Mendoza - Manuel M. Cojuangco - Winston F. Garcia - Corazon S. dela Paz - Iñigo Zobel - Menardo R. Jimenez - Juan B. Santos - Henry Sy, Sr. - Pacifico M Fajardo - Hector L. Hofileña - Leo S. Alvez - Shigeki Ota - Hitoshi Oshima

2) the meetings of the Board of Directors were held on February 13, March 27, May 5, June 26, August 7, September 25, November 7 and December 4, 2003;

3) The above directors attended all the

scheduled board meeting except for the following:


Date

Reported Item No. Meeting/Date Subject

- Corazon S. dela Paz – February 13, May 5 and December 4, 2003;

- Naomichi Asano – March 27, 2003;

- Henry Sy, Sr. – August 7 and December 4, 2003;

- Juan B. Santos – September 25, 2003;

- Eduardo M. Cojuangco, Jr. – November 7, 2003


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