smb bond prospectus

PROSPECTUS

San Miguel Brewery Inc.(A corporation organized and existing under Philippine laws)

P 38,800,000,000.00 Fixed Rate Bonds consisting of Series A Bonds, Series B Bonds and Series C Bonds Due April 3, 2012 for Series A Bonds, April 4, 2014 for Series B Bonds and April 3, 2019 for Series C

Bonds

Issue Price of 100% Face Value

Interest Rate of 8.250% p.a. for Series A Bonds, 8.875% p.a. for Series B Bonds and 10.500% for Series C

Bonds

San Miguel Brewery Inc. (the ‘‘Company’’ or the ‘‘Issuer’’) intends to offer for subscription and issue bonds (the ‘‘Bonds’’) with an aggregate principal amount of P38,800,000,000, (the ‘‘Offer’’). The Bonds will be issued in three series: Series A, Series B and Series C. The Series A Bonds shall have a term beginning on the Issue Date and ending three years from the Issue Date or on April 3, 2012], with a fixed interest rate equivalent to 8.250% per annum. The Series B Bonds shall have a term beginning on the Issue Date and ending five years and one day from the Issue Date or on April 4, 2014, with a fixed interest rate equivalent to 8.875% per annum. The Series C Bonds shall have a term beginning on the Issue Date and ending ten years from the Issue Date or on April 3, 2019, with a fixed interest rate equivalent to10.500% per annum. Interest on the Series A Bonds, Series B Bonds and Series C Bonds shall be payable semi-annually in arrears on October 3 and April 3 of each year while the Bonds are outstanding. (see ‘‘Description and Terms and Conditions of the Bonds’’ — ‘‘Interest’’)

Subject to the consequences of default as may be contained in the Trust Agreement, and unless otherwise redeemed or purchased prior to the relevant Maturity Date, the Bonds will be redeemed at par or 100% of the face value thereof on the relevant Maturity Date, as set out in ‘‘Description and Terms and Conditions of the Bonds’’ — ‘‘Redemption and Purchase’’.

Upon issue, the Bonds shall constitute direct, unconditional, unsubordinated, and unsecured obligations of the Company and shall at all times rank pari passu and without preference among themselves and among any present and future unsubordinated and unsecured obligations of the Company, except for any statutory preference or priority established under Philippine law. The Bonds will effectively be subordinated in right of payment to all of the Company’s secured debts, as allowed under the Trust Agreement, to the extent of the value of the assets securing such debt and all of its debts evidenced by a public instrument under Article 2244(14) of the Civil Code of the Philippines. As of the date of this prospectus, the Company has no existing secured debt or debts evidenced by a public instrument under Article 2244(14) of the Civil Code of the Philippines.

The Bonds have been rated PRS Aaa by the Philippine Rating Services Corporation (‘‘PhilRatings’’) as of February 19, 2009. The rating is not a recommendation to buy, sell, or hold securities and may be subject to revision, suspension, or withdrawal at any time by the rating agency concerned.

The Bonds shall be offered to the public at par through the Joint Lead Managers and Underwriters named below with Philippine Depository and Trust Corp. (“PDTC”) as the Registrar of the Bonds. It is intended that upon issuance, the Bonds shall be issued in scripless form, with PDTC maintaining the scripless Register of Bondholders, and, as soon as reasonably practicable, listed in the Philippine Dealing and Exchange Corp. (“PDEx”). The Bonds shall be issued in denominations of P50,000.00 each, as a minimum, and in multiples of P10,000.00 in excess thereof, and traded in amounts of P10,000.00, as a minimum, and in multiples of P10,000.00 in excess thereof. (see ‘‘Description and Terms and Conditions of the Bonds’’ — ‘‘Form, Denomination and Title’’ and “Description and Terms and Conditions of the Bonds” -“Transfer of Bonds”)

This Prospectus is dated as of March 17, 2009.

Joint Issue Managers

DEVELOPME.T BA.K OF THE PHILIPPI.ESTHE HO.GKO.G A.D SHA.GHAI BA.KI.G CORPORATIO. LIMITED

Joint Lead Managers and Underwriters

BDO CAPITAL & I.VESTME.T CORPORATIO. BPI CAPITAL CORPORATIO.

CHI.A BA.KI.G CORPORATIO.DEVELOPME.T BA.K OF THE PHILIPPI.ES FIRST METRO I.VESTME.T CORPORATIO.

THE HO.GKO.G A.D SHA.GHAI BA.KI.G CORPORATIO. LIMITED I.G BA.K, ..V.

LA.D BA.K OF THE PHILIPPI.ESPHILIPPI.E COMMERCIAL CAPITAL, I.C.

RCBC CAPITAL CORPORATIO.STA.DARD CHARTERED BA.K

U.IO. BA.K OF THE PHILIPPI.ES

Participating Underwriters

SB CAPITAL I.VESTME.T CORP.

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SA. MIGUEL BREWERY I.C.40 San Miguel AvenueMandaluyong City PhilippinesTelephone .umber: +632 632 3000

Offer for Subscription of P 38,800,000,000 Fixed Rate Bonds, consisting of Series A Bonds, Series B Bonds and Series C Bonds, due April 3, 2012 for Series A Bonds, April 4, 2014 for Series B Bonds and April 3, 2019 for Series C Bonds, at the Issue Price of 100% Face Value.

This prospectus relates to the Offer of P38,800,000,000 Bonds of San Miguel Brewery Inc., consisting of Series A Bonds, Series B Bonds and Series C Bonds. The Series A Bonds shall have a term beginning on the Issue Date and ending three years from the Issue Date or on April 3, 2012, with a fixed interest rate equivalent to8.250% per annum. The Series B Bonds shall have a term beginning on the Issue Date and ending five years and one day from the Issue Date or on April 4, 2014, with a fixed interest rate equivalent to 8.875% per annum. The Series C Bonds shall have a term beginning on the Issue Date and ending ten years from the Issue Date or on April 3, 2019, with a fixed interest rate equivalent to 10.500% per annum. The Bonds will be issued at the issue price (the “Issue Price”) of 100.00% of face value.

The Company expects to raise gross proceeds amounting to P38,800,000,000 from the Offer. After deducting expenses relating to the issuance of the Bonds, the net proceeds are estimated to be P38,400,152,939.52 for gross proceeds of P38,800,000,000. Proceeds of the Offer will be used by the Company to fund the Proposed Acquisitions relating to the proposed purchase from San Miguel Corporation (“SMC”) of SMB Brands and SMB Land (see ‘‘Use of Proceeds” on pages 28 and “Proposed Acquisitions” on pages 29-36).

The Issuer shall pay the Joint Lead Managers and Underwriters a commission of 0.45% flat based on the final aggregate nominal principal amount of the Bonds issued, as Joint Lead Managers and Underwriters’ fee (the “Joint Lead Managers and Underwriters’ Fee”) to be shared as may be agreed upon by the Joint Lead Managers and Underwriters.

The Joint Lead Managers and Underwriters’ Fee shall be grossed up for gross receipts tax of 7%. The fees due to the Joint Lead Managers and Underwriters together with any applicable gross receipts tax or its equivalent and net of any applicable withholding tax arising in respect of such fee, shall be due and payable by the Issuer to the Joint Lead Managers and Underwriters on the date that the Issuer receives confirmation from the Issuer’s bank that cleared funds representing payments for all accepted Applications to Purchase have been credited to the account designated by the Issuer. The Joint Lead Managers and Underwriters are authorized to organize a syndicate of Participating Underwriters for the purpose of the Offer. However, the Company has no obligation to any member of such syndicate for the payment of any fee, underwriting or participating commissions (see “Plan of Distribution” on pages 38-41).

The information contained in this prospectus relating to the Company, its operations and those of its affiliates has been supplied by the Company, unless otherwise stated herein. To the best of its knowledge and belief, the Company (which has taken all reasonable care to ensure that such is the case) confirms that the information contained in this prospectus relating to it, its operations and those of its affiliates is correct, and that there is no material misstatement or omission of fact which would make any statement in this prospectus misleading in any material respect and that the Company hereby accepts full and sole responsibility for the information contained in this prospectus. The Joint Lead Managers and Underwriters assume no liability for any information contained in this prospectus. Unless otherwise indicated, all information in this prospectus is as of the date of this prospectus. Neither the delivery of this prospectus nor any sale made pursuant to this prospectus shall, under any circumstances, create any implication that the information contained herein is correct as of any date subsequent to the date hereof or that there has been no change in the affairs of the Company since such date.

No person has been authorized to give any information or to make any representation not contained in this prospectus. If given or made, any such information or representation must not be relied upon as having been authorized by the Company or any of the Joint Lead Managers and Underwriters. This prospectus does not constitute an offer of any securities, or any offer to sell, or a solicitation of any offer to buy any of the Company’s securities in any jurisdiction, to or from any person to whom it is unlawful to make such offer or solicitation in such jurisdiction.

In making an investment decision, investors must rely on their own examination of the Company and the terms of the Offer, including the risks involved. The Offer is being made on the basis of this prospectus only.

Market data and certain industry forecasts used throughout this prospectus were obtained from internal surveys, market research, publicly available information and industry publications. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified, and neither the Company nor the Joint Lead Managers and Underwriters make any representation as to the accuracy of such information.

The Bonds are offered subject to receipt and acceptance of any order by the Company and subject to the Company’s right to reject any order in whole or in part.

Each investor in the Bonds must comply with all laws applicable to it and must obtain the necessary consent, approvals or permission for its purchase, offer or sale under the laws and regulations in force in any jurisdiction to which it is subject, and neither the Company nor the Joint Lead Managers and Underwriters shall have any responsibility therefor.

The Company is organized under Philippine laws. The cash dividend policy of the Company entitles the holders of its Common Shares to receive annual cash dividends equivalent to 100% of the prior year’s recurring net income, which is net income calculated without respect to extraordinary events that are not expected to recur, based on the recommendation of the Board of Directors. Such recommendation will take into consideration factors such as the implementation of business plans, debt service requirements, operating expenses, budgets, funding for new investments and acquisitions, appropriate reserves and working capital, among others. The cash dividend policy is subject to review and may be changed by the Company’s Board of Directors at any time (see “Related Stockholder Matters” - “Dividends and Dividend Policy” on page 112).

This prospectus includes forward-looking statements. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends affecting its business. Words including, but not limited to, “believes,” “may,” “will,” “estimates,” “continues,” “anticipates,” “intends,” “expects” and similar words are intended to identify forward-looking statements. In light of the risks and uncertainties associated with forward-looking statements, investors should be aware that the forward-looking events and circumstances discussed in this prospectus might not occur. The Company’s actual results could differ substantially from those anticipated in the Company’s forward-looking statements.

Application has been made to the Philippine Securities and Exchange Commission to register the Bonds under the provisions of the Securities Regulation Code of the Philippines (Republic Act No. 8799) (the “SRC”).

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

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TABLE OF CO.TE.TS

GLOSSARY OF TERMS.......................................................................................................................... 1

SUMMARY................................................................................................................................................ 7

SUMMARY FINANCIAL AND OPERATING INFORMATION....................................................... 14

SUMMARY OF THE OFFER................................................................................................................. 16

RISK FACTORS...................................................................................................................................... 17

USE OF PROCEEDS............................................................................................................................... 28

PROPOSED ACQUISITIONS................................................................................................................ 29

DETERMINATION OF ISSUE PRICE.................................................................................................. 37

PLAN OF DISTRIBUTION.................................................................................................................... 38

DESCRIPTION OF TERMS AND CONDITIONS OF THE BONDS.................................................. 42

CAPITALIZATION AND INDEBTEDNESS........................................................................................ 52

SELECTED FINANCIAL INFORMATION.......................................................................................... 53

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION ANDFINANCIAL PERFORMANCE...................................................................................................... 55

CAPITAL EXPENDITURES.................................................................................................................. 70

THE BEER INDUSTRY IN THE PHILIPPINES.................................................................................. 71

BUSINESS OVERVIEW......................................................................................................................... 76

BOARD OF DIRECTORS AND MANAGEMENT.............................................................................. 93

RELATED PARTY TRANSACTIONS.................................................................................................. 99

DESCRIPTION OF PROPERTIES....................................................................................................... 104

MATERIAL CONTRACTS.................................................................................................................. 110

RELATED STOCKHOLDER MATTERS........................................................................................... 111

REGULATORY FRAMEWORK.......................................................................................................... 116

PHILIPPINE TAXATION..................................................................................................................... 118

LEGAL MATTERS............................................................................................................................... 121

EXPERTS............................................................................................................................................... 122

INDEPENDENT PUBLIC ACCOUNTANTS...................................................................................... 123

INDEX TO FINANCIAL STATEMENTS........................................................................................... 126

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GLOSSARY OF TERMS

In this prospectus, unless the context otherwise requires, the following terms shall have the meanings set out below.

ABI..............................................

ABV............................................

AIBC...........................................

Allocation Report........................

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

Average Selling Price..................

Business Day................................

BIR..............................................

Bonds..........................................

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

Board of Directors.......................

Brewery Landholdings................

Brewery Properties......................

BSP..............................................

Canadean.....................................

Canadean Report..........................

Asia Brewery, Inc.

Alcohol-by-volume, expressed as a percentage.

Anchor Insurance Brokerage Corporation.

The report to be prepared by the Joint Issue Managers and sent to the Issuer, the Joint Lead Managers and Underwriters and the Participating Underwriters no later than three Business Days before the Issue Date, allocating the Bonds among the Joint Lead Managers and Underwriters and the Participating Underwriters, for issuance to their respective clients.

The application form accomplished and submitted by an applicant for the purchase of a specified amount of the Series A Bonds, Series B Bonds and Series C Bonds, together with all the other requirements set forth in such application form.

Average selling prices of products, net of VAT and trade discounts.

A day other than Saturday or Sunday on which banks are open for business in Metro Manila, Philippines.

The Philippine Bureau of Internal Revenue.

The Philippine Peso denominated fixed rate bonds with terms of three years, five years and one day and ten years to be issued by the Issuer with an aggregate principal amount of Thirty Eight Billion Eight Hundred Million Pesos (P38,800,000,000.00) consisting of Series A Bonds, Series B Bonds and Series C Bonds, which the Joint Lead Managers and Underwriters and the Participating Underwriters have agreed to distribute and sell on the Issue Date, and underwrite on a firm commitment basis, with features as set out in the Terms and Conditions.

The holders of the Series A Bonds, Series B Bonds and Series C Bonds who, at any relevant time, appear in the Register of Bondholders as the registered owner of the Bonds, with each holder being a “Bondholder”.

The Board of Directors of the Company.

Brewery Landholdings, Inc.

Brewery Properties Inc.

Bangko Sentral ng Pilipinas, the central bank of the Philippines.

Canadean Limited, a leading global beverage research company.

The report on the Philippine beer industry prepared by Canadean for inclusion in this prospectus.

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CAGR.........................................

CBA............................................

CESBD………………………….

Change in Law………………….

CKAG.........................................

Common Shares..........................

Company.....................................

Corporation Code........................

DENR..........................................

ECC.............................................

Economy......................................

EIS Law.......................................

Eligible Bondholders....................

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

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

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

Government................................

GSMI.........................................

Hectoliter or hl...........................

High-Alcohol Beer.....................

Iconic..........................................

IFRS...........................................

Issue Date..................................

Compound annual growth rate.

Collective Bargaining Agreement.

SMC’s Corporate Export Sales & Business Development.

The enactment, passing, revoking, overturning, modification, amendment or abrogation, change in interpretation of any decree, statute, law, regulation, license, permit, authorization, concession, approval or other administrative act of the Government which comes into force after the Issue Date, or any change in the interpretation or application of any of the foregoing by the Government.

SMC’s Corporate Key Accounts Group.

The Company’s shares of common stock, par value of P1.00 per share.

San Miguel Brewery Inc.

Batas Pambansa Blg. 68, otherwise known as “The Corporation Code of the Philippines.”

The Philippine Department of Environment and Natural Resources.

Environmental Compliance Certificate.

In respect of the market for beer, used to describe a market segment, meaning the bottom tier of socio-economic groups.

The Philippine Environmental Impact Statement System.

Institutional and retail investors other than Prohibited Bondholders determined by the Issuer and Joint Lead Managers and Underwriters and Participating Underwriters to be eligible holders of the Bonds.

A measure of volume for beer, equal to a 24-bottle case of 320 ml bottles, the standard size for San Miguel Pale Pilsen, equivalent to 7.68 liters.

Taxes levied on beer products based on removals from the plant where the products are produced.

An agency of the National Food Authority of the Philippines.

Any government agency, authority, bureau, department, court, tribunal, legislative body, public official, statutory or legal entity (whether autonomous or not), commission, corporation, or instrumentality, whether national or local, of the Republic of the Philippines.

Ginebra San Miguel, Inc.

100 liters or 13.02 Equivalent Cases.

Any beer with ABV of more than 5%.

Iconic Beverages, Inc.

International Financial Reporting Standards.

April 3, 2009 or such other date as the Issuer and the Joint Issue

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Managers may agree in writing, provided that such date shall be a date, which is within the validity of the SEC Permit to Sell Securities.

Issue Management and Underwriting Agreement . . .

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

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

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

Joint Lead Managers andUnderwriters...............................

JWM..........................................

Kirin..........................................

Low-Calorie Beer.....................

Majority Bondholders.............

Master Bond Certificate............

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

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

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

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

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

The agreement dated as of March 16, 2009 executed by and among the Issuer, the Joint Issue Managers, and the Joint Lead Managers and Underwriters for the issuance, placement, distribution and sale of the Bonds in the Philippines.

100% of the face value for Series A Bonds, Series B Bonds and Series C Bonds.

San Miguel Brewery Inc., a corporation duly organized and existing under Philippine law.

The Development Bank of the Philippines and The Hongkong and Shanghai Banking Corporation Limited, each a “Joint Issue Manager”.

BDO Capital & Investment Corporation, BPI Capital Corporation, China Banking Corporation, Development Bank of the Philippines, First Metro Investment Corporation, The Hongkong and Shanghai Banking Corporation Limited, ING Bank N.V., Land Bank of the Philippines, Philippine Commercial Capital, Inc., RCBC Capital Corporation, Standard Chartered Bank and Union Bank of the Philippines, each a “Joint Lead Manager and Underwriter”.

Joe White Maltings Pty. Ltd.

Kirin Holdings Company, Limited.

Any beer with caloric content at least 33% lower than ordinary beer.

Bondholders holding 51% of the outstanding Bonds.

For each of the Series A Bonds, Series B Bonds and Series C Bonds, the bond certificate issued by the Issuer in the name of the Trustee for the benefit of the Bondholders covering the entire principal amount of the Bonds purchased during the Offer Period therefor and to be issued by the Issuer on the Issue Date, which shall be substantially in the form attached as Annex “B” of the Trust Agreement.

The Company’s Manual on Corporate Governance, approved by the Board of Directors on October 25, 2007, and as amended on April 10, 2008.

Three (3) years from Issue Date or on April 3, 2012 for Series A Bonds, five (5) years and one (1) day from Issue Date or on April 4, 2014 for Series B Bonds and ten (10) years from Issue Date or on April 3, 2019 for Series C Bonds.

The minimum corporate income tax under the National Internal Revenue Code of the Philippines, as amended, which is currently fixed at 2.0%.

The offer for sale, distribution and issuance of the Bonds by the Issuer to Eligible Bondholders.

The period when the Bonds are offered for sale, distribution and issuance by the Issuer to Eligible Bondholders, commencing at 9:00 a.m. on March 18, 2009 and ending at 12:00 p.m. on March 27, 2009 or such other dates as may be determined by the Issuer and the Joint Issue

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Managers.

Off-premise...............................

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

PAB..........................................

Participating Underwriters........

PAS...........................................

PDEx.........................................

PDTC........................................

Permit to Sell Securities............

Philippine Peso or P..................

PFRS.........................................

PhilRatings................................

Polo Brewery...........................

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

Premium / Super Premium........

Premium / Upper Premium........

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

PSE............................................

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

With respect to beer sales, means sales at grocery stores, convenience stores, sari-sari stores and other outlets other than on-premise outlets.

With respect to beer sales, means sales at consumer outlets where consumers purchase and immediately consume beer, such as bars, restaurants, hotels and food stalls.

The Philippine Pollution Adjudication Board.

Other underwriters engaged by the Joint Lead Managers and Underwriters for the sale and distribution of the Bonds pursuant to their authority to enter into sub-underwriting agreements in accordance with the terms of the Issue Management and Underwriting Agreement.

Philippine Accounting Standards.

Philippine Dealing & Exchange Corporation.

Philippine Depository & Trust Corporation.

The permit to be issued by the SEC authorizing the Issuer to sell, distribute and issue the Bonds to the public.

The lawful currency of the Republic of the Philippines.

Philippine Financial Reporting Standards.

Philippine Rating Services Corporation.

The Company’s operating brewery located in Valenzuela City, Metro Manila which primarily serves the Luzon market.

In respect of the market for beer, used to describe a market segment by the Company under its internal segmentation, meaning the middle tier of socio-economic groups covering San Miguel Pale Pilsen, Red Horse, Colt 45 and Coors Regular brands.

In respect of the market for beer, used to describe a market segment by Canadean under the Canadean Report, meaning the upper tier of socio-economic groups covering San Miguel Pale Pilsen, San Mig Light, San Miguel Super Dry, San Mig Strong Ice, Cerveza +egra and imported beers.

In respect of the market for beer, used to describe a market segment by the Company under its internal segmentation, meaning the upper tier of socio-economic groups covering San Miguel Super Dry, Oktoberfest Brew, Cerveza +egra, San Miguel Premium All-Malt and imported beers.

The Issuer, its subsidiaries and affiliates, and wholly or majority-owned or controlled entities of such subsidiaries and affiliates. For purposes of this definition, an “affiliate” of the Issuer is an entity at least 20 but not more than 50% of the outstanding voting stock of which is owned by the Issuer.

The Philippine Stock Exchange, Inc.

The electronic records of the Registrar bearing the official information

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on the names and addresses of the Bondholders and the number of Bonds they respectively hold, including all transfers of the Bonds and the names of subsequent transferee Bondholders.

Registrar....................................

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

RTGS........................................

Sandiganbayan..........................

San Miguel Packaging Group . .

SEC............................................

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

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

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

SFAS.........................................

SMB Brands.............................

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

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

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

The Philippine Depository & Trust Corp., a corporation with a quasi-banking license duly organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal office at the 37 th

Floor, Tower 1, The Enterprise Center 6766 Ayala Avenue, Makati City, whose principal obligation is to maintain the Register of Bondholders and record the initial issuance and subsequent transfers of the Bonds.

The written advice to be sent by the Registrar to Bondholders whether signed by an authorized signatory of the Registrar when manually-generated or signatureless when computer-generated to confirm the amount of Bonds registered in the Register of Bondholders in the name of such Bondholder at any relevant time. A computer-generated Registry Confirmation shall include a statement that it is a computer-generated form, and if issued without alteration, does not require any signature.

Real Time Gross Settlement.

A special Philippine court vested with jurisdiction over criminal and civil cases involving graft and corrupt practices and such other offenses committed by public officers and employees.

A group comprised of SMYPC, SMYAC, SMYFMC, SMRPC and Mindanao Corrugated Fibreboard, Inc.

The Securities and Exchange Commission of the Philippines.

Bonds to be issued by the Issuer with an aggregate principal amount of P13,590,000,000.00 having a term beginning on the Issue Date and ending three years from the Issue Date or on April 3, 2012, with a fixed interest rate equivalent to 8.250% per annum.

Bonds to be issued by the Issuer with an aggregate principal amount of up to P22,400,000,000.00 having a term beginning on the Issue Date and ending five years and one day from the Issue Date or on April 4, 2014, with a fixed interest rate equivalent to 8.875% per annum.

Bonds to be issued by the Issuer with an aggregate principal amount of up to P2,810,000,000.00 having a term beginning on the Issue Date and ending ten years from the Issue Date or on April 3, 2019, with a fixed interest rate equivalent to 10.500% per annum.

Statements of Financial Accounting Standards.

Certain Philippine beer and malt-based beverages brands, including related trademarks, copyrights, patents, and other intellectual property rights and know-how assigned by SMC to Iconic.

Land on which all of the Company’s production facilities and certain sales offices used by the Company for its beer businesses are located.

San Miguel Beer Division, a division of SMC before it was spun off to create the Company.

San Miguel Beverages, Inc.

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SMC..........................................

SMC Group................................

SMCSL....................................

SMCSTSC

SMDCI......................................

SMBIL.......................................

SMITS......................................

SMPI.........................................

SMPFC......................................

SMRPC.....................................

SMYAC....................................

SMYFMC................................

SMYPC.....................................

SRC...........................................

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

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

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

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

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

VAT...........................................

San Miguel Corporation.

SMC and its consolidated subsidiaries.

SMC Shipping and Lighterage Corporation.

SMC Stock Transfer Service Corporation.

San Miguel Distribution Company, Inc.

San Miguel Brewing International Limited.

SMITS, Inc.

San Miguel Properties, Inc.

San Miguel Pure Foods Company, Inc.

San Miguel Rengo Packaging Corporation.

San Miguel Yamamura Asia Corporation.

San Miguel Yamamura Fuso Molds Corporation.

San Miguel Yamamura Packaging Corporation.

Republic Act No. 8799, otherwise known as “The Securities Regulation Code of the Philippines,” as amended from time to time, and including the rules and regulations issued thereunder.

In respect of the market for beer, used to describe a market segment, meaning the middle tier of socio-economic groups. For the Company, this refers to the popular segment which is comprised of San Miguel Pale Pilsen, Red Horse, Colt 45 and Coors Regular. For the Canadean Report, this refers to the standard segment which is comprised of Red Horse and Colt 45 brands.

The amended Philippine National Internal Revenue Code of 1997 and its implementing rules and regulations.

The terms and conditions pursuant to which the Issuer issues, and the Bondholders subscribe for, the Bonds which constitute an integral part of the Master Bond Certificate.

In respect of the market for beer, used to describe a market segment by the Company under its internal segmentation, meaning the upper middle tier of socio-economic groups covering San Mig Light, San Mig Strong Ice and Coors Light.

The lawful currency of the United States of America.

Value-added tax.

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SUMMARY

The following summary is qualified in its entirety by the more detailed information, including the Company’s audited financial statements and examined pro forma consolidated financial statements and notes relating thereto, beginning on page F-1 of this prospectus. For a discussion of certain matters that should be considered in evaluating an investment in the Bonds, see the section of this prospectus entitled “Risk Factors.” Investors are recommended to read this entire prospectus carefully.

OVERVIEW OF THE COMPA.Y

The Company is the largest producer of beer in the Philippines, with a total market share of approximately 94% in 2007, according to Canadean Limited (“Canadean”). The Company has five breweries strategically located across the Philippines and a highly developed distribution system serving 478,757 outlets. The Company’s beer brands include all of the top four beer brands in the country, namely San Miguel Pale Pilsen, Red Horse, San Mig Light and Gold Eagle. San Miguel Pale Pilsen, the Company’s flagship brand, has a history of over 118 years. San Miguel beer was first produced by La Fabrica de Cerveza de San Miguel (“San Miguel Brewery”), a small brewery in the Philippines that began its operations in 1890. San Miguel Brewery provided the foundation from which SMC has grown to become the largest food, beverage and packaging company in the Philippines today. San Miguel Brewery was renamed San Miguel Corporation (“SMC”) in 1963.

From a single brewery producing a single product in 1890, SMC’s corporate history and business portfolio have evolved over the years. It entered the soft drinks business in 1922 and became the first overseas bottler of The Coca-Cola Company in 1927. To meet the needs of its beer and soft drinks businesses, SMC established a glass packaging plant in Manila in 1938 to supply its own requirements. SMC has expanded to include other food, beverage and packaging products. It has also grown geographically from a Philippine-based beer company to become a regional producer in the Asian beer market. The San Miguel brewery in Hong Kong was founded in

1948 and by the 1970s, San Miguel beer had established a strong market position in Hong Kong. Building on San Miguel beer’s leading positions in the Philippines and Hong Kong, SMC expanded into new markets, including China in 1991, Indonesia in 1992, Vietnam in 1993, and Thailand in 2004. Prior to the creation of the Company, all of SMC’s beer operations were under the San Miguel Beer Division (“SMBD”), a business unit of SMC.

On July 24, 2007, the shareholders of SMC approved the transfer of SMC’s domestic Philippine beer business assets to the Company in exchange for additional shares in the Company, a wholly-owned subsidiary of SMC. The assets transferred to the Company comprise the domestic beer business’ net assets as of June 30, 2007, excluding land, brands and income and other taxes payable. The Company was incorporated on July 26, 2007, and the domestic beer business was spun off from SMC effective October 1, 2007. The spin-off of SMC’s domestic beer business into the Company was intended to realize the value of SMC’s flagship business. Following approval by the shareholders of SMC of the spin-off of the domestic beer business and the creation of the Company, all plant and equipment used by SMBD in the domestic beer business were transferred to the Company, while SMC retained ownership of the brands and land assets used in the domestic beer business. Under this structure, the Company has agreed to pay SMC royalties for the use of brands and other intellectual property rights of SMC, rentals for the lease of the land assets, fees for shared services and dividends (see “Related Party Transactions on page 99 of this prospectus). Some of these brands and related intellectual property rights and the land assets are the subject of the Proposed Acquisitions (see “ Use of Proceeds” on page28 and “Proposed Acquisitions” on pages 29-36 of this prospectus).

The Company undertook an initial public offering of its shares (“IPO”) in April-May 2008. Prior to the IPO, the Company had total outstanding shares of 15,333,426,960 common shares. In the IPO, a total of 77,052,000 common shares were offered by way of primary offering, while a total of 809,050,000 common shares owned by SMC were offered by way of secondary offering. After the IPO, the Company’s resulting outstanding shares totaled 15,410,478,960 common shares which were listed on the PSE on May 12, 2008.

On January 19, 2009, SMC signed a Memorandum of Agreement with Kirin Holdings Company, Limited (“Kirin”). Under the terms of the agreement, Kirin will enter into exclusive negotiations with SMC to acquire from SMC shares representing approximately 43.25% of the issued and outstanding capital stock of the Company. On February 20, 2009, SMC and Kirin signed a share purchase agreement for the acquisition by Kirin of 43.249% shareholdings in the Company. Under the terms of the agreement, Kirin will purchase shares in the Company from SMC at a purchase price of P 8.841 per share, for a total acquisition price of P 58.9 billion.

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Kirin will launch a tender offer to purchase additional shares from all existing shareholders of the Company at the same purchase price offered to SMC. The details of the tender offer will be announced by Kirin once determined.

Further to the agreement, SMC, Kirin and the Company will undertake to negotiate exclusively for the Company’s potential purchase of shares in SMC’s overseas beer business. The exclusivity period is for six months following SMC’s offer to sell the shares in its overseas beer business.

Strengths

The Company believes that its principal strengths include the following:

• Strong and popular brand portfolio supported by high quality products. From a single product produced

in a single brewery in 1890, San Miguel beer has, over 118 years later, grown into an array of popular beer

products catering to the distinct tastes and preferences of beer drinkers across all segments and markets in the Philippines. San Miguel Pale Pilsen, the Company’s flagship brand, has been an iconic

Philippine brand for most of the 20th century and up to today. After considering the Filipino beer drinker’s evolving preferences, other brands and products have been introduced, and these have been very successful. Today, the Company offers a portfolio of ten strong and popular brands: Pale Pilsen, Red Horse, San Mig

Light, Super Dry, Cerveza +egra, San Mig Strong Ice, Gold Eagle, San Miguel Premium All-

Malt, Oktoberfest Brew (a seasonal beer), and Cali, the country’s only malt-based non-alcoholic drink. The various products carry distinct attributes that cater to the various segments of the Philippine beer market. The Company’s products have been internationally recognized for quality, garnering a total of one grand gold award, 30 gold medals, 14 silver medals, two bronzes, one International High Quality trophy, and one Crystal Prestige award from Monde Selection International since 2000.

• Attractive growth prospects. Despite its dominant market position, the Company is well positioned to

capture further volume growth and market share in the Philippine beer industry.

Strong overall industry growth. The Company expects industry volumes to continue to grow, driven in part by the forecast GDP growth of 4% in the next three years, complemented by relatively low inflation. Given its strong brands and leading market position, the Company believes it is best placed to capture a very large portion of the expected overall growth in the industry.

Expansion of Coverage Area. In addition, the Company expects to further increase its sales by expanding its coverage of currently under-served areas. Despite its overall market dominance, the Company believes there are areas where it holds less than 95% market share. The Company believes it will be able to grow its sales and share in these markets through enhanced distribution and promotional strategies.

Increased market share of broader alcoholic beverage segment. Further, the Company also believes additional sales growth can be achieved by increasing its share of the broader alcoholic beverage segment. In particular, the Company believes its low cost, high-alcohol beer, Red Horse, which has enjoyed substantial volume growth in the past few years, will be able to attract hard liquor consumers and take an increasing share of the overall alcoholic beverage market from the hard liquor segment.

• Strong market position presenting significant barriers to entry. The Company enjoys a number of

advantages that would be difficult for a potential competitor to replicate, making it difficult for other companies to successfully compete with it in the Philippine beer market. These advantages include:

Market leadership and economies of scale. San Miguel Brewery products have consistently dominated the market for beer in the Philippines, the country’s largest alcoholic beverage segment. Based on the Company’s internal data, the Company’s products captured a high market share of 95.6% in 2008. The country’s top four beer brands are all produced by the Company. Unlike most other markets for beer, in the Philippines, imported brands account for only 0.1% of the market, with distribution limited to upscale bars and hotels and high-end supermarkets. Despite the entry of local

competition in 1981 and the introduction of a few locally brewed versions of foreign brands, the Company has maintained an extremely strong market position. The popular acceptance and widespread availability of San Miguel Brewery’s products have helped strengthen the Company’s market position

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over the years. The Company’s size and scale of operations provide significant economies of scale in production, research and development, distribution, and managerial and marketing functions over a diversified product portfolio and geographic base. Its size also results in substantial leverage and significant bargaining power with suppliers and retailers.

Proximity of Production Facilities to Consumer Markets. To ensure product availability and freshness, as well as to minimize distribution costs, the Company maintains a network of five local breweries that are strategically located in the three main islands of the Philippines: Luzon, Visayas and Mindanao. The Company has breweries in each of Valenzuela City, Metro Manila; San Fernando City, Pampanga; Mandaue City, Cebu; Bacolod City, Negros Occidental; and Darong, Sta. Cruz, Davao del Sur, with a total annual production capacity of 15.3 million hectoliters. Each of these breweries is equipped with automated facilities capable of packaging the Company’s products in a variety of sizes and formats, including bottles, cans, and kegs. The strategic location of the Company’s breweries reduces overall risks by having alternative product sources to avert possible shortages and meet surges in demand in any part of the country. This also assists the Company in ensuring that the beer is freshly delivered to dealers at an optimal cost. The archipelagic nature of Philippine geography and the relative difficulty of transporting products to the country’s substantial rural population make these dispersed production facilities particularly valuable.

Extensive and Efficient Distribution System Coverage. The Company has a far-reaching and efficient distribution system, which is based on five strategically located breweries and effective management of third party service providers and provides the Company with a competitive advantage. The Company’s49 sales offices, contracted logistics providers and transportation assets including 452 hauling trucks, 200 routing trucks, 258 pre-sell vans and 396 service pick-ups and its network of 489 dealers across the Philippines enable it to maintain optimum stock levels in terms of quality and quantity in 478,757 on-premise and off-premise outlets nationwide. The Company’s products are delivered from any one of the Company’s five breweries by contract haulers to a sales office or dealer warehouse within five days of production date or less. The sales office or dealer then delivers the beer to the wholesaler or retailer promptly afterward, ensuring ample stock and quality wherever and whenever San Miguel Beer products are needed.

The Company’s returnable bottle system helps keep the price of its beer products affordable. With the high retrieval rates achieved under the system, bottle usage is maximized before bottles are replaced. Under this system, the Company is able to achieve a 95% average retrieval rate for its bottles, which substantially reduces its packaging costs.

Cost Leadership. The Company maintains a strong cost leadership position through high productivity and efficiency, as well as cost control measures, which facilitate pricing flexibility and greater profit growth by maintaining the Company’s margins. The Company’s product quality initiatives, process enhancements, and improvement programs for plant operations and facilities management are all expected to be sustained. The Company continuously implements process optimization efforts and technology enhancements to generate cost savings.

• Experienced management and production team. The Company has an extensive pool of experienced

managers, with many senior managers having been with the Company for an average of 20 years. The management team is well accustomed to the Philippine operating environment, and has been able to effectively manage the Company through periods of crisis and instability in the Philippines. The Company also has established experts in its production process, including 30 brewmasters, each of whom has completed advanced training and has over ten years of on-the-job-training experience working for the Company.

Strategies

The Company’s principal strategy is to increase the volume of its beer sales, both by increasing its market share and by increasing the size of the market, while maintaining its margins. It plans to achieve this through the following:

• Increase market share. Although the Company already has a very strong position in the Philippine beer

market, it intends to increase its market share by pursuing targeted marketing efforts in the regions and localities in which it believes its market share is lower than it is for the Philippines as a whole - which

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currently stands at 95.6%, such as in specific areas in North and South Luzon, as well as in Visayas and Mindanao. The Company intends to accomplish this by selecting specific products in appropriate packaging to rival competing products and brands. The Company also intends to increase its product visibility in these markets through tactical consumer promotions and improve outlet penetration through persuasive selling and trade incentives. Similarly, the Company intends to increase its share of the overall market for alcoholic beverages. This effort will focus on those specific regions and localities in which hard liquor sales are higher, and, similar to the efforts to increase market share in the beer segment, will include brand- and package-specific marketing campaigns, persuasive selling and incentives for dealers and retailers.

• Increase the overall market for beer. The Company also plans to increase its sales volume by increasing

the total market for beer sales. The Company’s primary strategies to achieve this include:

Segmented pricing strategy. The Company intends to keep its products affordable for the middle and lower socio-economic sectors by maintaining a moderate pricing strategy for its products in the Popular and Economy markets, where sales are highly price elastic. For the more upscale, or Upper Popular, market, where sales are less price elastic, the Company plans to increase the pricing of its existing and new specialty brands, supported by image-building activities to strengthen their premium positioning and improve their profitability. Amid the global economic slowdown, the Company intends to manage and align the timing and magnitude of price increases for all its products to sustain volume growth as well as cover increases in tax rates on beer and higher material costs. With the forecasted Philippine economic growth in 2009, the Company intends to pursue this segmented pricing strategy to protect its gains and to sustain the general uptrend for the industry as evidenced by the Company’s improved market share and increased level of sales in 2008.

Increase the size of the Upper Premium and Premium segments. The Upper Premium and Premium markets for beer in the Philippines are relatively small segments, but they play important roles in brand-building and overall market development. The segments offer promising prospects, underpinned by rising consumer incomes, increasing consumer sophistication, rapidly changing drinker habits and preferences, as well as increasing urbanization. The Company intends to further develop the higher-priced segments of the beer industry by offering higher-priced and higher-margin products catering to these segments. For example, in August 2008, the Company launched two new brands, San Miguel Premium All-Malt and Oktoberfest Brew, a seasonal beer available for four months (from September 2008 to December 2008), which are marketed to the Upper Premium and Premium segments, respectively. With this strategy, the Company aims to take advantage of opportunities in segmenting the market as well as preempting the incursion of foreign brands. Relative to other Asian countries, the Philippine beer market offers greater potential with regard to premium pricing of brands given the current relatively narrow price gap between the Premium and Upper Popular brands.

Strengthen the Brand Portfolio. The Company intends to strengthen its brand portfolio to take advantage of segment-specific growth opportunities, increasing sophistication and changing lifestyles of Philippine consumers and to maintain its market leadership position. The Company plans to maintain the status of its flagship San Miguel Pale Pilsen brand and strengthen its value through an integrated approach of national brand-building campaigns and retail promotional and marketing efforts. Examples of brand-building activities include advertising campaigns for the brand using famous endorsers such as Manny Pacquiao, Erik Morales and Kris Aquino under the “Walang Katulad” (“Beer like no other”) and “Face to Face” campaigns and the TV commercial featuring actor Jet Li, which forms part of the regional campaign to uplift the image and positioning of the San Miguel

Pale Pilsen brand in the Asian region.

The Company intends to implement new programs and initiatives catering to the younger segment of the market to protect its core customers and strengthen the appeal and preference for the brand among new drinkers. The Company expects to further grow main brands San Miguel Pale Pilsen, Red Horse and San Mig Light through the introduction of new thematic campaigns, special events and volume-generating programs aligned with the respective positioning of these brands in the market. For the Company’s specialty brands, including Cerveza +egra, Super Dry, and San Mig Strong Ice, the Company plans on increasing its efforts in on-premise channels by matching these brands with appropriate on-premise outlets and through event sponsorships, party series and tie-ups with other

companies. Specialty brands will also be promoted in off-premise channels through increased visibility and promotions.

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Optimize Trade Coverage and Efficiencies. The Company intends to further expand its trade reach and increase the visibility and availability of its products in retail outlets through point-of-sale merchandising materials and signage for both on- and off-premise outlets to increase sales and outlet yield. In pursuing this strategy, the Company will focus on improving the efficiency of its trade operations, including trade penetration levels and adherence to suggested retail prices in all distribution channels by strengthening per-outlet management, intensifying route assisting activity and alternative distribution mode management such as pedicabs (bicycle-driven cabs) and tricycles, which help to deliver the Company’s products to remote areas. The Company also intends to raise its frequency of calls to retail outlets. Management of the distributors’ territories will be strengthened through intensified retail-based servicing and territorial reconfiguration.

Increase Sales Through Special Events and by Focusing on Fast-growing Trade Channels. The Company intends to continue its volume-generating initiatives and occasion-creation programs. Examples of these activities include the Company’s sponsorship of town fiestas and major events, such as San Miguel Beer Oktoberfest, that aim to make the beer drinking experience more relevant and closer to the consumers. The Company recognizes the importance of fast-growing modern trade channels such as large supermarket chains, hypermarkets and modern convenience stores in marketing and carrying its products to consumers, especially in urban areas. Accordingly, the Company, primarily through SMC’s Corporate Key Accounts Group (“CKAG”), is focusing on sales and marketing programs for key upscale products to these fast growing segments of the market.

,ew Product and Package Introduction. The Company plans to introduce new products and new package formats. The Company believes this strategy can increase consumer interest and overall market size, as well as address the needs of an increasingly fragmenting market, especially in high growth segments. For example, to increase consumer interest, in May 2007, the Company introduced San Miguel Pale Pilsen in paper label bottles. In 2008, the Company launched new products San Miguel Premium All-Malt in the Upper Premium segment and the Oktoberfest Brew (seasonal brew) in the Premium segment as well as introduced secondary packaging, i.e. Christmas-themed shrinkwrap (6-pack) for San Miguel Premium All-Malt and clear shrinkwrap (6-pack) for San Miguel Pale Pilsen, San Mig Light, Super Dry and San Mig Strong Ice. The Company intends to continue to pursue packaging innovations and capitalize on the market trend towards convenience packaging. The Company is developing packaging improvements for existing brands as well as convenience pack formats consistent with faster-paced lifestyles and addressing the various activities and interest of consumers.

RISKS OF I.VESTI.G

Before making an investment decision, investors should carefully consider the risks associated with an investment in the Bonds. These risks include:

• risks relating to the Company and its business, including:

The Company’s business and prospects may be adversely affected by changes in consumers’ preferences or purchasing power.

The Company’s financial position and financial performance may be adversely affected by any disruptions in the supply of, or the price fluctuations for, its major raw materials.

Demand for the Company’s products is highly price elastic, and if the Company increases its prices, sales volumes may fall, which may negatively affect the Company’s financial results and financial performance.

The Company may not be successful in implementing its strategy to increase its sales volume.

Competition in the Company’s businesses and markets may cause the Company to lose market share or reduce its operating margins, which could adversely affect its financial performance and financial position.

The Company depends on trademarks and proprietary rights that it proposes to acquire and which are currently licensed from SMC to enhance its reputation, and infringement of these rights could

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adversely affect the Company’s competitive position; reputational issues involving other entities entitled to use the brands and trademarks used by the Company could also adversely affect the Company.

The Company’s financial position may be adversely affected if the Company is not able to raise enough funds for the Proposed Acquisitions.

The Company is dependent on its relationship with the SMC Group (other than the Company) and on its relationship with other third parties.

The Company’s current strategies may not be implemented as planned in the event Kirin Holdings Company, Limited becomes a major shareholder.

The Company’s controlling shareholder is able to exercise substantial influence over the Company’s corporate policies and direct the outcome of corporate actions.

The Company’s business and sales are affected by seasonality.

An ongoing dispute regarding the ownership of certain shares in SMC could directly affect the current control and management policies of SMC.

The Company depends on certain key personnel, and its business and growth prospects may be disrupted if their services were lost.

Under certain circumstances, the Company may not be able to meet increased demand for its products and may have to incur significant additional capital expenditures to avoid capacity constraints.

Consolidation of sales channels in the Philippines may adversely affect the Company’s financial position and financial performance.

Product liability claims or other circumstances could harm the integrity and customer support for the Company’s brands and adversely affect the sales of its products.

Sales of the Company’s products may be adversely affected if its relationship with distributors deteriorates.

Regulatory decisions and changes in the legal and regulatory environment in which the Company operates could limit its business activities or increase its operating costs.

Increases in excise tax rates applicable to beer or increases in other taxes to which the Company is subject may reduce consumption of the Company’s products or the Company’s margins or reduce both.

Philippine environmental laws and regulations create potential liabilities should the Company fail to comply with prescribed environmental standards and limits.

The Company may be adversely affected by any change in environmental, health and safety, accounting standards and other laws and regulations.

Outbreaks of disease may dampen demand for the Company’s products and may therefore adversely affect the Company’s financial position and financial performance.

• risks relating to the Proposed Acquisitions:

The Company may not complete the Proposed Acquisitions.

• risks relating to the Philippines, including:

Political or social instability in the Philippines could have a negative effect on the financial position and business of the Company.

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The Company’s business and sales may be negatively affected by slow growth rates and economic instability in the Philippines as a result of the global economic recession.

If foreign exchange controls were to be imposed, the Company’s ability to purchase raw materials, primarily malted barley and technically advanced equipment, could be adversely affected.

The occurrence of natural catastrophes or blackouts may materially disrupt the Company’s operations.

• risks relating to the Offer, including:

Secondary trading of the Bonds is subject to various market factors.

The Bonds will constitute direct, unconditional, unsubordinated, general and unsecured obligations of the Issuer.

The Bonds may be redeemed prior to Maturity Date upon the occurrence of certain events such as change in taxation or regulation.

There is no assurance that a market for the Bonds will exist, and the Bonds may offer limited liquidity.

• risks relating to certain statistical information in this prospectus:

Certain statistics in this prospectus relating to the Philippines, the industries and markets in which the Company’s business operates have not been independently verified and may not be accurate, complete, up-to-date or consistent with other information compiled within or outside the Philippines.

Please refer to the section of this prospectus entitled “Risk Factors,” which, while not intended to be an exhaustive enumeration of all risks, must be considered in connection with the purchase of the Bonds.

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SUMMARY FI.A.CIAL A.D OPERATI.G I.FORMATIO.

The following tables present summary financial information for the Company and should be read in conjunction with the report of independent auditors, Company’s audited historical financial statements and examined pro forma consolidated financial statements and notes thereto contained in this prospectus and the section entitled “Management’s Discussion and Analysis of Financial Position and Financial Performance.”

The information below is not indicative of the results of future operations.

Examined ProForma Consolidated Audited Financial StatementsFinancial Statements

For the Period fromFor the Year Ended

For the Year EndedDecember 31, 2008 December 31, 2008

P P

July 26, 2007 to December 31, 2007

P(in millions, except per share figures or where otherwise indicated)

Statement of Income DataNet Sales 48,787 48,787 12,180

Cost of Sales (24,800) (24,800) (6,333)

Gross Profit 23,987 23,987 5,847

Administrative and selling expenses (7,288) (8,366) (2,349)

Operating Income 16,699 15,621 3,498

Interest Income 264 264 36

Interest Expense (3,484) - -

Other Income (Charges) (377) (377) 15

Income Before Tax 13,102 15,508 3,549

Income Tax Expense (4,303) (5,466) (1,239)

Net Income 8,799 10,042 2,310

Earnings per share - basic (1) 0.57 0.65 0.15Number of shares outstanding 15,410 15,410 15,333

Balance Sheet DataCash and cash equivalents 6,427 6,041 5,262Trade and other receivables - net 3,662 3,661 3,676Inventories - net 3,279 3,279 2,447Other current assets 379 418 180

Total current assets 13,747 13,399 11,565

Property, plant and equipment (net ofaccumulated depreciation andamortization) 12,932 5,864 5,616

Intangible assets 32,011 11 3Other noncurrent assets - net 5,206 5,360 5,424

Total noncurrent assets 50,149 11,235 11,043

Total assets 63,896 24,634 22,608

Accounts payable and accrued expenses 3,000 3,000 3,243Income and other taxes payable 1,518 2,585 1,710

Total current liabilities 4,518 5,585 4,953

Long-term debt (net of debt issue cost) 38,447 - -

Other noncurrent liabilities 9 39 12

Total noncurrent liabilities 38,456 39 12

Total liabilities 42,974 5,624 4,965

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P P



Capital Stock 15,410 15,410 15,333

Additional paid-in capital 515 515 -

Cumulative translation adjustments (45) (45) -

Retained Earnings 4,800 3,130 2,310

Minority Interest 242 - -

Total equity 20,922 19,010 17,643

Total liabilities and equity 63,896 24,634 22,608

Cash Flow Data

Net cash provided by (used for):

Operating activities 8,961 11,027 5,831

Investing activities (40,674) (1,645) (610)

Financing activities 32,878 (8,603) 41

Net increase in cash 1,165 779 5,262

Cash and cash equivalents, beginningof period 5,262 5,262 -

Cash and cash equivalents, end ofperiod 6,427 P6,041 P5,262

Other Financial and Operating data

EBITDA (2) 18,457 17,379 3,913

EBIT (2) 16,699 15,621 3,498

Capital Expenditure 829 829 362Depreciation and amortization 1,758 1,758 415Gross profit margin 49.2% 49.2% 48.0%

EBITDA margin 37.8% 35.6% 32.1%

EBIT margin 34.2% 32.0% 28.7%Volume (Equivalent Cases) 174.48 174.48 46.70Volume (Hectoliters) 13.40 13.40 3.59Average selling price/case (in pesos) 278.88 278.88 260.11Average selling price/Hectoliter (in

pesos) 3,632 3,632 3,389______________

+otes:

(1) Computed as net income divided by the weighted average number of Common Shares issued and outstanding each period.

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

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SUMMARY OF THE OFFER

The following summary is qualified in its entirety by, and should be read in conjunction with the more detailed information appearing elsewhere in this prospectus.

Issuer :

Instrument :

Use of Proceeds :

Issue Price :

Form and Denomination of the Bonds :

Offer Period :

Issue Date :

Maturity Date :

Interest Rate :

Interest Payment :

Final Redemption :


Philippine Peso denominated fixed rate bonds with terms of three years, five years and one day and ten years to be issued by the Issuer with an aggregate principal amount of Thirty Eight Billion Eight Hundred Million Pesos (P 38,800,000,000.00) consisting of Series A Bonds, Series B Bonds and Series C Bonds.

To fund the Proposed Acquisitions.

100% of the face value for Series A Bonds, Series B Bonds and Series C Bonds.

The Bonds will be issued in scripless form in denominations of P50,000.00, as a minimum, and in integral multiples of P10,000.00 in excess thereof.

The Offer shall commence at 9:00 a.m. on March 18, 2009 and end at 12:00 p.m. on March 27, 2009..

April 3, 2009 or such other date as the Issuer and the Joint Issue Managers may agree in writing, provided that such date shall be a date which is within the validity of the SEC Permit to Sell Securities.

Series A: three years from Issue Date Series B: five years and one day from Issue Date Series C: ten years from Issue Date

Series A: 8.250% Series B: 8.875% Series C: 10.500%

Interest on the Bonds will be calculated on a 30/360-day count basis and will be paid semi-annually in arrears on April 3 and October 3of each year, commencing on October 3, 2009, for Series A Bonds and Series C Bonds, and October 4, 2009 for Series B Bonds.

The Bonds will be redeemed at 100% face value on each of their respective Maturity Date.

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RISK FACTORS

An investment in the Bonds involves a number of risks. The price of securities can and does fluctuate, and any individual security may experience upward or downward movements and may even become valueless. There is an inherent risk that losses may be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. There may be a large difference between the buying price and the selling price of these securities. Investors deal with a range of investments, each of which may carry a different level of risk. This section entitled “Risk Factors” does not purport to disclose all of the risks and other significant aspects of investing in these securities. Investors should undertake independent research and study the trading of securities before commencing any trading activity. Investors may request publicly available information on the Bonds and the Company from the SEC. Each Investor should seek professional advice if he or she is uncertain of, or has not understood any aspect of, the securities to be invested in or the nature of risks involved in the trading of securities.

Prospective investors should carefully consider the risks described below, in addition to the other information contained in this prospectus, including the Company’s examined pro forma consolidated financial statements and notes relating thereto included herein, before making any investment decision relating to the Bonds. The occurrence of any of the events discussed below and any additional risks and uncertainties not presently known to the Company or that are currently considered immaterial could have a material adverse effect on the Company’s business, financial performance, financial position and prospects and the investors may lose all or part of their investment.

The means by which the Company plans to address the risks discussed herein are principally presented in the sections of this prospectus entitled “Business Overview — Strengths,” “Business Overview — Strategies” and “Management’s Discussion and Analysis of Financial Position and Financial Performance.”

RISKS RELATED TO THE COMPA.Y

The Company’s business and prospects may be adversely affected by changes in consumers’ preferences or purchasing power.

The ability of the Company to successfully launch new products and maintain demand for its existing products depends on the acceptance of these products by consumers, as well as the purchasing power of consumers. Consumer preferences may shift because of a variety of reasons, including changes in demographic and social trends or changes in leisure activity patterns. For example, younger drinkers tend to be less loyal to any brand or any type of drink than the previous generation of drinkers. Concerns about health effects due to negative publicity regarding alcohol consumption or other factors may also affect consumers’ purchasing patterns. If the Company does not respond effectively to changes in consumer preference, the Company’s business and prospects may be adversely affected.

Sales of beer are also tied closely to consumers’ purchasing power and disposable income levels. Adverse economic developments in the Philippines may affect consumers’ purchasing power and disposable income levels, thereby adversely affecting the Company’s financial performance and financial position. For example, in periods of economic uncertainty or downturns, consumers may purchase more hard liquor and less beer or they may purchase less alcoholic beverages, either of which would affect the Company’s financial performance. The Company intends to expand its product and brand portfolio in higher-priced premium market segments, which would make the Company’s business and prospects more closely related to changes in consumer

purchasing power. A significant decrease in disposable income levels or consumer purchasing power in the Company’s target markets could materially and adversely affect the Company’s financial position and financial performance.

For more information, see “Business Overview — Strategies” on pages 78-80 of this prospectus.

The Company’s financial position and financial performance may be adversely affected by any disruptions in the supply of, or the price fluctuations for, its major raw materials.

The Company’s products depend on raw materials that the Company procures from third parties, including purchases of critical raw materials, primarily malted barley, from abroad and the water supply for Polo

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Brewery. Certain raw materials are subject to price volatility caused by a number of factors, including changes in global supply and demand, foreign exchange rate fluctuations, weather conditions and governmental controls. For example, the current global focus on bio-ethanol fuels has contributed, and is expected to continue to contribute to, higher prices for malted barley and adjuncts, which are among the Company’s most important raw materials, as farmers shift their production out of barley and into grains used to produce those fuels, decreasing available supply. Although the Company actively monitors the availability and prices of raw materials, there can be no assurance that these items will be supplied in adequate quantities to meet the Company’s needs or will not be subject to significant price fluctuations in the future. While the Company may, in certain limited instances, be able to shift to alternative raw materials used in the production of its products, the Company cannot assure prospective investors that it will be able to reduce its reliance on these raw materials in the future. The Company does not fully hedge against commodity prices and any such hedging may not work as planned. Moreover, the market prices of raw materials may increase significantly if there are material shortages due to, among other things, competing usage or drastic changes in weather or natural disasters. The Company cannot assure prospective investors that it will be able to pass increases in product costs to consumers. As a result, any significant shortages or material increase in the market price of such raw materials may have a material adverse effect on the Company’s financial position and financial performance.

For more information, see “Management’s Discussion and Analysis of Financial Position and FinancialPerformance” on page 55 of this prospectus.

Demand for the Company’s products is highly price elastic, and if the Company increases its prices, sales volumes may fall, which may negatively affect the Company’s financial results and financial performance.

The substantial majority of beer drinkers in the Philippines belong to the lower socio-economic classes, where discretionary income is limited. Accordingly, the beer market in the Philippines is highly price elastic. If the Company raises the prices of its products, sales volumes will likely decline, and the decline may result in a lower level of net sales. For example, on March 1, 2006, the Company raised the selling prices of its beer products by an average of 9%. This price rise was in response to a 20% increase in the excise tax on beer that was implemented effective January 1, 2005 and to cover higher costs of raw materials and fuel. As a result, the Company’s average selling price in 2006 was 8.7% higher than in 2005. However, primarily as a result of this price increase, the volume of the Company’s sales (in case equivalents) in 2006 was 9.0% lower than in 2005, and its net sales in 2006 were 1% lower than in 2005. On April 1, 2008, the Company again raised the selling prices of its beer products by an average of 9%, primarily in response to sharp increases in the prices of the Company’s raw materials in 2007 and 2008. Despite the cost pressures and price increases, however, the Company’s sales volume still grew by 4.2% in 2008, albeit at a slower rate than its volume growth in 2007. Price elasticity of demand for the Company’s products may limit the Company’s ability to pass on increases in excise taxes, raw material costs or other expenses, which may negatively affect the Company’s financial results and financial performance.


The Company may not be successful in implementing its strategy to increase its sales volume.

The Company has a strategy to increase its sales by increasing its market share, in terms of both the beer market and the overall market for alcoholic beverages, and by increasing the total size of the beer market. Both parts of this strategy involve uncertainties and risks, and the Company can offer potential investors no assurance that it will be successful in implementing its strategy. For example, the Company’s strategy to increase its sales of higher-priced, higher-margin products depends on its ability to convince consumers to pay more than they have historically paid for beer, and the Company may not be successful in this respect, either for its existing higher-priced products or in respect of any new products that it may introduce. Failure by the Company to implement its strategy to increase the volume of its sales would negatively affect the Company’s financial results and growth prospects.


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Competition in the Company’s businesses and markets may cause the Company to lose market share or reduce its operating margins, which could adversely affect its financial performance and financial position.

The Company operates in a competitive environment. The Philippine alcoholic beverage industry in general is highly competitive, and, while the Company estimates that it has the largest market share in the Philippines with respect to beer, the Company cannot assure prospective investors that it will be able to maintain its current market share for beer, or that it will be able to increase its market share in the future. The Company faces competition from another domestic producer, which sells both its own brand and foreign brands it produces under license, and from foreign brewers. The Company also competes with producers of other alcoholic beverages, primarily low-priced gin and brandy. In the beer industry, and more generally the alcoholic beverage industry, competitive factors generally include price, product quality, brand awareness and loyalty, distribution coverage, and the ability to respond effectively to shifting consumer tastes and preferences. The Company also competes with other discretionary items, including both other food and beverage products and other goods and services generally. The consolidation of the Company’s competitors, the entrance of a new, larger competitor into the Philippine market, or unanticipated actions or irrational behavior by existing competitors, could lead to downward pressure on prices or a decline in the Company’s market share. Any such event could materially and adversely affect the Company’s financial position and financial performance.

For more information, see “Business Overview — Competition” on page 87 of this prospectus.

The Company depends on trademarks and proprietary rights that it proposes to acquire and which are currently licensed from SMC to enhance its reputation, and infringement of these rights could adversely affect the Company’s competitive position; reputational issues involving other entities entitled to use the brands and trademarks used by the Company could also adversely affect the Company.

The Company currently has an exclusive license from SMC to use various brand names and related trademarks and other intellectual property rights to prepare, package, advertise, distribute and sell its products in the Philippines. The use of these brand names and related intellectual property rights is key to maintaining the Company’s distinctive corporate and market identities. If other parties sell products that use counterfeit versions of the Company’s brands or otherwise look like the Company’s brands, consumers may confuse the Company’s products with products that they consider inferior. This could cause consumers to refrain from purchasing the Company’s brands in the future and adversely affect the Company’s brand image and sales. Under the license agreement with SMC, SMC has the responsibility of defending against infringements, but the Company cannot assure prospective investors that SMC will be successful in this regard. Any failure by SMC to protect the Company’s proprietary rights could have an adverse effect on the Company’s competitive position. In addition to risks from infringement, many of these brands and trademarks used by the Company can also be used for products other than beer produced by SMC or other entities that SMC has licensed them to and on beer products produced and sold by SMC’s brewing operations outside of the Philippines. As such, the Company’s brand image could also be negatively affected by product quality or other reputational issues caused by these other users of the brands and trademarks. Any damage to the Company’s brand image caused by other users of the brands and trademarks could have an adverse effect on the Company’s sales and financial performance.

Upon completion of the Proposed Acquisitions, the Company as the parent company of Iconic, may be required to defend against infringements. There is no assurance that the Company will be successful in this regard. The Company will remain to be subject to the risks in the preceding paragraph in respect of the use of the SMB Brands on products other than beer and in respect of the use of intellectual property similar to the SMB Brands on beer products produced and sold by SMC’s brewing operations outside of the Philippines.

For more information, see “Proposed Acquisitions” on page 29 of this prospectus, and “Related PartyTransactions” on page 99 of this prospectus.

The Company’s financial position may be adversely affected if the Company is not able to raise enough funds for the Proposed Acquisitions

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

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additional expenses for debt-servicing. The additional expenses for debt-servicing may have a material adverse effect on the Company’s financial position and financial performance.

Moreover, the Company cannot assure prospective investors that it will be able to obtain sufficient funds from the additional borrowings to complete the financing requirements for the Proposed Acquisitions. In such an event, the Company will not only continue to incur additional expenses for the payment of royalties and land lease rentals, it will also incur additional expenses related to debt-servicing. The payments for the royalties and land lease rentals, with the additional expenses for debt-servicing may have a material adverse effect on the Company’s financial position and financial performance.

The Company is dependent on its relationship with the SMC Group and on its relationship with other third parties.

The Company has a very limited history of operating as an independent entity, and it previously was a division of SMC. Even after the Company’s spin-off from SMC in October 2007, it remains dependent on its relationship with the SMC Group in a number of critical areas, including the SMYPC, SMRPC and SMYAC, with respect to its packaging requirements, and SMC with respect to many of its critical corporate functions including strategic planning. For more information, see “Related Party Transactions” on page 99 of this prospectus. If conflicts were to arise in the Company’s relationship with the SMC Group or if the SMC Group were to fail to provide the services it has contracted to provide to the Company, the Company likely could not easily replace SMC as a provider of the services. Any such development could cause a material disruption in the Company’s business, negatively impacting its performance and growth prospects. In addition, the Company relies on third parties in a number of critical areas of its operations, including distribution and logistics services, for its finished products and certain raw material supplies. If any of these third parties were to fail to provide these services or materials to the Company, the Company’s business could be negatively affected, including its financial performance and growth prospects.

The Company’s current strategies may not be implemented as planned in the event Kirin Holdings Company, Limitedacquires significant shareholdings in the Company.

On January 19, 2009, SMC signed a Memorandum of Understanding with Kirin Holdings Company, Limited (“Kirin”) regarding Kirin’s potential investment in the Company. Under the agreement, Kirin will enter into exclusive negotiations with SMC to acquire from SMC shares representing approximately 43.25% of the issued and outstanding capital stock of the Company. On February 20, 2009, SMC and Kirin signed a share purchase agreement for the acquisition by Kirin of 43.249% shareholdings in the Company. Under the terms of the agreement, Kirin will purchase shares in the Company from SMC at a purchase price of P 8.841 per share, for a total acquisition price of P58.9 billion. In the event that Kirin successfully acquires a significant stake in the Company, there can be no assurance that the Company will be able to implement its planned strategies.

The Company’s controlling shareholder is able to exercise substantial influence over the Company’s corporate policies and direct the outcome of corporate actions.

Currently, the Company’s controlling shareholder is SMC which holds approximately 94.3% of the Company’s Common Shares. SMC is able to influence the Company’s business through its ability to control actions that require majority shareholders’ approval and through its representatives on the Company’s Board of Directors. SMC is not obligated to provide the Company with financial support or to exercise its rights as a shareholder in the best interests of the Company or its other shareholders or creditors. In addition, SMC may engage in activities that conflict with such interests. For example, a subsidiary of SMC is a major producer of hard liquor in the Philippines, a product that competes directly with many of the Company’s products. SMC may take actions through that subsidiary, such as pricing or marketing activities, that could cause the Company’s sales or margins to decrease. SMC also owns other producers of beer, which produce and sell their products outside of the Philippines primarily using the same brands and trademarks as those used by the Company. SMC could take actions through these other beer producers, such as competing with the Company in markets outside the Philippines, that would not be in the best interest of the Company or its other shareholders or creditors.

In addition, the Company believes that it benefits from its ongoing relationship with SMC and some of its subsidiaries and affiliates through their global reach and relationships. The Company cannot assure potential investors that SMC will continue to enable the Company to benefit from these relationships in the future.

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The Company’s business and sales are affected by seasonality.

The Company’s sales are affected by seasonality in customer purchase patterns. In the Philippines, alcoholic beverages, including those produced by the Company, experience increased sales during the Christmas season and typically decline in the third quarter as a result of rainy weather. For example, from 2006 to 2008, on average, 26.5% of the Company’s net sales were in the first three months of the year and 23.7% were in the second quarter; while 22.7% were in the third quarter, typically the slowest period for sales, and 27.1% were in the last three months of the year. As a result of this pattern, the Company’s financial position and financial performance may fluctuate significantly from quarter to quarter.


An ongoing dispute regarding the ownership of certain shares in SMC could directly affect the current control and management policies of SMC.

Court proceedings regarding the ownership of certain shares in SMC are pending before the Sandiganbayan and the Philippine Supreme Court. These proceedings were initiated by the Government in 1987 with respect to shares of SMC held by (i) the Coconut Industry Investment Fund Holding Companies (“CIIF Holding Companies”), administered by the United Coconut Planters Bank, comprising approximately 24.0% of SMC’s total share capital; and (ii) the companies affiliated with Mr. Eduardo M. Cojuangco, Jr., Chairman and Chief Executive Officer of SMC, comprising approximately 16.0% of SMC’s total share capital. In its complaints, the Government has alleged that these shares were acquired with public funds and therefore belong to the Government. On May 7, 2004 a partial summary judgment was rendered in favor of the Government with respect to the shares of SMC held by the CIIF Holding Companies. The Philippine Coconut Producers Federation, Inc. representing interests of coconut farmers appealed this judgment to the Philippine Supreme Court. The Government’s complaint regarding the shares of SMC owned by companies affiliated with Mr. Cojuangco was dismissed on November 28, 2007; the Government has appealed the said dismissal to the Philippine Supreme Court. In July 2008, CIIF Holding Companies requested that the Supreme Court allow the government to sell the shares of SMC held by CIIF Holding Companies, with the proceeds of such a sale to benefit the coconut industry and farmers in the Philippines. The Company cannot anticipate the outcome of these proceedings, the final results of which could directly affect the control and management policies of SMC and indirectly of the Company.

The Company depends on certain key personnel, and its business and growth prospects may be disrupted if their services were lost.

The Company’s future success is dependent upon the continued service of its key executives and employees. The Company cannot assure potential investors that it will be able to retain these executives and employees. If many of its key personnel were unable or unwilling to continue in their present positions, or if they joined a competitor or formed a competing company, the Company may not be able to replace them easily, and the business of the Company may be significantly disrupted and its financial position and financial performance may be materially and adversely affected. For example, the Company has 30 brewmasters, a position critical to its manufacture of beer. These brewmasters typically have degrees in chemistry or chemical engineering, and each of them has over ten years of on-the-job-training experience working for the Company, making them difficult to replace. The Company cannot assure potential investors that it will be able to attract and retain the key personnel that it needs to achieve its business objectives.

For more information, see “Business Overview — Brewing Technology and Product Development” on page 85 of this prospectus.

Under certain circumstances, the Company may not be able to meet increased demand for its products and may have to incur significant additional capital expenditures to avoid capacity constraints.

Although the Company continuously seeks to enhance the efficiency and manufacturing capabilities of its production facilities, the Company may, from time to time, experience production difficulties that may cause shortages and delays in deliveries, as is common in the manufacturing industry. The Company cannot assure prospective investors that it will not experience production difficulties in the future and cannot assure prospective investors that it will be able to increase the efficiency and manufacturing capabilities of its production facilities in line with increased customer demand in the future. Furthermore, the Company cannot

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assure prospective investors that it will be able to meet increasing demand for its products without having to incur significant additional capital expenditures in the future.

For more information, see “Management’s Discussion and Analysis of Financial Position and Financial Performance — Liquidity and Capital Resources” on page 63 of this prospectus.

Consolidation of sales channels in the Philippines may adversely affect the Company’s financial position and financial performance.

The Philippine retail market has historically been highly fragmented and dominated by numerous small neighborhood stores. These small neighborhood stores serve limited geographical areas and purchase relatively small quantities of the Company’s products from distributors and larger supermarkets. In recent years, larger supermarkets have begun to gain market share in the Philippines. There is a risk that the Company’s business may become concentrated in fewer, larger customers, which could increase the relative bargaining power of these customers. The Company cannot assure prospective investors that these customers will not exert downward pressure on wholesale prices of the Company’s products, which may adversely affect the Company’s financial position and financial performance.


Product liability claims or other circumstances could harm the integrity and customer support for the Company’s brands and adversely affect the sales of its products.

The success of the Company depends in large part upon consumers’ perception of its brands. The contamination of products by bacteria or other external agents, whether arising accidentally or through deliberate third party action, could result in product liability claims. Product liability claims, whether or not they are successful, could adversely affect the reputation of the brands used by the Company and the sales by the Company. In addition, other manufacturers, primarily affiliates of SMC that produce and sell beer outside of the Philippines, have rights to produce products that carry the same brands and trademarks as used by the Company. Actions by these other manufacturers, including producing deficient quality products, could tarnish the overall reputation of the relevant brands. Any of the problems mentioned above may adversely affect the Company’s reputation and its ability to charge a premium for its products, which may result in reduced sales and profitability of the affected brand or all of the Company’s brands.

Sales of the Company’s products may be adversely affected if its relationship with distributors deteriorates.

The Company’s products are primarily sold through distributors. Although many of these distributors have been dealing with the Company for many years, there is no assurance that these distributors will continue to purchase and distribute the Company’s products, or that these distributors can continue to effectively distribute the Company’s products without delays or interruptions. In addition, the financial instability of, contractual disputes with, or labor disruptions at, the Company’s distributors could disrupt the distribution of the Company’s products and adversely affect the Company’s business.

For more information, see “Business Overview — Strengths” on pages 78-80 of this prospectus and “Business Overview —Marketing, Sales and Distribution” on pages 86-87 of this prospectus.

Regulatory decisions and changes in the legal and regulatory environment in which the Company operates could limit its business activities or increase its operating costs.

Regulatory decisions or changes in the legal and regulatory requirements in a number of areas may have adverse effects on the Company’s business. In particular, governmental bodies may subject the Company to actions such as product recall, seizure of products and other sanctions, any of which could have an adverse effect on the Company’s sales. These governmental bodies may also impose limitations on advertising activities used to market beer, such as prohibitions or limitations on television or print advertising, which may inhibit or restrict the Company’s ability to maintain or increase consumer support for and recognition of its brands. In addition, regulatory bodies may seek to restrict consumer access to the Company’s products by, among other actions, regulating the hours when outlets are allowed to sell alcohol. These and other legal or regulatory changes could materially and adversely affect the Company’s financial position and financial performance.

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For more information, see “Business Overview — Regulation and Taxation” on pages 91-92 of this prospectus.

Increases in excise tax rates applicable to beer or increases in other taxes to which the Company is subject may reduce consumption of the Company’s products or the Company’s margins or reduce both.

Beer is subject to an excise tax, and increases in excise taxes or value added taxes, or VAT, may reduce overall consumption of the Company’s products, the Company’s profit margins or both. An additional 8% increase in the excise tax rates applicable to beer was implemented on January 1, 2009 and the same rate increase is scheduled to be implemented on January 1, 2011. Additional non-scheduled increases in excise tax or VAT rates are also possible. Previous increases in excise tax rates have adversely affected the Company’s sales volume. The scheduled increases in excise tax or other increases in excise tax or other taxes to which the Company is subject to may (i) reduce consumption of the Company’s products if passed on to the consumers by way of upward price adjustments, (ii) reduce the Company’s margins if prices remain unchanged or (iii) have both such effects if additional taxes are not fully passed on to the consumers.

For more information, see “Management’s Discussion and Analysis of Financial Position and Results of Operation — Factors Affecting Financial Performance — Taxes and Regulatory Environment” on page 56 of this prospectus, “Business Overview — Strategies” on pages 78-80 of this prospectus and “Business Overview — Regulation and Taxation” on pages 91-92 of this prospectus.

Philippine environmental laws and regulations create potential liabilities should the Company fail to comply with prescribed environmental standards and limits.

Various environmental laws and regulations govern the operations of the Company including, but not limited to, the management of solid wastes, water and air quality, toxic substances and hazardous wastes at the Company’s breweries.

Non-compliance with the legal requirements or violations of prescribed standards and limits under these laws could expose the Company to potential liabilities, including both administrative penalties in the form of fines and criminal liability, which could result in imprisonment for officers of the Company who were involved in or who are otherwise held to be responsible for any such violations. Violations of environmental laws could also result in the suspension and/or revocation of permits or licenses held by the Company or the suspension or closure of operations.

For more information, see “Business Overview — Health, Safety and Environmental Matters” on pages 91-92 of this prospectus and “Regulatory Framework — Environmental Matters” on pages 116-117 of this prospectus.

The Company may be adversely affected by any change in environmental, health and safety, accounting standards and other laws and regulations.

The Company’s operations are subject to a number of national and local laws and regulations. These include industry laws and regulations relating to environmental protection, health and safety, accounting standards and tax. The Company cannot assure prospective investors that changes in laws or regulations, including environmental, health and safety, accounting standards and laws and regulations, will not result in the Company having to incur substantial additional capital expenditures to upgrade or supplement its existing facilities or having to report lower income or being subject to an increased rate of taxation or fines and penalties. Any such changes in laws and regulations could have a material adverse effect on the Company’s business, financial position and financial performance.

For more information, see “Business Overview — Health, Safety and Environmental Matters” on pages 91-92 of this prospectus.

Outbreaks of disease may dampen demand for the Company’s products and may therefore adversely affect the Company’s financial position and financial performance.

Several countries in Asia and Europe have reported cases of avian influenza, or bird flu, while in the Philippines, several pig farms have recently reported cases of the ebola reston virus or “ebola virus”. While

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there have been no known outbreaks of bird flu in the Philippines, recent reports indicated that some farmers exposed to affected pig farms have tested positive for the ebola virus. There can be no assurance that these viruses will not mutate, thereby causing a human pandemic in the Philippines or elsewhere. Any outbreak of bird flu or the ebola virus that results in a human pandemic, or an outbreak of any other contagious disease for which there is no known, effective, or readily available treatment, cure or vaccine, could have a material adverse effect on the Company’s financial position and financial performance. For example, any outbreak of bird flu or ebola virus could adversely affect consumer demand for the Company’s products, the Company’s ability to adequately staff its operations, the distribution networks for the Company’s products, as well as the general level of economic activity in the Philippines. The Company cannot assure prospective investors that any future outbreak of bird flu, ebola virus or any other contagious disease will not have a material adverse effect on the Company’s financial position and financial performance.

RISKS RELATI.G TO THE PROPOSED ACQUISITIO.S

The Company may not complete the Proposed

Acquisitions.

The Company will only be able to complete the Proposed Acquisitions after a number of steps are accomplished, including regulatory approvals and securing the full funding required. There is no assurance, however, that the Company will be able to successfully complete these steps on a timely basis or at all. If the Company does not complete the Proposed Acquisitions, the information on the Proposed Acquisitions and the examined pro forma consolidated financial statements related to the Proposed Acquisitions in this prospectus would not be relevant.

RISKS RELATI.G TO THE PHILIPPI.ES

The Company is a Philippine corporation and substantially all of its operations are conducted in and all of its production facilities and other assets are located in the Philippines. As a result, the Company’s financial position and financial performance will be influenced by the political and social situation in the Philippines, as well as the general state of the Philippine economy and the economies in the surrounding region.

Political or social instability in the Philippines could have a negative effect on the financial position and business of the Company.

The Philippines has from time to time experienced political, social, economic and military instability. For example, in 2005, following allegations of fraud and disenfranchisement of voters in relation to the 2004 presidential elections, several members of the Arroyo Cabinet resigned their posts and, along with certain government officials, various opposition groups and individuals, began to call for the resignation or impeachment of President Arroyo. Impeachment complaints based on allegations of violations of the Constitution, graft and corruption and betrayal of public trust were filed against President Arroyo with the House of Representatives. On August 31, 2005, the House Committee on Justice dismissed all these impeachment complaints. On June 26, 2006 similar impeachment complaints were filed against President Arroyo in the House of Representatives, but these were subsequently dismissed in August of 2006. On October 5, 2007, a new impeachment complaint was filed against President Arroyo following bribery allegations involving government officials allegedly involved in the approval of a government contract with a Chinese telecommunications company. This impeachment complaint was dismissed by the House of Representatives on November 26, 2007. A fourth impeachment complaint was filed against President Arroyo on October 13, 2008 alleging culpable violation of the Constitution for approving the Northrail rehabilitation project, numerous human rights violations and alleged ballot-switching in the 2004 presidential election, among others. This impeachment complaint was also dismissed on November 26, 2008. There have been media reports that opposition parties, including former members of the military, continue to call for President Arroyo’s resignation.

The Philippines Presidential, Legislative and local elections are scheduled to be held on May 10, 2010. The 2010 elections shall lead to the election of the 15th President and Vice President of the Philippines, respectively. The legislators elected in the 2010 elections will join the senators of the 2007 elections and will comprise the 15th Congress of the Philippines. The 2010 election will be administered by the Commission on Elections in compliance with the Republic Act No. 9369, also known as the Amended Computerization Act of 2007, and thus, shall also be the first computerized election in the Philippines.

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Furthermore, the Philippines has been subject to sporadic terrorist attacks in the past several years. The Philippine army has been in conflict with the Abu Sayyaf organization, which has been identified as being responsible for kidnapping and terrorist activities in the Philippines. A series of bombings in the southern part of the Philippines also occurred in 2004. Although no one has claimed responsibility for these attacks, it is believed that the attacks are the work of various separatist groups, including possibly the Abu Sayyaf organization, which is alleged to have ties to the Al-Qaeda terrorist network. On February 14, 2005, three bomb explosions in the Makati financial district in Manila, Davao City and General Santos City resulted in the deaths of eight persons and injured more than 100 persons. The Abu Sayyaf organization claimed responsibility for the attack. The Philippine army has also been fighting a counter-insurgency campaign against the communist New People’s Army (NPA) for decades, and the Arroyo administration has announced plans to increase the intensity of its efforts against the NPA. There can be no assurance that the Philippines will not be subject to further acts of terrorism or negative effects of its counter-insurgency campaign in the future.

No assurance can be given that the future political or social environment in the Philippines will be stable or that current or future governments will adopt economic policies conducive to sustaining economic growth. Political or social instability in the Philippines could negatively affect the general economic conditions and operation environment in the Philippines, which could have a material impact on the Company’s business, financial position and results of operation.

The Company’s business and sales may be negatively affected by slow growth rates and economic instability in the Philippines as a result of the global economic recession or other factors adversely affecting the country’s economic performance.

The Company derives approximately 99.0% of its sales from its Philippine operations. The Company’s products are discretionary in nature and may be adversely impacted by weak economic conditions in the Philippines. The Company’s future growth depends in large part on continued economic growth in the Philippines.

The Philippines has experienced periods of slow or negative growth, high inflation, significant depreciations of the Philippine peso and debt restructuring, and has been significantly affected by economic volatilities in the Asia-Pacific region. After the onset of the Asian financial crisis in mid-1997, the Philippines experienced unfavorable economic conditions, including currency depreciation, reduced availability or higher cost of credit, interest rate volatility and a reduction of foreign currency reserves. Currently, the Philippines is threatened by the downstream effects of the recent global economic downturn. The Philippines is currently experiencing job layoffs, slowdown in export growth, stock trading volatility and reduction in personal consumption expenditure, among others. No assurance can be given on the extent the global recession shall effect the economic conditions and operating environment in the Philippines.

Historically, the Philippines has experienced volatility in the exchange rate between the Philippine peso and the U.S. dollar, as well as against other currencies. The Philippines has also experienced volatility of the prices of shares traded on the domestic stock market. The Company cannot assure prospective investors that one or more of these factors will not negatively impact Philippine consumers’ purchasing power or product preferences, which could materially and adversely affect the Company’s financial position and financial performance.

For more information, see “Management’s Discussion and Analysis of Financial Position and Financial Performance — Factors Affecting Financial Performance” on pages 55-56 of this prospectus and “Business Overview — Strategies” on pages 78-80 of this prospectus.

If foreign exchange controls were to be imposed, the Company’s ability to purchase raw materials, primarily malted barley and technically advanced equipment, could be adversely affected.

Currently, the Philippines does not have foreign exchange controls. However, the BSP has statutory authority, with the approval of the President of the Philippines, during a foreign exchange crisis or in times of national emergency, to:

• suspend temporarily or restrict sales of foreign exchange;

• require licensing of foreign exchange transactions; or

• require the delivery of foreign exchange to the BSP or its designee banks for the issuance and guarantee of foreign currency-denominated borrowings.

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The Company purchases some critical raw materials, primarily malted barley, and most of its technically advanced equipment from abroad and needs foreign currency to make these purchases. The Company cannot assure prospective investors that foreign exchange controls will not be imposed by the Government in the future. If imposed, these restrictions could materially and adversely affect the Company’s ability to obtain malted barley and other materials from abroad, which could materially and adversely affect its financial position and financial performance.

The occurrence of natural catastrophes or blackouts may materially disrupt the Company’s operations.

The Philippines has experienced a number of major natural catastrophes in recent years including typhoons, volcanic eruptions, earthquakes, mudslides, droughts and floods related to the El Niño and La Niña weather events. Natural catastrophes may impair the economic conditions in the affected areas, as well as the overall Philippine economy, and disrupt the Company’s ability to produce or distribute its products. The Philippines has also experienced electricity blackouts, both from insufficient power generation and from disruptions such as typhoons. These types of events may materially disrupt and adversely affect the Company’s business and operations. The Company cannot assure prospective investors that the insurance coverage it maintains for these risks will adequately compensate the Company for all damages and economic losses resulting from natural catastrophes or blackouts, including possible business interruptions.

RISKS ASSOCIATED WITH THE OFFER

Secondary trading of the Bonds is subject to various market factors.

The Company plans to list the Bonds in the PDEx to provide price transparency and liquidity to the Bondholders. As with other fixed income securities, the Bonds could trade at prices higher or lower than the initial offering price due to prevailing interest rates, the Company’s operations, the overall market for debt securities, political and economic developments in the Philippines and other regions, among others. It is possible that a selling Bondholder would receive sales proceeds lower than his initial investment should a Bondholder decide to sell his Bonds prior to maturity.

The Bonds will constitute direct, unconditional, unsubordinated, general and unsecured obligations of the Issuer.

The Bonds will rank at least pari passu in all respects and rateably without preference or priority (except for any statutory preference or priority applicable in the winding-up of the Issuer) with all other outstanding unsecured and unsubordinated obligations (contingent or otherwise, present and future) of the Issuer.

The Bonds may be redeemed prior to Maturity Date upon the occurrence of certain events such as change in taxation or regulation.

Upon the occurrence of certain events such as a change in Philippine tax or regulatory laws or their general application or interpretation having an effect on the Company, the Bonds could be redeemed in whole but not in part prior to the Maturity Date. In such an event, the Bonds shall be redeemed at the relevant Issue Price plus accrued interest.

There is no assurance that a market for the Bonds will exist, and the Bonds may offer limited liquidity.

The Bonds constitute a new issue of securities by the Company. Prior to this issue, there has been no public market for the Bonds. Although the Company intends for the Bonds to be listed on PDEx as soon as reasonably practicable, there can be no assurance that an active public market for the Bonds will develop and, if such a market were to develop, the Joint Lead Managers and Underwriters are under no obligation to maintain such a market. The liquidity and the market prices for the Bonds can be expected to vary with changes in market and economic conditions, the financial position and prospects of the Company and other factors that generally influence the market prices of securities.

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RISKS RELATI.G TO CERTAI. STATISTICAL I.FORMATIO. I. THIS PROSPECTUS

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

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USE OF PROCEEDS

The Company intends to use the net proceeds of this Offer to fund the Proposed Acquisitions. Specifically, the Company intends to use the net proceeds as follows:

P 32.0 billion for the Brand Acquisition; and P 6.8 billion for the Land Acquisition.

Any additional funding required to complete the Proposed Acquisitions will be sourced through additional borrowings1. In the event that the net proceeds of this Offer will be insufficient to finance the Proposed Acquisitions, the Company intends to place the amount in short-term Government securities with maturities of up to three months until such time that the full amount required for the Proposed Acquisitions is raised. Further, the Company undertakes that it will not use the net proceeds from this Offer for any other purpose.

For more information on the Proposed Acquisitions, see “Proposed Acquisitions” on pages 29-36 of this prospectus.

The Company estimates that the net proceeds from this Offer, after deducting expenses payable by the Company, will be approximately P 38,400,152,939.52 (the “Net Proceeds”). Net proceeds from the Offer are estimated as follows:

Estimated Proceeds from the Sale of the Bonds P 38,800,000,000.00Less: Estimated Expenses

Documentary Stamp Tax 194,000,000.00SEC Registration

SEC Registration Fee 10,262,500.00SEC Legal Research and Publication Fee 102,625.00SEC Publication Fee 100,000.00

Underwriting and Other Professional FeesUnderwriting and Selling Fee 187,741,935.48Legal Fee 2,000,000.00Rating Fee 3,360,000.00Listing Application Fee 150,000.00Listing Maintenance Fee* 450,000.00Printing Cost** 150,000.00Trustee Fees*** 180,000.00Paying Agency and Registry Fees**** 1,050,000.00Investors' Conference Fee 100,000.00Miscellaneous Fees 200,000.00

Estimated Net Proceeds to the Company P 38,400,152,939.52

The Issuer will be charged an Annual Maintenance Fee of P150,000 per tranche of the Bonds, payable every January of each year.

The fee shown is for the first year only.** Estimated based on previous issuances.*** The Issuer will pay the Trustee a fixed annual fee of P180,000. The fee shown is for the first year only.**** The Issuer will pay PDTC P100,000 per tranche per interest payment date. The Paying Agency fee shown is for the first year

only. The Registrar will charge (i) a monthly maintenance fee based on the face value of the Bonds and the number of Bondholders and (ii) out of pocket expenses for cost of mailing statement of accounts to Bondholders. The total amount shown includes an account opening fee of P75.00 assuming 6,000 Bondholders.

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

28

PROPOSED ACQUISITIO.S

On December 8, 2008, the Board of Directors of SMC approved the transfer of the SMB Brands and SMB Land to Iconic and Brewery Properties, respectively. Iconic and Brewery Properties are wholly-owned subsidiaries of SMC.

On January 27, 2009, the Company's Board of Directors approved the purchase of all the interests of SMC in Iconic after completion of the transfer by SMC to Iconic of the SMB Brands (“Brand Acquisition”). The Company and SMC agreed on the purchase price of P32.0 billion.

The Company engaged UBS Investments Philippines Inc. as its financial adviser to perform a valuation study and analysis is connection with the Brand Acquisition. The Company arrived at the purchase price after taking into account the valuation and analysis. The purchase price agreed upon is within the value range yielded by the relevant methodologies considered applicable to the Company.

On the same date, the Company's Board of Directors also approved the purchase of all the interests of SMC in Brewery Properties after SMC has transferred the SMB Land to Brewery Properties (the “Land Acquisition” and, together with the Brand Acquisition, the “Proposed Acquisitions”). The purchase price for the Land Acquisition is P 6.829 billion, which is equivalent to the appraised value of the SMB Land transferred by SMC to Brewery Properties.

The transfer of the SMB Brands to Iconic was approved by the SEC on February 27, 2009 while the transfer of the SMB Land to Brewery Properties is pending completion to date.

The Company intends to enter into the agreements with SMC for the Brand Acquisition and the Land Acquisition by end March and end April 2009, respectively.

The Company intends to use the proceeds from the Offer together with any additional funding to fund the Proposed Acquisitions. For a detailed description of the funding of the Proposed Acquisitions, see “Use of Proceeds” on page 28 of this prospectus.

The Company currently expects the Brand Acquisition to be completed by end April 2009, and the Land Acquisition to be completed by end 2009. Each Proposed Acquisition, however, is subject to conditions that may not be satisfied. The Company can provide no assurance that the Proposed Acquisitions will be completed on a timely basis or at all.

THE SMB BRA.DS

The following is a description of the SMB Brands to be acquired by the Company under the Brand Acquisition.

LIST OF REGISTERED BRA.DS

Country Owner Mark Class Goods

Philippines SMC CALI Device 32 Shandy, beers, mineral and aeratedwaters, other non-alcoholic drinks, fruitdrinks, fruit juices, syrups and otherpreparations for making beverages

Philippines SMC CALI Label & Design 32 Shandy

Philippines SMC CALI ICE LABEL 32 Beers; mineral and aerated waters andother non-alcoholic drinks; fruit drinksand fruit juices; syrups and otherpreparations for making beverages

Philippines SMC CERVEZA NEGRA 33 Malt beverages

Philippines SMC CERVEZA NEGRA AN 32 BeerEXHILARATING DARK LAGER LABEL DESIGN

Philippines SMC SAN MIGUEL PALE PILSEN 32 BeerFIESTA LABEL DESIGN

29



Philippines SMC GOLD EAGLE BEER & BOTTLEDESIGN

Philippines SMC GOLD EAGLE BEERCONTAINER MARK

Philippines SMC GOLD EAGLE & DEVICE

Philippines SMC GOLD EAGLE BEER MUCHO &EAGLE DEVICE

Philippines SMC GRANDE

Philippines SMC MIGUELITO

Philippines SMC MUCHO

Philippines SMC MUZIKLABAN

Philippines SMC RED HORSE & Device

Philippines SMC RED HORSE STALLION

Philippines SMC SAN MIG LIGHT (stylized word)

Philippines SMC SAN MIG STRONG ICE &DEVICE

Philippines SMC SAN MIG STRONG ICE LABEL

Philippines SMC SAN MIGUEL BEER DIVISION

Philippines SMC SAN MIGUEL BEER DIVISION

Philippines SMC SAN MIGUEL PALE PILSEN &Label Design

Philippines SMC SAN MIGUEL SUPER DRY(container)

Philippines SMC SMB PLAY & DESIGN

Philippines SMC SAN MIGUEL CORPORATIONBEER DIVISION

Philippines SMC SAN MIGUEL PILSEN ESCUDO& Label Design

30

32 Beer

32 Beer

32 Beer, lager, ale, pilsen, pilsener, pils,

stout, bock and other malt beverages

32 Beer

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

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

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

41 Entertainment services, amusementservices or recreation of people, namely, annual amateur band competitionorganized by Red Horse Beer; all services included in Class 41

32 Beer, lager, ale, pilsen, pilsener, pils,

stout, bock and other malt beverages

32 Beer

32 Beer

32 Beer

32 Beer

32 Beer and other malt-based beverages


32 Beer, ale, lager, pilsen/pilsener, pils,

stout, bock and shandy

32 Beer

41 Providing entertainment, sporting andcultural activities; providing purchase discount services, arranging andconducting promotional activities


32 Beer



Philippines SMC PASIKLABAN TOUR

Philippines SMC SUPER X SERIES (wordmark)

Philippines SMC FOUR KICKS

Philippines SMC RED HORSE (stylized wordmark)

Philippines SMC HIT KAPALIT

Philippines SMC Ito ang Tama (wordmark)

Philippines SMC RED HORSE BEER EXTRASTRONG & DEVICE

Philippines SMC 4KICKS (word mark)

Philippines SMC OKTOBERFEST

Philippines SMC GOLD EAGLE AGILAKADNIGHTS (WORD MARK)

Philippines SMC SAN MIGUEL DESIGN MARK

Philippines SMC RED HORSE BEER ITO ANGTAMA (Copyright)

Philippines SMC SAN MIGUEL BEER GRANDE(NAGKAISA ANG GRUPO) (copyright)

31

41 Organizing and providing entertainmentand recreational service and cultural activities, namely, rock band concerts and variety shows

41 Organizing and providing sportingactivities, namely, extreme sports events

41 Organizing and providing entertainment,recreational, and promotional activities

32 Beer, lager, ale, pilsen/pilsener/pils, stout,bock and malt beverages all included in Class 32

41 Organizing and providing entertainmentand recreational services and sporting and promotional activities, namely, on-premise dart competitions

16, 18 Class 16 - Promotional materials made of& 25 paper or cardboard, namely, stationery,

paper envelopes and paper pouches, calendars, catalogues, posters, postcards, printed publications, advertisement boards of paper and cardboard, bottle wrappers of cardboard and paper boxes of cardboard and paper, and labels (not of textile)

Class 18 - Bags made of leather and imitation of leather, garment bags for travel, umbrellas

Class 25 - T-shirts, shirts, clothing jackets, caps, shorts

32 Beer, lager, ale, pilsen/pilsener/pils, stout,bock and malt beverages all included in Class 32

41 Organizing and providing entertainment,recreational, and promotional activities

41 Month-long beer festival of San Miguel inwhich there would be events and promotions like concerts, beer and food stalls, contests, stalls in which promotional/novelty items are sold

41 Beer drinking event with on-premise

selling and karaoke singing

32 Malt Beverages

M --



Philippines SMC MAG-RELAKS MAG-GOLD Class ofEAGLE BEER Work:

M

Philippines SMC PLASTIC CASE (SAN MIGUEL Int'l Plastic crateBEER) Class 21

Philippines SMC A BOTTLE (SAN MIGUEL BEER) 21 Container for beer

LIST PE.DI.G APPLICATIO.SCountry Owner Mark Class Goods

Philippines SMC SAN MIGUEL SUPER DRY LABEL DESIGN

Philippines SMC GOLD EAGLE BEER KING & EAGLEDESIGN

Philippines SMC MULA SA SAN MIGUEL (Copyright)

Philippines SMC CERVEZA PALE PILSEN ESCUDO &LABEL DESIGN

Philippines SMC SAN MIGUEL PALE PILSEN DRAFT LABELDESIGN

Philippines SMC SAN MIGUEL PALE PILSEN WITHRECTANGULAR HOPS AND MALT

Philippines SMC CERVEZA NEGRA 1890 A DISTINCTPLEASURE LABEL DESIGN

Philippines SMC MAGNUM BEER (WORDMARK)

Philippines SMC SAN MIGUEL PREMIUM ALL-MALT BEER& LABEL DESIGN

Philippines SMC SAN MIGUEL PALE PILSENOKTOBERFEST & LABEL DESIGN

Philippines SMC SAN MIGUEL ICE & DEVICE

Philippines SMC SAN MIGUEL DOUBLE CHILL DRAFT

Philippines SMC SAN MIGUEL DOUBLE CHILL PALEPILSEN

Philippines SMC GOLD EAGLE VIDEOKE KINGWORDMARK

Philippines SMC METHOD OF MAKING COLORLESS ANDARTIFICIALLY COLORED CLEAR BEER

Philippines SMC SAN MIGUEL DARK BEER & LABELDESIGN

32 Beer

32 Beer

Copyright Application

32 Beer

32 Beer

25 & 32 Class 25 - Clothing Class 32 - Beer

41 Events, competitions,

advertisements

32 Beer

32 Beer

32 Beer

32 Beer

32 Beer

32 Beer

41

- Clear beer

32 & 33 Beer, ale and non-alcoholic malt based beverages

32

THE SMB LA.D

The following is a description of the SMB Land.

Description and Use Address / LocationArea in

TCT .o. sq.mts (LandTitle)

AppraisedValue

GREATER MA.ILA AREA

Sales Office -Sta.Ana

Polo Brewery

Polo Brewery

Polo Brewery

Region/Sales Office -Caloocan

Sales Office - Tondo

Sales Office - Cubao

Sales Office - San Isidro

Sales Office - Guiguinto

M. Carreon St., Brgy. 866, Sta. Ana, ManilaDona Juana St., Brgy. Potrero, Malabon City

Mc. Arthur Highway, Brgy. Marulas, Valenzuela City

Banana Road cor. Dona Juana St., Potrero, Malabon City

A. Cruz St., Brgy. 96, Caloocan City

Honorio Lopez Blvd., Guidote St., Tondo, Manila

Brgy. Mangga, Cubao, Quezon City

Gapan-Olongapo Rd., Poblacion, San Isidro, Nueva EcijaCagayan Valley Rd., Brgy. Sta. Cruz, Guiguinto, Bulacan

-240375- 6,865.50 102,982,500

M-34533 882 5,292,000

T-1759 80,064 1,200,960,000T-126206 532 7,980,000T-126207 268 4,020,000T-126208 174 2,610,000T-126209 189 2,835,000T-197295 481 7,215,000T-134350 10,513 63,078,000-R-1383- 8,933 53,598,000C-18257 4,586 45,860,000C-18258 5,117 51,170,000C-18259 361 3,610,000

-139443- 3,000 60,000,000

-139444- 1,290 25,800,000

RT-82256 (235850) 10,000 200,000,000

NT-163434 5,000 5,103,000

T-248955 6,819 34,095,000

CE.TRAL .ORTH LUZO.

San Fernando Brewery / Region/Sales Office

Region/Sales Office -DagupanRegion/Sales Office - La Union

Region/Sales Office -Cauayan

Region/Sales Office -Angeles

Region/Sales Office - San NicolasSales Office -Carmen

Sales Office - Baguio

Sales Office - Santiago

Warehouse - Ilocos

Warehouse - Lallo

Brgy. Quebiawan,McArthur Hi-way, San Isidro, San Fernando, Pampanga

Caranglaan Dist., Dagupan City, PangasinanPennsylvania Ave., Brgy. Madayegdeg, San Fernando, La Union

Brgy. San Fermin, Cauayan City, Isabela

San Andres St., San Angelo Subd., Sto.Domingo, Angeles City, Pampanga

Brgy. 22, San Guillermo, San Nicholas, Ilocos NorteCarmen East, Rosales, Pangasinan

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

National Road, Brgy. Mabini, Santiago City, Isabela

Brgy. Tablac, Candon City, Ilocos Sur

Sta Maria, Lallo, Cagayan

33

150392-R 550,018 1,650,054,000152641-R 11,718 35,154,000152640-R 3,702 11,106,000152639-R 1,692 5,076,000

-48189- 5,060 43,010,000

T-20561 5,496 27,480,000

T-150299 1,262 3,786,000T-150300 1,001 3,003,000T-173718 1,500 4,500,000

29659 3,536 10,608,000-52655- 925 2,922,600-52656- 944 2,969,400

T-22877 4,127.46 18,574,000

T-23010 5,000 10,000,000T-61442 500 4,000,000T-61441 2,624 20,992,000T-61440 1,000 8,000,000T-61443 363 2,904,000T-50279 500 4,000,000T-50330 292 2,336,000

T-179780 5,000 15,000,000

T-15637 5,000 8,000,000

T-50909 3,000 4,500,000



AppraisedValue

SOUTH LUZO.Area/Sales Office -Canlubang

Region/Sales Office -Lucena

Sales Office -Gumaca

Region/Sales Office -Naga

Warehouse

Warehouse

Warehouse

Region/Sales Office -Batangas

.EGROS

Bacolod Brewery/Sales Office

Warehouse - Sum-ag

Sales Office -Himamaylan

Sales Office - Iloilo

Silangan Exit, Canlubang, Calamba City

Maharlika Highway, Brgy. Isabang, Lucena City

Maharlika Highway, Brgy. Villabota, Gumaca, Quezon

Maharlika Highway, Brgy. Concepcion, Pequena, Naga City

Brgy. Mandaragat, Puerto Princesa City, PalawanBrgy., Labangan, San Jose, Occidental MindoroJP Laurel Hi-way, Brgy. Balintawak, Lipa City, Batangas

National Road, Brgy. Balagtas, Batangas City, Batangas

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

Flores St., Brgy. Sum-ag, Bacolod City, Negros Occidental

National Highway, Brgy.4, Himamaylan City, Negros Occidental

Muelle Loney St., Brgy. Legaspi, Iloilo City

T-172606 37,000 111,000,000

T-30190 2,100 6,300,000T-30203 1,005 3,015,000

T-163370 3,000 7,500,000

T-10692 260 0

T-10693 5,811 34,866,000

-20799- 1,512 6,726,000

6467 5,000 25,000,000

T-5548 3,822 5,733,000

T-78152 3,850 30,800,000

T-17707 5,000 12,500,000T-17708 149 373,000

T-141422 123,965T-141424 1,500T-141425 2,000T-141426 2,000T-141427 2,000T-141428 750T-141429 750T-141430 750T-141431 750T-141432 750T-141433 750 277,137,000T-141434 750T-141435 750T-141436 2,000T-141437 2,000T-141438 2,000T-141439 1,500T-141440 1,500T-141441 1,500T-141442 3,000T-141443 3,000

T-125650 3,480 4,176,000

T-69650 1,208 2,174,400T-73626 732 1,317,600T-73624 1,268 1,999,836T-33006 3,828 24,882,000T-33007 258 1,677,000

Sales Office - Numancia Brgy. Camansi Norte, Numancia, Aklan T-0-276 5,958 8,925,000Sales Office - Roxas Brgy. Libas, Roxas City T-13130 9,500 19,000,000

34



AppraisedValue

VISAYAS

Mandaue Brewery/Sales Office

Deepwell D

Deepwell E

Deepwell F

Deepwell B

Deepwell G

Deepwell C

Region/Sales Office -Tacloban

MI.DA.AO

Davao Brewery

Region/Sales Office -Opol

Warehouse - Tagum

Warehouse - GenSan

Warehouse - Marbel

National Highway, Brgy. Tipolo, Mandaue City



P. Pasubas St., Brgy. Tipolo, Mandaue City

Tambalan-Budla-an, Brgy.Tambalan, Mandaue City

Private Road, Brgy. Cabancalan, Mandaue CityPrivate Road, Brgy. Cabancalan, Mandaue CityAS Fortuna St., Brgy. Banilad, Mandaue CityPrivate Road, Brgy. Cabancalan, Mandaue City

H. Cortes St., Brgy. Banilad, Mandaue City

Fatima Village, Brgy. 73 (formerly part of Brgy. Sagcahan), Tacloban City

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

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

National Highway, Brgy. Magugpo, Tagum City

National Highway, Brgy. Lagao, General Santos City

Sergio Osmena St., Brgy. Poblacion, Koronadal City

35

-11787- 37,494 581,157,000

-11786- 13,639 211,404,500

-11206- 5,811 90,070,500

T-17143 3,000 46,500,000

-10888- 1,365 21,157,500

-30010- 4,826 74,803,000-30009- 35,567 551,288,50016110 16,043 248,666,500-10887- 10,241 158,735,500

T-16649 1,187 18,398,500

-16689- 457 7,083,500

T-16648 2,098 32,519,000

-8190- 1,320 20,460,000-8734- 1,320 20,460,000-8733- 1,320 20,460,000-9484- 1,320 20,460,000-9483- 1,320 20,460,000

T-85039 1,000 2,000,000T-85046 4,614 9,228,000-85043- 400 800,000

T-85041 400 800,000

-8803- 636 1,590,000

-11761- 1,081 2,702,500

- 19033 - 400 2,400,000

-38618- 331 662,000

T-16844 1,880 8,460,000

T-19820 320 384,000T-19821 1,064 1,276,800T-19822 1,096 1,315,200

T-26530 269,573 161,743,800

T-3419 4,146 3,316,800T-3420 397 317,600

T-3420-A 4,926 3,940,800T-3422 1,535 1,228,000T-3423 3,727 2,981,600T-21267 1,946 1,556,800T-21268 791 632,800T-21269 1,916 1,532,800T-21270 721 576,800T-60306 2,850 8,550,000T-60307 2,850 8,550,000

T-33128 20,000 30,000,000

T-33853 1,511 7,555,000T-49827 737 3,685,000



AppraisedValue

Region/Sales Office -Zamboanga

Warehouse - Tandag

Region/Sales Office -Butuan

Warehouse - Digos

RT Lim Blvd., Baliwasan, Zamboanga City

Brgy. Bongtod, Tandag City, Surigao del Sur

Fort Poyohan, Molave St., Butuan City

JP Rizal Ave., Poblacion, Digos City

T-53,629 2,000 8,000,000

T-48,426 3,736 14,944,000T-47,396 1,500 6,000,000T-47,397 1,500 6,000,000T-47,398 2,160 5,576,000

T-5569 L-3411 221 331,500

T-5569 L-3409 323 485,000T-6293 243 364,500T-14953 2,375 1,663,000T-14955 873 459,000

(T-10158) - T-2323 2,800 14,000,000

TOTAL 1,494,947.96 6,828,978,636

36

DETERMI.ATIO. OF ISSUE PRICE

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

37

PLA. OF DISTRIBUTIO.

The Company plans to issue the Bonds to institutional and retail investors through a general public offering to be conducted by the Joint Lead Managers and Underwriters.

JOI.T LEAD MA.AGERS A.D U.DERWRITERS

The Development Bank of the Philippines and The Hongkong and Shanghai Banking Corporation Limited, as Joint Issue Managers, have agreed to act as arranger in the issuance, placement, distribution, and sale of the Bonds and together with BDO Capital & Investment Corporation (“BDO”), BPI Capital Corporation (“BPI Capital”), China Banking Corporation (“CBC”), First Metro Investment Corporation (“FMIC”), ING Bank, N.V. (“ING”), Land Bank of the Philippines (“LBP”), Philippine Commercial Capital, Inc. (“PCCI”), RCBC Capital Corporation (“RCBC”), Standard Chartered Bank (“SCB”) and Union Bank of the Philippines (“UBP”) (collectively, the “Joint Lead Managers and Underwriters”), to distribute and sell the Bonds at the Issue Price, pursuant to an Issue Management and Underwriting Agreement entered into with the Company on March 16, 2009 (the “Issue Management and Underwriting Agreement”). Each Joint Lead Manager and Underwriter has committed severally to underwrite the Offer on a firm basis. The underwriting commitment of each of the Joint Lead Managers and Underwriters is as follows:

Principal Amount of the BondsBDO P10,000,000,000.00BPI Capital P2,000,000,000.00CBC P3,000,000,000.00DBP P3,000,000,000.00FMIC P4,800,000,000.00HSBC P3,000,000,000.00ING P2,000,000,000.00LBP P2,000,000,000.00PCCI P2,000,000,000.00RCBC P2,000,000,000.00SCB P2,000,000,000.00UBP P3,000,000,000.00Total…………………… P38,800,000,000.00

There is no arrangement for any of the Joint Lead Managers and Underwriters to put back to the Issuer any unsold Bonds.

The Issuer shall pay each of the Joint Lead Manager and Underwriter a fee of 0.45% flat based on its underwriting commitment , as Joint Lead Manager and Underwriter’s fee (the “Joint Lead Manager and Underwriter’s Fee”).

The Joint Lead Manager and Underwriter’s Fee shall be grossed up for gross receipts tax of 7%. The fees due to the Joint Lead Managers and Underwriters together with any applicable gross receipts tax or its equivalent and net of any applicable withholding tax arising in respect of such fee, shall be due and payable by the Issuer to the Joint Lead Managers and Underwriters immediately upon receipt of confirmation from the Issuer’s bank that cleared funds representing payments for all accepted Applications to Purchase have been credited to the account designated by the Issuer. The Joint Lead Managers and Underwriters are authorized to organize a syndicate of Participating Underwriters for the purpose of the Offer. However, the Company has no obligation to any member of such syndicate for the payment of any fee, underwriting or participating commissions.

The Issue Management and Underwriting Agreement may be terminated or suspended by the Joint Lead Managers and Underwriters under certain circumstances prior to the issuance of the Bonds and payment being made to the Company of the net proceeds of the Bonds. The Joint Lead Managers and Underwriters are duly licensed by the SEC to engage in underwriting or distribution of the Bonds. The Joint Lead Managers and Underwriters may, from time to time, engage in transactions with and perform services in the ordinary course of business for the Company or any of its subsidiaries. The Joint Lead Managers and Underwriters have no direct relations with the Company in terms of ownership by either of their respective major stockholder/s, and have no right to designate or nominate any member of the Board of Directors of the Company.

38

The following includes a summary of certain provisions of the Issue Management and Underwriting Agreement entered into by the Issuer and the Joint Lead Managers and Underwriters. This summary does not purport to be complete and is qualified in its entirety by reference to the Issue Management and Underwriting Agreement.

SALE A.D DISTRIBUTIO.

The distribution and sale of the Bonds shall be undertaken by the Joint Lead Managers and Underwriters who shall sell and distribute the Bonds to institutional and retail investors. The Joint Lead Managers and Underwriters are authorized to enter into sub-underwriting agreements with Participating Underwriters for the sale and distribution to the public of the Bonds; provided, however, that the Joint Lead Managers and Underwriters shall remain solely responsible to the Issuer in respect of their obligations under the Issue Management and Underwriting Agreement entered into by them with the Issuer and the Issuer shall not be bound by any of the terms and conditions of any agreement entered into by the Joint Lead Managers and Underwriters with the Participating Underwriters. Nothing herein shall limit the rights of the Joint Lead Managers and Underwriters from purchasing the Bonds for their respective accounts.

TERM OF APPOI.TME.T

The engagement of the Joint Lead Managers and Underwriters shall subsist in accordance with the terms of the Issue Management and Underwriting Agreement. The obligations of each Joint Lead Manager and Underwriter will be several, and not solidary with the other Joint Lead Managers and Underwriters, and nothing in the Issue Management and Underwriting Agreement shall be deemed to create a partnership or joint venture between or among any of the parties therein. Unless otherwise expressly provided in the Issue Management and Underwriting Agreement, the failure by any Joint Lead Manager and Underwriter to carry out its obligations shall not relieve any other Joint Lead Manager and Underwriter of its obligations thereunder, nor shall any Joint Lead Manager and Underwriter be responsible for the obligations of any other Joint Lead Manager and Underwriter thereunder.

MA..ER OF DISTRIBUTIO.

The Joint Lead Managers and Underwriters, in consultation with the Issuer, shall agree on the procedure for application, acceptance, or rejection of the Applications to Purchase, whether in whole or in part (the “Allocation Plan”). Consistent with bank procedures and the Allocation Plan, each of the Joint Lead Managers and Underwriters and Participating Underwriters shall observe the policies and procedures regarding acceptance of Applications to Purchase, evaluation and assessment of such applications and supporting documentary requirements, allocations of the Bonds to clients and acceptance of deposits of its potential investors.

Based on each Joint Lead Manager and Underwriter’s and Participating Underwriter’s tentative reports on sales, as monitored by the Joint Issue Managers during the Offer Period, the Joint Issue Managers shall, as soon as practicable, commence the evaluation of the same for purposes of allocating the Bonds to applicants based on the Allocation Plan.

OFFER PERIOD

The Offer Period shall commence at 9:00 a.m. on March 18, 2009 and end at 12:00 p.m.] on March 27, 2009 or such other dates as may be determined by the Issuer and the Joint Issue Managers.

APPLICATIO. TO PURCHASE

All applications to purchase the Bonds shall be evidenced by a duly completed and signed Application to Purchase. An Application to Purchase may be obtained from the Joint Lead Managers and Underwriters and the Participating Underwriters by interested corporate/institutional investors and upon submission, must be accompanied by the following documents, among others: (i) two fully executed signature cards authenticated by the corporate secretary or authorized officer; (ii) a copy of its Certificate of Incorporation issued by the SEC or equivalent government institution, its Articles of Incorporation and By-Laws and latest amendments thereof stamped and signed as certified true copies by the SEC or the applicant’scorporate secretary or by an equivalent authorized officer(s) who is/are authorized signatories; (iii) duly notarized certificate of its corporate secretary or other authorized officer setting forth the resolution of the board of directors or its equivalent body authorizing the purchase of the Bonds indicated in the Application to Purchase and designating the authorized signatory(ies) for the purchase of the said Bonds with their specimen signatures; and (iv) identification document(s) of

39

applicant’s authorized signatories. Individual applicants must, on the other hand, submit, among others, (i) a photocopy of any valid identification card duly issued by the Government showing the signature and residential address of the applicant and (ii) two duly accomplished signature cards containing the specimen signature of the applicant.

Each Joint Lead Manager and Underwriter and Participating Underwriter shall be responsible for accepting payments accompanying the Applications to Purchase of their respective clients in accordance with the Issue Management and Underwriting Agreement and the relevant sub-underwriting agreement.

An applicant who is exempt from or is not subject to withholding tax, or who claims reduced tax treaty rates shall, in addition, be required to submit the following requirements to the relevant Joint Lead Manager and Underwriter and Participating Underwriter (together with their Applications to Purchase) who shall then forward the same to the Registrar, subject to acceptance thereof by the Issuer and the Joint Lead Managers and Underwriters and Participating Underwriters as being sufficient in form and substance: (i) certified true copy of the original tax exemption certificate, ruling or opinion issued by the BIR confirming the exemption or preferential rate; (ii) with respect to tax treaty relief, proofs to support applicability of reduced tax rates, such as the consularized proof of tax domicile issued by the relevant tax authority of the applicant, and original or certified true copy of the SEC confirmation that the relevant entity is not doing business in the Philippines; (iii) a duly notarized undertaking declaring and warranting the applicant’s tax-exempt status or preferential tax rate entitlement and undertaking to immediately notify the Issuer of any suspension or revocation of the tax exemption certificates and treaty privileges, and agreeing to indemnify and hold the Issuer, the Registrar and the Paying Agent free and harmless against all claims, actions, suits, and liabilities resulting from the non-withholding or incorrect withholding of the required tax; and (iv) such other documentary requirements as may be required under the applicable regulations of the relevant taxing or other authorities.

Copies of the completed Applications to Purchase together with the supporting documents must be received by the Registrar from the relevant Joint Lead Manager and Underwriter and Participating Underwriter on such date/s as may be designated in the Issue Management and Underwriting Agreement. The corresponding payments received by each Joint Lead Manager and Underwriter and Participating Underwriter net of any refunds for a rejected or scaled down Application to Purchase must be deposited or be remitted not later than 11:00 a.m. of the Issue Date via RTGS to a depository account designated by the Issuer.

The Joint Lead Managers and Underwriters and the Participating Underwriters shall prepare a sales report of Applications to Purchase that each has approved, in the form required by the Registrar (the “Sales Report”). The Sales Report by each of the Joint Lead Managers and Underwriters and the Participating Underwriters shall be submitted to the Registrar no later than [5:00 p.m., three Business Days immediately preceding the Issue Date, together with such other documents as may be required by the Registrar under the Registry and Paying Agency Agreement to enable the Registrar to issue and prepare the Register of Bondholders and the relevant Securities Receipt Confirmations.

The actual number of Bonds that an applicant will be allowed to purchase is subject to the confirmation of the Joint Lead Managers and Underwriters. All Applications to Purchase shall be subject to the final approval of the Issuer and the Joint Lead Managers and Underwriters. The Issuer reserves the right to accept or reject in full or in part any Application to Purchase due to any of the grounds specified in the Issue Management and Underwriting Agreement. Moreover, any payment received upon submission of an Application to Purchase does not mean approval or acceptance by the Issuer or the Joint Lead Managers and Underwriters and the Participating Underwriters of the Application to Purchase. An Application to Purchase, once accepted, shall constitute the duly executed purchase agreement covering the amount of the Bonds so accepted and shall be valid and binding on the Issuer and the applicant. Once accepted, an Application to Purchase may not be unilaterally revoked or canceled by the applicant, in full or in part, and the rights and privileges pertaining thereto shall be non-transferrable.

MI.IMUM PURCHASE

A minimum purchase of P 50,000.00 shall be considered for acceptance. Purchases in excess of the minimum shall be in multiples of P10,000.00.

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REFU.DS

In the event an Application to Purchase is rejected or the amount of Bonds applied for is scaled down, the relevant Joint Lead Manager and Underwriter and Participating Underwriter, upon receipt of the Allocation Report, shall notify the applicant concerned that his application has been rejected or that the amount of Bonds applied for is scaled down. Payments made by the applicants whose Applications to Purchase are rejected or scaled down will be returned to them no later than three Business Days after the Issue Date by the relevant Joint Lead Manager and Underwriter and Participating Underwriter to whom the Application to Purchase was submitted, in full (in case of a rejection) or in a proportionate sum corresponding to the amount of the Bonds partially rejected (in case of a scale down), but in both instances without any interest whatsoever. Refund shall be made either (i) through the issuance of a check payable to the order of the applicant and crossed “Payees’ Account Only” and mailed or delivered, at the risk of the applicant, to the address specified in the Application to Purchase; or (ii) through the issuance of instructions for automatic credit payments to the accounts of the relevant applicants, as indicated in their respective Applications to Purchase The Issuer and the Joint Issue Managers shall not be liable in any manner to the applicant for any refund corresponding to any rejected or scaled-down Application to Purchase which is not transmitted by the relevant Joint Lead Manager and Underwriter and Participating Underwriter. In such case, the relevant Joint Lead Manager and Underwriter and Participating Underwriter shall be responsible directly to their respective applicants for the actual refund of the payment.

REGISTER OF BO.DHOLDERS

The Bonds shall be issued in scripless form and will be eligible for trading under the scripless book-entry system of PDTC. Master Bond Certificates representing the Bonds sold during the Offer Period shall be issued to and registered in the name of the Trustee, on behalf of the Bondholders.

Legal title to the Bonds shall be shown in the Register of Bondholders to be maintained by the Registrar. Initial placement of the Bonds and subsequent transfers of interests in the Bonds shall be subject to applicable Philippine selling restrictions prevailing from time to time. The Issuer will cause the Register of Bondholders to be kept at the specified office of the Registrar. The names and addresses of the Bondholders and the particulars of the Bonds held by them and of all transfers of Bonds shall be entered into the Register of Bondholders.

EXPE.SES

All reasonable and documented out-of-pocket expenses, including but not limited to, registration with the SEC, credit rating, printing, publicity, communication and signing expenses incurred by the Joint Lead Managers and Underwriters in connection with the Offer will be for the Issuer’s account irrespective of whether the Offer is completed. Such expenses are to be reimbursed upon presentation of a composite statement of account.

SECO.DARY TRADI.G

The Issuer intends to list the Bonds in PDEx for secondary market trading. The Bonds will be traded in a minimum board lot size of P 10,000.00 as a minimum, and in multiples of P 10,000.00 in excess thereof for so long as any of the Bonds are listed on PDEx. Secondary market trading in PDEx shall follow the applicable PDEx rules and conventions, which include, among others, rules and conventions on trading and settlement. Upon listing of the Bonds with PDEx, investors shall course their secondary market trades through PDEx brokering participants for execution in the PDEx Public Market Trading Platform in accordance with PDEx Trading Rules, Conventions and Guidelines, and shall settle such trades on a Delivery versus Payment basis in accordance with PDEx Settlement Rules and Guidelines. The PDEx rules and conventions are available in the PDEx website (www.pdex.com.ph).

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DESCRIPTIO. OF TERMS A.D CO.DITIO.S OF THE BO.DS

The following does not purport to be a complete listing of all the rights, obligations, or privileges of the Bonds. Some rights, obligations, or privileges may be further limited or restricted by other documents. Prospective investors are enjoined to carefully review the articles of incorporation, by-laws and resolutions of the Board of Directors of the Company submitted to the SEC, the information contained in this prospectus, the Trust Agreement, Registry and Paying Agency Agreement, Issue Management and Underwriting Agreement, and other documents relevant to the Offer.

The issue of the Bonds was authorized by a resolution of the Board of Directors of the Issuer passed on January 30, 2009. The Bonds shall be governed by a Trust Agreement (the “Trust Agreement”) executed on March 16, 2009 between the Issuer and The Hongkong and Shanghai Banking Corporation Limited (the “Trustee” which expression shall wherever the context permits, include all other persons or companies for the time being acting as Trustee or Trustees under the Trust Agreement). The description of the terms and conditions of the Bonds set out below includes summaries of, and is subject to, the detailed provisions of the Trust Agreement. A registry and paying agency agreement (the “Registry and Paying Agency Agreement”) was executed on March 16, 2009 between the Issuer and the Philippine Depository and Trust Corp. as registrar (the “Registrar”) and as paying agent (the “Paying Agent”). The Bonds will be offered and sold through a general public offering in the Philippines, and issued in minimum principal amounts of P50,000.00, and multiples of P10,000.00 in excess thereof, and traded in amounts of P 10,000.00 as a minimum, and in multiples of P 10,000.00 in excess thereof. Series A, Series B and Series C Bonds will mature on April 3, 2012, April 4, 2012 and April 3, 2019, respectively, unless earlier redeemed by the Issuer pursuant to the terms thereof and subject to the provisions on redemption and payment as summarized below.

Copies of the Trust Agreement and the Registry and Paying Agency Agreement will be available for inspection during normal business hours at the specified offices of the Trustee. The Bondholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Trust Agreement and the Registry and Paying Agency Agreement applicable to them.

FORM, DE.OMI.ATIO. A.D TITLE

Form and Denomination

The Bonds are in scripless form, and will be issued in denominations of P50,000.00 each, as a minimum, and in multiples of P10,000.00 in excess thereof.

Title

Legal title to the Bonds will be shown in the register of Bondholders (the “Register of Bondholders”) maintained by the Registrar. A notice confirming the principal amount of the Bonds purchased by each applicant in the Offer will be issued by the Registrar to all Bondholders following the Issue Date.

BO.D RATI.G

The Bonds have been rated PRS Aaa by PhilRatings. The rating is subject to regular annual review, or more frequently as market developments may dictate, for as long as the Bonds are outstanding.

TRA.SFER OF BO.DS

Register of Bondholders

The Issuer will cause the Register of Bondholders to be kept by the Registrar, in electronic form. The names and addresses of the Bondholders and the particulars of the Bonds held by them and of all transfers of Bonds shall be entered into the Register of Bondholders. As required by Circular No. 428-04 issued by the BSP, the Registrar shall send each Bondholder a written statement of registry holdings at least every quarter (at the cost of the Issuer) and a written advice confirming every receipt or transfer of the Bonds that is effected in the Registrar’s system (at the cost of the relevant Bondholder). Such statement of registry holdings shall serve as the confirmation of ownership of the relevant Bondholder as of the date thereof. Any requests of Bondholders

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for certifications, reports or other documents from the Registrar, except as provided herein, shall be for the account of the requesting Bondholder.

Transfers; Tax Status

The Bonds may be transferred upon exchange of confirmation of sale and confirmation of purchase, or by book entry in recording platforms maintained by approved securities dealers. The Registrar shall ultimately and conclusively determine all matters regarding the evidence necessary to effect any such transfer. Settlement in respect of such transfer or change of title to the Bonds, including the settlement of any documentary stamps taxes, if any, arising from subsequent transfers, shall be settled directly between the transferee and/or the transferor Bondholders.

Subject to the provisions of the Registry and Paying Agency Agreement, Bondholders may transfer their Bonds at anytime, regardless of tax status of the transferor vis-à-vis the transferee.

Should a transfer between Bondholders of different tax status occur on a day, which is not an Interest Payment Date, tax-exempt entities trading with non tax-exempt entities shall be treated as non tax-exempt entities for the interest period within which such transfer occurred. A Bondholder claiming tax-exempt status is required to submit a written notification of the sale or purchase to the Trustee and the Registrar, including the tax status of the transferor or transferee, as appropriate, together with the supporting documents specified under the Registry and Paying Agency Agreement within three days from the settlement date for such transfer.

RA.KI.G

The Bonds constitute direct, unconditional, unsecured and unsubordinated obligations of the Issuer and will rank pari passu and ratably without any preference or priority amongst themselves and at least pari passu with all other present and future, contingent or otherwise, unsecured and unsubordinated obligations of the Issuer, except for any statutory preference or priority established by law.

I.TEREST

Interest Payment Dates

Each Series A Bond bears interest on its principal amount from and including Issue Date at the rate of 8.250% per annum, payable semi-annually in arrears on October 3 and April 3 in each year (each of which, for purposes of this clause is an “Interest Payment Date”) commencing on October 3, 2009 or the subsequent Business Day without adjustment if such Interest Payment Date is not a Business Day.

Each Series B Bond bears interest on its principal amount from and including Issue Date at the rate of 8.875% per annum, payable semi-annually in arrears on October 3 and April 3 in each year (each of which, for purposes of this clause is an “Interest Payment Date”) commencing on October 4, 2009 or the subsequent Business Day without adjustment if such Interest Payment Date is not a Business Day.

Each Series C Bond bears interest on its principal amount from and including Issue Date at the rate of 10.500% per annum, payable semi-annually in arrears on October 3 and April 3 in each year (each of which, for purposes of this clause is an “Interest Payment Date”) commencing on October 3, 2009 or the subsequent Business Day without adjustment if such Interest Payment Date is not a Business Day.

The last Interest Payment Date shall fall on the relevant Maturity Date.

Interest Accrual

Each Bond will cease to bear interest on the Maturity Date, as defined in the “Final Redemption” below, unless, upon due presentation, payment of the full amount due is improperly withheld or refused or default is otherwise made in respect of such payment, in which case, the Penalty Interest (see “Penalty Interest”), below, will apply.

Determination of Rate of Interest

The interest shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed on the basis of a month of 30 days.

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REDEMPTIO. A.D PURCHASE

Final Redemption

Unless previously redeemed, purchased and cancelled, the Series A Bonds, Series B Bonds and Series C Bonds will be redeemed at par or 100.00% of their face value on April 3, 2012, April 4, 2014 and April 3, 2019, respectively (the “Maturity Date”). However, payment of all amounts due on such dates may be made by the Issuer through the Paying Agent, without adjustment, on the succeeding Business Day if the relevant Maturity Date is not a Business Day.

The Issuer may purchase the Bonds (and the Bondholders shall not be obliged to sell) at any time in the open market or by tender or by contract at any price without any obligation to make pro-rata purchases from all Bondholders. All Bonds so purchased or redeemed will be cancelled by the Issuer and may not be re-issued or re-sold.

Early Redemption due to Taxation, Change in Law or Circumstance

If payments under the Bonds become subject to additional or increased taxes other than the taxes prevailing on the Issue Date as a result of certain Changes in Law, and such additional or increased rate of such tax cannot be avoided by use of reasonable measures available to the Issuer, then the Issuer may redeem the Bonds in whole, but not in part, on any Interest Payment Date (having given not more than sixty (60 days) nor less than thirty(30) days’ notice to the Trustee) at par plus accrued interest.

In the event that there shall hereafter occur any Change in Law, or any approval, permit, license, consent, authorization, registration, exemption, or any other right to be granted or granted by the Government to the Issuer now or hereafter necessary for the conduct of the Issuer’s business or operations is not obtained, or is subsequently terminated, withdrawn, rescinded, or amended, and the result of any of the foregoing, as determined by the Issuer, will materially and adversely affect the ability of the Issuer to comply with its obligations under the Bonds or the Trust Agreement or the Issuer’s financial position or operations, then the Issuer shall redeem the Bonds at any time in whole, but not in part, (having given not more than sixty (60 days) nor less than thirty (30) days’ notice to the Trustee from the time of the occurrence of the event) at par plus accrued interest.

If any provision of the Issue Management and Underwriting Agreement, Trust Agreement, or the Registry and Paying Agency Agreement shall become, for any reason, invalid, illegal or unenforceable, or any act or condition or thing required to be done, fulfilled or performed at any time by the Issuer is not done, fulfilled or performed, to the extent that it will become unlawful for the Issuer to give effect to its rights and obligations under the Trust Agreement or the Bonds or to enforce the provisions of the Trust Agreement or the Bonds in whole or in part, then the Issuer shall redeem the Bonds at any time in whole, but not in part, (having given not more than sixty (60 days) nor less than thirty (30) days’ notice to the Trustee from the time of illegality) at par plus accrued interest.

Payments

The principal of, interest on, and all other amounts payable on the Bonds shall be paid to the Bondholders through the Paying Agent by crediting the proper amounts via RTGS, net of final taxes and fees (if any), to the Philippine Peso cash account maintained and designated by or on behalf of the Bondholder in his/her Application to Purchase. The principal of, and interest on, the Bonds shall be payable in Philippine Pesos. The Issuer shall ensure that so long as any of the Bonds remain outstanding, there shall at all times be a Paying Agent for purpose of disbursing payments on the Bonds.

Taxation

Interest income on the Bonds and the prepayment penalty are subject to a final withholding tax at rates of between 20% and 30% depending on the tax status of the relevant Bondholder under relevant law, regulation or tax treaty. Except for such final withholding tax and as otherwise provided, all payments of principal and interest are to be made free and clear of any deductions or withholding for or on account of any present or future taxes or duties imposed by or on behalf of the Republic of the Philippines, including but not limited to, issue, registration or any similar tax or other taxes and duties, including interest and penalties, if any.

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Documentary stamp tax for the primary issue of the Bonds and the execution of the Bond Agreements, if any, shall be for the Issuer’s account.

FI.A.CIAL COVE.A.TS

So long as any of the Bonds remain outstanding, the Issuer undertakes to maintain and to observe the following financial ratios:

1. Minimum current ratio of 1:1; and2. Maximum debt to equity ratio of 3.5:1.

For purposes hereof, current ratio shall mean the Issuer’s current assets divided by current liabilities and debt to equity ratio shall mean the Issuer’s total indebtedness for borrowed money divided by its total stockholders’ equity.

.EGATIVE COVE.A.TS

The Issuer covenants and agrees that the Issuer shall not, among others:

(a) create, assume, incur, permit or suffer to exist, any indebtedness to: (i) be secured by or to benefit fromany liens, encumbrances, restrictions, pledges, mortgages, security interest, charges or preferential arrangements of any kind (collectively the “Liens”) in favor of any creditor or class of creditors with respect to any present or future property of the Issuer or the right of the Issuer to receive income, unless the Bonds are secured by such Lien equally and ratably with such other indebtedness or (ii) receive any priority or preference over the claims of the Bondholders (which claims shall at all times rank pari passu in all respects with all other direct, unconditional, unsecured, and unsubordinated obligations of the Issuer other than those obligations preferred by mandatory provisions of law); provided, that for purposes of the

foregoing, the terms “Lien,” “priority” or “preference” shall not include the Permitted Liens (as this term is defined in the Trust Agreement).

(b) engage in any business except that authorized by its articles of incorporation.

(c) sell, transfer, convey, lend or otherwise dispose of all or substantially all of its assets.

(d) voluntarily suspend all or substantially all of its business operations.

(e) amend its Articles of Incorporation or By-laws, if such amendments have the effect of changing the general character of its business from that being carried on at the signing date of the Trust Agreement.

GOVER.I.G LAW

The Bonds and the Trust Agreement are governed by and are construed in accordance with Philippine law.

DEFAULT

Events of Default

The Issuer shall be considered in default under the Bonds in case any of the following events (each an “Event of Default”) shall occur:

(a) +on-payment. The Issuer fails to pay any interest or principal on any of the Bonds when due andpayable.

(b) Insolvency Default. The Issuer (i) is adjudged by a final order of a competent court to be insolvent or

bankrupt or unable to pay its debts, (ii) stops, suspends or threatens to stop or suspend payment of all or a material part of its debts, (iii) proposes or makes any agreement for the deferral, rescheduling or other readjustment of all of its debts, or (iv) proposes or makes a general assignment or an arrangement or composition with or for the benefit of the relevant creditors in respect of any of such debts. In addition, if a moratorium is agreed or declared in respect of or affecting all or any material part of the

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debts of the Issuer, such agreement or declaration shall also constitute an Event of Default under this item (b).

(c) Cross default. The Issuer defaults in the repayment of any amount of principal and premium (if any) or

interest, or violates any term or condition, in respect of any contract or contracts executed by the Issuer with any bank, financial institution or other person, corporation or entity for the payment of borrowed money which constitutes an event of default, or with the giving of notice or the passage of time would constitute an event of default, under said contract; and which (i) if remediable, is not remedied by the Issuer within 30 days from such default, or is otherwise not contested by the Issuer, (ii) results in the acceleration or declaration of the whole financial obligation to be due and payable prior to the stated normal date of maturity, or (iii) will adversely and materially affect the performance by the Issuer of its obligations under the Bonds, provided, that no Event of Default shall occur under this paragraph unless the aggregate amount of the principal, premium and interest in respect of which the Issuer has defaulted or which has been declared to be due and payable prior to the stated normal date of maturity under such contract or contracts equals or exceeds P500,000,000.00.

(d) Winding Up proceedings. The Issuer takes any corporate action or other steps are taken or legal

proceedings are started by or against the Issuer for its winding up, bankruptcy, dissolution or reorganization (except in any such case for the purposes of a merger, consolidation, reorganization, reconstruction or amalgamation upon which the continuing corporation or the corporation formed thereby effectively assumes the entire obligations of the Issuer under the Bonds and the terms of which have previously been approved by Bondholders representing at least two-thirds of the Bonds then outstanding) or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of all or substantially all of its revenues and assets, provided that for winding-up proceedings instituted against the Issuer, an Event of Default may be declared only upon issuance of a final order of a court of competent authority.

(e) Representation/Warranty Default. Any representation and warranty of the Issuer or any certificate or

opinion issued by the Issuer in connection with the issuance of the Bonds is untrue, incorrect, or misleading in any material respect as and when made and with reference to the facts and circumstances then existing, as the circumstances which caused such representation or warranty to be untrue, incorrect or misleading continue for not less than 15 days (or such longer period as the Majority Bondholders shall approve).

(f) Covenant Default. The Issuer fails to perform or violates its covenants under the Trust Agreement,

and such failure or violation is not remediable or, if remediable, continues to be unremedied for a period of 30 days from notice by the Trustee to the Issuer. For the avoidance of doubt, any violation by the Issuer of its negative covenants set out above shall be deemed irremediable.

(g) Breach of Obligations Default. The Issuer does not perform or comply with any one or more of its

obligations in the Bonds and in the Trust Agreement and such default or non-compliance is incapable of remedy or is not remedied within 30 days after notice of such default shall have been given to the Issuer at its specified office by any Bondholder or the Trustee.

(h) Expropriation Default. An order of the Government is issued to suspend the whole or a substantial

portion of the operations of the Issuer or to condemn, seize, nationalize or expropriate (with or without compensation) the Issuer or any substantial portion of its properties or assets.

(i) Judgment Default. Any final and executory judgment, decree, or arbitral award for the sum of money,

damages, fine, or penalty is entered against the Issuer and the enforcement of which is not stayed, and is not paid, discharged, or duly bonded within 60 days after the date when payment of such judgment, decree, or award is due under the applicable law or agreement and such final judgment, decree or award shall have a material and adverse effect on the Issuer’s ability to perform its obligations under the Bonds.

(j) Writ and Similar Process Default. Any writ, warrant of attachment or execution, or similar process

shall be issued or levied against all or substantially all of the Issuer's assets, and such writ, warrant, or similar process shall not be released, vacated, or fully bonded within 60 days after its issue or levy.

(k) Closure Default. The Issuer voluntarily suspends or ceases operations of a substantial portion of its

business for a continuous period of 30 days, except in the case of strikes or lockouts when necessary to prevent business losses, or when due to fortuitous events or force majeure, and, provided that, in

any such event, there is no material and adverse effect on the business operations or financial condition of the Issuer.

(l) Validity Default. The validity of the Bonds or the Trust Agreement shall be contested by the Issuer.

(m) Change of Control Default. The Issuer ceases to be at least 51% owned by its parent company,

SMC. Consequences of Default

If any one or more of the Events of Default shall occur and be continuing after the lapse of the period given to the Issuer within which to cure such Event of Default under the Trust Agreement, if any, or upon the occurrence of such Event of Default for which no cure period is provided, (i) the Trustee, upon the written direction of the Majority Bondholders, by notice in writing delivered to the Issuer, or (ii) the Majority Bondholders, by notice in writing delivered to the Issuer and the Trustee, or (iii) the Trustee, in its discretion, in case of a Non-Payment or Insolvency Default, may declare the Issuer in default and declare the principal of the Bonds then outstanding, together with all interest accrued and unpaid thereon and all amounts due thereunder, to be due and payable not later than five Business Days from the receipt of the declaration (“Default Payment Date”) with copy to the Paying Agent, who shall then prepare a payment report in accordance with the Registry and Paying Agency Agreement. Thereupon, the Issuer shall pay in accordance with the Registry and Paying Agency Agreement.

Notwithstanding the declaration of default, the Majority Bondholders, by written notice to the Issuer and to the Trustee, may rescind and annul such declaration made by the Trustee upon such terms, conditions and agreements, if any, as they may determine; provided, that, no such rescission and annulment shall extend to or shall affect any subsequent default or shall impair any right consequent thereto and shall not apply to the following Events of Default: Non-payment, Insolvency Default, Winding-up Proceedings, Expropriation Default and Closure Default. Any such rescission and annulment of declaration of default shall be conclusive and binding upon all the Bondholders and upon all future holders and owners of such Bonds, or of any Bond issued in lieu thereof or in exchange therefor.

Penalty Interest

In case any amount payable by the Issuer under the Bonds, whether for principal, interest, or otherwise, is not paid on due date, the Issuer shall, without prejudice to its obligations to pay the said principal, interest and other amounts, pay penalty fee on the defaulted amount(s) at the rate of 1.00% per month (the “Penalty Interest”) from the time the amount fell due until it is fully paid.

Payment in the Event of Default

Upon a declaration of default and acceleration of payment of the Bonds by the Majority Bondholders pursuant to the terms of the Trust Agreement, the Issuer shall pay to the Paying Agent for the benefit of the Bondholders the whole amount which shall then have become due and payable on such outstanding Bonds with interest at the rate borne by the Bonds on the overdue principal and with Penalty Interest, where applicable.

Application of Payments

Subject to the provisions of the Trust Agreement or the Registry and Paying Agency Agreement, any money collected by the Trustee from the Issuer upon a declaration of default and any other funds held by it shall be applied by the Trustee in the order of preference as follows:

(a) To the pro-rata payment to the Trustee, the Registrar and the Paying Agent of the reasonable anddocumented costs, expenses, fees, and other charges of collection, including reasonable compensation to them, their agents, attorneys, and all reasonable and documented expenses and liabilities incurred or disbursements made by them, without negligence or bad faith in carrying out their respective obligations under their respective agreements with the Issuer in connection with the Bonds.

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(b) To the payment of all outstanding interest, including any Penalty Interest, in the order of maturity ofsuch interest.

(c) To the payment of the principal amount of the Bonds then due and payable.

(d) The remainder, if any, shall be paid to the Issuer, its successors, or assigns, or to whoever may belawfully entitled to receive the same, or as a court of competent jurisdiction may direct.

Prescription

Claims in respect of principal and interest or other sums payable under the Bonds will prescribe unless made within ten (10) years (in the case of principal or other sums) or five (5) years (in the case of interest) from the date on which the payment becomes due.

Remedies

All remedies conferred by the Trust Agreement upon the Trustee and the Bondholders shall be cumulative and not exclusive and shall not be so construed as to deprive the Bondholders of any legal remedy by judicial or extra judicial proceedings appropriate to enforce such direct rights under the Trust Agreement.

No delay or omission by the Trustee or the Bondholders, or any one of them, to exercise any right or power arising from or on account of any default shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence thereto; and every power and remedy provided under the Trust Agreement to the Trustee and Bondholders may be exercised from time to time and as often as may be necessary or expedient.

Waiver

The Majority Bondholders may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred upon the Trustee, or the Majority Bondholders may decide for and in behalf of the Bondholders, upon the written request of the Issuer, to waive the application of the Events of Default and its consequences except for Non-payment, Insolvency Default, Winding-Up Proceedings, Expropriation Default and Closure Default, which Events of Default cannot be waived by the Bondholders. No such waiver shall extend to any subsequent or other default or impair any right consequent thereto. Any such waiver by the Majority Bondholders shall be conclusive and binding upon all the Bondholders and upon all future holders and owners thereof.

Ability to File Suit

No Bondholder shall have any right by virtue or by availing of any provision of the Trust Agreement to institute any suit, action or proceeding for the collection of any sum due from the Issuer on account of principal or interest, or for the appointment of a receiver or Trustee, or for any other remedy hereunder, unless (i) such holder shall previously have given to the Trustee a written notice of default and of the continuance thereof and the related request for the Trustee to convene a meeting of the Bondholders to take up matters related to their rights and interests under the Bonds, or (ii) the Majority Bondholders shall have decided and made a written request upon the Trustee to institute such suit, action or proceeding in its own name, or (iii) the Trustee for sixty(60) days after receipt of such notice and request shall have neglected or refused to institute any such suit, action or proceeding, and (iv) no directions inconsistent with such written request or rescission and annulment of a declaration default by the Bondholders has been made.

No one or more Bondholder shall have any right in any manner whatsoever by virtue of or by availing of any provision of the Trust Agreement to affect, disturb or prejudice the rights of the holders of any other such Bonds or to obtain or seek to obtain priority over or preference to any other such holder or to enforce any right under the Trust Agreement, except in the manner provided under the Trust Agreement and for the equal, ratable and common benefit of all Bondholders.

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TRUSTEE

Appointment of Trustee

The Issuer has appointed HSBC as Trustee for and on behalf and benefit of the Bondholders, in connection with the distribution and sale by the Issuer of the Bonds.

Duties and Responsibilities of the Trustee

The Trustee shall be responsible for performing, among others, the following duties for the benefit of the Bondholders:

(a) Monitor compliance by the Issuer with its obligations under the Trust Agreement;

(b) Report regularly to Bondholders any non-compliance by the Issuer with the Trust Agreement and anydevelopments with respect to the Issuer that adversely affect the interest of the Bondholders and advise the Bondholders of the course of action that they may take to protect their interest; and

(c) Act on behalf of the Bondholders including calling for and/or attending meetings of the Bondholders.

Resignation and Change of Trustee

The Trustee may resign at any time by giving the Issuer at least 60 calendar days prior written notice to that effect. Upon receipt of such notice of resignation, the Issuer shall immediately appoint a replacement trustee (the “Replacement Trustee”) by written instrument in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the Replacement Trustee. If no Replacement Trustee shall have been so appointed and have accepted appointment within thirty (30) days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a Replacement Trustee.

The Issuer may, subject to the occurrence of certain events as specified in the Registry and Paying Agency Agreement, within thirty (30) days therefrom, remove the Trustee and appoint a Replacement Trustee, by written instrument in duplicate, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the Replacement Trustee. If the Issuer fails to remove the Trustee and appoint a Replacement Trustee, any Bondholder may, on behalf of himself and all other Bondholders, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a Replacement Trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a Replacement Trustee.

The Majority Bondholders may at any time remove for cause the Trustee and with the consent of the Issuer, appoint a Replacement Trustee in accordance with the terms of the Registry and Paying Agency Agreement, without prejudice to whatever remedies may be available to the Majority Bondholders under the law or in equity.

Replacement Trustee

The Replacement Trustee shall execute, acknowledge and deliver to the Issuer and to the Outgoing Trustee an instrument accepting his/her appointment, and thereupon the resignation or removal of the Outgoing Trustee shall become effective and the Replacement Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts, duties and obligations of its predecessor under the Trust Agreement.

Upon acceptance of appointment by the Replacement Trustee, the Issuer shall notify the Bondholders in writing and/or by publication in a newspaper of general circulation in Metro Manila, Philippines of the succession of such Replacement Trustee to the duties of the Outgoing Trustee. If the Issuer fails to notify the Bondholders within ten (10) days after acceptance of appointment by the Replacement Trustee, the latter shall cause the Bondholders to be so notified at the expense of the Issuer.

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MEETI.G OF BO.DHOLDERS

The Trustee may at any time call a meeting of the Bondholders, on its own accord or upon the written request by the Issuer or Majority Bondholders, for purposes of taking any actions authorized under the Trust Agreement.

,otice of Meetings

Notice of every meeting of the Bondholders, setting forth the time, place, and purpose of such meeting in reasonable detail, shall be sent by the Trustee to the Issuer and to each of the registered Bondholders not less than fourteen (14) days prior to the date fixed for the meeting and shall likewise be published in a newspaper of general circulation in the Philippines prior to the date stated in the notice for the date of the meeting; provided, that any meetings of the Bondholders shall be held at such time and place within Metro Manila as the party requesting such meeting may determine.

Failure to Call a Meeting

The failure of the Trustee to call a meeting upon the written request of either the Issuer or the Majority Bondholders within three (3) days from such request shall entitle the requesting party to send the appropriate notice of Bondholders’ meeting and the costs therefor shall be charged to the account of the Trustee.

Quorum for Meetings

The presence of Bondholders holding 51% of the outstanding Bonds, personally or by proxy, shall be necessary to constitute a quorum to do business at any meeting of the Bondholders.

Procedure for Meetings

The Trustee shall preside at all the meetings of the Bondholders, unless the meeting shall have been called by the Issuer or by the Bondholders, in which case the Issuer or the Bondholders calling the meeting, as the case may be, shall move for the election of the chairman and secretary of the meeting.

Any meeting of the Bondholders may be adjourned from time to time for a period not to exceed in the aggregate one year from the date for which the meeting shall originally have been called, and the meeting as so adjourned may be held without further notice. Any such adjournment may be ordered by persons representing a majority of the aggregate principal amount of the Bonds represented at the meeting and entitled to vote, whether or not a quorum shall be present at the meeting.

Voting Rights

To be entitled to vote at any meeting of the Bondholders, a person should be a registered holder of the Bonds as reflected in the Register of Bondholders or a person appointed by a public instrument in writing as proxy or agent by any such Bondholder (and, in case of corporate or institutional Bondholders, duly supported by the resolutions of its board of directors or equivalent body authorizing the appointment of the proxy or agent duly certified by its corporate secretary or an authorized officer) as of the date of the meeting. For avoidance of doubt, P1.00 is equal to one (1) vote.

Voting Requirements

All matters presented for resolution by the Bondholders in a meeting duly called for the purpose shall be decided or approved by the affirmative vote of the Bondholders holding 51% of the outstanding Bonds present or represented in a meeting at which there is a quorum, except as otherwise provided in the Trust Agreement. Any resolution of the Bondholders which has been duly approved with the required number of votes of the Bondholders shall be binding upon all the Bondholders and the Trustee.

Action of the Bondholders

In cases where, pursuant to the Trust Agreement, the holders of a specified percentage of the aggregate outstanding principal amount of Bonds are allowed to take any action (including the making of any demand or request, the giving of any notice or consent, or the taking of any other action), the fact that at the time of taking

50

any such action the Bondholders of such specified percentage have joined such action may be evidenced by: (i) any instrument executed by the Bondholders in person or by the agent or proxy appointed in writing; (ii) the duly authenticated record of voting in favor thereof at the meeting of the Bondholders duly called and held in accordance with the Trust Agreement; or (iii) a combination of such instruments and any such record of meeting of the Bondholders.

,on-Reliance

Each Bondholder represents and warrants to the Trustee and to the Issuer that it has independently and, without reliance on the Trustee or the Issuer, made its own credit investigation and appraisal of the financial position and affairs of the Issuer on the basis of such documents and information it has deemed appropriate and that it has subscribed to the Bonds on the basis of such independent appraisal, and that it shall continue to make its own credit appraisal without reliance on the Trustee or the Issuer.

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CAPITALIZATIO. A.D I.DEBTED.ESS

The following table sets forth in accordance with PFRS, on an actual and pro forma consolidated basis the Company’s capitalization and indebtedness as of December 31, 2008. The figures for the examined pro forma consolidated financial statements represent audited actual amounts adjusted to reflect the impact of this Offer and the Proposed Acquisitions. The examined pro forma consolidated financial statements assume that this Offer and the Proposed Acquisitions were completed as of January 1, 2008.

The information in this table should be read in conjunction with “Selected Financial Information”, “Management’s Discussion and Analysis of Financial Position and Financial Performance”, and the Company’s financial statements and the notes thereto included in this prospectus.

As of December 31, 2008

Pro Forma

for the

Pro forma Proposed

Actual Adjustment Acquisition

(in P millions)

Cash and Cash Equivalents (1) 6,041 386 6,427

Short-term Debt - - -Long-term Debt - 38,447 38,447Equity:Common Shares - P 1.00 par value

Authorized - 25,000,000,000 sharesIssued and Paid-up - 15,410,478,960 shares 15,410 - 15,410

Additional Paid-in Capital 515 - 515Cumulative translation adjustments (45) - (45)Retained Earnings 3,130 1,670 4,800Minority Interest - 242 242Total Equity 19,010 1,912 20,922

Total Capitalization 19,010 40,359 59,369

______________

+ote:

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

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SELECTED FI.A.CIAL I.FORMATIO.

The following tables present summary financial information for the Company and should be read in conjunction with the report of independent auditors, Company’s audited historical financial statements and examined pro forma consolidated financial statements and notes thereto contained in this prospectus and the section entitled “Management’s Discussion and Analysis of Financial Position and Financial Performance.”

The information below is not indicative of the results of future operations.




P P



Statement of Income DataNet Sales 48,787 48,787 12,180

Cost of Sales (24,800) (24,800) (6,333)

Gross Profit 23,987 23,987 5,847

Administrative and selling expenses (7,288) (8,366) (2,349)

Operating Income 16,699 15,621 3,498

Interest Income 264 264 36

Interest Expense (3,484) - -

Other Income (Charges) (377) (377) 15

Income Before Tax 13,102 15,508 3,549

Income Tax Expense (4,303) (5,466) (1,239)

Net Income 8,799 10,042 2,310

Earnings per share - basic (1) 0.57 0.65 0.15Number of shares outstanding 15,410 15,410 15,333

Balance Sheet DataCash and cash equivalents 6,427 6,041 5,262Trade and other receivables - net 3,662 3,661 3,676Inventories -net 3,279 3,279 2,447Other current assets 379 418 180

Total current assets 13,747 13,399 11,565

Property, plant and equipment (net ofaccumulated depreciation andamortization) 12,932 5,864 5,616

Intangible assets 32,011 11 3Other noncurrent assets -net 5,206 5,360 5,424

Total noncurrent assets 50,149 11,235 11,043

Total assets 63,896 24,634 22,608

Accounts payable and accrued expenses 3,000 3,000 3,243Income and other taxes payable 1,518 2,585 1,710

Total current liabilities 4,518 5,585 4,953

Long-term debt (net of debt issue cost) 38,447 - -

Other noncurrent liabilities 9 39 12

Total noncurrent liabilities 38,456 39 12

Total liabilities 42,974 5,624 4,965

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P P



Capital Stock 15,410 15,410 15,333

Additional paid-in capital 515 515 -

Cumulative translation adjustments (45) (45) -

Retained Earnings 4,800 3,130 2,310

Minority Interest 242 - -

Total equity 20,922 19,010 17,643

Total liabilities and equity 63,896 24,634 22,608

Cash Flow Data

Net cash provided by (used for):

Operating activities 8,961 11,027 5,831

Investing activities (40,674) (1,645) (610)

Financing activities 32,878 (8,603) 41

Net increase in cash 1,165 779 5,262

Cash and cash equivalents, beginningof period 5,262 5,262 -

Cash and cash equivalents, end ofperiod 6,427 P6,041 P5,262

Other Financial and Operating data

EBITDA (2) 18,457 17,379 3,913

EBIT (2) 16,699 15,621 3,498

Capital Expenditure 829 829 362Depreciation and amortization 1,758 1,758 415Gross profit margin 49.2% 49.2% 48.0%

EBITDA margin 37.8% 35.6% 32.1%

EBIT margin 34.2% 32.0% 28.7%Volume (Equivalent Cases) 174.48 174.48 46.70Volume (Hectoliters) 13.40 13.40 3.59Average selling price/case (in pesos) 278.88 278.88 260.11Average selling price/Hectoliter (in

pesos) 3,632 3,632 3,389______________

+otes:

(1) Computed as net income divided by the weighted average number of Common Shares issued and outstanding each period.

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

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MA.AGEME.T’S DISCUSSIO. A.D A.ALYSIS OF FI.A.CIAL POSITIO.

A.D FI.A.CIAL PERFORMA.CE

Prospective investors should read the following discussion and analysis of the Company’s financial position and financial performance together with (i) the report of independent auditors; (ii) the audited financial statements as of December 31, 2008 and 2007, for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007 and the notes thereto; (iii) the examined pro forma consolidated financial statements as of and for the year ended December 31, 2008 that assume the Proposed Acquisitions occurred as of January 1, 2008 and the notes thereto.

OVERVIEW

The Company is the largest producer of beer in the Philippines, with a total market share of approximately 94% in 2007, according to Canadean. The Company has five breweries strategically located across the Philippines and a highly developed distribution system serving 478,757 retail outlets. The Company’s beer brands include all of the top four beer brands in the country, namely San Miguel Pale Pilsen, Red Horse, San Mig Light and Gold Eagle. San Miguel Pale Pilsen, the Company’s flagship brand, has a history of nearly 120 years. For years ended 2007 and 2008, the Company’s net sales were P 12,180 million, and P 48,787 million, respectively, and net income was, P2,310 million and P10,042 million, respectively.

FACTORS AFFECTI.G FI.A.CIAL PERFORMA.CE

Demand and Pricing

Increases in beer prices are driven by increases in raw material prices, excise tax increases, fuel prices and other costs of doing business. Unlike basic necessities, beer is a discretionary purchase. Since the majority of beer drinkers in the Philippines belong to the lower socio-economic classes, where discretionary income is limited, the beer market is highly price elastic. Consumers tend to cut back on their consumption when beer prices rise and they tend to increase their consumption when prices fall.

In addition to beer pricing, demand for beer is also influenced by the relative price relationships between beer and other alcoholic beverages such as hard liquor, as well as the relationship between the prices of beer and non-alcoholic beverages, basic necessities and other goods and services in general. Drinkers are prone to adjust their buying choices according to shifts in the perceived value-for-money propositions of beer relative to other alcoholic beverages, non-alcoholic beverages and other consumer products and services.

During periods of relatively weak economic growth, consumers tend to purchase more Economy beer brands, sales of which produce lower profit margins for the Company. In the last few years, consumers have been turning to high-alcohol beers, not only because of their affordability (most high-alcohol beers are relatively low-priced), but also because they need to purchase fewer bottles of these beers to obtain the same amount of alcohol. The Philippines has historically been primarily an off-premise market, as consumers drink most of their beer at home, mainly because drinking at home is cheaper than in bars, restaurants and other on-premise outlets.

The table below presents sales data by volume and average selling prices of the Company for the periods indicated.

For the Year ended For the Period fromDecember 31, 2008 July 26, 2007 to

December 31, 2007

Volume (Equivalent Cases, in millions)................................. 174.48 46.70Volume (Hectoliters, in millions)........................................... 13.40 3.59Average selling price/case (in pesos)..................................... 278.88 260.11Average selling price/hectoliter (in pesos)............................. 3,632 3,389

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Changes in Consumer Tastes and Preferences

Consumer preferences may change due to a number of factors, including changes in economic conditions and income levels, shifts in demographic and social trends, changes in lifestyle and leisure activity patterns, regulatory actions and negative publicity regarding alcohol consumption, and customer complaints against the alcoholic beverage industry or any company in the industry, any of which may affect consumers’ perception of beer and their willingness to purchase the Company’s products.

For example, the recent trend in the Philippines towards health consciousness is encouraging a shift away from beer drinking towards consumption of low-calorie beer, wine and non-alcoholic drinks. The rise of young professionals as a consumer class has led to increased popularity of mixed alcoholic drinks. Demographic changes in the Philippines have increased the number of potential consumers of the Company’s products and have also resulted in younger drinkers who tend to be more informed, more adventurous and who live a different lifestyle than the older generation of consumers. However, these consumers, because of their greater exposure to media, other cultures and lifestyles, tend to be less loyal to any brand or any type of drink than the older generation. The future growth of the Company will depend on its ability to maintain the competitive positions of its products and brands by being able to proactively anticipate and react to changes in consumer tastes and preferences.

Supply and Prices of Raw Materials

The Company depends on raw materials sourced from third parties to produce its products. Beer production requires malted barley and hops, which are sourced primarily from the United States, Australia and Europe, and adjuncts, primarily corn and sugar, which are primarily sourced domestically. Raw materials are subject to price volatility caused by a number of factors, including changes in global supply and demand, weather conditions and governmental controls. The prices of these commodities to the Company are also affected by the Philippine peso’s relative strength against other currencies, primarily the U.S. dollar. In recent years, the prices of certain raw materials, primarily malted barley, have been increasing. The current global focus on bio-ethanol fuels has and is expected to continue to contribute further to the recent trend for higher prices for malted barley and adjuncts, as farmers shift their production out of barley and into grains used to produce those fuels, decreasing available supply. The ability to obtain raw materials is also affected by a number of other factors beyond the Company’s control, including interruptions in production by suppliers, decisions by suppliers to allocate raw materials to other purchasers and the availability and cost of transportation. Price increases for the Company’s raw materials have driven up production costs and adversely affected the Company’s operating margins, and this trend could continue. The Company has only limited hedges against commodity prices and, to the extent it does hedge, any such hedging activity may not work as planned. Price fluctuations have been mitigated to some extent by the Company through material substitution, which provides flexibility in using a combination of malted barley and adjuncts that reduces cost while maintaining high quality standards for the Company’s beer products. New sources of materials such as malted barley and hops are also being developed to reduce reliance on traditional sources such as the United States, where the thrust towards biofuels, with its consequent upward impact on the prices of barley, continues to gain momentum.

Supply and Prices of Packaging Materials

Approximately 98% of the Company’s beer sales are in returnable glass bottles. The Company’s efficient returnable bottle system decreases its exposure to rising packaging costs driven by increases in fuel and aluminum prices, and therefore helps the Company to keep its products affordable. The durable nature of the returnable glass bottles results in an average usage of 60 cycles over a span of 10 years. When beer is sold in returnable bottles, the Company records an account receivable with respect to the deposit amount for the bottles, and this account is later paid by the return of the bottles. Under this deposit-driven system, the Company has achieved a high bottle retrieval rate of 95% on average during the last two years, and, as a result, bottle usage is maximized before bottles are replaced. New glass bottles are purchased only to support accelerating sales and to replace broken and scuffed bottles.

The Company sources most of its packaging materials from SMYPC, a subsidiary of SMC, which manufactures, among other packaging products, new glass bottles, aluminum cans, crowns, plastic cases, and carton boxes.

56

Advertising and Promotions

Advertising and promotions are important factors for consumer buying choices. Advertising affects consumer awareness of the brands used by the Company, which in turn, affects purchase decisions and therefore sales volumes. Product differentiation and brand loyalty are achieved through the marketing and image-building efforts of competing brands. The Company believes that consumer brand preferences are the cumulative result of exposure to the brands over an extended period of time, rather than of one specific advertisement.

Competition

The Company faces competition from another domestic producer, which sells both its own brand and foreign brands it produces under license, and from foreign brewers. The Company also competes with producers of other alcoholic beverages, primarily from low-priced gin and brandy. In the beer industry — and more generally the alcoholic beverage industry — competitive factors generally include price, product quality, brand awareness and loyalty, distribution coverage, and the ability to respond effectively to shifting consumer tastes and preferences. The Company also competes with other discretionary items, including both other food and beverage products and other goods and services generally.

Taxes and Regulatory Environment

The Company’s operations are subject to various taxes. Excise tax accounts for a significant portion of the Company’s production costs. The Government increased the excise tax rates applicable to beer products on January 1, 2005 by 20%, on January 1, 2007 by 8% and on January 1, 2009 by an additional 8%. The Government has announced that the excise tax rates applicable to beer will be raised by a further 8% effective January 1, 2011. See “Business Overview — Regulation and Taxation.” In 2006, the Government increased the corporate income tax rate from 32% to 35% and the VAT rate from 10% to 12%. In general, the Company attempts to pass on higher taxes to its consumers by raising the prices of its products, although the timing and size of such price rises can be influenced by factors such as inflation and other economic conditions in the Philippines. Price changes the Company makes in reaction to changes in tax rates could affect the demand for the Company’s products as well as the Company’s profit margins, product pricing and net income.

DESCRIPTIO. OF REVE.UE A.D COST ITEMS

.et Sales

The Company generates its net sales primarily from the production and sale of beer. The Company’s net sales are net of VAT and discounts.

The following table presents the Company’s net sales for the periods indicated:

For the Year ended For the Period fromDecember 31, 2008 July 26, 2007 to

December 31, 2007(in millions)

P P

Beer SalesPhilippines................................................................... 48,310 12,052Exports(1)...................................................................... 366 100

Other Revenues(2)............................................................. 111 28Total................................................................................ 48,787 12,180

_______

+otes:

(1) The Company’s top three export markets in 2008 were Taiwan, USA and South Korea; exports to these markets accounted forapproximately 18%, 15% and 10%, respectively, of its total export revenues.

(2) Other Revenues include sales of CO2 and toll packing services for SMC subsidiaries.

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Cost of Sales

Cost of sales consists of:

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

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

• depreciation and amortization costs, which relate primarily to the depreciation of production equipment, facilities and buildings;

• aluminum cans and secondary carton packaging;

• personnel expenses, which include salary and wages, employee benefits and retirement costs for employees involved in the production process;

• repairs and maintenance costs relating to production equipment, facilities and buildings;

• fuel and oil costs relating to the production process;

• communications, light and water expenses relating to the Company’s production processes and facilities; and

• other costs of sales, which include miscellaneous expenses such as supplies, rental, insurance and freight expenses.

In 2007 and 2008, the Company’s cost of sales was P6,333 million and P24,800 million, respectively.

Operating Expenses

The Company’s operating expenses consist of selling expenses and administrative expenses. In 2007 and 2008, the Company’s operating expenses were P2,349 million and P8,366 million, respectively.

The Company’s selling expenses consist primarily of:

• trade and consumer promotion expenses, which include the cost of event sponsorships, billboards, merchandising activities and other promotional activities;

• personnel expenses, including salary and wages, employee benefits and retirement costs for sales employees;

• freight, trucking and handling expenses in connection with the distribution of the Company’s products; and

• depreciation expenses, which relate to the depreciation of sales-related facilities and equipment.

Selling expenses also consist of repairs and maintenance expenses for the Company’s sales offices, communications, light and water expenses, rental expenses, supplies, taxes and licenses and professional fees. In 2007 and 2008, the Company’s selling expenses were P765 million and P3,520 million, respectively.

The Company’s administrative expenses mainly consist of:

• land rental, shared service fees and royalties, all of which are paid to SMC;

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• personnel expenses, including salaries and wages, employee benefits and retirement costs for executive, administrative, finance and human resource personnel;

• depreciation, which relates primarily to the depreciation of office buildings, information technology equipment and other office equipment;

• breakages and loss, primarily those attributable to the Company’s returnable beer bottles;

• repair and maintenance expenses relating to office buildings, information technology systems and other office equipment;

• professional fees of accountants and financial and legal advisors, as well as information technology systems, administration and project-related fees;

• certain of the Company’s advertising and promotional expenses; and

• freight, trucking and handling expenses that are related to the Company’s production processes or other internal requirements.

Administrative expenses also include supplies, rental expenses, communications, light and water expenses, and taxes and licenses. In 2007 and 2008, the Company’s administrative expenses were P 1,584 million and P 4,846 million, respectively.

CRITICAL ACCOU.TI.G POLICIES

The Company’s significant accounting policies are set out in note 3 of the Company’s audited financial statements included elsewhere in this prospectus. The Company has identified the following accounting policies as critical to an understanding of its financial position and financial performance, as the application of these policies requires significant management assumptions and estimates that could result in the reporting of materially different amounts if different assumptions or estimates are used.

Asset Impairment

The carrying values of property, plant and equipment and other long-lived assets, including goodwill, intangible assets and investment properties, are reviewed periodically for impairment. Under PFRS, depending on the type of assets, the Company reviews for impairment annually and/or when events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Determining the net recoverable value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. Changes in these estimates could materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the Company’s financial position and financial performance.

Revenue Recognition

Except for interest income and other income, which historically have not been significant for the Company, the Company records its revenue as net sales, which represents the Company’s sales of its products, net of VAT and discounts. Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. For sales by the Company of its products, revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably, which is normally upon delivery.

Taxes

Current tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the relevant balance sheet date.

59

Deferred tax. Deferred income tax is provided using the balance sheet liability method on all temporary differences at the financial statements date between the tax bases of the assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except:

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

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

Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward benefits of unused tax credits and unused tax losses can be utilized, except:

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

• with respect to deductible temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

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

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

Income tax relating to items recognized directly in equity is recognized in equity and not in the statements of income.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

As of December 31, 2008, the Company had deferred tax assets of P427 million. The Company reviews its deferred tax assets at each balance sheet date and reduces the carrying amount if it is not probable that sufficient taxable profit will be available in future periods to allow all or part of the deferred tax assets to be utilized. In addition, unrecognized deferred tax assets are reassessed at each balance sheet date and are recognized if it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

VAT. Revenues, expenses and assets are recognized net of the amount of VAT, except:

• where the VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the VAT is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable, and

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

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The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables and payables in the balance sheet.

Useful Lives of Property, Plant and Equipment

As of December 31, 2008, the Company had property, plant and equipment net of accumulated depreciation and amortization of P 5,864 million. Property, plant and equipment are stated at cost less accumulated depreciation and amortization. For a discussion of impairment see “— Asset Impairment.”

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

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

5 to 50 years10 to 40 years5 to 7 years2 to 5 years2 to 6 years5 to 50 years or term of the lease, whichever is shorter

The Company estimates the useful life of property, plant and equipment based on the period over which the assets are expected to be available for use. Estimates of the useful life of property, plant and equipment are based on a collective assessment of industry practice, internal technical evaluation and the Company’s experience with similar assets. The estimated useful life of property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence or legal or other limits on the use of such assets. Changes in such estimates could significantly affect the Company’s financial performance. In particular, a reduction in the estimated useful life of property, plant and equipment would increase depreciation and amortization expense and reduce operating income.

See notes 4 and 9 of the Company’s audited financial statements included elsewhere in this prospectus.

Estimating Allowance for Doubtful Accounts

As of December 31, 2008, the Company had trade and other receivables of P3,661 million, net of allowance for doubtful accounts of P647 million. Allowances for doubtful accounts are made when there is objective evidence of impairment. The Company evaluates its receivables for impairment based on available facts and circumstances, including, among others, the length of the Company’s relationship with the customer, the customer’s current credit status, third-party credit reports and known market trends, the average age of the account, and the Company’s collection and historical loss experience.

Estimating Allowance for Inventory Losses

The Company’s finished goods and in-process inventory and materials and supplies inventory are stated at the lower of cost and net realizable value. Net realizable value for finished goods and in-process inventory is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling costs. Net realizable value for materials and supplies inventory is the current replacement cost. The Company provides allowance for inventories whenever net realizable value is lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other factors. Allowance for inventory losses is reviewed periodically. As of December 31, 2008, allowance for inventory obsolescence amounted to P320 million and P 15 million for Containers and Materials and Supplies, respectively. As of December 31, 2008, inventories net of allowance for inventory losses, were P3,279 million.

See note 7 of the Company’s audited financial statements included elsewhere in this prospectus.

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Fair Value of Financial Assets and Liabilities

A portion of the Company’s financial assets and liabilities are carried at fair value, with changes in fair value being recorded directly in the Company’s statements of income. Fair value is determined by various valuation methods, including discounted cash flow, that depend on a number of estimates and assumptions, as well as a significant degree of judgment. The determination of fair value could change significantly if different estimates, assumptions and valuation methods were used. Changes in the fair value of the Company’s financial assets and liabilities could materially affect the Company’s financial position and financial performance.

FI.A.CIAL PERFORMA.CE

The following comparison of the Company’s financial performance is based on the Company’s audited financial statements as of and for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007.

Statement of Income

,et Sales

Net Sales for 2008 was P 48,787 million while 2007 was posted at P 12,180 million. Average selling prices per equivalent case were P 278.88 and P 260.11, respectively. The significant increase in selling prices per case was due to a price increase implemented in April 1, 2008.

Cost of Sales

Cost of Sales for 2008 was P24,800 million. Previous year’s operations posted P6,333 million. Apart from higher sales volumes, cost of sales in 2008 increased as a result of higher cost of raw materials particularly malted barley and fuel prices.

Gross Profit and Gross Margin

Gross Profit for 2008 and 2007 were P23,987 million and P5,847 million, respectively. Gross profit margin increased by 1.2% from 48.0% in 2007 to 49.2% in 2008.

Operating Expenses

Operating expenses for 2008 was P8,366 million while 2007 incurred P2,349 million in selling andadministrative expenses. The table below sets forth the principal components of operating expenses in theperiods indicated.

For the year ended December 31, 2008

For the period from

July 26, 2007 toDecember 31, 2007

(in millions of P)

Selling.............................................................. 3,520 765Administrative.................................................. 4,846 1,584Total.................................................................. 8,366 2,349

Selling Expenses

Selling expenses was P765 million in 2007 while total year expenses for 2008 was P3,520 million.

Administrative Expenses

Administrative Expenses for 2008 was P4,846 million while 2007 resulted to P1,584 million.

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Income From Operating Activities

As a result of the foregoing, 2008 income from operating activities was P 15,621 million and P 3,498 million in 2007. Operating income margin for 2008 increased to 35.6% from 32.1% in 2007.

Interest Income

Interest Income for 2008 was P264 million while previous year brought in P36 million of interest income.

Other Income (Expenses)

Other expenses for 2008 totaled P377 million while other income in 2007 was P15 million. In 2008, other income and expenses include recognition of marked-to-market losses amounting to P345 million.

Income Tax Expense

Income tax expense was P5,466 million in 2008 while 2007 resulted to a tax expense of P1,239 million.

,et Income

Net Income in 2008 was P10,042 million and P2,310 million in 2007. Net income margin improved from 19.0% in 2007 to 20.6% in 2008 as a result of higher sales volume, increase in production efficiency and cost containment efforts.

Liquidity and Capital Resources

In 2008 and 2007, the Company's cash flows from operations were sufficient to provide cash for the Company's operations and capital expenditures.

The table below sets forth the cash dividends declared by the Company’s Board of Directors from February 2008 to January 2009.

Declaration Date Payment Date Amount of Cash Dividends Per share Total

February 4, 2008 February 8, 2008 P0.15 P2.300 billionApril 10, 2008 April 18, 2008 P0.16 P2.453 billionJuly 24, 2008 August 22, 2008 P0.14 P2.157 billion

October 16, 2008 November 12, 2008 P0.15 P2.312 billionJanuary 27, 2009 February 23, 2009 P0.19 P2.928 billion

The following table sets out the Company’s cash flows in 2008 and 2007:

For the year ended December 31, 2008

For the period from

July 26, 2007 toDecember 31, 2007

(in millions of P)

Net cash flows provided by operating activities 11,027 5,831Net cash flows used for investing activities (1,645) (610)Net cash flows provided by/(used for) financing activities (8,603) 41Net increase in cash and cash equivalents 779 5,262

,et Cash Flows from Operating Activities

Net cash flows provided by operating activities were P 11,027 million in 2008. The Company's income before income tax for this period was P 15,508 million. This amount was positively adjusted for, among other things, depreciation of the Company's plant and equipment and amortization amounting to P1,758 million and an adjustment for provision for doubtful accounts and inventory losses of P 127 million, resulting in operating cash

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flows before working capital changes of P 16,858 million. Aggregate changes in working capital decreased this amount by P 777 million, resulting in cash generated from operating activities of P 16,081 million. This amount was further reduced by income taxes paid of P5,054 million.

Net cash flows provided by operating activities were P5,831 million in 2007. The Company's income before income tax for this period was P3,549 million. This amount was positively adjusted for, among other things, depreciation of the Company's plant and equipment and amortization amounting to P 415 million, resulting in operating cash flows before working capital changes of P 3,920 million. Aggregate changes in working capital increased this amount by P1,917 million, resulting in cash generated from operating activities of P5,837 million. This amount was further reduced by income taxes paid of P6 million.

,et Cash Flows Used in Investing Activities

Net cash used for investing activities were P1,645 million in 2008 and P610 million in 2007. Said amount reflects replacements of bottles and containers as well as additions, replacements and upgrades of various plant equipments to improve efficiencies.

,et Cash Flows Provided by (Used for) Financing Activities

Net cash flows used for financing activities were P 8,603 million in 2008. This amount reflects cash dividends paid during the period amounting to P 9,222 million, partially offset by proceeds from issuances of capital stock amounting to P592 million. Net cash flows provided by financing activities in 2007 were P41 million. This reflects, among other things, proceeds from issuances of capital stock.

Balance Sheet

Total assets as of December 31, 2008 amounted to P 24,634 million, P 2,026 million higher than the Company's total assets as of December 31, 2007 totaling P22,608 million, primarily due to cash and cash equivalents which increased from P5,262 million in 2007 to P6,041 million in 2008. This was mostly due to higher net income.

Trade and other receivables were nearly flat at P 3,661 million in 2008 and P 3,676 million in 2007. Inventories as of 2008 were higher than 2007 year-end balance by P 832 million. This is due to higher valuation as a result of increases in prices of major raw materials. Other noncurrent assets slightly declined from P 5,424 million as of end last year to P5,360 million as of end 2008.

Total liabilities as of end 2008 were P5,624 million, higher by P659 million compared to last year's P4,965 million. This is due to an increase in income and other taxes payable brought about by higher earnings. Stockholder's equity increased from P 17,643 million to P 19,010 million. This is due to higher retained earnings caused by higher net income in 2008.

Capital Resources

As of December 31, 2008, the Company has cash and cash equivalents of P 6,041 million. As of the same date, the Company has no outstanding short-term debt.

As of December 31, 2008, the Company has current assets of P 13,399 million and current liabilities of P 5,585 million. Its working capital (current assets minus current liabilities) was P 7,814 million. The Company believes that its working capital is sufficient for its present requirements.

In the ordinary course of business, the Company makes certain purchase commitments for the procurement of raw materials. As of December 31, 2008, the Company’s outstanding purchase commitments were P522 million. A significant portion of these purchase commitments is payable within one year. The Company expects to finance these commitments through cash flows from its operations and short-term borrowings.

Off-Balance Sheet Arrangements

The Company does not have any material off-balance sheet arrangements. The Company has, however, entered into derivative transactions to manage its exposures to currency exchange rates and fuel oil prices. See “— Derivative Financial Instruments.”

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Derivative Financial Instruments

The Company has entered into derivative financial instrument transactions, including swaps, options and forwards, to manage its exposure to exchange rate risk and its risk relating to changes in fuel oil prices. A more detailed description of the Company’s derivative financial instruments is set out in note 25 of the Company’s audited financial statements included elsewhere in this prospectus.

FI.A.CIAL PERFORMA.CE

The following comparison of the Company’s financial performance is based on the Company’s audited financial statements as of and for the year ended December 31, 2008 and the Company’s examined pro forma consolidated financial statements as of and for the year ended December 31, 2008.

Operating income increased from P 15,621 million in the audited statement of income to P 16,699 million in the examined pro forma consolidated statement of income as a result of the assumed acquisition of brands and other intangible assets and parcels of land on January 1, 2008. This was caused by a decrease in operating expenses from P8,366 million in the audited statement of income to P7,288 million in the examined pro forma consolidated statement of income. However, net income decreased from P10,042 million in the audited statement of income to P 8,799 million in the examined pro forma consolidated statement of income as a result of the assumed bond issuance. The bond caused an increase in interest expense by P3,484 million in the examined pro forma consolidated statement of income. Correspondingly, income tax expense decreased from P5,466 million in the audited statement of income to P4,303 million in the examined pro forma consolidated statement of income.

As a result of the foregoing, gross profit margin was maintained at 49.2% for both audited and examined pro forma consolidated statements. Operating income margin increased from 32.0% in the audited financial statements to 34.2% in the examined pro forma consolidated financial statements. However, net income margin decreased from 20.6% in audited statements to 18.0% in the examined pro forma consolidated statements as a result of interest expense.

Net cash flow provided by operating activities decreased from P 11,027 million in the audited statement of cash flows to P 8,961 million in the examined pro forma consolidated statement of cash flows as a result of interest payments pertaining to bond issuances. Net cash used for investing activities increased from P 1,645 million in the audited statement of cash flows to P40,674 million in the examined pro forma consolidated statement of cash flows as a result of the acquisition of brands and other intangible assets and parcels of land. Audited statement of cash flows recorded net cash used for financing activities of P8,603 million mainly due to payment of cash dividends while examined pro forma consolidated statement of cash flows shows net cash provided by financing activities of P32,878 million as a result of cash proceeds from bond issuances.

Total assets increased from P24,634 million in the audited balance sheet to P63,896 million in the examined pro forma consolidated balance sheet as a result of the acquisition of parcels of land, increasing property, plant and equipment account from P5,864 million in the audited balance sheet to P12,932 million in the examined pro forma consolidated balance sheet, and acquisition of brands and other intangible assets, increasing intangible assets from P 11 million in the audited balance sheet to P 32,011 million in the examined pro forma consolidated balance sheet.

Total liabilities increased from P 5,624 million in the audited balance sheet to P 42,974 million in the examined pro forma consolidated balance sheet as a result of bond issuance lodged under long term debt account. Total equity also increased from P 19,010 million in the audited balance sheet to P 20,922 million in the examined pro forma consolidated balance sheet due to increased retained earnings. Cash dividends are assumed at 70% dividend payout in the examined pro forma consolidated statements.

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KEY PERFORMA.CE I.DICATORS

Following below are the major performance measures that the Company uses. The Company employs analyses using comparisons and measurements based on financial data.

The table below sets forth the Company’s performance indicators based on the Company’s audited financial statements and examined pro forma consolidated financial statements:

Examined Pro FormaConsolidated Financial Audited Financial Statements

StatementsFor the Period from

For the Year Ended

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

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

Return on average equity of theCompany.......................................

Operating Margin__________


3.04 2.40

2.05 0.30

45.6% 54.8%

34.2% 32.0%


2.33

0.28

52.4%(1)

28.7%(1) Computation was based on an annualized net income

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

Key Performance Indicator Formula

Current ratio............................................................................ Current AssetsCurrent Liabilities

Debt-equity ratio..................................................................... Total Liabilities (current + noncurrent)Equity

Return on average equity......................................................... Net IncomeAverage Equity of the Company

Operating Margin Income from Operating Activities

Net Sales

RECE.T ACCOU.TI.G PRO.OU.CEME.TS

.ew Standards, Amendment to Standards and Interpretations Adopted in 2008

• Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions: This interpretation

describes how to apply PFRS 2, Share-based Payment to share-based payment arrangements involving an

entity’s own equity instruments and share-based payment arrangements of subsidiaries involving equity instruments of its parent company. The adoption of this interpretation did not have a material effect on the Company’s financial statements.

• Philippine Interpretation IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding

Requirements and their Interaction: This interpretation provides general guidance on how to assess the

limit in PAS 19, Employee Benefits, on the amount of the surplus that can be recognized as an asset. It also

explains how the retirement asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The adoption of this interpretation did not have a material effect on the Company’s financial statements.

• Amendments to PAS 39, Financial Instruments: Recognition and Measurement and PFRS 7 Financial

Instruments: Disclosures: This standard permits an entity to reclassify non-derivative financial assets, other

than those designated at fair value through profit or loss upon initial recognition, out of the trading category in certain circumstances. The amendments also permit an entity to transfer from the available-for-sale category to the loans and receivables category a financial asset that otherwise would have met the definition of loans and receivables, if the entity has the intention and ability to hold that financial asset for the foreseeable future. The adoption of these amendments to standard did not have an effect on the Company’s financial statements.

.ew and Revised Standards and Interpretations .ot Yet Adopted

The following are the new and revised standards and interpretations that are not yet effective as of December 31, 2008 and have not been applied in preparing the Company’s financial statements:

PFRS 8, Operating Segments, becomes effective for financial years beginning on or after January 1, 2009 and will replace PAS 14, Segment Reporting. This standard introduces the “management approach” to segment reporting. It will require a change in the presentation and disclosure of segment information based on the internal reports regularly reviewed by the Company’s Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. The Company has determined that this standard has no impact on its financial statements since it operates as one segment only (both in terms of business and geography).

Revised PAS 1, Presentation of Financial Statements, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to introduce the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the statement of income and all non-owner changes in equity in a single statement), or in an statement of income and a separate statement of comprehensive income. The Company is currently assessing the impact of the revised standard on the financial statements when it adopts the standard on January 1, 2009.

Revised PAS 23, Borrowing Costs, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to require an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The Company will assess the impact of this revised standard on the financial statements when it adopts the standard on January 1, 2009.

Amended PFRS 1 and PAS 27, Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, becomes effective for financial years beginning on or after January 1, 2009. The amendments to PFRS 1 allow a first-time adopter, at its date of transition to PFRSs in its separate financial statements, to use deemed cost to account for an investment in a subsidiary, jointly controlled entity or associate. The amendments to PAS 27 remove the definition of “cost method” currently set out in PAS 27, and instead require all dividend from a subsidiary, jointly controlled entity or associate to be recognized as income in the separate financial statements of the investor when the right to receive the dividend is established. The Company will assess the impact of this revised standard on the financial statements when it adopts the standard on January 1, 2009.

Improvements to PFRSs 2008 discusses 35 amendments and is divided into two parts: a) Part I includes 24 amendments that result in accounting changes for presentation, recognition or

measurement purposes; and b) Part II includes 11 terminology or editorial amendments that the International Accounting Standards Board expects to have either no or only minimal effects on accounting. These amendments are generally effective for annual periods beginning on or after January 1, 2009. The adoption of the amendments in 2009 is not expected to have any material effect on the Company’s financial statements.

Revised PFRS 3, Business Combinations, incorporates the following changes that are likely to be relevant to the Company’s operations:

The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations.

Contingent consideration will be measured at fair value, with subsequent changes therein recognized in profit or loss.

Transaction costs, other than share and debt issue costs, will be expensed as incurred.

Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognized in profit or loss.

Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.

Revised PFRS 3 will be applied prospectively and therefore there will be no impact on prior periods in the Company’s financial statements.

Amended PAS 27, Consolidated and Separate Financial Statement, requires accounting for changes in ownership interests by the Company in a subsidiary, while maintaining control, to be recognized as an equity transaction. When the Company loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in profit or loss. The amendments to PAS 27 are not expected to have a significant impact on the Company’s financial statements.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement - Eligible Hedged Items, becomes effective for financial years beginning on or after July 1, 2009. The standard has been amended to provide for the following: a) new application guidance to clarify the existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedge relationship; and b) additional application guidance on qualifying items; assessing hedge effectiveness; and designation of financial items as hedged items. The amendments to PAS 39, which will become mandatory for the Company’s 2010 financial statements, are not expected to have a significant impact on the financial statements.

Philippine Interpretation IFRIC 17, Distributions of +on-cash Assets to Owners, becomes effective for financial years beginning on or after July 1, 2009. This interpretation provides guidance on the accounting for non-reciprocal distributions of non-cash assets to owners acting in their capacity as owners. It also applies to distributions in which the owners may elect to receive either the non-cash asset or a cash alternative. The liability for the dividend payable is measured at fair value of the assets to be distributed. The Company will assess the impact of this interpretation on the financial statements when it adopts the standard on July 1, 2009.

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QUA.TITATIVE A.D QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to various types of market risks in the ordinary course of business, including interest rate risk, foreign currency exchange rate risk and commodity price risk.

Exchange Rate Risk

The Company’s foreign currency exchange rate risk exposure results primarily from business transactions denominated in foreign currencies. The Company uses a combination of natural hedges, with U.S. dollar revenue from exports providing a partial hedge against U.S. dollar-denominated raw material expenses, and derivative instruments to manage its exchange rate risk exposure. Authorized derivative instruments include currency forwards, currency swaps and currency options. For more information regarding the Company’s exchange rate risk exposure and related derivative instruments, see note 24 of the Company’s financial statements included elsewhere in this prospectus.

The following table sets forth the Company’s foreign currency-denominated assets and liabilities and their peso equivalents as of the date indicated:

As of December 31, 2008

U.S. Dollar (1) Peso equivalent

(in millions)

AssetsCash and cash equivalents........................................................................................ 5 243Trade and other receivables...................................................................................... 4 181LiabilitiesAccounts payable and accrued expenses 2 77

Net foreign currency-denominated monetary assets................................................. 7 347____________

(1) U.S. Dollar equivalent of foreign currency-denominated balances as of balance sheet date

Commodity Price Risk

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

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CAPITAL EXPE.DITURES

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

Amount ImplementationProject Type (in millions P) Period

Replacement and Maintenance 375.2 2008Operations Improvement 390.4 2008Expansion and Diversification 28 2008General and Administrative 35.9 2008Total Capital Expenditures, YTD Dec. 31, 2008 829.5

Major projects in the foregoing priority capital expenditures include replacement and maintenance projects such as replacement of electronic bottle inspectors, Schenk Automation System can seamers, mash filters, line monitoring systems and various equipment repairs and rehabilitation. Operations Improvement projects include acquisition of bottle coating machines and labelers, installation of yeast propagation system and conversion of Polo's high speed line 2 to multi-product line.

For 2009, the Company has currently budgeted P789 million for capital expenditures, intended primarily for replacement and maintenance projects and secondarily for operations improvement projects. These capital expenditures are expected to be funded from internally generated cash flow. The Company’s budgeted capital expenditures are based on management’s estimates and have not been appraised by an independent organization. In addition, the Company’s capital expenditures are subject to various factors, including new product introductions, tolling arrangements and perceived surges in sales volumes of various products. There can be no assurance that the Company will implement its capital expenditure plans as intended at or below estimated costs.

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THE BEER I.DUSTRY I. THE PHILIPPI.ES

The information and data contained in this Prospectus relating to the Philippine beer industry has been provided by Canadean Limited (“Canadean”), a leading global beverage research company, and is taken from Canadean’s database and other sources. The Company does not have any knowledge that the information provided by Canadean is inaccurate in any material respect. Canadean has advised that (i) some information in Canadean’s database is derived from estimates or subjective judgments, (ii) the information in the databases of other data collection agencies may differ from the information in Canadean’s database, and (iii) while Canadean has taken reasonable care in the compilation of the statistical and graphical information and believes it to be accurate and correct, data compilation is subject to limited audit and validation procedures and may accordingly contain errors.

OVERVIEW

Between 2003 and 2008, global beer sales volumes increased at a compound annual growth rate (“CAGR”) of4.8%. Over the same time period, the Philippines beer market also grew at a CAGR of 2.8%. Regionally, Asia Pacific beer sales volumes grew at a faster rate than markets in all other regions around the world. The following table sets forth the beer sales volumes CAGR from 2003 and 2008 for the Philippines, Asia Pacific and various regions:

Beer Sales Volumes CAGR 2003-2008

8.2%

4.8%

3.4%2.8% 3%

Philippines Asia Pacific Europe America World________Source: Canadean “The Beer Service, Global Beer Trends 2008 Cycle”

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

Major Asian Beer Countries 2008

Country

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

Total

………………………………………………………………

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Sales Volume CAGR(HL Millions) (2003-

2008E)425.6 10.7%66.6 (0.1)%22.5 7.3%18.0 0.3%17.9 11.5%

14.2 2.8%5.5 1.3%2.0 6.2%1.6 1.3%1.2 (2.5)%0.8 0.6%

575.9 8.2%

Between 2006 and 2008, the per capita sales volume of beer for the Philippines grew from approximately 15.0 litres to 16.3 litres. The following table sets forth the largest Asian beer markets ranked by per capita consumption and per capita GDP.

Major Asian Beer CountriesBeer Consumption Per Capita vs GDP Per Capita, 2008

Indonesia 1 2

Malaysia 5 8

Philippines 16 2

Singapore 18 41

Vietnam 21 1

HongKong 23 32

Taiwan 24 18

China 32 3

Thailand 34 4

South Korea 37 20

Japan 52 38Beer Consumption per Capita GDP per Capita(in Liters/Person) (in ‘000 US$)

_________

Source: Canadean “The Beer Service, Global Beer Trends 2008 Cycle,” International Monetary Fund (IMF).

The following table sets forth changes in the Philippines’ per capita sales volume of beer for the periods indicated:

Development of Philippines Beer Market Per Capita Sales VolumeLiters

2002......................................................................................................................................................................... 14.22003......................................................................................................................................................................... 15.52004......................................................................................................................................................................... 17.52005......................................................................................................................................................................... 16.82006......................................................................................................................................................................... 15.02007......................................................................................................................................................................... 15.82008......................................................................................................................................................................... 16.3

___________Source: Canadean, “The Beer Service, Annual report — 2008 Cycle, Philippines.”

Beer Segmentation

The beer market in the Philippines can be broken down into four segments: (i) economy brands, (ii) standard brands, (iii) premium brands and (iv) super-premium brands, principally differentiated by pricing. Brands from economy and standard segments are heavily advertised and promoted and can be generally differentiated by marketing policy and packaging.

Economy brands. Economy brands are low-priced products, which are brewed locally and accounted for approximately 11.7% of sales volume in the Philippines in 2007. Economy beer is widely available to the mass market through a range of different outlets and is distributed mostly in glass bottles through small supermarkets, sari-sari stores (“mom and pop”) and on-premise channels throughout the country. Consumers in this segment are particularly price-sensitive. The typical retail selling price of a 320 millilitre bottle is between P 14.00 and P15.00. Economy brands in the Philippines include Beer +a Beer and Gold Eagle.

Standard brands. Standard brands are mostly brewed locally and represented approximately 54.9% of the beer

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market by sales volume in 2007. The brands in this segment are targeted at consumers nationally. The brands within this segment are generally priced 20% to 21% above economy brands, with the typical retail selling price of a 330 millilitre bottle generally between P17.00 and P 18.00. Standard brands have been increasingly popular with consumers given the stronger alcohol content on leading brands such as Red Horse and Colt 45.

Premium brands. Premium brands are mostly brewed locally and represented approximately 32.9% of sales

volume in 2007. The brands in this segment are targeted at consumers mostly in urban areas with a purchasing power greater than the mass market. The brands in this segment are generally priced 12% to 22% above standard brands, with the typical retail selling price of a 330 millilitre bottle generally between P19.00 and P22.00. San Miguel is the dominant force in this segment through San Miguel Pale Pilsen and San Mig Light.

Super-premium. This segment represented the remaining 0.5% of the beer market by sales volume in the

Philippines in 2007, and comprises mainly local brands and international brands imported into the Philippines. The brands in this segment are targeted at urban consumers with relatively high purchasing power and tourists. These products are mostly sold through high-end bars, restaurants and hotels in the Metro Manila area. Super premium brands are significantly more expensive than economy, standard and premium brands and use more sophisticated packaging designed to appeal to urban consumers. The typical retail selling price of a 330 millilitre bottle is approximately P 24.00 and upwards. The most popular local brands include San Mig Strong Ice, San Miguel Super Dry and Cerveza +egra whilst imported brands include Tiger, Corona and Foster’s.

Compared with other leading beer markets in Asia, both off and on-premise pricing per litre in the Philippines represent one of the lowest for Asia. The following table sets forth average beer pricing per litre in 2007 across the major beer markets in Asia:

Leading Asian Beer Markets Average Per Litre Prices 2007 — US$

Country

China ………………………………………………………………………………Hong Kong ………………………………………………………………………………Indonesia ………………………………………………………………………………Japan ………………………………………………………………………………Philippines ………………………………………………………………………………

Vietnam ………………………………………………………………………………

______________

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

Key Industry Trends

Ave. Price per Litre (in US$)

0.833.042.775.371.461.21

Economic impact. Consumer incomes have been improving in recent years supported by a favorable economic performance and higher incomes as farmers and farm workers have traditionally been a key consumption segment for beer. In 2006, VAT was raised from 10% to 12% as the government attempts to reduce the fiscal deficit resulted in a softening of consumer demand. Excise tax on beer was likewise increased by 8% in 2007 and 2009. Despite cost pressures, the beer industry managed to grow in the past two years. Industry profitability has come under increasing pressure as a result of the higher prices of commodities and volatility of the local peso which affects the distribution and raw materials import costs.

Preference for mainstream over premium brands. The Philippine beer market is largely a pilsner lager type beer market. In recent years, there is increasing preference for mainstream beer which contains higher alcohol content than premium beer due to affordability with consumers. Red Horse brewed by San Miguel Corporation contains alcohol-by-volume (“ABV”) of 6.7% is the leading brand in the mainstream segment whilst San Miguel Pale Pilsen, the leading brand in the premium segment contains an ABV of 5%.

Distribution challenges. The Philippines is composed of over 7,000 islands that renders distribution a highly complex and expensive business and represents a significant barrier to market entry for new brewers wishing to distribute nationally. San Miguel Corporation and Asia Brewery Inc. (“ABI”) remain dominant in the beer market and limit competition nationally.

Competition

The beer market in the Philippines is highly concentrated with San Miguel Corporation continuing to consolidate its leadership locally. The company has increased its corporate share from 91% in 2000 to 94% in 2007 as a result of strong performance from key brands such as Red Horse and San Mig Light.

The other key local player is Asia Brewery Inc. (“ABI”) which started out brewing Carlsberg under license in 1987 and followed in 1988 with the launch of its own Beer na Beer brand. Despite new product introductions in recent years ABI’s corporate market share has declined from 9% in 2000 to just under 6% in 2007. They are highly dependent on Beer na Beer and competition from Red Horse and Gold Eagle in particular have resulted in loss of market share.

Imported beer comprises a small proportion of the market as these products can only be found in upscale hotels, bars, restaurants and supermarkets in Metro Manila.

On January 1, 2005 the Philippines Government raised excise duty by 20% on beer which was unpopular with both the industry and consumers. Unlike other markets where excise duty is levied on the specific gravity of alcohol, in the Philippines, excise duties charged according to net retail price / per liter of volume capacity.

On February 1, 2006, VAT was raised to 12% from 10% as part of the Government’s policy to reduce the fiscal deficit. As a result, beer retail prices increased during 2006 which had a dampening effect on beer consumption during the same year.

On January 1, 2007 and 2009, beer excise tax rate was increased by 8%.

Philippines — Leading Brewers / Importers 2005-2007 (000 hl)Company 2005 2006 2007San Miguel …………………………………………………………. 13,020 11,830 12,734Asia Brewery …………………………………………………………. 937 812 794Others …………………………………………………………. 19 20 20_______________Source: Canadean “The Beer Service, Annual Report — 2008 Cycle.”

Distribution

The Philippines is composed of 7,000 islands that renders distribution a highly complex and expensive business, and create a significant barrier to market entry for new brewers wishing to compete nationally. Metro Manila on the island of Luzon is the most densely populated conurbation and accounts for around 35% of all beer consumption in the country.

The brewers distribute direct to retailers through a network of independent, exclusive distributors. In the provinces, these distributors work with a large number of sub-distributors known as bookers. In 2004, San Miguel embarked on a strategic programme of initiatives to improve its distribution system at the expense of local rival ABI.

The returnable glass bottle enjoys widespread distribution across all channels as it is popular with consumers. For example, the leading brand Red Horse costs P51.00 for a one liter returnable glass bottle with a P4.50 deposit on the bottle when purchased from sari-sari stores. On average, each returnable glass bottle can be used anywhere from 40 to 60 manufacturing cycles depending on the quality of the glass used to make the bottles.

Beer distribution covers large modern supermarkets, smaller supermarkets, convenience stores, gas stations and sari-sari stores as well as on-premise outlets such as bars, clubs, hotels and restaurants. Modern retail such as supermarkets is growing from a small base particularly in Metro Manila.

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The following table sets forth the outlet universe for beer in the Philippines:

Outlet Universe for Beer (2007).umber % share

RetailConvenience stores ………...………………………………………………………. 1,020 0.29%Supermarkets ………...………………………………………………………. 84 0.02%Warehouse Clubs ………...………………………………………………………. 30 0.008%Gas Stations ………...………………………………………………………. 220 0.06%Sari-Sari Stores ………...………………………………………………………. 350,000 99.55%Other retail ………...………………………………………………………. 240 0.07%

Total Retail ………...………………………………………………………. 351,594 100.00%

On-PremiseHotels ………...………………………………………………………. 3,659 4.13%Restaurants, cafes, fast ………...………………………………………………………. 68,500 77.26%foodClubs, kiosks, others ………...………………………………………………………. 16,500 18.61%

Total On-Premise ………...………………………………………………………. 88,659 100.00%_______________

Source: Canadean “The Beer Service, Annual Report — 2008 Cycle, Philippines.”

The on-premise channel accounts for around 23% of overall beer consumption in 2007 and has been declining in recent years partially due to higher on-premise prices. Increased fuel cost has also added to distribution cost which has also pushed up prices. The following table sets forth distribution of beer in leading Asian markets for 2007:

Major Asian Beer Countries — Off vs. On Premise Volume Sales 2007

100%

28%

75% 45%

50%

72%

25% 55%

0%China Hong Kong

_____________

23%

57%70% 67%

77%

43%30% 33%

Indonesia Philippines Thailand Vietnam

Off-Premise On-Premise

Source: Canadean “The Beer Service, Global Beer Trends 2008 Cycle.”

Outlook

Overall, private consumption will be the key driver of the economy with GDP expected to grow at between 5% to 6% and inflation averaging at 5% over the next three years. Buoyant remittances from Filipinos working overseas will ensure that the current account remains in surplus.

For the beer market the forecast is for a return to single-digit volume growth of 5 % per annum in 2007 and 2008 as prices stabilizes and remittances from Overseas Filipino Workers (“OFW’s”) continue to increase. High alcohol beer volume is expected to grow.

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BUSI.ESS OVERVIEW

The Company is the largest producer of beer in the Philippines, with a total market share of approximately 94% in 2007, according to Canadean. The Company has five breweries strategically located across the Philippines and a highly developed distribution system serving 478,757 outlets. The Company’s beer brands include all of the top four beer brands in the country, namely San Miguel Pale Pilsen, Red Horse, San Miguel Light and Gold Eagle. San Miguel Pale Pilsen, the Company’s flagship brand, has a history of over 118 years. San Miguel beer was first produced by La Fabrica de Cerveza de San Miguel (“San Miguel Brewery”), a small brewery in the Philippines that began its operations in 1890. San Miguel Brewery provided the foundation from which SMC has grown to become the largest food, beverage and packaging company in the Philippines today. San Miguel Brewery was renamed San Miguel Corporation (“SMC”) in 1963.

From a single brewery producing a single product in 1890, SMC’s corporate history and business portfolio have evolved over the years. It entered the soft drinks business in 1922 and became the first overseas bottler of The Coca-Cola Company in 1927. To meet the needs of its beer and soft drinks businesses, SMC established a glass packaging plant in Manila in 1938 to supply its own requirements. SMC has expanded to include other food, beverage and packaging products. It has also grown geographically from a Philippine-based beer company to become a regional producer in the Asian beer market. The San Miguel brewery in Hong Kong was founded in 1948 and by the 1970s, San Miguel beer had established a strong market position in Hong Kong. Building on San Miguel Beer’s leading positions in the Philippines and Hong Kong, SMC expanded into new markets, including China in 1991, Indonesia in 1992, Vietnam in 1993, and Thailand in 2004. Prior to the creation of the Company, all of SMC’s beer operations were under the San Miguel Beer Division (“SMBD”), a business unit of SMC.

On July 24, 2007, the shareholders of SMC approved the transfer of SMC’s domestic Philippine beer business’ assets to the Company in exchange for additional shares in the Company, a wholly-owned subsidiary of SMC. The assets transferred to the Company comprise of the domestic beer business’ net assets as of June 30, 2007, excluding land, brands and income and other tax payable. The Company was incorporated on July 26, 2007, and the domestic beer business was spun off from SMC effective October 1, 2007. The spin-off of SMC’s domestic beer business into the Company was intended to realize the value of SMC’s flagship business. Following approval by the shareholders of SMC of the spin-off of the domestic beer business and the creation of the Company, all plant and equipment used by SMBD in the domestic beer business were transferred to the Company, while SMC retained ownership of the brands and land assets used in the domestic beer business. Under this structure, the Company paid SMC royalties for the use of brands and other intellectual property rights of SMC, rentals for the use of the land assets of SMC, fees for shared services and dividends. (see “Related Party Transactions” on page 99 of this prospectus). Some of these brands and related intellectual property rights and land assets are the subject of the Proposed Acquisitions (see “Use of Proceeds” on page 28 and “Proposed Acquisitions” on pages 29-36 of this prospectus).

The Company undertook an initial public offering of its shares (“IPO”) in May 2008. Prior to the IPO, the Company had total outstanding shares of 15,333,426,960 common shares. In the IPO, a total of 77,052,000 common shares were offered by way of primary offering, while a total of 809,050,000 common shares owned by SMC was offered by way of secondary offering. After the IPO, the Company’s resulting outstanding shares totaled 15,410,478,960 common shares which were listed on the PSE on May 12, 2008.

On January 19, 2009, SMC signed a Memorandum of Agreement with Kirin. Under the terms of the agreement, Kirin will enter into exclusive negotiations with SMC to acquire from SMC shares representing approximately43.25% of the issued and outstanding capital stock of the Company. On February 20, 2009, SMC and Kirin signed a share purchase agreement for the acquisition by Kirin of 43.249% shareholdings in the Company. Under the terms of the agreement, Kirin will purchase shares in the Company from SMC at a purchase price of P8.841 per share, for a total acquisition price of P58.9 billion. Kirin will launch a tender offer to purchase additional shares from all existing shareholders of the Company at the same purchase price offered to SMC. The details of the tender offer will be announced by Kirin once determined.


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STRE.GTHS

The Company believes that its principal strengths include the following:

• Strong and popular brand portfolio supported by high quality products. From a single product produced

in a single brewery in 1890, San Miguel beer has, over 118 years later, grown into an array of popular beer

products catering to the distinct tastes and preferences of beer drinkers across all segments and markets in the Philippines. San Miguel Pale Pilsen, the Company’s flagship brand, has been an iconic Philippine

brand for most of the 20th century and up to today. After considering the Filipino beer drinker’s evolving preferences, other brands and products have been introduced, and these have been very successful. Today, the Company offers a portfolio of ten strong and popular brands: Pale Pilsen, Red Horse, San Mig

Light, Super Dry, Cerveza +egra, San Mig Strong Ice, Gold Eagle, San Miguel Premium All-

Malt, Oktoberfest Brew and Cali, the country’s only malt-based non-alcoholic drink. The various products carry distinct attributes that cater to various segments of the Philippine beer market. The Company’s products have been internationally recognized for quality, garnering a total of one grand gold award, 30 gold medals, 14 silver medals, two bronzes, one International High Quality trophy, and one Crystal Prestige award from Monde Selection International since 2000.

• Attractive growth prospects. Despite its dominant market position, the Company is well positioned to

capture further volume growth and market share in the Philippine beer industry.

Strong overall industry growth. The Company expects industry volumes to continue to grow, driven in part by the forecasted GDP growth of 4% in the next three years, complemented by relatively low inflation. Given its strong brands and leading market position, the Company believes it is best placed to capture a very large portion of the expected overall growth in the industry.

Expansion of Coverage Area. In addition, the Company expects to further increase its sales by expanding its coverage of currently under-served areas. Despite its overall market dominance, the Company believes there are areas where it holds less than 95% market share. The Company believes it will be able to grow its sales and share in these markets through enhanced distribution and promotional strategies.

Increased market share of broader alcoholic beverage segment. Further, the Company also believes additional sales growth can be achieved by increasing its share of the broader alcoholic beverage segment. In particular, the Company believes its low cost, high-alcohol beer, Red Horse, which has enjoyed substantial volume growth in the past few years, will be able to attract hard liquor consumers and take an increasing share of the overall alcoholic beverage market from the hard liquor segment.

• Strong market position presenting significant barriers to entry. The Company enjoys a number of

advantages that would be difficult for a potential competitor to create, making it difficult for other companies to successfully compete with it in the Philippine beer market. These advantages include:

Market leadership and economies of scale. San Miguel Brewery products have consistently dominated the market for beer in the Philippines, the country’s largest alcoholic beverage segment. Based on the Company’s internal data, the Company’s products captured a high market share of 95.6% in 2008. The country’s top four beer brands are all produced by the Company. Unlike most other markets for beer, in the Philippines, imported brands account for only 0.1% of the market, with distribution limited to upscale bars and hotels and high-end supermarkets. Despite the entry of local competition in 1981 and the introduction of a few locally brewed versions of foreign brands, the Company has maintained an extremely strong market position. The popular acceptance and widespread availability of San Miguel Brewery’s products have helped strengthen the Company’s market position over the years. The Company’s size and scale of operations provide significant economies of scale in production, research and development, distribution, and managerial and marketing functions over a diversified product portfolio and geographic base. Its size also results in substantial leverage and significant bargaining power with suppliers and retailers.

Proximity of Production Facilities to Consumer Markets. To ensure product availability and freshness, as well as to minimize distribution costs, the Company maintains a network of local breweries that are strategically located in the three main islands of the Philippines: Luzon, Visayas and Mindanao. The Company has breweries in each of Valenzuela City, Metro Manila; San Fernando City,

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Pampanga; Mandaue City, Cebu; Bacolod City, Negros Occidental; and Darong, Sta. Cruz, Davao del Sur, with a total annual production capacity of 15.3 million hectoliters. Each of these breweries is equipped with automated facilities capable of packaging the Company’s products in a variety of sizes and formats, including bottles, cans, and kegs. The strategic location of the Company’s breweries reduces overall risks by having alternative product sources to avert possible shortages and meet surges in demand in any part of the country. This also assists the Company in ensuring that the beer is freshly delivered to dealers at an optimal cost. The archipelagic nature of Philippine geography and the relative difficulty of transporting products to the country’s substantial rural population make these dispersed production facilities particularly valuable.

Extensive and Efficient Distribution System Coverage. The Company has a far-reaching and efficient distribution system, which is based on five strategically located breweries and effective management of third party service providers and provides the Company with a competitive advantage. The Company’s49 sales offices, contracted logistics providers and transportation assets including 452 hauling trucks, 200 routing trucks, 258 pre-sell vans and 396 service pick-ups and its network of 489 dealers across the Philippines enable it to maintain optimum stock levels in terms of quality and quantity in 478,757 on-premise and off-premise outlets nationwide. The Company’s products are delivered from any one of the Company’s five breweries by contract haulers to a sales office or dealer warehouse within five days of production date or less. The sales office or dealer then delivers the beer to the wholesaler or retailer promptly afterward, ensuring ample stock and quality wherever and whenever San Miguel Beer products are needed.

The Company’s returnable bottle system helps keep the price of its beer products affordable. With the high retrieval rates achieved under the system, bottle usage is maximized before bottles are replaced. Under this system, the Company is able to achieve a 95% average retrieval rate for its bottles, which substantially reduces its packaging costs.

Cost Leadership. The Company maintains a strong cost leadership position through high productivity and efficiency, as well as cost control measures, which facilitate pricing flexibility and greater profit growth by maintaining the Company’s margins. The Company’s product quality initiatives, process enhancements, and improvement programs for plant operations and facilities management are all expected to be sustained. The Company continuously implements process optimization efforts and technology enhancements to generate cost savings

• Experienced management and production team. The Company has an extensive pool of experienced

managers, with many senior managers having been with the Company for an average of 20 years. The management team is well accustomed to the Philippine operating environment, and has been able to effectively manage the Company through periods of crisis and instability in the Philippines. The Company also has established experts in its production process, including 30 brewmasters, each of whom has completed advanced training and has over ten years of on-the-job-training experience working for the Company.

STRATEGIES

The Company’s principal strategy is to increase the volume of its beer sales, both by increasing its market share and by increasing the size of the market, while maintaining its margins. It plans to achieve this through the following:

• Increase market share. Although the Company already has a very strong position in the Philippine beer

market, it intends to increase its market share by pursuing targeted marketing efforts in the regions and localities in which it believes its market share is lower than it is for the Philippines as a whole - which currently stands at 95.6%, such as in specific areas in North and South Luzon, as well as in Visayas and Mindanao. The Company intends to accomplish this by selecting specific products in appropriate packaging to rival competing products and brands. The Company also intends to increase its product visibility in these markets through tactical consumer promotions and improve outlet penetration through persuasive selling and trade incentives. Similarly, the Company intends to increase its share of the overall market for alcoholic beverages. This effort will focus on those specific regions and localities in which hard liquor sales are higher, and, similar to the efforts to increase market share in the beer segment, will include brand- and package-specific marketing campaigns, persuasive selling and incentives for dealers and retailers.

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• Increase the overall market for beer. The Company also plans to increase its sales volume by

increasing the total market for beer sales. The Company’s primary strategies to achieve this include:

Segmented pricing strategy. The Company intends to keep its products affordable for the middle and lower socio-economic sectors by maintaining a moderate pricing strategy for its products in the Popular and Economy markets, where sales are highly price elastic. For the more upscale, or Upper Popular, market, where sales are less price elastic, the Company plans to increase the pricing of its existing and new specialty brands, supported by image-building activities to strengthen their premium positioning and improve their profitability. Amid the global economic slowdown, the Company intends to manage and align the timing and magnitude of price increases for all its products to sustain volume growth as well as cover increases in tax rates on beer and higher material costs. With the forecasted Philippine economic growth in 2009, the Company intends to pursue this segmented pricing strategy to protect its gains and to sustain the general uptrend for the industry as evidenced by the Company’s improved market share and increased level of sales in 2008.

Increase the size of the Upper Premium and Premium segments . The Upper Premium and Premium markets for beer in the Philippines are relatively small segments, but they play important roles in brand-building and overall market development. The segments offer promising prospects, underpinned by rising consumer incomes, increasing consumer sophistication, rapidly changing drinker habits and preferences, as well as increasing urbanization. The Company intends to further develop the higher-priced segments of the beer industry by offering higher-priced and higher-margin products catering to these segments. For example, in August 2008, the Company launched two new brands, San Miguel Premium All-Malt and Oktoberfest Brew, a seasonal beer available for four months (from September 2008 to December 2008), which are marketed to the Upper Premium and Premium segments, respectively. With this strategy, the Company aims to take advantage of opportunities in segmenting the market as well as preempting the incursion of foreign brands. Relative to other Asian countries, the Philippine beer market offers greater potential with regard to premium pricing of brands given the current relatively narrow price gap between the Upper Premium/Premium and Upper Popular brands.

Strengthen the Brand Portfolio. The Company intends to strengthen its brands to take advantage of segment-specific growth opportunities, increasing sophistication and changing lifestyles of Philippine consumers and to maintain its market leadership position. The Company plans to maintain the status of its flagship San Miguel Pale Pilsen brand and strengthen its value through an integrated approach of national brand-building campaigns and retail promotional and marketing efforts. Examples of brand-building activities include advertising campaigns for the brand using famous endorsers such as Manny Pacquiao, Erik Morales and Kris Aquino under the “Walang Katulad” (“Beer like no other”) and “Face to Face” campaigns and the TV commercial featuring actor Jet Li, which forms part of the regional campaign to uplift the image and positioning of the San Miguel Pale Pilsen brand in the Asian region.

The Company intends to implement new programs and initiatives catering to the younger segment of the market to protect its core customers and strengthen the appeal and preference for the brand among new drinkers. The Company expects to further grow main brands San Miguel Pale Pilsen, Red Horse and San Mig Light through the introduction of new thematic campaigns, special events and volume-generating programs aligned with the respective positioning of these brands in the market. For the Company’s specialty brands, including Cerveza +egra, Super Dry, and San Mig Strong Ice, the Company plans on increasing its efforts in on-premise channels by matching these brands with appropriate on-premise outlets and through event sponsorships, party series and tie-ups with other companies. Specialty brands will also be promoted in off-premise channels through increased visibility and promotions.

Optimize Trade Coverage and Efficiencies. The Company intends to further expand its trade reach and increase the visibility and availability of its products in retail outlets through point-of-sale merchandising materials and signage for both on- and off-premise outlets to increase sales and outlet yield. In pursuing this strategy, the Company will focus on improving the efficiency of its trade operations, including trade penetration levels and adherence to suggested retail prices in all distribution

channels by strengthening per-outlet management, intensifying route assisting activity and alternative distribution mode management such as pedicabs (bicycle-driven cabs) and tricycles, which help to deliver the Company’s products to remote areas. The Company also intends to raise its frequency of

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calls to retail outlets. Management of the distributors’ territories will be strengthened through intensified retail-based servicing and territorial reconfiguration.

Increase Sales Through Special Events and by Focusing on Fast-growing Trade Channels. The Company intends to continue its volume-generating initiatives and occasion-creation programs. Examples of these activities include the Company’s sponsorship of town fiestas and major events, such as San Miguel Beer Oktoberfest, that aim to make the beer drinking experience more relevant and closer to the consumers. The Company recognizes the importance of fast-growing modern trade channels such as large supermarket chains, hypermarkets and modern convenience stores in marketing and carrying its products to consumers, especially in urban areas. Accordingly, the Company, primarily through SMC’s Corporate Key Accounts Group (“CKAG”), is focusing on sales and marketing programs for key upscale products to these fast-growing segments of the market.

,ew Product and Package Introduction. The Company plans to introduce new products and new package formats. The Company believes this strategy can increase consumer interest and overall market size, as well as address the needs of an increasingly fragmenting market, especially in high growth segments. For example, to increase consumer interest, in May 2007, the Company introduced San Miguel Pale Pilsen in paper label bottles. In 2008, the Company launched new products San Miguel Premium All-Malt in the Upper Premium segment and the Oktoberfest Brew (seasonal brew) in the Premium segment as well as introduced secondary packaging, i.e. Christmas-themed shrinkwrap (6-pack) for San Miguel Premium All-Malt and clear shrinkwrap (6-pack) for San Miguel Pale Pilsen, San Mig Light, Super Dry and San Mig Strong Ice. The Company intends to continue to pursue packaging innovations and capitalize on the market trend towards convenience packaging. The Company is developing packaging improvements for existing brands as well as convenience pack formats consistent with faster-paced lifestyles and addressing the various activities and interest of consumers.

PRODUCTS A.D BRA.DS

In the Philippines, beer has become synonymous with San Miguel, a company that has been known for its quality products for over 118 years. Specifically, Filipinos readily associate beer with a San Miguel product that embodies the attributes and values they look for in their beverage. The Company has differentiated its product offerings through effective marketing programs. With the Company’s diverse product portfolio, Filipino beer drinkers can have a San Miguel product that caters to their specific tastes and preferences. The Company considers the strong brand associations and imagery that San Miguel beer brands carry to be among the important selling points for San Miguel beer products.

The Company markets its beer under the following brands: San Miguel Pale Pilsen, which is the Company’s flagship brand, San Miguel Super Dry, San Mig Light, San Miguel Premium All-Malt, San Mig Strong Ice, Cerveza +egra, Red Horse, Oktoberfest Brew and Gold Eagle. The Company also sells Cali, the country’s only malt-based non-alcoholic drink. Cali is available in three variants: Cali Pineapple, Cali Ice and Cali Light (low-calorie).

The Company’s products can be categorized into three classes based on the target market: Premium/Upper Premium, Upper Popular, Popular and Economy. Premium, Upper Premium and Upper Popular products cater to upscale markets especially in highly urbanized areas, while the Popular segment serves the majority of the population or the mass market. The Economy segment caters to the low-end market. Over time, the share of the Company’s sales to the Upper Popular segment has been steadily increasing from 2% in 2000 to 11% in 2008. In contrast, the shares of the Popular and Economy segments have been decreasing. These trends reflect primarily shifts in consumer preferences given improvements in incomes, increased urbanization and changes in lifestyles.

The following table sets forth each of the Company’s products, organized by market segment, and includes a description of each product as well as the specific packaging in which the product is sold.

Brand and Product PortfolioProduct

Market Price(1)

Segment Brand/ Product Description/Target Market Packaging (P)

San Miguel Premium All-Malt has 330ml bottle 35.00a malty flavor with pleasant hoppynotes. It is full-flavored with a

Upper smooth balanced bitterness.Premium Targeting both male and females

aged 25-45. Alcohol content: 5%

San Miguel Super Dry is the first 330ml bottle,25.00and only “dry” beer in the 330ml canPhilippine market. The targetmarket for this beer is primarilymales, aged 22-45 in higher socio-economic groups. It is a clear light amber lager with strong aromatic hop notes. It is light to medium-bodied with moderate bitterness. Alcohol content: 5% by volume.

Cerveza +egra is a full-bodied 330ml bottle 25.00dark lager with a balance ofmoderate bitterness and sweetish roasted malt bouquets. Alcohol

Premium content: 5% by volume. It ismarketed to both men and women, primarily those between the ages of 25-34 in higher socioeconomic groups.

Oktoberfest Brew (seasonal) is a 330ml bottle 25.00pale lager with malty notesbalanced with floral and citrus hop notes. It is full flavored yet light-bodied, sweet and smooth without the inebriating effect of alcohol. Targeting both males and females aged 18-24. Alcohol content:3.6% by volume

San Mig Strong Ice is an ice- 330ml bottle, 24.00filtered beer with higher alcohol 330ml can

Upper content than regular beers. It isPopular marketed primarily to men aged

18-24. Alcohol content: 6.3% by volume.

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Brand and Product PortfolioProduct

Market Price(1)

Segment Brand/ Product Description/Target Market Packaging (P)

San Mig Light is the first 330ml bottle, 22.00light/low-calorie beer in the 330ml can,market. Alcohol content: 5% by 15L, 30L &,volume. This beer is marketed to 50L kegsmen and women aged 18-34,primarily those in highersocioeconomic groups.

San Miguel Pale Pilsen is a pale 320ml bottle, 19.00golden lager with a clean, hoppy 1000mlfinish. It has a medium body, with bottle, 330mla distinct bitter hop character. can, 15L,This beer, the Company’s flagship 30L & 50Lbrand, is marketed to all socio- Kegseconomic groups, primarily tothose in the 24-45 age group, but also to those aged 18-24. It is marketed through various campaigns, including those linked to national marketing events and

Popular local festivals that are sponsoredor supported by the Company.Alcohol content: 5% by volume.

Red Horse Beer is a full-flavored 330ml bottle 18.00high-alcohol beer. This beer is 500ml bottlemarketed primarily to men 1000mlbetween the ages of 18-24 in bottle 330 mlmiddle and lower socio-economic cangroups. Marketing for this beer is often tied to rock music and sports. Alcohol content: 6.7% by volume

Economy Gold Eagle is a low-priced beer. It 320ml bottle 15.00has a pale amber hue and is 750ml bottlemoderately light-bodied. It is 1000mlbrewed to have an “easy- bottledrinking” character. It is marketed primarily to men aged 24-45 in middle and lower socioeconomic groups. Alcohol content: 4.5% by volume.

Non- Cali is a line of clear, non- 330ml bottle 18.00Alcoholic alcoholic malt-based beverages 330ml can

with fruit flavors and slighteffervescence. Cali has threevariants: Cali Pineapple, Cali Ice (apple) and Cali Light (low-calorie).

________________

(1) Product prices represent the Company’s suggested retail price for each product, expressed in 320ml/330ml bottle

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Over the years, the Company’s beer products have been the recipient of numerous international awards for product quality and excellence. San Miguel beer brands are consistent Monde Selection winners. Monde Selection is a Belgian based international institute for quality selections founded in 1961. The Company considers “Monde Selection” awards to constitute an exceptional advertising asset and a recognized quality assurance for consumers. The latest awards in 2008 give San Miguel a grand total of one grand gold award, 30

gold medals, 14 silver medals, two bronzes, one International High Quality trophy, and one Crystal Prestigeaward since 2000.

San Miguel Pale Pilsen is also a certified Superbrand in Asia. Superbrands Ltd. (“Superbrands”) is an independent arbiter on branding based in the United Kingdom that represents over 57 countries (9 in Southeast Asia, including the Philippines) across four continents and is widely regarded as the world’s leading brand recognition program. Superbrands promotes the discipline of branding and pays tribute to exceptional brands that achieve a level of brand trust and reputation in the minds of consumers. The Company has been a consistent award winner for Superbrands, winning the platinum award in the Philippines for the fifth consecutive year after earning a gold citation when the survey began in 1999.

PRODUCTIO.

Facilities

Due to the high cost of shipping relative to product cost — as well as the importance of maintaining freshness and other distribution considerations — the Company maintains a system of regional breweries rather than a central consolidated brewing facility. Each of the Company’s breweries is equipped with automated facilities capable of packaging the products in a variety of packages to meet market preferences, including bottles, cans and kegs. The Company currently owns and operates five breweries in the Philippines. These breweries are strategically located in the Philippines’ three main island groups of Luzon, Visayas and Mindanao, and are located close to the intended end-markets in order to reduce transportation costs.

In 2008, the overall utilization rate of the Company’s breweries, calculated as the quotient of production divided by capacity, was 75%. The following table sets forth the year of establishment and annual brewing capacity in hectolitres, of each of the Company’s breweries in December 2008:

Brewery Year Established Capacity

(in millions of hl)

Polo ………………………………………………………… 1947 3.3

San Fernando ………………………………………………………… 1981 5.5

Mandaue ………………………………………………………… 1968 3.4

Bacolod ………………………………………………………… 1990 1.0

Davao ………………………………………………………… 1995 2.1

Total ………………………………………………………… 15.3

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

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The Company employs state-of-the art brewing technology. Its main brewing equipment and technology are sourced from Huppmann Handel GmbH & Co. KG, one of Germany’s leading brewing equipment manufacturers. Beer fermentation and maturation are done in stainless steel cylindro-conical tanks. Beer is filtered using vertical filters with horizontal plates made by a German company, SeitzSchenk Filtersystems GmbH. Most of the Company’s packaging machines are from leading packaging equipment manufacturers from around the world, including Germany’s Klöckner, Holstein Seitz AG. The Company also uses washers from Barry-Wehmiller Companies, Inc. and pasteurizers with regenerative energy savings systems from the United States and camera-type electronic bottle inspectors capable of detecting transparent foreign materials in the empty bottles from Kirin Techno-System Corporation of Japan. The Company’s labeling equipment is from Krones AG of Germany and Production Engineering (PE) Labellers of Italy.

The Company’s packaging materials are sourced from certain members of the San Miguel Packaging Group. All of the Company’s breweries are in a state of certifiability for ISO 9001:2000 and ISO 14001:2004, as reviewed by SMC’s Corporate Quality Management and Environment Management units. All of the breweries are also good manufacturing practices-certified by the Food Development Center.

Raw Materials

The main raw materials for brewing beer include malted barley, hops, water and yeast. Adjuncts, such as sugar and non-malted grains including rice, corn grits and food starch from cassava, can also be used in conjunction with malted barley, which is generally more expensive. All of these commodities have experienced, and are expected to continue to experience, price fluctuations.

The Company procures key raw materials for its beer operations through a procurement group that uses standardized procurement procedures. Malted barley and hops are generally sourced from the United States, Australia and Europe, while new sources in China and India are being developed. Adjuncts are generally sourced locally. The Company enters into supply contracts with key raw material suppliers with terms ranging from approximately one month to five years. These contracts typically provide for a pre-determined price for the duration of the contract. In addition, depending on considerations such as price trends and the quality of raw materials, the Company also makes spot purchases in the open market. To ensure the quality of its products, the Company closely monitors the quality of its raw materials.

The following table indicates the trend of the Company’s raw material costs:

For the years endedDecember 31,

2006 2007 2008In P per kilogram

Malt price …………………………………………………… 19.67 17.86 30.55

Corn Price …………………………………………………… 15.55 16.72 18.91

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

All water supply used by the Company in its production is provided by deep wells owned by SMC and are operated by the Company, except for water used at the Polo Brewery, which is supplied by the Maynilad Water Services, Inc., a privatized water company serving parts of Metro Manila.

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The following table sets forth the major raw materials and packaging supplies used in the Company’s business, the source countries for these items and the Company’s typical contract periods for procurement.

Major Raw Materials and Packaging Supplies

Key Materials Sources Contract PeriodMalted Barley Australia 5 years

Europe 5 yearsUSA, Canada, China 1 year

Hops USA 1 month - 1 yearGermany 1 month - 1 year

AdjunctsCorn Grits Philippines 3 yearsSugar Philippines One - two monthsFood Starch (from Cassava) Thailand, Vietnam SpotRice Philippines 3 years

Packaging MaterialsBottles Philippines 1 yearCrowns Philippines 1 yearAluminum Cans Philippines 1 yearPlastic Cases Philippines 1 yearCartons Philippines 1 yearLabels Philippines, Malaysia 1 year

BREWI.G TECH.OLOGY A.D PRODUCT DEVELOPME.T

The Company employs state-of-the-art brewing technology. Its highly experienced brewmasters and quality assurance practitioners provide technical leadership and direction to continuously improve and maintain high standards in product quality, process efficiency, cost effectiveness and manpower competence. Brewing technology and processes are constantly updated and new product development is ensured through continuing research and development. A research and development group is housed in the technical center building of the Polo Brewery. Research and development activities are primarily undertaken in a pilot plant located in Polo Brewery. The pilot plant is a complete miniature brewery equipped with a 35-hl capacity brewhouse.

The Company also has a central analytical laboratory, or CenLab, located in the technical center building of the Polo Brewery. The laboratory is equipped with modern equipment necessary for strategic raw materials (hops, malted barley, adjuncts) analysis and validation, beer product evaluation and new raw material accreditation. Specialized equipment includes gas chromatography, high performance liquid chromatography, atomic absorption spectroscopy, protein analyzer, and laboratory scale mashing/milling system for malt analysis. Analytical methods and validation procedures are constantly reviewed and updated, and these are standardized across all San Miguel Beer laboratories. CenLab runs proficiency tests for brewery laboratories and malted barley suppliers to ascertain continuous reliability and quality of analytical test results. CenLab is also tasked with ensuring compliance of all systems with international standards, specifically ISO 17025-2005.

The following table presents the amounts spent by the Company on research and development activities, in millions of pesos and as a percentage of net sales, for the periods indicated:

For the years endedDecember 31,

2006 2007 2008

Amount (in millions) …………………………………………………………………………….. P59.0 P23.0 P32.0

Percentage of net sales …………………………………………………………………………….. 0.1% 0.1% 0.1%

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

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Courses offered at the school included those highly advanced classes necessary to qualify the most senior of its technical personnel as brewmasters. Each of the Company’s 30 brewmasters has extensive advanced coursework and over ten years of on-the-job-training experience working for the Company.

MARKETI.G, SALES A.D DISTRIBUTIO.

Domestic Market

The Company markets, sells and distributes its products principally in the Philippines. Many of the Company’s products have strong market positions in the Philippines. The Company believes that it maintains the most extensive distribution network in the Philippine beverage market. The Company’s beer products are distributed and sold at 478,757 outlets, including off-premise outlets such as supermarkets, grocery stores, sari-sari stores, and convenience stores, as well as on-premise outlets such as bars, restaurants, hotels and beer gardens.

As of December 31, 2008, the Company had 49 sales offices and 489 dealers throughout the Philippines. Generally, it takes five days or less for a bottle of beer to travel from production in the brewery to a sales outlet anywhere in the country. Beer is transported from the breweries by a variety of methods, mainly through third-party haulers and, in certain circumstances, by a fleet of boats contracted by the Company.

The following chart is a graph of the Company’s distribution network as of December 31, 2008:

PRODUCTION SALES AND DISTRIBUTION END MARKETS

S

SMB (5 Breweries)

ales

Supervisors

&

Off

Dealer SalesDealers Persons(489)

Account Specialists

Wholesalers(2)

Wholesalers(2)

Sales Persons

Reta ilers [c .468,878]

Sales Persons

On - P remise B ar/P ub /Loun ge R e stau rantFastfood C a rin deriaIndu strial/O ffice C an teen R e freshem e nt/S n ackBarBeer H ous eH o tel/M otel/P e nsion houseR e creation c e nter/R es ort Sarinum a nB urger H o use Off - P re m is e

Sari-S ariSuperm arket Mark et S tallG roce ry/Minim a rt W arehou se Clu b C o nv enie nce S tor eW in ehou se/Liquor S ho p

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

es

(1 ) SM C’s CK A G divisio n w ill provide targ eted sa le s and distrib u tio n s e rvices to SM B o n an a rm ’s le n g th basis. See Relate d P art y T ran sa ctio n s(2) The Company has a total of 9,879 Wholesalers

DrugstoreP ort/B u s S n ack C o unter M all S nac k C ente rBakery

Dealers generally provide their own warehouse facilities and trucks, considerably reducing the Company’s own investment requirements. To increase distribution efficiency, the Company has gradually reduced the number of its dealers. The Company has also increased the support that it provides to its dealers, including software support with respect to streamlining logistics, promotional support and financial management training. The Company enters into written distribution agreements with its dealers that specify the territory in which the dealer is permitted to sell the Company’s products, the brands that the dealer is permitted to sell, the performance standards applicable to the dealer, procedures to be followed by the dealer in connection with the distribution rights and circumstances upon which distribution rights may be terminated. The Company’s sales force designs and awards strategic sales territories to dealers based on research of the specific territory covered. Distribution rights, performance standards and sales procedures are developed by the Company and implemented in tandem with dealers to ensure high quality of services. As dealers are given exclusivity over defined geographic areas that the Company actively monitors and enforces, these franchises are heavily sought after by potential dealers.

To handle the modern trade accounts, such as hypermarkets, and high-visibility on-premise outlets, SMC’s Corporate Key Accounts Group (CKAG) acts as an agent, with the Company as principal, and handles the sale and distribution of the Company’s beer brands in key outlets such as hotels, bars and restaurants, supermarkets/malls and convenience stores. CKAG accounts for only 4% of total sales volume. The Company is not at the mercy of the modern trade given its strong relationship and the relatively large contributions of the

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secondary and tertiary trades.

As of December 31, 2008, the Company, together with its distributors and call center associates, had a sales force of approximately 1,607 in the Philippines. The Company recently introduced initiatives to increase sales performance, including sales technique training for the Company’s distributors. Training that the Company provides to its dealers includes selling systems and procedures, logistics management systems, finance, quality management and human resource management. The Company also provides training to dealer personnel, including selling systems and procedures, selling skills workshops and quality management. The Company has also instituted systems to improve communication between its sales force and retail outlets, including an electronic sales-booking system for large customers.

Marketing Activities

The Company actively pursues marketing initiatives to promote new and existing products, as well as to maintain and enhance brand awareness of its existing products. These initiatives include media advertisements featuring well-known Philippine celebrities, sponsorship of special events, conducting various consumer and trade promotions and other merchandising activities. The Company also uses television, radio and print advertisements, outdoor billboards and posters that can be placed on the walls of retail outlets and restaurants, bars and other on-premise outlets. The Company operates a call center, “632-BEER,” which provides free beer delivery service for parts of Metro Manila. Advertising and promotion expenses of the Company’s domestic beer operations were P1,395 million in 2007 and P825 million in 2008.

The Company holds major events and sponsors numerous music events. San Miguel Beer Oktoberfest has been the brand’s flagship event for over three decades. This month-long festival of beer and activities takes places at numerous locations simultaneously across the Philippines. Popular bands and celebrities, including San Miguel

beer endorsers, are on hand to entertain the crowds. The Company also holds San Miguel Pale Pilsen’s nationwide SMBabad Summerfest, which is an annual get-together of games, concerts and parties at the country’s popular beaches. In addition to San Miguel Pale Pilsen, Red Horse is also often a major sponsor of concerts, with the brand affiliated with Muziklaban, the country’s biggest annual rock challenge, a band competition. The Company also conducted other brand-specific bar tours, including Cerveza +egra Jazz Nights bar tours as well as Super Dry “Tranquility” lounge tours and “Sultry Groovin’” night events.

International Market

In addition to its domestic sales, the Company also exports its beer products to over 40 countries, with key markets in Taiwan, Japan and the United States. The Company’s exports are primarily sold under various San Miguel brands as well as under private labels. In 2008, export sales accounted for less than one percent of the Company’s total beer sales.

SMC also owns brewery operations in Hong Kong, China, Vietnam, Thailand and Indonesia. In addition to serving their local markets, these breweries which have a combined annual capacity of 5 million hl, also sell their products in various export markets. The export operations of all of these breweries, plus those of the Company, are coordinated at the direction of SMC. See “Related Parties Transactions.”

Grupo Mahou San Miguel of Madrid, Spain has the rights to the San Miguel brand for beer in Europe. It is not affiliated with either the Company or SMC.

COMPETITIO.

The Company faces competition from another domestic producer, ABI, which sells both its own brand and foreign brands it produces under license, and from foreign brewers. ABI is the Company’s largest competitor in the Philippine market. It operates two breweries and also holds the license for Carlsberg beer and Colt 45 in the Philippines. ABI competes, mainly on the basis of price, through its own Beer na Beer and Colt 45 brands. ABI also competes with the Company’s market-leading high-alcohol beer product, Red Horse, with its licensed Colt45 brand. Competition from imported beers is minimal. The Company also competes with producers of other alcoholic beverages, primarily low-priced gin and brandy. In the beer industry — and more generally the alcoholic beverage industry — competitive factors generally include price, product quality, brand awareness and

loyalty, distribution coverage, and the ability to respond effectively to shifting consumer tastes and preferences. The Company believes that its market leadership, size and scale of operations, and extensive distribution

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network create high entry barriers and provide the Company with a competitive advantage.

REGULATIO. A.D TAXATIO.

Philippine national and local government legislation require a license to sell alcoholic beverages and prohibit the sale of alcoholic beverages to persons below 18 years of age or within a certain distance from schools and churches. Advertising and marketing of alcoholic beverages is largely unregulated in the Philippines. The Company, however, aims to promote responsible drinking habits through its advertising and marketing programs, and has in fact adopted its own Advertising & Marketing Code of Ethics for Alcoholic Beverages.

In the Philippines, excise tax represents a significant component of beer production costs. Excise tax is payable by the producer, and the tax rate varies depending on the type of alcoholic beverage being produced, with more expensive products being subject to higher rates. The Government raised excise tax rates for beer products on January 1, 2005 by 20%, on January 1, 2007 by 8% and on January 1, 2009 by an additional 8%. As of January 1, 2009, the excise tax rates applicable to the Company’s products ranged from P9.64 per liter to P19.05 per liter. These excise tax rates will be raised by an additional 8% effective January 1, 2011. The sale of beer in the Philippines is also subject to a VAT. Effective February 1, 2006, the Government increased the VAT rate from 10% to 12%.

The following table sets forth the taxation system, both excise taxes and VAT, applicable to beer from 2000 through 2009.

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BEER TAXATIO. I. THE PHILIPPI.ES

Year Effective Date

2000 Jan.1

2005 Jan.1

2006 Feb. 1

2007 Jan.1

2009 Jan. 1

________

+otes:

Excise Tax Structure

Three-tiered specific 12% increase from 1997

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

Three-tiered specific

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

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

Specific Excise Tax Rates ( P /liter) VAT (in %)

Low-priced (1) - 6.89 10 Medium-priced (2) - 10.25High-priced (3) - 13.61





(1) Low-priced beer — net selling price per liter (excluding VAT & excise tax) less than P 14.50.

(2) Medium-price beer — net retail price per liter (excluding VAT & excise tax) from P 14.50 up to P 22.00.

(3) High-priced beer — net retail price per liter (excluding VAT & excise) is more than P 22.00.

The following table sets forth the excise tax rates applicable to fermented liquors, including beer, as of January 1, 2007, January 1, 2009 and as scheduled to be applied on January 1, 2011, respectively.

Schedule of Current and Planned Excise Tax Rates on Fermented Liquors

Effectivity Date

January 1, 2007 January 1, 2009 January 1, 2011

Fermented liquors, where the net retail price (excluding excise tax and VAT) per liter of volume capacity is:

Less than P 14.50........................................................................ P 8.93 P 9.64 P 10.41P 14.50 up to P 22.00.................................................................. P 13.28 P 14.34 P 15.49More than P 22.00....................................................................... P 17.64 P 19.05 P 20.57

Fermented liquors brewed and sold at microbreweries or small establishments such as pubs and restaurants, regardless of the

net retail price............................................................................. P 17.64 P 19.05 P 20.57

EMPLOYEES

The table below presents the Company’s personnel numbers by functional category for the periods indicated.

Category .umber of Employees

89

Executives (Officers and Managers)...................

Project employees and Consultants...................

All other employees...........................................

For the year ended For the year ended For the year ended

Dec. 31, 2006 Dec. 31, 2007 Dec. 31, 2008

136 125 138225 233 121

2,667 2,465 2,499

Total................................................................... 3,028 2,823 2,758

The Company approved its retirement plan on February 4, 2008. Under the plan, all regular monthly-paid employees and daily-paid workers of the Company are eligible members. Eligible members who reach the age of 60 (65 for employees transferred from SMC) are entitled to compulsory retirement. The Company may, however, at its own discretion, continue an employee’s membership under the plan on a year-to-year basis after he/she reaches compulsory retirement. Eligible members may opt to retire earlier after they have completed at least 15 years of credited service at the Company. Upon retirement, eligible members will receive a certain percent of their final monthly pay for each year of their credited service. The amount varies depending on the years of service of the retiree. Eligible members may receive certain resignation benefits if they resign before they reach an eligible retirement date if they have completed at least five years of service at the Company.

All of the Company’s employees are based in the Philippines. The Company does not expect the number of its employees to materially change in the next 12 months.

The Company assumed the responsibilities of SMC under 10 existing CBAs that cover approximately 50% of the Company’s employees. Details of the CBAs and their expiration dates, in respect of both the term of the agreement for employment and the term for the union to represent employees, are set out in the table below:

ExpirationUnion .o. of CBAs Economic Representation

SMC Employees Union-PTGWO (M)........................................... 1 30-Jun-10 30-Jun-09Ilaw at Buklod ng Manggagawa-SMC Chapter (D)...................... 1 30-Jun-10 30-Jun-09Ilaw at Buklod ng Manggagawa- local 42 (D)............................... 1 15-Feb-11 15-Feb-10Ilaw at Buklod ng Manggagawa- local 48 (M).............................. 1 31-Dec-10 31-Dec-09New San Miguel Sales Force Union-GMA(M)............................... 1 31-Jan-11 31-Jan-10Philippine Agricultural, Commercial Industrial Workers Union (M) 1 31-Oct-10 31-Oct-13San Miguel Bacolod Brewery Employees Union (D).................... 1 31-Jul-10 27-Apr-09Ilaw at Buklod ng Manggagawa- Mandaue Chapter (D)............... 1 31-Dec-11 31-Dec-10New San Miguel Sales Force Union-Cebu(M)................................... 1 15-Feb-09(1) 15-Feb-11San Miguel Davao Brewery Independent Union (D)..................... 1 30-Nov-09 30-Nov-12

________+otes:

(M) Monthly wage-earners(D) Daily wage-earners.(1) The Company intends to renegotiate this agreement.

SMC has not experienced any strikes or work stoppages in the past three years. Neither has the Company experienced any such strikes or work stoppages since the effectivity of the spin-off on October 1, 2007. The Company considers its relationship with its employees to be good.

I.SURA.CE

The Company has an all-risk policy that covers its facilities and inventories against a variety of risks, including, among others, fire, lightning, catastrophic perils (typhoon, flood, earthquake, volcanic eruption), machinery breakdown, explosion, civil commotion, riot/strike, malicious damage, and other perils liability. The Company does not maintain business interruption insurance for its production facilities. The total sum insured under this policy is approximately US$627 million, with a maximum recovery for any one loss of US$250 million.

In addition to the all-risk policy, the Company maintains various general liability and product liability insurance

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policies covering its operations. These policies do not cover liability as a result of pollution or environmental damage by the Company.

The Company has a marine cargo insurance policy to cover domestic and international shipment of goods and equipment. A product liability insurance policy insures all of the Company’s exported products. The Company’s insurance policies are provided by leading Philippine insurance companies that are generally reinsured by major international insurance companies.

HEALTH, SAFETY A.D E.VIRO.ME.TAL MATTERS

The Company is subject to a number of employee health and safety regulations in the Philippines. For example, the Company is subject to the occupational safety and health standards promulgated by the Philippine Department of Labor and Employment. The Company believes that a safe and healthy work environment is fundamental to the management of its human resources as well as conducive to greater employee productivity. SMC has a safety management group, and under the Shared Services Agreement it is responsible for formulating, implementing and enforcing the Company’s employee health and safety policies as well as ensuring compliance with applicable laws and regulations. See “Related Party Transactions” for a description of the Shared Services Agreement.

The Company is subject to extensive regulation by the Philippine Department of Environment and Natural Resources. SMC’s environmental management group is responsible for formulating and implementing an environmental management system based on ISO14001 standards for the Company under the Shared Services Agreement. See “Related Party Transactions” for a description of the Shared Services Agreement. SMC’s environmental management group, with assistance from outside environmental consultants, regularly conducts employee environmental training as well as audits of the Company’s facilities and production processes. In addition, the environmental management group conducts an annual compliance audit to ensure compliance with applicable environmental laws and regulations as well as with the Company’s internal policies, and advises the Company’s senior management of critical environmental issues. As of the date of this prospectus, the permits or licenses of the Company for its operations have been transferred from SMC except for the water permits covering the deep wells in the breweries (except in Polo Brewery which relies on a third-party for its water supply).

As part of the extensive regulation by the DENR on the Company’s operations, the Company is also required to comply with various laws and regulations concerning the discharge of materials into the environment. Prior to the spin-off of its domestic beer business, in 2004 SMC received a notice from the Pollution Adjudication Board (“PAB”) relating to the discharge of ammonia to the immediate surroundings of the Bacolod Brewery. Following SMC’s submission of an environmental risk assessment report on this discharge, the PAB, in a resolution dated March 31, 2005, referred the matter to the Regional Office of the Environment Management Bureau (Region VI) of the DENR for their evaluation, after the receipt of which the PAB shall decide on the matter. PAB also referred the matter to the Department of Labor and Employment for its separate independent evaluation. The Company inquired as to the status of these referrals by separate letters to the Regional Office (Region IV) of the DENR and Central Office of the DENR — Environment Management Bureau in November 2007. In October 2008, the central office of the DENR-EMB replied that they have requested the Regional Office to forward the relevant documents for their evaluation and calendar the matter for proper deliberation of the DENR-EMB board. Pursuant to a Technical Conference on January 30, 3009, the Company, in a letter dated February 3, 2009, confirmed its commitment to remit to DENR-PAB the amount of P10,000 in compliance with its obligations under Republic Act No. 8749. To date, the Company has yet to receive the resolution from the DENR-EMB on the matter.

In a separate matter, in April 2007 SMC received a notice from the Environmental Management Bureau of the DENR for sulfur dioxide emissions of the boilers in the Mandaue Brewery in excess of the standards of The Clean Air Act of 1999 (the “Clean Air Act”), which resulted from the use of high sulphur bunker fuel. Subsequent to receiving this notice, SMC has been relying on a grace period granted by the Secretary of the DENR in a memorandum dated July 1, 2007 in favor of all industrial facilities using bunker fuel. The grace period granted under the memorandum allows the continuous use by these industrial facilities of bunker fuel for their operations without penalties, subject to the approved environmental management plan based on guidelines of the Environment Management Bureau. Under this memorandum, the grace period will be available until the DENR formulates definite guidelines for compliance with The Clean Air Act. On October 20, 2008, however, the DENR issued a memorandum which revoked the grace period for compliance with the Clean Air Act. With

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the revocation of the July 2007 memorandum, the Company has commenced arrangements for the use of low-sulfur fuel oil in its Mandaue Brewery.

In 2008, the Company spent P73.3 million in complying with environmental laws and regulations.

LEGAL PROCEEDI.GS

Except as otherwise disclosed above, as of the date of this prospectus, the Company is not a party to any material pending legal proceedings, and none of the properties of SMC that was transferred to the Company pursuant to the spin-off of the domestic beer business of SMC is the subject of any legal proceeding. SMC will continue to be responsible for all pending legal proceedings that involve the domestic beer business prior to the effectivity of the spin-off on October 1, 2007 (such as collection cases and foreclosure of properties given as collateral for product purchases and cases for tax refunds filed with the BIR).

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BOARD OF DIRECTORS A.D MA.AGEME.T

The table below sets forth each member of the Board of Directors of the Company as of the date of this prospectus:

.ame Age Citizenship Position

Ramon S. Ang.................................................. 55 Filipino Chairman, President andDirector

Ferdinand K. Constantino............................. 57 Filipino DirectorFrancis H. Jardeleza....................................... 59 Filipino DirectorVirgilio S. Jacinto........................................... 52 Filipino DirectorJoseph N. Pineda.............................................. 45 Filipino DirectorRoberto N. Huang........................................... 60 Filipino DirectorRosabel T. Balan.............................................. 45 Filipino DirectorIñigo Zobel....................................................... 52 Filipino Independent DirectorCarmelo L. Santiago....................................... 66 Filipino Independent Director

Ramon S. Ang has served as Director of the Company since July 26, 2007 and its President since October 8, 2007. He also holds, among others, the following positions: Vice Chairman, President and Chief Operating Officer of SMC; Chairman and Chief Executive Officer of Petron Corporation; Chairman of San Miguel Properties, Inc. (“SMPI”), The Purefoods-Hormel Company, Inc., San Miguel Yamamura Packaging Corporation (“SMYPC”), Anchor Insurance Brokerage Corporation (“AIBC”) and San Miguel Brewery Hong Kong Limited (Hong Kong); Vice Chairman of Manila Electric Company; and Director of Ginebra San Miguel, Inc. (“GSMI”) and San Miguel Pure Foods Company, Inc. (“SMPFC”). He is also the Chairman of Liberty Telecoms Holdings Inc., Philippine Diamond Hotel & Resort, Inc., Philippine Oriental Realty Development, Inc., Atea Tierra Corporation and Cyber Bay Corporation and an independent director of Philweb Corporation. Mr. Ang has held directorships in various subsidiaries of SMC during the last five years.

Ferdinand K. Constantino has served as Director of the Company since July 26, 2007 and its Chief Finance Officer and Treasurer until March 16, 2009. He also holds, among others, the following positions: Senior Vice President, Chief Finance Officer and Treasurer of SMC; Chief Finance Officer of Manila Electric Company; President of AIBC; and Director of GSMI, SMPFC, SMPI, SMYPC, Bank of Commerce, San Miguel Brewery Hong Kong Limited (Hong Kong), Magnolia, Inc. and San Miguel Foods, Inc. Mr. Constantino previously served as Chief Finance Officer of the San Miguel Beer Division of SMC (1999-2005) and has held directorships in various subsidiaries of SMC during the last five years.

Francis H. Jardeleza has served as Director and Corporate Secretary of the Company since July 26, 2007. He also holds, among others, the following positions: Senior Vice President, General Counsel, Corporate Secretary and Compliance Officer of SMC; Corporate Secretary and Compliance Officer of GSMI, SMPFC and SMPI; Corporate Secretary of The Purefoods-Hormel Company, Inc. and SMYPC; Chairman and President of SMC Stock Transfer Service Corporation (“SMCSTSC”) and Director of SMBI. Mr. Jardeleza has been a director, corporate secretary and/or assistant corporate secretary of various subsidiaries of SMC during the last five years and is a professorial lecturer at the University of the Philippines, College of Law (1992-2003, 2007-2009).

Virgilio S. Jacinto has served as Director of the Company since July 26, 2007. He also holds among others, the following positions: Vice President, First Deputy General Counsel of SMC and Director of San Miguel Beverages Inc. (“SMBI”). Mr. Jacinto is also an Associate Professor at the University of the Philippines, College of Law since June 1, 1993.

Joseph .. Pineda has served as Director of the Company since July 26, 2007. He also holds, among others, the following positions: Vice President and Deputy Chief Finance Officer of SMC and Director of SMCSTSC, Monterey Foods Corporation, SMC Shipping and Lighterage Corporation (“SMCSL”), SMITS, Inc. (“SMITS”) and Process Synergy, Inc. Mr. Pineda was former President of UCPB Savings Bank (2004), Chief of Staff to the Office of the COO and Vice-President, Officer-in-Charge of the Trust Banking Division of United Coconut Planters Bank (2003) and President and Nominee to the Philippine Stock Exchange of UCPB Securities (1999-2003).

Roberto .. Huang has served as Director and General Manager of the Company since October 8, 2007. He

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also holds the following positions: Senior Vice President of SMC and Director of SMBI. He also served as Director of GSMI (2004-2008) and SMPFC (2004-2008); President of Coca-Cola Bottlers Philippines, Inc., Cosmos Bottling Corporation and Philippine Beverage Partners, Inc. (2003-2007); and Senior Vice President, Director, Corporate Sales for the Food, Beverage, Corporate Key Accounts and Corporate Export Sales Groups (2002-2003) and Vice President and Director, Corporate Sales for the Beverage Group (2001-2002) of SMC.

Rosabel Socorro T. Balan has served as Director of the Company since October 8, 2007. She also holds, among others, the following positions: Vice President and Deputy General Counsel of SMC; Assistant Corporate Secretary of SMC, GSMI, SMPFC and SMPI and Compliance Officer of AIBC and SMCSTSC. Ms. Balan has also been a director, corporate secretary and/or assistant corporate secretary of various subsidiaries of SMC during the last five years.

Iñigo Zobel has served as Independent Director of the Company since October 8, 2007. He is also an Independent Director of SMC, GSMI, SMPFC and SMPI. Mr. Zobel also holds the following positions: President and Chief Executive Officer of E. Zobel, Inc.; President of Ayala España S.A., Calatagan Golf Club, Inc. and Hacienda Bigaa, Inc.; and a Director of Top Frontier Investment Holdings, Inc., Global 5000 Investments, Inc., Calatagan Resort, Inc., Calatagan Gulf Realty, Inc., and Mermac, Inc., and has been the President of Diamond Star Agro Products, Inc. during the last five years.

Carmelo L. Santiago has served as Independent Director of the Company since October 8, 2007. He is

currently an Independent Director of SMC, SMPI, AIBC, Liberty Telecoms Holdings Inc., and San Miguel Brewery Hong Kong Limited (Hong Kong) and Director of Terbo Concept, Inc. Mr. Santiago is the founder and owner of several branches of Melo’s Restaurant and has held directorships in SMPI (2001-2004),GSMI (1998-2004), Manila Standard, Inc. (1998-2004), National Power Corporation (1998-2004) andPhilippine National Bank — Hong Kong (1998-2004).

SE.IOR MA.AGEME.T

The table below sets forth the Company’s executive officers as of the date of this prospectus.

.ame Age Citizenship Position

Ramon S. Ang...................................... 55 Filipino PresidentMercy Marie Jacqueline L. Amador.

Francis H. Jardeleza.............................Roberto N. Huang...............................Minerva Lourdes B. Bibonia...............Debbie D. Namalata............................Rene T. Ceniza.......................................Enrico E. Reyes.......................................Rebecca S. Flores....................................Susan Y. Yu............................................

Filipino Chief Finance Officer/ Treasurer

59 Filipino Corporate Secretary60 Filipino General Manager50 Filipino Head - Marketing43 Filipino Head - National Sales46 Filipino Head - Logistics46 Filipino Head - Human Resources53 Filipino Head - Brewing Technical Group32 Filipino Senior Procurement Manager

Mercy Marie Jacqueline L. Amador was appointed Vice President and Chief Finance Officer and Treasurer of the Company on March 16, 2009. She was previously Chief Finance Officer of San Miguel Brewing International, Ltd. (SMBIL). She also sits on the boards of several subsidiaries of SMC, among them Guangzhou San Miguel Brewery Ltd., San Miguel Guangdong Food & Beverages, Neptunia Corporation Limited and SMBIL.

Minerva Lourdes B. Bibonia has served as Head of Marketing of the Company since October 8, 2007. She also holds among others the following positions: Senior Vice President for Corporate Marketing of SMC since January 2002; Director of San Miguel Brewery Hong Kong Limited (Hong Kong) and a Commissioner of PT Delta Djarkarta Tbk (Indonesia). She previously served SMC in the following capacities: Vice President and Head of the CKAG (2001) and Consultant to the Office of the Chairman (2000-2001).

Debbie D. .amalata has served as the National Sales Manager of the San Miguel Beer Division of SMC since July 2007. She was previously Executive Assistant to the San Miguel Beer Division President (April-June 2007); General Manager of San Miguel Super Coffeemix Co., Inc. (2006-2007); General Manager for butter, margarine, cheese and jellyace of Magnolia, Inc.; and Director of Sugarland Corporation, Star Dari, Inc. and

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Magnolia, Inc. (2005-2006); and Assistant Vice President, Visayas-Mindanao Business Development Manager of The Purefoods-Hormel Company, Inc. (2002-2003) and Regional Sales Manager (2003-2004).

Rene T. Ceniza has served as Assistant Vice President and Manager for National Logistics of the San Miguel Beer Division of SMC since May 2005. He previously served SMC in the following capacities: Manager, National Logistics (2004-2005), Manager, GMA Logistics (2003-2004); and Manager, Logistics Technical Services (2002-2003) of the San Miguel Beer Division. He was also placed on special assignment as Logistics Consultant for Coca-Cola Bottlers Philippines, Inc. in 2001.

Enrico E. Reyes has served as Manager for Human Resources of the San Miguel Beer Division of SMC since April 2007. He previously served SMC in the following capacities: Compensation and Benefits Manager, Human Resources Division (2006) and Human Resources and Administration Manager for San Miguel Beer Division, Visayas (1997-2005).

Rebecca S. Flores is the Assistant Vice President and Head of the Brewing Technical Group. She was previously Plant Manager of San Miguel Baoding Brewery, North China Operations (2006-2008); and Mandaue and Bacolod Breweries (2001-2006); and Brewmaster and Brewing Manager of Mandaue Brewery of San Miguel Brewing Philippines (former name of the San Miguel Beer Division) of SMC.

Susan Y. Yu is the Assistant Vice President and Senior Corporate Procurement Manager of the Company. She was previously Assistant Vice President and Senior Corporate Procurement Manager (2006-2008) and Corporate Procurement Manager (2003-2006) of SMC and Fuel Purchasing and Price Risk Management Manager of Philippine Airlines (1997-2003).

The Company has engaged the consultancy services of Mr. Josefino C. Cruz to direct the Company’s manufacturing operations..

TERM OF OFFICE

Pursuant to the Company’s amended by-laws, the directors are elected at each annual shareholder’s meeting by shareholders entitled to vote. Each director holds office until the next annual election and his successor is duly elected, unless he resigns, dies or is removed prior to such election.

QUALIFICATIO.S A.D DISQUALIFICATIO.S

The Company’s amended by-laws require that directors have at least 5,000 shares registered in their names in the books of the Company.

No person shall qualify or be eligible for nomination or election to the Board of Directors if such person is engaged in any business, which competes with or is antagonistic to the business of the Company. Without limiting the generality of the foregoing, a person shall be deemed to be engaged in a business competing with or antagonistic to the Company’s business under the following circumstances:

(a) If the person is an officer, manager or controlling person of, or the owner (either of record or beneficially) of 10% or more of any outstanding class of shares of, any corporation (other than one in which the Company owns at least 30% of the capital stock) engaged in a business which the Board of Directors, by at least three-fourths vote, determines to be competitive or antagonistic to that of the Company; or

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

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

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The Board of Directors may also take into account other factors such as business and family relationship in determining whether or not a person is a controlling person, beneficial owner or the nominee of another.

EXECUTIVE COMPE.SATIO.

By resolution of the Board of Directors, each director shall receive a reasonable per diem allowance for his attendance at each board meeting. The Company intends to provide each director with reasonable per diem of P20,000 and P10,000 for each Board and Board Committee meeting, respectively, attended by such director. Other than these per diem amounts, there are no standard arrangements pursuant to which the directors of the Company are compensated, or are to be compensated, directly or indirectly, by the Company for services rendered by such directors as of the date of this prospectus.

The table below sets out the aggregate compensation paid or incurred by the Company in 2007 and 2008 and estimated to be paid in the ensuing fiscal year to the President and senior executive officers of the Company:

.AME YEAR SALARY BO.US OTHERS TOTAL

(in P millions)

Total Compensation of the 2009 48.9 16.6 14.7 80.2

President and the nine named (estimated)Executive Officers other than 2008 44.3 13.9 10.5 68.7

the President(1)..........................

2007(1) 8.1 3.6 2.4 14.1All other officers and directors as 2009 42.9 14.5 18.3 75.7

a group unnamed...................... (estimated)2008 41.5 19.8 14.2 75.5

2007(1) 12.2 5.0 5.1 22.3

Total.............................................. 2009 91.8 31.1 33.0 155.9

(estimated)2008 85.8 33.7 24.7 144.2

2007(1) 20.3 8.6 7.5 36.4

__________

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

OTHER ARRA.GEME.TS

There are no other arrangements pursuant to which the directors of the Company are compensated, or are to be compensated, directly or indirectly, by the Company for services rendered by such directors as of the date of this prospectus.

EMPLOYME.T CO.TRACTS A.D TERMI.ATIO. OF EMPLOYME.T A.D CHA.GE-I.-CO.TROL

There are no employment contracts between the Company and its executive officers. There is no compensatory plan nor arrangement with respect to an executive officer which results or will result from the resignation, retirement or any other termination of such executive officer’s employment with the Company, or from a change-in-control of the Company, or a change in an executive officer’s responsibilities following a change-in-control of the Company.

WARRA.TS A.D OPTIO.S OUTSTA.DI.G

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As of the date of this prospectus, there are no outstanding warrants or options held by the Company’s President, named executive officers and all directors and officers as a group.

SIG.IFICA.T EMPLOYEES

The Company has no individual employee who is not an executive officer but who is expected to make a significant contribution to the business.

FAMILY RELATIO.SHIPS

There are no family relationships up to the fourth civil degree either by consanguinity or affinity among the Company’s directors, executive officers or persons nominated or chosen by the Company to become its directors or executive officers.

I.VOLVEME.T I. CERTAI. LEGAL PROCEEDI.GS

None of the directors and executive officers of the Company have been involved in any legal proceeding, including, without limitation, being the subject of any (a) bankruptcy petition, (b) conviction by final judgment,(c) order, judgment or decree of suspension, enjoinment or limitation of his involvement in any type of business, securities, commodities or banking activities, or (d) violation of a securities or commodities law, for the past five years up to the latest date, that is material to the evaluation of his ability or integrity to hold the relevant position in the Company.

DISCLOSURE O. COMPLIA.CE WITH LEADI.G PRACTICES O. CORPORATE GOVER.A.CE

Manual on Corporate Governance

The Company’s Manual on Corporate Governance (the “Manual”) was approved by the Board of Directors on October 25, 2007, as amended on April 10, 2008.

Independent Directors

Under the present SEC policy, the Company is required to have at least two independent directors in its Board of Directors. The Manual, in turn, requires at least two independent directors to serve on the Company’s Audit Committee and one independent director on each of the Nomination and Hearing Committee and the Executive Compensation Committee. Under the implementing rules and regulations of the SRC, an independent director is defined as a person who, apart from his fees and shareholdings, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director. An independent director must satisfy the qualifications and must have none of the disqualifications of an independent director set out in the SRC and its implementing rules and regulations, the Manual, the amended articles of incorporation and amended by-laws of the Company.

Board Committees

Audit Committee

The Audit Committee is comprised of at least three members of the Board of Directors, at least two of whom shall be independent directors. One of the independent directors shall be the Chairman of the Audit Committee. The Audit Committee is responsible for assisting the Board of Directors in discharging its corporate governance and fiduciary duties in relation to financial reporting, internal control structure, risk management systems and internal and external audit functions. It reviews and monitors, among others, the integrity of the Company’s financial statements and reports, and ensures their compliance with pertinent accounting standards and regulatory requirements, and performs oversight financial management functions specifically in the areas of managing credit, market, liquidity, operational, legal and other risks of the Company, and crisis management.

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The Company’s Audit Committee is chaired by Mr. Carmelo L. Santiago (independent director) with Mr. Iñigo Zobel and Mr. Joseph N. Pineda as members.

,omination and Hearing Committee

The Nomination and Hearing Committee is composed of at least three voting members and one non-voting member in the person of the Human Resources director or manager. One of the three voting members must be an independent director. The Nomination and Hearing Committee shall be responsible for making recommendations to the Board of Directors on matters relating to the directors’ appointment, election and succession, with the view of appointing individuals to the Board of Directors with the relevant experience and capabilities to maintain and improve the competitiveness of the Company and increase its value. It shall pre-screen and shortlist all nominees in accordance with the qualifications and disqualifications for directors set out in the Manual, the amended articles of incorporation and amended by-laws of the Company and applicable laws, rules and regulations.

The Company’s Nominations and Hearing Committee is chaired by Mr. Iñigo Zobel (independent director) with Mr. Carmelo L. Santiago and Joseph N. Pineda as voting members and Mr. Dave S. Santos as non-voting member.

Executive Compensation Committee

The Executive Compensation Committee shall be composed of three members, one of whom must be an independent director. It is responsible for advising and assisting the Board of Directors in the establishment of formal and transparent policies and practices on directors and executive remuneration and providing oversight over remuneration of directors, senior management and other key personnel to ensure that the Company’s compensation scheme fairly and responsibly reward directors and executives based on their performance and the performance of the Company, and remain competitive to attract and retain directors and officers who are needed to run the Company successfully.

The Executive Compensation Committee is chaired by Mr. Iñigo Zobel (independent director) with Mr. Ferdinand K. Constantino and Mr. Carmelo L. Santiago as members.

Compliance and Monitoring System

The Chairman of the Board of Directors shall designate a Compliance Officer who shall be responsible for monitoring compliance by the Company with the provisions and requirements of the Manual and ensure adherence to corporate principles and best practices.

Mr. Francis H. Jardeleza is the Company’s Compliance Officer.

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RELATED PARTY TRA.SACTIO.S

SMC directly owns and controls approximately 94.25% of the Company’s issued and outstanding Common Shares. Following the spin-off of the domestic beer business of SMC, which was then conducted by SMC through SMBD, to the Company, SMC and the Company entered into certain agreements, and SMC assigned to the Company all of its rights and obligations under various agreements with third parties relating to SMC’s domestic beer business, including those agreements entered into with SMC’s subsidiaries.

The Company’s policy with respect to related party transactions is to ensure that these transactions are entered into on terms comparable to those available from unrelated third parties.

Below is a summary of the Company’s related party transactions.

SMC •

•

SMC receives a monthly royalty fee of 2% of the Company’s net sales revenue under a License Agreement in consideration for its grant to the Company of an exclusive license to use, in the Philippines, certain know-how relating to the manufacture, packaging and handling of certain beer products currently produced by the Company (the “Licensed Products”) and certain specified Philippine trademarks, trade dress, copyrights and patents, which include the SMB Brands, (the “IP Rights”) in connection with the production, preparation and distribution of the Licensed Products. The license is effective for a period of 25 years from October 1, 2007, renewable for another 25 years at the option of SMC upon request by the Company. It extends to such know-how or intellectual property rights as may be developed or acquired by SMC during the life of the License Agreement, and may not be used outside of the Philippines or applied to other products other than the Licensed Products. The rate of the royalty fee is subject to review by the parties every five years, and no royalty is paid for any IP Rights that expire and cannot be renewed under applicable intellectual property laws. Other key terms under the License Agreement include undertakings (a) by the Company (i) to spend at least 2% of its total sales revenues of the previous year during each year of the term of the License Agreement for the advertising and promotions of the Licensed Products; (ii) not to introduce new beer products and brands in the Philippines, or to manufacture, prepare, package, distribute, sell, deal in or otherwise be concerned with any other alcoholic beverage products (other than the Licensed Products) without SMC’s prior written consent; (iii) to secure the consent of SMC in the event of a change in the control of the Company; and (b) by SMC (i) to include in the Licensed Products all new beer products and brands introduced in the Philippines; and (ii) to allocate funds for advertising support in the amount of P 375 million each year for the Licensed Products in the first two years of the License Agreement.

Following the approval of the transfer of the SMB Brands to Iconic by the SEC on February 27, 2009, the License Agreement was amended to exclude therefrom the SMB Brands and SMC assigned all its rights and obligations under the License Agreement, as amended, to Iconic in respect of the SMB Brands.

Upon completion of the Brand Acquisition, the Company and Iconic will execute a license agreement whereby the latter will grant the Company an exclusive license to use the SMB Brands under such terms and conditions as may be agreed by the parties.

SMC receives a monthly service fee equivalent to 0.5% of the Company’s net sales revenue for the previous month under a Shared Services Agreement in consideration for rendering to the Company certain corporate services and

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facilities related to finance, audit, legal, human resources,procurement, facilities audit, safety and property risk management,operations research, product technology and formulations, marketing, government and media affairs, and other similar services such as, mergers and acquisitions. The Company shall likewise pay SMC the actual costs and expenses incurred by SMC in performing the said services, and shall be liable for all taxes due and payable in connection therewith. The Shared Services Agreement has a term of 49 years commencing on October 1, 2007; but may be terminated upon termination of the License Agreement.

• SMC receives lease payments under a Contract of Lease, for the Lease by theCompany of lands owned by SMC on which all of the Company’s production facilities, as well as certain sales office facilities in the Philippines, are located. The rental payments under the lease are P154 million for the first year, subject to an escalation of 10% in each succeeding year until the end of the term.

The term of the lease is 5 years commencing on October 1, 2007.

Following the sale by SMC to Brewery Landholdings of certain parcels of land on which certain sales offices used by the Company are located, the Contract of Lease was amended to exclude therefrom such parcels of land sold to Brewery Landholdings, and SMC assigned its rights and obligations under the Contract of Lease, as amended, to Brewery Landholdings, in respect of such parcels of land.

After the completion of the Land Acquisition, the Company intends to enter into a contract of lease with Brewery Properties and Brewery Landholdings for the lease of the land on which all of the Company’s production facilities and certain of its sales offices used in its business are located, including the SMB Land, under such terms and conditions as may be agreed upon by the parties.

• SMC receives a service fee on a per-brand per-unit basis to cover actual costsand expenses incurred by its CKAG, a division of SMC, which acts as the Company’s sales agent in the on-premise channel, and provides marketing services to the Company, including the formulation of plans and programs in connection with selling and marketing activities and management of the implementation of marketing plans and programs for the Company’s beer brands in identified key on-premise and off-premise accounts such as hotels, bars and restaurants, supermarkets, malls and convenience stores, as approved by the Company. SMC, through CKAG, also acts as the Company’s dealer in the off-premise channel, for which it receives a service fee that is given as a discount on the wholesale price of the products it purchases from the Company on a per-brand per-unit basis. The term of the agreement is up to September 30, 2009, subject to annual review by the parties. The service fees paid to and discounts earned by SMC for the foregoing services for 2007 and 2008 were P 337 million and P 282 million, respectively.

• SMC receives service fees at the rate of 4% of the invoiced value of theproducts sold in the export market every month following the month when the exports sales were collected for services rendered by its CESBD to the Company. CESBD acts as agents of the Company in handling the marketing, selling and distribution of the Company’s beer products in the export markets. The term of the agreement is up to September 30, 2009 subject to annual review of the parties. The service fees paid for such services in 2007 and 2008 were P 10 million and P 14 million, respectively.

• The Company pays, under a Cost-Sharing Agreement, its monthlyproportionate share of certain expenses and costs of services incurred by

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SMC, such as but not limited to janitorial and security services, utilities and rentals for SMC Head Office and 808 building space, internet, email, SAP and photocopying charges, from which services and expenses the Company has benefited. The Company’s proportionate share is based on the amount billed by the third party service provider or the amount of the expenses and the agreed basis of allocation as set out in the agreement and shall be without mark-up or profit on the part of SMC. SMC, at its sole option, however, may impose interest of 1% per month on any proportionate share due and unpaid by the Company. The Company paid its proportionate share of such services and expenses in 2007 and 2008 in the amount of P14 million and P38 million, respectively. The term of this agreement commenced on January 1, 2008 and will remain effective until terminated upon mutual agreement of the parties.

SMCSL •

San Miguel •Distribution Company, Inc. (SMDCI)

•

SMBI •

•

SMCSL, a 70% subsidiary of SMC and a joint venture between SMC and KADIWA Transport Corporation, receives fixed service fees for cargo handling, warehousing, and shipping services rendered to the Company for the distribution and delivery of its raw materials and finished goods to and from the Company’s Mandaue Brewery. The service fees may be adjusted upward or downward in case of a 10% adjustment in the salary scale and/or benefits of SMCSL’s employees or a 5% fluctuation in prevailing fuel and oil prices. The Service Agreement is for a term of 23 years, effective on March 1, 2001, and shall automatically terminate upon the expiration or termination of the Joint Venture Agreement between SMC and KADIWA Transport Corporation. The Company may terminate the Service Agreement by giving SMCSL 60 days’ prior written notice if the price charged by SMCSL is not the best price available or if the quality of SMCSL’s service is not acceptable to the Company, unless such quality of service is remedied by SMCSL to the satisfaction of the Company within 30 days from SMCSL’s receipt of the termination notice. The service fees paid for such services in 2007 and 2008 were P 102 million and P 415 million respectively.

SMDCI, a wholly-owned subsidiary of SMC, receives a service fee per month based on a per case rate with a minimum guaranteed monthly volume from the Company for management of logistics service providers. The term of the agreement covering the Mandaue Brewery is up to December 31, 2008, and after that date on a month-to-month basis if the parties continue their relations under the agreement but no written renewal has yet been executed.

SMDCI also receives a fixed service fee for the provision of logistics technical services, including provision of advice on the selection criteria for other third party logistics service providers, benchmarking of logistics services rates, improvements of logistics, and related business processes, among others. The term of the agreement is up to January 31, 2009, and after that date on a month-to-month basis if the parties continue their relations under the agreement but no written renewal has yet been executed

The Company receives from SMBI, a wholly-owned subsidiary of SMC, service fees on a per case basis for warehousing and delivery of SMBI’s finished goods in accordance with the plans and schedules provided by SMBI under a Logistics Management Agreement. The Company is also required to provide storage space for SMBI’s products only to the extent that such storage space is not needed for the Company’s products. Rentals for any delivery truck needed for the services under the agreement in addition to the required fleet complement for the Company’s products are paid for by SMBI. The term of the agreement is from April 01, 2007 to March 31, 2008, and after that date on a month-to-month basis if the parties continue their relations under the agreement but no written renewal has yet been executed.

The Company receives a fixed discount on a per case basis for SMBI’s

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products that it sells under a Distribution Agreement, pursuant to which the Company, using its sales organization, dealer force and other modes of distribution, acts as the distributor of SMBI’s ready-to-drink and powdered mix products in specified areas in the Philippines. The term of the agreement is from April 01, 2007 to March 31, 2008, and after that date on a month-to-month basis if the parties continue their relations under the agreement but no written renewal has yet been executed.

•

•

GSMI •and a subsidiary

SMYPC, SMRPC, •SMYAC

SMPFC •and subsidiaries

•

•

SMITS •

The Company also receives rentals for leasing certain equipment and building to a third-party contractor, Supa Nova Foods, Inc., which in turn provides toll-manufacturing services to SMBI.

The Company receives fees for the toll-manufacturing of SMBI’s fruit drink and tea products under the toll-manufacturing arrangement with SMBI.

GSMI, a majority-owned subsidiary of SMC, pays a fee on a per case basis in consideration for toll-manufacturing services rendered by the Company for GSMI’s alcoholic beverages, which services are performed in the Polo Brewery using the brewery’s excess capacities. The Company agrees not to toll-manufacture any other product which directly competes with the products it toll-manufactures for GSMI. The agreement is valid until December 31, 2009. The fees received by the Company for such services in 2007 and 2008 were P 2 million and P 8 million, respectively. A subsidiary of GSMI also paid its share for the use of utilities to the Company.

SMYPC, SMRPC and SMYAC, all subsidiaries of SMC, receive payments from the Company for packaging materials such as bottles, crowns, caps, cartons, plastic crates and pallets purchased by the Company. These purchases are covered by various purchase orders which define the prices and delivery schedules negotiated and agreed upon by the parties. These SMC subsidiaries form part of the San Miguel Packaging Group, which, with its business partners, is one of the leading suppliers of packaging materials in the Philippines and exports packaging materials to more than 10 countries. Purchases of packaging products from SMYPC, SMRPC and SMYAC in 2007 and 2008 collectively amounted to P 538 million and P 2,116 million, respectively.

SMPFC, a majority-owned subsidiary of SMC, has a subsidiary which obtains spent grains that are among the waste products resulting from the Company’s brewing process. SMPFC’s subsidiary uses spent grains as a minor component in the production of animal feeds. All costs associated with the withdrawal of the spent grains are for the account of SMPFC’s subsidiary. Spent grains would be a pollutant if retained in the Company’s facilities, and their disposal would be an expense for the Company. SMPFC’s subsidiary obtained grains free of charge in 2007. In 2008, purchases amounted to P 17 million.

A subsidiary of SMPFC also paid the Company its share in the use of utilities for its chicken processing plant, which is located beside the Company’s San Fernando Brewery, up to December 31, 2007. Beginning January 1, 2008, SMPFC’s subsidiary and the Company paid their respective shares in the use of electricity directly to SMC. However, SMPFC’s subsidiary paid its shares in the expenses for water consumption and use of communication facilities directly to the Company.

The Company purchases products of subsidiaries of SMPFC for its employees’ annual Christmas gift packages and promo bundles.

SMITS, a wholly-owned subsidiary of SMC, and a subsidiary receive fees

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and a subsidiary from the Company on a per-engagement and/or per-service basis forinformation technology and systems services, including maintenance of the Company’s software and hardware facilities, and business process outsourcing and customer care services. SMITS also provides advisory services on the development of new systems and/or up-grade of existing systems which are outsourced to non-related third parties. The term of these engagements/services is usually for a year. The fees paid for such services in 2007 and 2008 were P 26 million and P 98 million, respectively.

Anchor Insurance • AIBC, a subsidiary of SMC, receives service fees on a per transaction orBrokerage engagement basis from the Company for the Company’s share in theCorporation insurance brokering services rendered by AIBC for the entire SMC Group for(“AIBC”) the SMC Group’s consolidated insurance requirements such as insurance for

motor vehicles, fire insurance, etc. For the comprehensive insurance coverage of the SMC Group which is bidded out to global insurance institutions, AIBC is engaged to assist in the bidding process and pre-qualification of insurance companies under the direction of SMC. The fees paid for such services in 2007 and 2008 were P 0.17 million and P 0.65 million, respectively.

San Miguel • SMBIL, a wholly-owned subsidiary of SMC, and its subsidiaries purchaseBrewing beer products from the Company. These purchases are covered by variousInternational purchase orders which define the prices and delivery schedules negotiated andLimited agreed upon by the parties. Purchases of beer products by SMBIL and its(“SMBIL”) and subsidiaries in 2007 and 2008 were P 25 million and P 3 million, respectively.subsidiaries

Archen • Archen, a wholly-owned subsidiary of SMC, receives a fixed service fee forTechnologies, Inc. liaison and consultancy services relating to power and energy concerns of the(“Archen”) Company. The agreement commenced on June 1, 2008 and shall expire one

year thereafter. Archen also receives fees for consultancy services relating tothe capital expenditures of the Company. In 2008, the Company paid P 4.0million for such services.

SMC Stock • SMCSTSC, a wholly-owned subsidiary of SMC, receives retainer fees andTransfer Service processing fees for stock transfer services rendered to the Company. TheCorporation agreement commenced on April 1, 2008 and ended on December 31, 2008 but(“SMCSTSC”) was subsequently renewed for a period of 1 year ending on December 31,

2009. In 2008, the Company paid P 0.18 million for such stock transferservices.

Bank of • BOC is held as to 30% of its capital stock by SMPI, a subsidiary of SMC. InCommerce consideration for the use of BOC’s deposit pick up services, the Company(“BOC”) agrees to maintain an agreed-upon reasonable average daily balance in a

specified account with BOC, failing which (after a 30-day curing period), shall entitle BOC to charge a service fee. The agreement shall remain in effect until terminated by either party upon at least 30 day’s prior notice.

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

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DESCRIPTIO. OF PROPERTIES

OW.ED PROPERTIES

The Company’s principal owned properties consist of five breweries, 34 out of its 49 sales offices and 11 warehouses. The land improvements, buildings, machinery, transportation equipment, office equipment and furniture, and/or tools and small equipment owned by the Company in these breweries, region offices, sales offices and warehouses, as well as those in certain terminals and wharfs leased by the Company, have a net book value of P5.86 billion as of December 31, 2008. The locations and general asset description of these properties and equipment are set out below:

Breweries

The Company has 5 breweries in the following locations:

• Polo BreweryMarulas, Valenzuela City, Metro Manila

• San Fernando BreweryBrgy. Quebiawan, McArthur Highway, San Isidro, San Fernando, Pampanga

• Bacolod BreweryBrgy. Granada, Sta. Fe, Bacolod City, Negros Occidental

• Mandaue BreweryNational Highway, Brgy.Tipolo, Mandaue City

• Davao BreweryBrgy. Darong, Sta. Cruz, Davao del Sur

A more detailed description of these breweries are found in the section entitled “Business Overview —Production.”

Sales/Area Offices and Warehouses

The Company owns land improvements, buildings, machinery, transportation, office equipment, tools and/or furniture in the following sales/area offices and warehouses located nationwide.

• Central +orth Luzon Area

SMC Complex, Brgy. Quebiawan, McArthur Highway, San Fernando, Pampanga

Carmen East, Rosales, Pangasinan

Caranglaan Dist., Dagupan City, Pangasinan

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

Pennsylvania Ave., Brgy. Madayegdeg, San Fernando, La Union

Brgy. San. Fermin, Cauayan, Isabela

National Road, Brgy. Mabini, Santiago City, Isabela

San Andres St., San Angelo Subdivision, Sto. Domingo, Angeles City, Pampanga

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Maharlika Road, Bitas, Cabanatuan City, Nueva Ecija

Brgy. 22, San Guillermo, San Nicolas, Ilocos Norte

• Greater Manila Area +orth

Cagayan Valley Rd., Brgy. Sta. Cruz, Guiguinto, Bulacan

Gapan-Olongapo Rd., Poblacion San Isidro, Nueva Ecija

A. Cruz St., Brgy. 96, Caloocan City

Honorio Lopez Blvd., Guidote St., Tondo, Manila

Brgy. Mangga, Cubao , Quezon City

Bldg. 23 Plastic City Cpd., #8 T. Santiago St., Brgy. Canumay, Valenzuela City, Metro Manila

Quirino Highway, Novaliches, Quezon City, Metro Manila

• Greater Manila Area South

GF SMC HOC, #40 San Miguel Ave., Mandaluyong City, Metro Manila (office equipment and furniture only)

Brgy. 425, Zone 43, Sampaloc District, Manila

M. Carreon St., Brgy. 866, Sta. Ana District, Manila

Manila East Rd., Brgy. Dolores, Taytay, Rizal

Bernabe Subdivision, Brgy. San Dionisio, Parañaque City, Metro Manila

Mercedes Ave., Pasig City, Metro Manila

• South Luzon Area

Silangan Exit, Canlubang, Calamba City, Laguna

Maharlika Highway, Brgy. Isabang, Lucena City, Quezon

Maharlika Highway, Brgy. Villa Bota, Gumaca, Quezon

Maharlika Highway, Brgy. Concepcion Grande, Naga City, Camarines Sur

Brgy. Mandaragat, Puerto Princesa City, Palawan

Aurora Quezon and Calderron St., Brgy. Labangan, San Jose, Occidental Mindoro

Governor’s Drive, Brgy. Lankaan II, Dasmariñas, Cavite

Bo. Balagtas, Batangas City, Batangas

Ayala Highway, Lipa City, Batangas

Corner Cogon and Patricio Streets, Bgy. Cruzada, Legaspi City, Bicol

National Highway, San Pedro, Laguna

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Tirona Highway, Habay, Bacoor, Cavite

Matungao, Tugbo, Masbate City

Pagsawitan, Sta. Cruz, Laguna

• +egros

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

Muelle Loney St., Brgy. Legaspi, Iloilo City

National Hi-way, Brgy. 4, Himamaylan City, Negros Occidental

Flores St., Brgy. Sum-Ag, Bacolod City, Negros Occidental

Brgy., Camansi Norte, Numancia, Aklan

Brgy. Libas, Roxas City, Capiz

Pulantubig, Dumaguete City

• Visayas


Fatima Village, Brgy. 73 (formerly part of Brgy. Sagcahan), Tacloban City, Leyte

CPG North Ave., Tagbilaran City, Bohol

• Mindanao

Brgy. Darong Sta. Cruz, Davao del Sur

Ulas Crossing, Ulas, Davao City

National Highway, Brgy. Magugpo, Tagum City

Sergio Osmeña, Brgy. Poblacion, Koronadal City

National Highway, Brgy. Lagao, Gen. Santos City

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

R.T. Lim Blvd., Baliwasan, Zamboanga City

Molave St., Butuan City

Brgy. Mangangoy, Bislig City, Surigao del Sur (building only)

Brgy. Bongtod, Tandag City, Surigao del Sur

J.P. Rizal Ave., Poblacion, Digos City

National Highway, Sta. Felomina, Dipolog City

National Highway, Sta. Filomena, Iligan City

Baybay, Liloy, Zamboanga del Norte

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Terminal

Bataan Malt Terminal, Mariveles, Bataan (building, machineries and equipment, furniture and fixtures only).

LEASED PROPERTIES

The Company leases buildings and improvements in various locations in the Philippines. The Company also leases parcels of land from SMC for its five breweries, 30 area, region and sales offices, 12 warehouses and 6 deepwells. See “Related Party Transactions” for information on the rentals under the lease with SMC. Set out below are the details on the leases of the Company.

Leases from Third Parties

Leased Asset Monthly Rental (P) ExpirationLocation Description Date

TerminalBataan Malt Terminal Mariveles, Bataan Land*average

Sales Offices and Warehouse

Greater Manila Area +orthValenzuela S.O. Bldg. 23 Plastic City Land &

Cpd., #8 T. Santiago St., Land Brgy. Canumay, Improvement Valenzuela City, MetroManila

Novaliches S.O. Quirino Highway, Land &Novaliches, Quezon Buildings City, Metro Manila

Tondo S.O. Cor. Buendia & LandGuidote St., Tondo Manila

Greater Manila Area SouthPasig S.O. Mercedes Ave., Pasig Land &

City, Metro Manila Warehouse

Central +orth LuzonCabanatuan S.O. No. 140, Bitas, Land &

Cabanatuan City Building

South Luzon AreaLegazpi S.O. Corner Cogon and Land &

Patricio Streets, Bgy. LandCruzada, Legaspi City, Improvements Bicol

+egrosIloilo S.O. Solid Manila Bldg Land,

Diversion Road, Bgy, LeaseholdSan Rafael, ImprovementMandurriao, Iloilo & Buildings

MindanaoButuan Region Office Fort Poyohan, Molave Land &

St., Butuan City, LandAgusan del Norte Improvement

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460,000.00* 12/16/2013

231,960.27 4/30/2010

658,924.56 11/15/2009

45,198.72 10/15/2009

744,187.47 7/31/2011

64,935.61 10/31/2009

268,800.00 12/31/2010

76,975.36 12/15/2009

45,682.78 1/31/2010

Leased Asset Monthly Rental (P) ExpirationLocation Description Date

Ozamis Region Office Bonifacio St., Lam-an, Land &Ozamis City, Misamis Building 47,040.00 6/19/2009Occidental

Leases from SMC

Land for Breweries

Location

Polo BrewerySan Fernando Brewery Bacolod BreweryMandaue Brewery Davao Brewery-Main

Land For Sales Offices and Warehouses

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

Location

• Central +orth Luzon AreaAngeles Region Office Baguio S.O.

Carmen S.O.Cauayan Region Office Dagupan Region Office Ilocos WarehouseLa Union Region Office Lal-lo WarehouseSantiago S.O.San Nicolas Region Office

• Greater Manila Area +orth

Caloocan S.O.Cubao S.O. Guiguinto S.O. San Isidro S.O. Tondo S.O.

• Greater Manila Area South

Paranaque S.O.

Pureza S.O. Sta. Ana S.O. Taytay S.O.

• South Luzon Area

Area OfficeBatangas Region Office Gumaca S.O.Lipa Warehouse Lucena S.O.

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

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

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

Location

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

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Naga S.O.Puerto Princesa Warehouse San Jose Warehouse

• +egrosSum-ag Warehouse. Himamaylan S.O. Iloilo S.O.Numancia S.O. Roxas S.O.

• Visayas Tacloban S.O.Warehouse-Oro Verde

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

Others

Deepwell D Deepwell B Deepwell C Deepwell E Deepwell F Deepwell G

CO.DITIO. OF PROPERTIES

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

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

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

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

Location

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

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

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MATERIAL CO.TRACTS

The following are summaries of the material terms of the principal contracts related to the Company’s primary business and should not be considered to be a full statement of the terms and provisions of such contracts. Accordingly, the following summaries are subject to the full text of each contract.

Following the spin-off of the beer domestic business of SMC to the Company as discussed in the “Business Overview” section of this prospectus, SMC assigned to the Company all its rights and obligations under the principal contracts described below.

SUPPLY OF RAW MATERIALS

Malted Barley

The Company sources a portion of its malted barley requirements from Joe White Maltings Pty. Ltd. (“JWM”) under a supply agreement with a term of five years from January 1, 2007 to December 31, 2011, subject to a renewal for another five years upon mutual agreement of the parties. Under the agreement, JWM is a preferred supplier, with the Company having the option to increase its purchases up to 20% above the agreed minimum tonnage at the agreed prices and up to 50% above the agreed minimum tonnage at prices and conditions to be negotiated by the parties. JWM commits to provide new malted barley capacity in the event of increased malted barley purchases to support the Company’s future requirements and agrees to give priority to the Company for the supply of malted barley in the event of drought, change in barley varieties or barley quality variations.

Fuel Oil

The Company sources a portion of its fuel oil requirements from Pilipinas Shell Petroleum Corporation under an exclusive supply and equipment loan agreement entered into by SMC on behalf of its subsidiaries using petroleum products, such as the Company. Orders for the products must be placed at least 48 hours prior to the intended date of delivery and purchases during the months are payable on or before the 30th day of the succeeding month, subject to payment of interest on the amount outstanding in the event of default on payments. The term of the agreement is five years until April 2012. The agreement is currently under review by the parties.

AGREEME.TS WITH SMC

The Company entered into a License Agreement, a Shared Services Agreement and a Contract of Lease with SMC following the spin-off of the domestic beer business of SMC to the Company. See “Related Party Transactions” for descriptions of the terms of these agreements.

SUPPLY OF PACKAGI.G MATERIALS

The Company principally sources its packaging requirements from SMYPC, SMRPC and SMYAC. The Company currently has several outstanding purchase orders of various packaging materials from these suppliers with delivery dates averaging 15 days. The terms and conditions of these purchase orders provide, among others, that the Company reserves the right to reject or return any shipment of packaging materials not in conformity with the orders, standards and specifications of the Company. Payment term for these purchases, unless agreed otherwise, is 30 days after delivery date and presentation of invoices and delivery receipts. A performance bond shall be required by the Company, where necessary, which shall be forfeited in favor of the Company in the event of breach by the suppliers. The Company may terminate the orders at any time in the event of breach by the sellers of any of the terms and conditions of the purchase orders, without prejudice to the right of the Company to recover amounts due, such as, one percent of the cost of delayed deliveries in the event that the Company accepts late deliveries. See also “Related Party Transactions.”

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RELATED STOCKHOLDER MATTERS

HOLDER OF THE COMPA.Y’S COMMO. SHARES

As of January 31, 2009, the following are the top 20 stockholders of the Company:

Stockholder .ame Common Shares % to O/S1 San Miguel Corporation................................................................. 14,524,332,960 94.249718

2 PCD Nominee Corporation (Non-Filipino)................................... 629,242,736 4.083213

3 PCD Nominee Corporation (Filipino)........................................... 136,535,764 0.885993

4 San Miguel Brewery Inc. Retirement Plan..................................... 89,582,000 0.581306

5 Henry Sy, Sr.................................................................................... 12,500,000 0.081114

6 Syntrix Holdings, Inc...................................................................... 12,500,000 0.081114

7 Isaias G. Lumanta &/or Melinda F. Lumanta............................... 132,000 0.000857

8 Marilyn D. Maranon....................................................................... 124,000 0.000805

9 Virgilio A. Salonoy......................................................................... 82,000 0.000532

10 Victor Martin Soriano &/or Grace Llane........................................ 75,000 0.000487

11 Macario Enriquez Asistio III.......................................................... 63,000 0.000409

12 Ponciano V. Cruz, Jr........................................................................ 62,500 0.000406

13 Marivic L. Almeda.......................................................................... 62,000 0.000402

14 Rene Michael S. French.................................................................. 62,000 0.000402

15 Cecilio D. Hipolito Sr..................................................................... 62,000 0.000402

16 Rosario Montaner Lovero................................................................ 62,000 0.000402

17 Mario Ong......................................................................................... 62,000 0.000402

18 Florito F. Santos.............................................................................. 60,000 0.000389

19 Mariano P. Blanco &/or Ligaya V. Blanco...................................... 50,000 0.000324

20 Ramon C. Garcia.............................................................................. 50,000 0.000324

Description of Principal Shareholder

SMC is a publicly listed food, beverage and packaging holding company in the Philippines. Established in 1890 as a single-product brewery, the SMC Group today has over 100 facilities in the Philippines, Southeast Asia and China.

The SMC Group’s extensive product portfolio includes beer, hard liquor, water, powdered juice and juice drinks, processed and packaged food products, meat, poultry, dairy products, snack foods, cooking oil, coconut oil, pet food, animal and aquatic fees and a number of packaging products.

Kirin, one of the largest beer manufacturing companies in Japan, has a significant stake in SMC. The SMC Group also has strategic partnerships with international companies, among them Hormel Foods Corporation of the United States, Nihon Yamamura Glass Company, Ltd. (“NYG”), Rengo Co., Ltd. of Japan and Super Coffeemix Manufacturing Ltd. of Singapore. On January 31, 2008, SMC further expanded its partnership with NYG with the completion of the sale of its 35% interest in the packaging businesses comprised of its domestic businesses under SMPSI and regional operations under San Miguel Packaging International, Ltd. (“SMPIL”). SMPSI and SMPIL were later renamed San Miguel Yamamura Packaging Corporation and San Miguel Yamamura Packaging International Limited.

On January 19, 2009, SMC signed a Memorandum of Agreement with Kirin. Under the terms of the agreement, Kirin will enter into exclusive negotiations with SMC to acquire from SMC shares representing approximately43.25% shares representing 43.25% of the issued and outstanding capital stock of the Company. On February 20, 2009, SMC and Kirin signed a share purchase agreement for the acquisition by Kirin of a 43.249% stake in the Company. Under the terms of the agreement, Kirin will purchase shares in the Company from SMC at a purchase price of P8.841 per share, for a total acquisition price of P58.9 billion. Kirin will launch a tender offer

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to purchase additional shares from all existing shareholders of the Company at the same purchase price offered to SMC. The details of the tender offer will be announced by Kirin once determined.


Beverage

The domestic beer operations of SMC are carried out by the Company. The international beer operations, on the other hand, are carried out by SMC through its foreign subsidiary, San Miguel Brewing International Limited, and its other subsidiaries, which include San Miguel Brewery Hong Kong Limited, PT Delta Djarkarta Tbk and San Miguel Beer (Thailand) Limited. SMC maintains three breweries in Southeast Asia and two breweries in China for its international operations.

Apart from beer, SMC also produces hard liquor through its majority-owned subsidiary, GSMI. GSMI is not only the leader in the domestic hard liquor market, but also the world’s largest gin producer by volume and the fourth largest spirits company by volume.

SMC participates in the non-carbonated beverage business in the Philippines, Thailand and Indonesia through its wholly owned subsidiary, SMBI.

Food

The SMC Group’s domestic food and agribusiness operations are comprised of SMPFC and its major subsidiaries, which include San Miguel Foods, Inc. and its subsidiary, San Miguel Mills, Inc.; The Purefoods-Hormel Company, Inc.; Magnolia, Inc.; Monterey Foods Corporation; San Miguel Super Coffeemix Co., Inc. and Star Dari, Inc.

The SMC Group’s business portfolio offers a complete line of food products and services for both individual and food service customers. Its businesses range from vegetable oils, feeds, flour, poultry, fresh and processed meats, coffee, snacks, and dairy products, to food service. The SMC Group carries some of the best-known brands in the Philippine food and agribusiness industry, among them Magnolia, Monterey, Star, Purefoods, Dari Crème, and B-Meg.

SMC expanded its food operations in the Southeast Asian region with the increase in equity participation of SMPFC in P.T. San Miguel Pure Foods Indonesia (formerly P.T. Purefoods Suba Indah), a company engaged in the manufacture and trade of processed meats and related products in Indonesia and its 51% investment in San Miguel Pure Foods Investment (BVI) Limited, which wholly owns San Miguel Pure Foods (VN) Co., Ltd., (formerly TTC (VN) Co. Ltd.), a hogs and feed mill business in Binh Duong, Vietnam.

Packaging

The San Miguel Packaging Group is a “Total Packaging Solutions” business servicing many of the region’s leading food, pharmaceutical, chemical, beverages, and personal care manufacturers. The San Miguel Packaging Group serves clients in the Asia-Pacific, Middle East, and U.S. markets, and manufactures glass bottles, PET bottles, corrugated cartons, paperboard, paper pallets, flexible packaging, plastic crates and pallets, plastic caps, plastic poultry flooring, plastic pails and trays, plastic films, industrial laminates, woven bags, metal closures, two-piece aluminum beverage cans; and offers filling services, as well as graphics design and testing services.

Apart from supplying the internal requirements of the SMC Group, the San Miguel Packaging Group also supplies major Philippine-based multinational corporations such as Nestlé, Unilever, Kraft, Diageo, Del Monte, Coca-Cola and Pepsi-Cola Products Phils., Inc.

The San Miguel Packaging Group also competes in the international market through its packaging businesses in Vietnam, Malaysia and China: San Miguel Plastic Films Sdn Bhd, San Miguel Packaging & Printing Sdn Bhd., San Miguel Woven Products Sdn Bhd, Packaging Research Center Sdn Bhd, San Miguel Yamamura Haiphong Glass Co., Ltd., San Miguel Phu Tho Packaging Company Ltd. and Zhaoqing San Miguel Glass Co., Ltd. It has five international packaging plants located in China (glass, metal, plastic), Vietnam (glass, metal), Indonesia

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(plastic) and Malaysia (corrugated carton and paperboard, composites, plastic films, laminates and woven bags).

Property

SMPI is SMC’s primary property subsidiary, currently owned 98.45% by SMC. SMPI is presently engaged in the development, sale and lease of real properties. It is the corporate real estate arm of the SMC Group. It is also a principal shareholder of Bank of Commerce (“BOC”), currently holding a 30% stake in BOC.

+ew Businesses

In line with SMC’s plans to participate in high-growth industries such as mining, power, infrastructure, water and other utilities, SMC entered into a sale and purchase agreement with the Government Service Insurance System (“GSIS”) in 2008 to acquire GSIS’ 27% stake in the Manila Electric Company. SMC likewise entered into an option agreement with SEA Refinery Holdings B.V. (“SEA BV”) for an option to acquire and purchase from SEA BV up to 100% of its interests in SEA Refinery Corporation (“SRC”). SRC is a wholly-owned subsidiary of SEA BV, which in turn currently owns 50.1% of the outstanding shares of Petron Corporation. The option may be exercised by SMC within a period of two (2) years from December 24, 2008. SMC and SEA BV have agreed that SMC shall have representation in the board and management of Petron Corporation. SMC is currently in talks with Qatar Telecom for a possible investment in Liberty Telecoms Holdings.

DIVIDE.DS A.D DIVIDE.D POLICY

The table below sets forth the cash dividends declared by the Company’s Board of Directors from February 2008 to January 2009.

Declaration Date Payment Date Amount of Cash Dividends Per share Total

February 4, 2008 February 8, 2008 P0.15 P2.300 billionApril 10, 2008 April 18, 2008 P0.16 P2.453 billionJuly 24, 2008 August 22, 2008 P0.14 P2.157 billion

October 16, 2008 November 12, 2008 P0.15 P2.312 billionJanuary 27, 2009 February 23, 2009 P0.19 P2.928 billion

The Company is allowed under Philippine laws to declare dividends, subject to certain requirements. These requirements include, for example, that the Company’s Board of Directors is authorized to declare dividends only from its unrestricted retained earnings. Dividends may be payable in cash, shares or property, or a combination of the three, as the Board of Directors shall determine. The declaration of stock dividends is subject to the approval of shareholders holding at least two-thirds of the Company’s outstanding capital stock. The Company’s Board of Directors may not declare dividends which will impair its capital.

The cash dividend policy of the Company entitles the holders of its Common Shares to receive annual cash dividends equivalent to 100% of the prior year’s recurring net income, which is net income calculated without respect to extraordinary events that are not expected to recur, based on the recommendation of the Board of Directors. Such recommendation will take into consideration factors such as the implementation of business plans, debt service requirements, operating expenses, budgets, funding for new investments and acquisitions, appropriate reserves and working capital, among others. The cash dividend policy is subject to review and may be changed by the Company’s Board of Directors at any time.

MARKET PRICE OF COMPA.Y’S COMMO. EQUITY

The Company's Common Shares are traded in the PSE. Such shares were listed on the Main Board of the PSE on May 12, 2008.

The Company’s high and low closing prices for the following quarters are as follows:

2008High Low

2nd 8.60 7.90

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3rd 12.50 8.204th 11.50 8.10

RECE.T SALES OF U.REGISTERED OR EXEMPT SECURITIES

The following are issuances of Common Shares constituting an exempt transaction under the SRC which were made by the Company since its incorporation on July 26, 2007 to the date of this prospectus:

(1) The Company was incorporated on July 26, 2007 with an authorized capital stock of P100,000,000 divided into 1,000,000 Common Shares with a par value of P100.00 per Common Share. SMC subscribed to 250,000 Common Shares (then with a par value of P100.00 per Common Share) prior to the incorporation of the Company to comply with the requirements under the Corporation Code as to the percentage of the capital stock of a corporation which should be subscribed before it can be registered with the SEC. The subscription is an exempt transaction pursuant to Section 10.1 (i) of the SRC.

(2) The Company subsequently approved the increase in its authorized capital from P 100,000,000 toP25,000,000,000, the decrease of the par value of its shares from P 100.00 to P 1.00, and the issuance of a total of 15,308,416,960 Common Shares, comprising of 75,000,000 Common Shares from its unissued authorized capital stock and 15,233,416,960 Common Shares from the increase in its authorized capital stock, in exchange for the net assets of the domestic beer business of SMC with a net book value equivalent to P 15,308,416,960. The transfer of the net assets is pursuant to a Master Deed of Assignment of Domestic Beer Assets dated August 23, 2007 between SMC and the Company as amended by an Amendment to the Master Deed of Assignment of Domestic Beer Assets between the same parties dated September 7, 2007. The issuance of these Common Shares is an exempt transaction under Section 10.1 (e) of SRC.

Under the Corporation Code, where the consideration for the issuance of shares is other than actual cash, the valuation thereof shall initially be determined by the Board of Directors, subject to the approval of the SEC. The SEC approved the valuation of the net assets of SMC as full payment of the 15,308,416,960 Common Shares issued on September 27, 2007. However, 2,557,573,242 Common Shares issued by the Company to SMC in exchange for motor vehicles and receivables out of the entire 15,308,416,960 Common Shares issued by the Company pursuant to the transfer of the net assets of the domestic beer business by SMC to the Company are held in escrow by the SEC and shall only be released upon presentation of the transfer of ownership of such motor vehicles in the name of the Company and the proof of collection of receivables. The holding of such Common Shares in escrow is a standard condition of the SEC for approval of applications for increase in authorized capital where the payment for the shares issued pursuant to such increase is made in the form of motor vehicles and receivables. For more information on the transfer of the assets and liabilities of the domestic beer division of SMC to the Company, see the section entitled “Business Overview.”

(3) The issuance of 5,000 Common Shares to each of the independent directors of the Company is an exempt transaction under Section 10.1 (c) of the SRC.

SECURITY OW.ERSHIP OF CERTAI. BE.EFICIAL OW.ERS A.D MA.AGEME.T

Security Ownership of Record and Beneficial Owners

Owners of more than 5% of the Company’s voting securities as of the date of this prospectus are as follows:

.ame ofBeneficial

.ame, Address Owner andof Record Owner Relationshipand Relationship with Record .umber of Shares

Title of Class with Issuer Owner Citizenship Held Percent

Common San Miguel Not Filipino 14,524,367,960 94.25%Corporation, applicable40 San Miguel Avenue,

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Mandaluyong City 1550Philippines, parentcompany

Security Ownership of Management

The following are the number of Common Shares comprising the Company’s capital stock (all of which are voting shares) owned of record by the directors and key executive officers of the Company, as of the date of this prospectus:

Amount and .ature ofTitle of Class .ame of Owner Ownership

Common Ramon S. Ang 5,000 (Direct)Common Ferdinand K. Constantino 5,000 (Direct)Common Francis H. Jardeleza 5,000 (Direct)Common Virgilio S. Jacinto 5,000 (Direct)Common Joseph N. Pineda 5,000 (Direct)Common Roberto N. Huang 5,000 (Direct)Common Rosabel Socorro T. Balan 5,000 (Direct)Common Iñigo Zobel 5,000 (Direct)Common Carmelo L. Santiago 5,000 (Direct)

_________(1) Shareholding represents less than 0.01% of the Company’s capital stock.

Citizenship %

__(1)Filipino

__(1)Filipino

__(1)Filipino

__(1)Filipino

__(1)Filipino

__(1)Filipino

__(1)Filipino

__(1)Filipino

__(1)Filipino

Except for the two independent directors, each of whom hold 5,000 Common Shares, all directors are nominees of the Company and hold nominee shares in their names. The beneficial ownership of the nominee shares held by such nominee directors remain with the Company.

VOTI.G TRUST HOLDERS OF 5% OR MORE

As of the date of this prospectus, there were no persons holding more than 5% of the Common Shares under a voting trust or similar agreement.

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REGULATORY FRAMEWORK

REGULATORY MATTERS

Various government agencies in the Philippines regulate the different aspects of the Company’s beer manufacturing, sales and distribution business.

The Bureau of Food and Drugs (under the Department of Health) administers and enforces the law, and issues rules and circulars, on safety and good quality supply of food, drug and cosmetic to consumers; and regulation of the production, sale, and traffic of the same to protect the health of the people.

Pursuant to this, food manufacturers are required to obtain a license to operate as such. The law further requires food manufacturers to obtain a certificate of product registration for each product.

The Department of Health also prescribed the Guidelines on Current Good Manufacturing Practice in Manufacturing, Packing, Repacking, or Holding Food for food manufacturers.

The Consumer Act of the Philippines, the provisions of which are principally enforced by the Department of Trade and Industry, seeks to protect consumers against hazards to health and safety and against deceptive, unfair and unconscionable sales acts and practices; and provide information and education to facilitate sound choice and the proper exercise of rights by the consumer.

This law imposes rules to regulate such matters as (i) consumer product and safety; (ii) the production, sale, distribution and advertisement of food, drugs, cosmetics and devices as well as substances hazardous to the consumer’s health and safety; (iii) fair, honest consumer transactions and consumer protection against deceptive, unfair and unconscionable sales acts or practices; (iv) practices relative to the use of weights and measures; (v) consumer product and service warranties; (vi) compulsory labeling, and fair packaging; (vii) liabilities for defective products and services; (viii) consumer protection against misleading advertisements and fraudulent sales promotion practices; and (ix) consumer credit transactions.

The Standards of Trade Practices and Conduct in the Advertising Industry as formulated by the Philippine Advertising Board, a voluntary association of various companies and groups engaged in the fields of advertising, marketing and media in the Philippines, prescribe rules on the advertising activities of its members.

Under the SRC, the SEC has jurisdiction and supervision over all corporations, partnerships or associations that are grantees of primary franchises, license to do business or other secondary licenses. As the government agency regulating the Philippine securities market, the SEC issues regulations on the registration and regulation of securities exchanges, the securities market, securities trading, the licensing of securities brokers and dealers and reportorial requirements for publicly listed companies and the proper application of SRC provisions, as well as the Corporation Code, and certain other statutes.

E.VIRO.ME.TAL MATTERS

The operations of the Company are subject to various Philippines legislation, which are promulgated for the protection of the environment.

The Company is required to comply with the provisions of the Philippine Environmental Impact Statement System (“EIS Law”). The EIS Law is the general regulatory framework for any project or undertaking that is either (i) classified as environmentally critical; or (ii) is situated in an environmentally critical area. The law is implemented by the DENR.

Under the EIS Law, an entity that will undertake any such declared environmentally critical project or operate in any such declared environmentally critical area is required to submit an Environmental Impact Statement and secure an Environmental Compliance Certificate (“ECC”). This ECC requirement is applicable to each of the five (5) breweries that the Company operates throughout the Philippines.

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The Company is also subject to the provisions of the Philippine Clean Water Act of 2004 (“Clean Water Act”) and its implementing rules and regulations. The Clean Water Act requires the Company to secure a wastewater discharge permit, which authorizes it to discharge liquid waste and/or pollutants of specified concentration and volume from its breweries into any water or land resource for a specified period of time. The Environmental Management Bureau of the DENR is responsible for issuing discharge permits and monitoring and inspection of the facilities of the grantee of the permit.

The provisions of the Philippine Clean Air Act and its implementing rules and regulations are likewise applicable to the Company. The Clean Air Act provides that before any business may be allowed to operate facilities and equipment, which emit regulated air pollutants, the establishment must first obtain a Permit to Operate Air Pollution Source and Control Installations. The Environmental Management Bureau is responsible for issuing permits to operate air pollution source and control installations as well as monitoring and inspection of the facilities of the grantee of the permit.

Other regulatory environmental laws and regulations applicable to the Company are as follows:

The Water Code, which governs the appropriation and use by any entity of water within the Philippines. Water permits are issued by the National Water Resources Board.

Toxic Substances and Hazardous and Nuclear Wastes Control Act of 1990 and its implementing rules and regulations, which requires waste generators to register with the Environmental Management Bureau. The law aims to regulate the management of hazardous wastes generated by various establishments such as the Company.

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PHILIPPI.E TAXATIO.

The following is a discussion of the material Philippine tax consequences of the acquisition, ownership and disposition of the Bonds. This general description does not purport to be a comprehensive description of the Philippine tax aspects of the Bonds and no information is provided regarding the tax aspects of acquiring, owning, holding or disposing of the Bonds under applicable tax laws of other applicable jurisdictions and the specific Philippine tax consequence in light of particular situations of acquiring, owning, holding and disposing of the Bonds in such other jurisdictions. This discussion is based upon laws, regulations, rulings, and income tax conventions (treaties) in effect at the date of this prospectus. The tax treatment of a holder of Bonds may vary depending upon such holder’s particular situation, and certain holders may be subject to special rules not discussed below. This summary does not purport to address all tax aspects that may be important to a Bondholder.

PROSPECTIVE PURCHASERS OF THE BO,DS ARE URGED TO CO,SULT THEIR OW, TAX

ADVISORS AS TO THE PARTICULAR TAX CO,SEQUE,CES OF THE OW,ERSHIP A,D DISPOSITIO, OF A BO,D, I,CLUDI,G THE APPLICABILITY A,D EFFECT OF A,Y LOCAL OR FOREIG, TAX LAWS.

As used in this section, the term “resident alien” refers to an individual whose residence is within the Philippines and who is not a citizen thereof; a “non-resident alien” is an individual whose residence is not within the Philippines and who is not a citizen of the Philippines. A non-resident alien who is actually within the Philippines for an aggregate period of more than 180 days during any calendar year is considered a “non-resident alien doing business in the Philippines,” otherwise, such non-resident alien who is actually within the Philippines for an aggregate period of 180 days or less during any calendar year is considered a “non-resident alien not doing business in the Philippines.” A “resident foreign corporation” is a non-Philippine corporation engaged in trade or business within the Philippines; and a “non-resident foreign corporation” is a non-Philippine corporation not engaged in trade or business within the Philippines.

TAXATIO. OF I.TEREST

The Tax Code provides that interest-bearing obligations of Philippine residents are Philippine sourced income subject to Philippine income tax. Interest income derived by Philippine resident individuals from the Bonds is thus subject to income tax, which is withheld at source, at the rate of 20% based on the gross amount of interest. Generally, interest on the Bonds received by non-resident aliens engaged in trade or business in the Philippines is subject to a 20% final withholding tax while that received by non-resident aliens not engaged in trade or business is subject to a final withholding tax rate of 25%. Interest income received by domestic corporations and resident foreign corporations from the Bonds is subject to a final withholding tax rate of 20%. Interest income received by non-resident foreign corporations from the Bonds is subject to a 30% final withholding tax.

The foregoing rates are subject to further reduction by any applicable tax treaties in force between the Philippines and the country of residence of the non-resident owner. Most tax treaties to which the Philippines is a party generally provide for a reduced tax rate of 15% in cases where the interest which arises in the Philippines is paid to a resident of the other contracting state. However, most tax treaties also provide that reduced withholding tax rates shall not apply if the recipient of the interest who is a resident of the other contracting state, carries on business in the Philippines through a permanent establishment and the holding of the relevant interest-bearing instrument is effectively connected with such permanent establishment.

TAX-EXEMPT STATUS OR E.TITLEME.T TO PREFERE.TIAL TAX RATE

Bondholders who are exempt from or are not subject to final withholding tax on interest income may claim such exemption by submitting the necessary documents. Said Bondholder shall submit the following requirements:

(i) certified true copy of the tax exemption certificate, ruling or opinion issued by the BIR confirming the exemption or preferential rate; (ii) with respect to tax treaty relief, proof to support applicability of reduced tax rates, such as the consularized proof of tax domicile issued by the relevant tax authority of the Bondholder, and original or SEC-certified true copy of the SEC confirmation that the relevant entity is not doing business in the Philippines; (iii) a duly notarized undertaking to immediately notify the Issuer, the Registrar and the Paying Agent of any suspension or revocation of the tax exemption certificate, certificate, ruling or opinion issued by the BIR, executed using the prescribed form, with a declaration and warranty of its tax-exempt status or entitlement to a preferential tax rate, and an agreement to indemnify and hold the Issuer, the Registrar and the

118

Paying Agent free and harmless against any claims, actions, suits, and liabilities resulting from the non-withholding or incorrect withholding of the required tax; and (iv) such other documentary requirements as may be required under the applicable regulations of the relevant taxing or other authorities; provided, that the Issuer, the Registrar and the Paying Agent shall have the exclusive discretion to decide whether the documents submitted are sufficient for purposes of applying the exemption or the reduced rate being claimed by the Bondholder on the interest payments to such Bondholder; provided further that, all sums payable by the Issuer to tax-exempt entities shall be paid in full without deductions for taxes, duties, assessments, or government charges, subject to the submission by the Bondholder claiming the benefit of any exemption of the required documents and of additional reasonable evidence of such tax-exempt status to the Registrar.

The foregoing requirements shall be submitted, (i) in respect of an initial issuance of Bonds, to the underwriters or selling agents who shall then forward the same with the Application to Purchase to the Registrar; or (ii) in respect of a transfer from a Bondholder to a purchaser, to the Registrar within three days from settlement date.

VALUE-ADDED TAX

Gross receipts arising from the sale of the Bonds in the Philippines by dealers in securities shall be subject to a 12% value-added tax.

GROSS RECEIPTS TAX

Bank and non-bank financial intermediaries performing quasi-banking functions are subject to gross receipts tax on gross receipts derived from sources within the Philippines in accordance with the following schedule:

On interest, commissions and discounts from lending activities as well as income from financial leasing, on the basis of remaining maturities of instruments from which such receipts are derived:

Maturity period is five years or less 5%Maturity period is more than five years 1%

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

Maturity period is 5 years or less 5%Maturity period is more than 5 years 1%

In case the maturity period of the instruments held by banks, non-bank financial intermediaries performing quasi-banking functions and non-bank financial intermediaries not performing quasi-banking functions is shortened through pre-termination, then the maturity period shall be reckoned to end as of the date of pre-termination for purposes of classifying the transaction and the correct rate shall be applied accordingly.

Net trading gains realized within the taxable year on the sale or disposition of the Bonds by banks and non-bank financial intermediaries performing quasi-banking functions shall be taxed at 7%.

DOCUME.TARY STAMP TAX

A documentary stamp tax is imposed upon the issuance of debt instruments issued by Philippine companies, such as the Bonds, at the rate of P 1.00 for each P 200, or fractional part thereof, of the issue price of such debt instruments; provided that, for debt instruments with terms of less than one year, the documentary stamp tax to be collected shall be of a proportional amount in accordance with the ratio of its term in number of days to 365 days.

The documentary stamp tax is collectible wherever the document is made, signed, issued, accepted, or transferred, when the obligation or right arises from Philippine sources, or the property is situated in the Philippines. Any applicable documentary stamp taxes on the original issue shall be paid by the Issuer for its own account.

119

TAXATIO. O. SALE OR OTHER DISPOSITIO. OF THE BO.DS

Income Tax

Any gain realized from the sale, exchange or retirement of bonds will, as a rule, form part of the gross income of the sellers, for purposes of computing the relevant taxable income subject to the regular rates of 32%, 25%, or 30%, as the case may be. If the bonds are sold by a seller, who is an individual and who is not a dealer in securities, who has held the bonds for a period of more than 12 months prior to the sale, only 50% of any capital gain will be recognized and included in the sellers’ gross taxable income.

However, under the Tax Code, any gain realized from the sale, exchange or retirement of bonds, debentures and other certificates of indebtedness with an original maturity date of more than five years (as measured from the date of issuance of such bonds, debentures or other certificates of indebtedness) shall not be subject to income tax.

Moreover, any gain arising from such sale, regardless of the original maturity date of the bonds, may be exempt from income tax pursuant to various income tax treaties to which the Philippines is a party, and subject to procedures prescribed by the Bureau of Internal Revenue for the availment of tax treaty benefits.

Estate and Donor’s Tax

The transfer by a deceased person, whether a Philippine resident or a non-Philippine resident, to his heirs of the Bonds shall be subject to an estate tax which is levied on the net estate of the deceased at progressive rates ranging from 5% to 20%, if the net estate is over P 200,000. A Bondholder shall be subject to donor’s tax based on the net gift on the transfer of the Bonds by gift at either (i) 30%, where the donee or beneficiary is a stranger, or (ii) at progressive rates ranging from 2% to 15% if the net gifts made during the calendar year exceed P 100,000 and where the donee or beneficiary is not a stranger. For this purpose, a “stranger” is a person who is not a: (a) brother, sister (whether by whole or half-blood), spouse, ancestor or lineal descendant; or (b) relative by consanguinity in the collateral line within the fourth degree of relationship.

The estate or donor’s taxes payable in the Philippines may be credited with the amount of any estate or donor's taxes imposed by the authority of a foreign country, subject to limitations on the amount to be credited, and the tax status of the donor.

The estate tax and the donor’s tax, in respect of the Bonds, shall not be collected (a) if the deceased, at the time of death, or the donor, at the time of the donation, was a citizen and resident of a foreign country which, at the time of his death or donation, did not impose a transfer tax of any character in respect of intangible personal property of citizens of the Philippines not residing in that foreign country; or (b) if the laws of the foreign country of which the deceased or donor was a citizen and resident, at the time of his death or donation, allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in the foreign country.

In case the Bonds are transferred for less than an adequate and full consideration in money or money's worth, the amount by which the fair market value of the Bonds exceeded the value of the consideration may be deemed a gift and may be subject to donor’s taxes.

Documentary Stamp Tax

No documentary stamp tax is imposed on the subsequent sale or disposition of the Bonds, trading the Bonds in a secondary market or though an exchange. However, if the transfer constitutes a renewal of the Bonds, documentary stamp tax is payable anew.

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LEGAL MATTERS

Certain Philippine legal matters in connection with the Offer have been passed upon for the Company by Picazo Buyco Tan Fider & Santos, Makati, Philippines, and for the Joint Issue Managers and for the Joint Lead Managers and Underwriters by SyCip Salazar Hernandez & Gatmaitan, Makati, Philippines.

Neither Picazo Buyco Tan Fider & Santos nor SyCip Salazar Hernandez & Gatmaitan, has or will receive any direct or indirect interest in the Company or in any securities thereof (including options, warrants, or rights thereto) pursuant to, or in connection with, the Offer. Neither Picazo Buyco Tan Fider & Santos nor SyCip Salazar Hernandez & Gatmaitan has acted or will act as promoter, underwriter, voting trustee, officer or employee of the Company.

121

EXPERTS

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

122

I.DEPE.DE.T PUBLIC ACCOU.TA.TS

The examined pro forma consolidated financial statements of the Company as of and for the year ended December 31, 2008 and the historical financial statements which comprise the balance sheets as at December 31, 2008 and 2007, and the statements of income, statements of changes in equity and statements of cash flows for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007, including the notes thereto which are incorporated by reference included in this prospectus, have been examined and audited, as the case may be, without qualification by Manabat Sanagustin & Co., auditors as stated in their reports appearing herein.

The Company has not had any disagreements on accounting and financial disclosures with its current external auditors for the same periods or any subsequent interim periods. Manabat Sanagustin & Co., one of the top four auditing firms in the Philippines, has acted as the auditors of San Miguel Corporation (SMC), the parent company where the historical information of the Company was carved-out since 2006. The shareholders approved the appointment of Manabat Sanagustin & Co. as the Company’s external auditors upon the recommendation of the management. The Company has also engaged the services of Manabat Sanagustin & Co. for the public offering of its Common Shares. The Company’s management recommended and engaged Manabat Sanagustin & Co.’s services based on their professionalism, efficient services and cost competitiveness. Jose P. Javier, Jr. is the Engagement Partner. Manabat Sanagustin & Co. has neither shareholdings in the Company nor any right, whether legally enforceable or not, to nominate persons or to subscribe for the securities in the Company. Manabat Sanagustin & Co. will not receive any direct or indirect interest in the Company or in any securities thereof (including options, warrants or rights thereto) pursuant to or in connection with the Offer. The foregoing is in accordance with the Code of Ethics for Professional Accountants in the Philippines set by the Board of Accountancy and approved by the Professional Regulation Commission.

AUDIT A.D AUDIT-RELATED FEES

The Company’s audit and audit-related fees are as indicated in the table below:

(in P)

Audit and Audit Related FeesProfessional fees related to the statutory reports as of December 31, 2008.......... 6,000,000Professional fees related to the examined pro forma consolidated financial

statements of the Company as of and for the years ended December 31,2008.................................................................................................................. 2,000,000

Total............................................................................................................................ 8,000,000

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

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ISSUER


40 San Miguel Avenue Mandaluyong City

Philippines

JOI.T ISSUE MA.AGERS

The Development Bank of the Philippines The Hongkong and Shanghai Banking CorporationLimited

DBP Bldg., Sen. Gil Puyat Ave. 8/F The Enterprise Center, Tower I, 6766 Ayala Avenue

Makati City, Philippines cor. Paseo de Roxas, Makati City

JOI.T LEAD MA.AGERS A.D U.DERWRITERS

The Development Bank of the Philippines

DBP Bldg., Sen. Gil Puyat Ave.

Makati City, Philippines

BDO Capital & Investment Corporation

BDO Corporate Center

7899 Makati Avenue, Makati City

China Banking Corporation

China Bank Building

8745 Paseo de Roxas corner Villar Street, Makati

City

I.G Bank ..V.

21/F Tower One, Ayala Triangle,

Ayala Avenue Makati City

Philippine Commercial Capital, Inc.

PCCI Corporate Centre

118 LP Leviste St, Salcedo Village Makati City

The Hongkong and Shanghai Banking Corporation Limited

8/F The Enterprise Center, Tower I, 6766 Ayala Avenue

cor. Paseo de Roxas, Makati City

BPI Capital Corporation

8/F BPI Building Ayala Avenue corner Paseo de Roxas

Makati City

First Metro Investment Corporation

45/F GT Tower International

6813 Ayala Avenue corner H.V. Dela Costa St., Makati

City

Landbank of the Philippines

1598 M.H. del Pilar corner Dir. J. Quintos Sts., Malate,

Manila

RCBC Capital Corporation

7/F Yuchengco Tower, RCBC Plaza, 6819 Ayala

Avenue, Makati City

124

Standard Chartered Bank Union Bank of the Philippines

8/F and 9/F, Standard Chartered Bank Building UnionBank of Plaza

6788 Ayala Avenue, Makati City Meralco Ave. cor. Onyx St., Ortigas Center, Pasig City

PARTICIPATI.G U.DERWRITERS

SB Capital Investment Corp.

LEGAL COU.SEL TO THE COMPA.Y

Picazo Buyco Tan Fider & Santos

18th Floor Liberty Center104 H. V. Dela Costa Street Salcedo Village, Makati City, Philippines

LEGAL COU.SEL TO THE JOI.T ISSUE MA.AGERS A.D THE JOI.T LEAD MA.AGERS A.D U.DERWRITERS

SyCip Salazar Hernandez & Gatmaitan

SSHG Law Centre105 Paseo de Roxas, Makati City, Philippines

I.DEPE.DE.T CERTIFIED PUBLIC ACCOU.TA.TS

Manabat Sanagustin & Co.

9th Floor, The KPMG Center, 6787 Ayala Avenue Makati City, Philippines

125

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

Examined Pro Forma Consolidated Financial Statements as of and for the year ended December 31,2008, and notes to the Pro Forma Consolidated Financial Statements.................................................. F-1

Appendix A - Audited Financial Statements as at December 31, 2008 and 2007, and for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007, and the notes tothe Audited Financial Statements.......................................................................................................... F-58

126

SA. MIGUEL BREWERY I.C. A.D SUBSIDIARIES (A Subsidiary of San Miguel Corporation and Formerly the

Domestic Beer Division of San Miguel Corporation)

PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008

F-1

Manabat Sanagustin & Co.Certified Public Accountants

The KPMG Center, 9/F6787 Ayala AvenueMakati City 1226, Metro Manila, Philippines

Branches Subic Cebu Bacolod Iloilo� � � �

Telephone +63 (2) 885 7000Fax +63 (2) 894 1985Internet www.kpmg.com.phE-Mail [email protected]

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

REPORT OF I.DEPE.DE.T AUDITORS

The Stockholders and Board of Directors San Miguel Brewery Inc.40 San Miguel Avenue Mandaluyong City

We have examined the pro forma financial information reflecting the transactions as described in Note 2 to the pro forma consolidated financial statements, including the appropriate adjustments to the historical amounts in the assembly of the accompanying pro forma consolidated balance sheet of San Miguel Brewery Inc. (the “Parent Company”) and Subsidiaries as of December 31, 2008, and the pro forma consolidated statement of income, pro forma consolidated statement of changes in equity and pro forma consolidated statement of cash flows for the year then ended. The 2008 historical financial statements are derived from the balance sheet of San MiguelBrewery Inc. as of December 31, 2008 and the statement of income, statement of changes inequity and statement of cash flows for the year then ended. These historical financial statements of San Miguel Brewery Inc. were audited by us, of which our report thereon dated January 30, 2009, expressed an unqualified opinion with respect to those statements which are attached and labeled as Appendix A. The pro forma adjustments are based on Parent Company’s management assumptions as described in Note 2 to the pro forma consolidated financial statements. The Parent Company’s management is responsible for the pro forma financial information. Our responsibility is to express an opinion on the pro forma financial information based on our examination.

Our examination was conducted in accordance with the Philippine Standard on AssuranceEngagements 3000, Assurance Engagements Other than Audits or Review of Historical Financial Information and Philippine Securities and Exchange Commission Memorandum Circular No. 2, Series of 2008, Guidelines on Reporting and Attestation of Pro Forma Financial Information and, accordingly, included such procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion.

The objective of this pro forma financial information is to show what the significant effects on the audited financial statements might have been had the transactions described in Note 2 to the pro forma consolidated financial statements occurred at an earlier date. However, the pro forma consolidated financial statements are not necessarily indicative of the consolidated financial performance or related effects on the consolidated financial position and consolidated cash flows that would have been attained had the above-mentioned transactions actually occurred earlier.

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

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

MA.ABAT SA.AGUSTI. & CO.

JOSE P. JAVIER, JR.PartnerCPA License No. 0070807SEC Accreditation No. 0678-ATax Identification No. 112-071-224BIR Accreditation No. 08-001987-16-2007Issued December 11, 2007; Valid until December 10, 2010

PTR No. 1564061MBIssued January 5, 2009 at Makati City

February 12, 2009Makati City, Metro Manila

F-3

SA. MIGUEL BREWERY I.C. A.D SUBSIDIARIES (A Subsidiary of San Miguel Corporation and

Formerly the Domestic Beer Division of San Miguel Corporation)

PRO FORMA CO.SOLIDATED BALA.CE SHEETDECEMBER 31, 2008

(In Millions)

,ote

ASSETS

Current AssetsCash and cash equivalents 2, 5, 26, 27 P6,427Trade and other receivables - net 2, 4, 6, 26, 27 3,662Inventories - net 4, 7 3,279Prepaid expenses and other current assets 2, 8, 27 379

Total Current Assets 13,747

.oncurrent AssetsProperty, plant and equipment - net 2, 4, 9 12,932Intangible assets 2, 4, 10 32,011Deferred tax assets 2, 4, 14 312Other noncurrent assets - net 2, 4, 11, 27 4,894

Total .oncurrent Assets 50,149

P63,896

LIABILITIES A.D EQUITY

Current LiabilitiesAccounts payable and accrued expenses 2, 12, 26, 27 P3,000Income and other taxes payable 2, 14 1,518

Total Current Liabilities 4,518

.oncurrent LiabilitiesLong-term debt - net of debt issue costs 2, 13, 26, 27 38,447Other noncurrent liabilities 2 9

Total .oncurrent Liabilities 38,456Forward

F-4

,ote

EquityCapital stock 15 P15,410Additional paid-in capital 515Cumulative translation adjustments 27 (45)Retained earnings 2 4,800

Total Equity Attributable to Equity Holdersof the Parent Company 2 20,680

Minority Interests 2 242

Total Equity 20,922

P63,896

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

See +otes to the Pro Forma Consolidated Financial Statements.

F-5


Formerly the Domestic Beer Division of San Miguel Corporation) PRO FORMA CO.SOLIDATED STATEME.T OF I.COME

FOR THE YEAR E.DED DECEMBER 31, 2008(In Millions, Except Basic Earnings Per Share)

,ote

SALES P48,787

COST OF SALES 16 24,800

GROSS PROFIT 23,987

ADMI.ISTRATIVE A.D SELLI.GEXPE.SES 2, 17 (7,288)

I.TEREST EXPE.SE A.D OTHERFI.A.CI.G CHARGES 2, 13 (3,484)

I.TEREST I.COME 264

OTHER I.COME (EXPE.SE) - Net 20 (377)

I.COME BEFORE I.COME TAX 13,102

I.COME TAX EXPE.SE 2, 14 4,303

.ET I.COME P8,799

Attributable to:Equity holders of the Parent Company 2, 24 P8,787Minority interests 2 12

P8,799

Basic Earnings Per Share, attributable to equityholders of the Parent Company 24 P0.57



F-6


Formerly the Domestic Beer Division of San Miguel Corporation)PRO FORMA CO.SOLIDATED STATEME.T OF CHA.GES I. EQUITY

FOR THE YEAR E.DED DECEMBER 31, 2008(In Millions, Except for Par Value and Number of Shares of Stock)

,ote

CAPITAL STOCK - P1 par value 15Authorized - 25,000,000,000 sharesBalance at beginning of year P15,333Issuances during the year 77

Balance at end of year 15,410

ADDITIO.AL PAID-I. CAPITAL 515

CUMULATIVE TRA.SLATIO.ADJUSTME.TS 27 (45)

RETAI.ED EAR.I.GSBalance at beginning of year 2,310Net income for the year 8,787Cash dividends 2, 28 (6,297)

Balance at end of period 4,800

TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARE.T

COMPA.Y 20,680

MI.ORITY I.TERESTSBalance at beginning of year -Pre-acquisition carrying amount of minority

interests 239Share in equity during the year 12Cash dividends (9)

Balance at end of year 242

P20,922



F-7


Formerly the Domestic Beer Division of San Miguel Corporation) PRO FORMA CO.SOLIDATED STATEME.T OF CASH FLOWS

FOR THE YEAR E.DED DECEMBER 31, 2008(In Millions)

,ote

CASH FLOWS FROM OPERATI.G ACTIVITIESIncome before income tax P13,102Adjustments for:

Interest expense and other financing charges 3,484Depreciation and amortization 18 1,758Interest income (264)Reversal of allowance for doubtful accounts,

inventory losses and others 6, 7 (127)Gain on sale of property, plant and

equipment - net 20 (17)Operating income before working capital changes 17,936Decrease (increase) in:

Trade and other receivables 65Inventories (751)Prepaid expenses and other current assets (199)

Increase (decrease) in:Accounts payable and accrued expenses (307)Income and other taxes payables 332

Cash generated from operations 17,076Interest paid (3,392)Income taxes paid (4,723)

Net cash flows from operating activities 8,961

CASH FLOWS FROM I.VESTI.GACTIVITIES

Additions to property, plant and equipment 9 (8,002)Proceeds from sale of property, plant and

equipment 44Increase in intangible assets (32,012)Increase in other noncurrent assets (963)Interest received 259

Net cash flows used in investing activities (40,674)Forward

F-8

,ote

CASH FLOWS FROM FI.A.CI.G ACTIVITIESProceeds from issuance of long-term debt P38,355Decrease in other noncurrent liabilities (3)Proceeds from issuances of capital stock 15 592Dividends paid to minority shareholders (9)Cash dividends paid 28 (6,296)Increase in minority interests 239

Net cash flows provided by financing activities 32,878

.ET I.CREASE I. CASH A.D CASHEQUIVALE.TS 1,165

CASH A.D CASH EQUIVALE.TSAT BEGI..I.G OF YEAR 5,262

CASH A.D CASH EQUIVALE.TSAT E.D OF YEAR 5 P6,427



F-9



.OTES TO THE PRO FORMA CO.SOLIDATEDFI.A.CIAL STATEME.TS

(Amounts in Millions, Except Per Share and Number of Shares Data)

1. Reporting Entity

San Miguel Brewery Inc. (the “Parent Company”) [formerly the domestic beer division of San Miguel Corporation (“SMC”)] was registered with the Philippine Securities and Exchange Commission (SEC) on July 26, 2007. The pro forma consolidated financial statements as of and for the year ended December 31, 2008 comprise the financial statements of the Parent Company and its Subsidiaries (collectively referred to as the “Group”). The Parent Company is engaged in manufacturing, selling and distribution of fermented and malt-based beverages and its Subsidiaries (Note 2) are engaged in the business of selling, managing, developing and dealing in real estate properties and in manufacturing, selling or dealing in alcoholic and non-alcoholic beverages and acquiring, licensing or owning trademarks and intellectual property rights necessary for such business. The registered office address of the Parent Company is 40 San Miguel Avenue, Mandaluyong City, Philippines.

The Parent Company is 94.25% owned and controlled by SMC. SMC is the ultimate parent company.

On July 24, 2007, the stockholders of SMC, during the annual stockholders’ meeting, approved the transfer of SMC’s domestic Philippine beer business assets to a wholly-owned subsidiary of SMC, the Parent Company, in exchange for shares of stock. The assets transferred to the Parent Company comprise the domestic beer business’ net assets as of June 30, 2007 excluding land, brands, and income and other taxes payable. The transfer of SMC’s domestic beer business’ net assets to the Parent Company is pursuant to the listing with the Philippine Stock Exchange (PSE) and the public offering of the shares of the Parent Company. The actual transfer of the net assets in exchange for shares of stock took effect on October 1, 2007.

On May 12, 2008, the Parent Company’s shares were listed with the PSE.

The pro forma consolidated financial statements as of and for the year ended December 31, 2008 were approved and authorized for issue by the Board of Directors (BOD) on February 12, 2009.

2. Basis of Preparation

The accompanying pro forma consolidated financial statements have been prepared as if the acquisitions of brands and other intangible assets (trademarks, copyrights, patents and other intellectual property rights and know-how) and parcels of land by the Subsidiaries, start of commercial operations of the Subsidiaries and issuance of long-term debt occurred on January 1, 2008.

F-10

The pro forma consolidated financial statements are based on the historical information of the Parent Company as shown in the audited financial statements as of and for the year ended December 31, 2008, after giving effect to the assumptions and adjustments described below.

The pro forma consolidated financial statements are presented in Philippine peso, which is the Parent Company’s functional and presentation currency, and all values are rounded to the nearest million (P000,000), except when otherwise indicated.

The accompanying pro forma consolidated financial statements are for informational purposes only and do not purport to present what the financial position, financial performance and cash flows would have been had the acquisitions of intangible assets (trademarks, copyrights, patents and other intellectual property rights and know-how) and parcels of land by the Subsidiaries and issuance of long-term debt actually occurred on January 1, 2008 or purport to project the financial position, financial performance and cash flows for any future period.

The pro forma adjustments arising from the transactions described in the succeeding paragraph represent the significant effects directly attributable to those transactions which have been determined based upon available information and certain assumptions that management believes to be reasonable.

The accompanying pro forma consolidated financial statements assume that:

(i) the Parent Company acquired on January 1, 2008 all the interests of SMC inIconic Beverages, Inc. (“IBI”) after SMC has transferred to IBI certain Philippine beer and malt-based beverages brands and other intangible assets, including trademarks, copyrights, patents and other intellectual property rights and know-how of SMC;

(ii) the Parent Company also acquired on January 1, 2008 all the interests of SMC inBrewery Properties Inc. (“BPI”) after SMC has transferred certain parcels of land used in the domestic beer operations of the Company to BPI;

(iii) IBI is a wholly-owned subsidiary of the Parent Company, with an outstandingcapital stock of P10,000 divided into 100,002,500 common shares, fully paid and with a par value of P100 per common share;

(iv) BPI has an outstanding capital stock of P856 (inclusive of additional paid incapital) divided into 2,389,494 preferred shares with par value of P100 perpreferred share and 1,592,996 common shares with par value of P350 per commonshare;

(v) all outstanding common shares of BPI are owned by the Parent Company and alloutstanding preferred shares are owned by SMBRP;

(vi) Brewery Landholdings, Inc. (“BLI”) is a wholly-owned subsidiary of BPI, with anoutstanding capital stock of P239 divided into 2,389,494 common shares, fully paid and with par value of P100 per common share and owns certain parcels of land it has purchased from SMC on which the sales offices of the Parent Company are located;

(vii) BLI and BPI charged the Parent Company rental fee of 4% of the appraised valueof the land for the use of land owned by BPI and BLI by the Parent Company in its operations and the lease is negotiable yearly;

F-11

(viii) the dividends for preferred shares of BPI is at a fixed rate of 7% of net income ofBPI;

(ix) BPI and IBI declared 100% of its net income in the month following the end ofeach quarter as cash dividends;

(x) IBI charged the Parent Company royalty fee for the use of the brands and otherintellectual property rights owned by IBI at a rate of 5% of the net beer and malt-based beverages sales revenue of the Parent Company;

(xi) IBI, BPI and, BLI started commercial operations on January 1, 2008;

(xii) the Parent Company issued multi-tranche peso bonds in the aggregate principalamount of P38,800;

(xiii) the multi-tranche peso bonds issued by the Parent Company carry a fixed rate of8%, 9% and 10% for tenors of three, five years and one day and ten years, respectively; and

(xiv) the Parent Company declared 70% of its unappropriated retained earnings in the month following the end of each quarter as cash dividends.

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

F-12

The following tables show the effects of the pro forma adjustments to the Parent Company’s audited financial statements as of and for the year ended December 31, 2008.

December 31, 2008Pro Forma

Parent Company Pro Forma ConsolidatedAudited Balances Adjustments Balances

ASSETSCurrent AssetsCash and cash equivalents P6,041 P386 (1) P6,427Trade and other receivables - net 3,661 1 (2) 3,662Inventories - net 3,279 - 3,279Prepaid expenses and other current

assets 418 (39) (3) 379

Total Current Assets 13,399 348 13,747

.oncurrent AssetsProperty, plant and equipment - net Intangible assetsDeferred tax assets Other noncurrent assets - net

5,864 7,068 (4)

11 32,000 (5)

427 (115) (6)

(7)4,933 (39)

12,93232,011

3124,894

Total .oncurrent Assets 11,235 38,914 50,149

P24,634 P39,262 P63,896

LIABILITIES A.D EQUITY Current LiabilitiesAccounts payable and accrued

expenses Income and other taxes payable

P3,000 P -(8)

2,585 (1,067)

P3,0001,518

Total Current Liabilities 5,585 (1,067) 4,518

.oncurrent LiabilitiesLong-term debt - net of debt issue

costs - 38,447 (9) 38,447Other noncurrent liabilities 39 (30) (10) 9

Total .oncurrent Liabilities 39 38,417 38,456

EquityCapital stock 15,410 - 15,410Additional paid-in capital 515 - 515Cumulative translation

adjustments (45) - (45)Retained earnings 3,130 1,670 (11) 4,800

Total Equity Attributable toEquity Holders of the ParentCompany 19,010 1,670 20,680

Minority Interests - 242 (12) 242

Total Equity 19,010 1,912 20,922

P24,634 P39,262 P63,896

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(1) Represents payment of debt issue costs, interest expense, reversal of rent and royalty, adjustment of income

tax expense, dividend payments and other charges

Debt issue costs (P445)Interest expense (3,392)Reversal of rent and royalty previously paid to SMC 1,147Taxes and other charges 159Dividends adjustment based on actual payments made

versus pro forma assumptions 2,917Total P386

(2) Represents tax certificate receivables on rent income of BPI and BLI(3) Represents reversal of two months advance rent for the use of the land previously leased from SMC(4) Represents cost of land acquired by BPI and BLI from SMC(5) Represents cost of brands and other intangible assets acquired by IBI from SMC(6) Represents adjustment due to debt issue costs(7) Represents reversal of two months rent deposit for the use of the land previously leased from SMC(8) Represents adjustment of income tax expense due to lower taxable income(9) Represents proceeds from issuance of long-term debt less unamortized debt issue costs(10) Represents reversal of accrued rent on land previously leased from SMC(11) Represents adjustment primarily due to change in dividends declaration from 100% of unappropriated

retained earnings to 70%, net of the effect of the other assumptions on net income(12) Represents minority interest of SMBRP in BPI

December 31, 2008Parent

Company Pro FormaAudited Pro Forma Consolidated

Balances Adjustments Balances

SALES P48,787 P - P48,787COST OF SALES 24,800 - 24,800

GROSS PROFITADMI.ISTRATIVE A.D

SELLI.G EXPE.SESI.TEREST EXPE.SE A.D

OTHER FI.A.CI.G CHARGES

I.TEREST I.COME OTHER EXPE.SE - Net

23,987 -

(13)(8,366) 1,078

- (3,484) (14)

264 -

(377) -

23,987

(7,288)

(3,484)264

(377)I.COME BEFORE

I.COME TAX I.COME TAX EXPE.SE

15,508 (2,406)(15)

5,466 (1,163)

13,1024,303

.ET I.COME P10,042 (P1,243) P8,799

(13) Represents reversal of rental and royalty expense paid to SMC, net of expenses of the twosubsidiaries (BPI & IBI)

Royalty P974Rental 188Taxes and licenses (84)Total P1,078

(14) Represents interest and financing charges and amortization of debt issue costs for the long-term debt(15) Represents adjustment of income tax expense due to lower taxable income

F-14

December 31, 2008Parent

Company Pro FormaAudited Pro Forma Consolidated

Balances Adjustments Balances.et cash flows from

operating activities P11,027 (P2,066) (16) P8,961.et cash flows used in

investing activities (1,645) (39,029) (17) (40,674).et cash flows provided by

(used in) financing activities (8,603) 41,481 (18) 32,878.et increase in cash and cash

equivalents 779 386 1,165Cash and cash equivalents at

beginning of year 5,262 - 5,262

Cash and cash equivalents atend of year P6,041 P386 P6,427

(16) Represents decrease in net income primarily due to interest expense(17) Represents cash used to purchase land, brands and other intangible assets(18) Represents proceeds from issuance of long-term debt and adjustment due to change in dividends

declaration from 100% of unappropriated retained earnings to 70%

Basis of ConsolidationThe pro forma consolidated financial statements include the accounts of the Parent Company and the following subsidiaries:

Percentage Countryof Ownership of Incorporation

Iconic Beverages, Inc. 100% PhilippinesBrewery Properties Inc. and a wholly-owned Subsidiary

(Brewery Landholdings, Inc.) 40% Philippines

A subsidiary is an entity controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefit from its activities. In assessing control, potential voting rights that are presently exercisable or convertible are taken into account. The financial statements of the subsidiary are included in the pro forma consolidated financial statements from the date when the Group obtains control, and continue to be consolidated until the date that such control ceases.

Following the provisions of PAS 27, Consolidated and Separate Financial Statements, the Parent Company included the accounts of BPI in the consolidation.

The pro forma consolidated financial statements are prepared for the same reporting period as the Parent Company, using uniform accounting policies for like transactions and other events in similar circumstances. Intergroup balances and transactions, including intergroup unrealized profits and losses, are eliminated in preparing the pro forma consolidated financial statements.

Minority interests represent the portion of profit or loss and net assets not held by the Group and are presented in the pro forma consolidated balance sheet, separately from equity attributable to equity holders of the Parent Company.

Minority interests represent the interest not held by the Group in BPI.

F-15

3. Significant Accounting Policies

The accounting policies set out below have been applied consistently by the Group to all periods presented in the pro forma consolidated financial statements.

Adoption of New Standards, Amendments to Standards and InterpretationsThe FRSC approved the adoption of new standards, amendment to standards, and interpretations.

Amendments to Standard and Interpretation Adopted in 2008Starting January 1, 2008, the Group adopted the following amendments to standard and Philippine Interpretations from IFRIC:

Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions: This interpretation describes how to apply PFRS 2, Share-based Payment to share-based payment arrangements involving an entity’s own equity instruments and share-based payment arrangements of subsidiaries involving equity instruments of its parent company. The adoption of this interpretation did not have a material effect on the Group’s pro forma consolidated financial statements.

Philippine Interpretation IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction: This interpretation provides general guidance on how to assess the limit in PAS 19, Employee Benefits, on the amount of the surplus that can be recognized as an asset. It also explains how the retirement asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The adoption of this interpretation did not have a material effect on the Group’s pro forma consolidated financial statements.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement and PFRS 7 Financial Instruments: Disclosures: This standard permits an entity to reclassify non-derivative financial assets, other than those designated at fair value through profit or loss upon initial recognition, out of the trading category in certain circumstances. The amendments also permit an entity to transfer from the available-for-sale category to the loans and receivables category a financial asset that otherwise would have met the definition of loans and receivables, if the entity has the intention and ability to hold that financial asset for the foreseeable future. The adoption of these amendments to standard did not have an effect on the Group’s pro forma consolidated financial statements.

+ew and Revised Standards and Amendments to Standards +ot Yet AdoptedThe following are the new and revised standards and amendments to standards which are not yet effective for the year ended December 31, 2008, and have not been applied in preparing these pro forma consolidated financial statements:

PFRS 8, Operating Segments, becomes effective for financial years beginning on or after January 1, 2009 and will replace PAS 14, Segment Reporting. This standard introduces the “management approach” to segment reporting. It will require a change in the presentation and disclosure of segment information based on the internal reports regularly reviewed by the Group’s Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. The Group

has determined that this standard has no impact on its pro forma consolidated financial statements since it operates as one segment only (both in terms of business and geography).

F-16

Revised PAS 1, Presentation of Financial Statements, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to introduce the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement), or in an income statement and a separate statement of comprehensive income. The Group is currently assessing the impact of the revised standard on the pro forma consolidated financial statements when it adopts the standard on January 1, 2009.

Revised PAS 23, Borrowing Costs, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to require an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The Group will assess the impact of this revised standard on the pro forma consolidated financial statements when it adopts the standard on January 1, 2009.

Amended PFRS 1 and PAS 27, Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, becomes effective for financial years beginning on or after January 1, 2009. The amendments to PFRS 1 allow a first-time adopter, at its date of transition to PFRSs in its separate financial statements, to use deemed cost to account for an investment in a subsidiary, jointly controlled entity or associate. The amendments to PAS 27 remove the definition of “cost method” currently set out in PAS 27, and instead require all dividend from a subsidiary, jointly controlled entity or associate to be recognized as income in the separate financial statements of the investor when the right to receive the dividend is established. The Group will assess the impact of this revised standard on the pro forma consolidated financial statements when it adopts the standard on January 1, 2009.

Improvements to PFRSs 2008 discusses 35 amendments and is divided into two parts: a) Part I includes 24 amendments that result in accounting changes for presentation, recognition or measurement purposes; and b) Part II includes 11 terminology or editorial amendments that the International Accounting Standards Board expects to have either no or only minimal effects on accounting. These amendments are generally effective for annual periods beginning on or after January 1, 2009. The adoption of the amendments in 2009 is not expected to have any material effect on the Group’s pro forma consolidated financial statements.

Revised PFRS 3, Business Combinations, incorporates the following changes that are likely to be relevant to the Group’s operations:

o The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations.

o Contingent consideration will be measured at fair value, with subsequent changes therein recognised in profit or loss.

o Transaction costs, other than share and debt issue costs, will be expensed as incurred.

o Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognised in profit or loss.

F-17

o Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.

Revised PFRS 3, which becomes mandatory for the Group’s 2010 pro forma consolidated financial statements, will be applied prospectively and therefore there will be no impact on prior periods in the Group’s 2010 pro forma consolidated financial statements.

Amended PAS 27, Consolidated and Separate Financial Statement, requires accounting for changes in ownership interests by the Group in a subsidiary, while maintaining control, to be recognised as an equity transaction. When the Group loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognised in profit or loss. The amendments to PAS 27, which become mandatory for the Group’s 2010 pro forma consolidated financial statements, are not expected to have a significant impact on the pro forma consolidated financial statements.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement -Eligible Hedged Items, becomes effective for financial years beginning on or after July 1, 2009. The standard has been amended to provide for the following: a) new application guidance to clarify the existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedge relationship; and b) additional application guidance on qualifying items; assessing hedge effectiveness; and designation of financial items as hedged items. The amendments to PAS 39, which will become mandatory for the Group’s 2010 pro forma consolidated financial statements, are not expected to have a significant impact on the pro forma consolidated financial statements.

Philippine Interpretation IFRIC 17, Distributions of +on-cash Assets to Owners, becomes effective for financial years beginning on or after July 1, 2009. This interpretation provides guidance on the accounting for non-reciprocal distributions of non-cash assets to owners acting in their capacity as owners. It also applies to distributions in which the owners may elect to receive either the non-cash asset or a cash alternative. The liability for the dividend payable is measured at fair value of the assets to be distributed. The Group will assess the impact of this interpretation on the pro forma consolidated financial statements when it adopts the standard on July 1, 2009.

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

Financial Assets and LiabilitiesDate of Recognition. The Group recognizes a financial asset or a financial liability in the pro forma consolidated balance sheet when it becomes a party to the contractual provisions of the financial instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, are done using settlement date accounting.

F-18

Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The fair value of the consideration given or received is determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rate of interest for similar instruments with similar maturities. The initial measurement of financial instruments, except for those designated at fair value through profit and loss (FVPL), includes transaction costs.

Subsequent to initial recognition, the Group classifies its financial assets and liabilities in the following categories: held-to-maturity (HTM) financial assets, available-for-sale (AFS) investments, FVPL financial assets, and loans and receivables. The classification depends on the purpose for which the investments are acquired and whether they are quoted in an active market. Management determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

Determination of Fair Value. The fair value for financial instruments traded in active markets at the balance sheet date is based on their quoted market price or dealer price quotation (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models.

Day 1 Profit. Where the transaction price in a non-active market is different from the fair value of the other observable current market transactions for same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value (a Day 1 Profit) in the pro forma consolidated statement of income unless it qualifies for recognition as some other type of asset. In cases where use is made of data which are not observable, the difference between the transaction price and model value is only recognized in the pro forma consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the ‘day 1’ profit amount.

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

Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognized in the pro forma consolidated statement of income.

F-19

Financial assets may be designated by management at initial recognition as at FVPL, when any of the following criteria is met:

the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a different basis; or

the assets are part of a group of financial assets, financial liabilities or both which are managed and the performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recognized.

Derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

The Group accounts for its derivative transactions (including embedded derivatives) under this category with fair value changes being reported directly to profit or loss, except when the derivative is treated as an effective accounting hedge, in which case the fair value change is deferred in equity under the “Cumulative translation adjustments” account.

The Group’s derivative assets are classified under this category (Notes 8 and 27).

The carrying values of financial assets under this category amounted to P28 as of December 31, 2008 (Notes 8 and 27).

Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not designated as AFS or financial assets at FVPL. Loans and receivables are carried at cost or amortized cost, less impairment in value. Amortization is determined using the effective interest method.

The Group’s cash and cash equivalents, trade and other receivables and noncurrent receivables are included in this category (Notes 5, 6 and 11).

The carrying values of financial assets under this category amounted to P10,100 as of December 31, 2008 (Note 27).

HTM Investments. HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Group’s management has the positive intention and ability to hold to maturity. Where the Group sells other than an insignificant amount of HTM investments, the entire category would be tainted and classified as AFS investments. After initial measurement, these investments are measured at amortized cost using the effective interest method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate.

Gains and losses are recognized in the pro forma consolidated statement of income when the HTM investments are derecognized or impaired, as well as through the amortization process.

F-20

The Group has no investments classified as HTM investments as of December 31, 2008.

AFS Investments. AFS investments are non-derivative financial assets that are designated in this category or are not classified in any of the other categories. Subsequent to initial recognition, AFS investments are carried at fair value in the pro forma consolidated balance sheet. Changes in the fair value of such assets are reported in the equity section of the pro forma consolidated balance sheet until the investment is derecognized or the investment is determined to be impaired. On derecognition or impairment, the cumulative gain or loss previously reported in equity is transferred to the pro forma consolidated statement of income. Interest earned on holding AFS investments is recognized in the pro forma consolidated statement of income using effective interest rate.

The Group has no investments classified under this category as of December 31, 2008.

Financial LiabilitiesFinancial Liabilities at FVPL. Financial liabilities are classified in this category if these result from trading activities or derivative transactions that are not accounted for as accounting hedges, or when the Group elects to designate a financial liability under this category.

Included in this category are the Group’s derivative financial instruments with negative fair values (Notes 12 and 27).

The carrying values of financial liabilities under this category amounted to P273 as of December 31, 2008 (Notes 12 and 27).

Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings.

Financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs.

Included in this category are the Group’s accounts payable and accrued expenses and long-term debt (Notes 12, 13 and 27).

The carrying values of financial liabilities under this category amounted to P41,174 as of December 31, 2008 (Notes 12, 13 and 27).

Debt Issue CostsDebt issue costs are shown as deduction against the related debt and are amortized over the terms of the related borrowings using the effective interest method.

F-21

Derivative Financial Instruments and HedgeFreestanding DerivativesFor the purpose of hedge accounting, hedges are classified as either: a) fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment (except for foreign currency risk); b) cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment; orc) hedges of a net investment in foreign operations.

At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Fair Value Hedge. Derivatives classified as fair value hedges are carried at fair value with corresponding change in fair value recognized in the pro forma consolidated statement of income. The carrying amount of the hedged asset or liability is also adjusted for changes in fair value attributable to the hedged item and the gain or loss associated with that remeasurement is also recognized in the pro forma consolidated statement of income.

When the hedge ceases to be highly effective, hedge accounting is discontinued and the adjustment to the carrying amount of a hedged financial instrument is amortized immediately.

As of December 31, 2008, the Group has no outstanding derivatives accounted for as fair value hedges.

Cash Flow Hedge. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are included in the pro forma consolidated statement of changes in equity under the “Cumulative translation adjustments” account. The ineffective portion is immediately recognized in the pro forma consolidated statement of income.

If the hedged cash flow results in the recognition of an asset or a liability, all gains and losses previously recognized directly in equity are transferred from equity and included in the initial measurement of the cost or carrying value of the asset or liability. Otherwise, for all other cash-flow hedges, gains and losses initially recognized in equity are transferred from equity to net income in the same period or periods during which the hedged forecasted transaction or recognized asset or liability affect the pro forma consolidated statement of income.

F-22

When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that has been reported directly in equity is retained in equity until the forecasted transaction occurs. When the forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in equity is recognized in the pro forma consolidated statement of income.

As of December 31, 2008, the Group has outstanding commodity options designated as effective cash flow hedges amounting to P59.

+et Investment Hedge. As of December 31, 2008, the Group has no hedge of a net investment in a foreign operation.

For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value of derivatives are taken directly to profit or loss during the year incurred.

Embedded DerivativesThe Group assesses whether embedded derivatives are required to be separated from host contract when the Group becomes a party to the contract. An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract;b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at FVPL. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

Derecognition of Financial Assets and LiabilitiesFinancial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:

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

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

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

When the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset.

Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired.

F-23

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the pro forma consolidated statement of income.

Impairment of Financial AssetsThe Group assesses at balance sheet date whether a financial asset or group of financial assets is impaired.

Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of loss shall be recognized in the pro forma consolidated statement of income.

The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the pro forma consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

Assets Carried at Cost. If there is objective evidence of an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or of a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

AFS Financial Assets. If an AFS financial asset is impaired, an amount comprising the difference between the cost (net of any principal payment and amortization) and its current fair value, less any impairment loss on that financial asset previously recognized in the pro forma consolidated statement of income, is transferred from equity to the pro forma consolidated statement of income. Reversals in respect of equity instruments classified as AFS are not recognized in profit or loss. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in the pro forma consolidated statement of income.

F-24

Classification of Financial Instruments Between Debt and EquityA financial instrument is classified as debt if it provides for a contractual obligation to:

deliver cash or another financial asset to another entity; or

exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Group; or

satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

If the Group does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability.

Offsetting Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount is reported in the pro forma consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the pro forma consolidated balance sheet.

InventoriesFinished goods, goods in process and materials and supplies are valued at the lower of cost and net realizable value.

Costs incurred in bringing each inventory to its present location and conditions are accounted for as follows:

Finished goods and goods in -process

Materials and supplies -

cost includes direct materials and labor and a proportion of manufacturing overhead costs based on normal operating capacity but excluding borrowing costs; cost is determined using the moving-average method;at cost using the moving-average method.

Net realizable value of finished goods and goods in process is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

Net realizable value of materials and supplies is the current replacement cost.

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

F-25

Property, Plant and EquipmentProperty, plant and equipment, except land, are stated at cost less accumulated depreciation and amortization and any accumulated impairment in value. Such cost includes the cost of replacing part of the property, plant and equipment at the time that cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing. Land is stated at cost less any impairment in value.

The initial cost of property, plant and equipment comprises of its purchase price, including import duties, taxes and any directly attributable costs in bringing the asset to its working condition and location for its intended use. Cost also includes any related asset retirement obligation and interest incurred during the construction period on funds borrowed to finance the construction of the projects. Expenditures incurred after the asset has been put into operation, such as repairs, maintenance and overhaul costs, are normally recognized as expense in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have improved the condition of the asset beyond the originally assessed standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment.

Construction in progress represents structures under construction and is stated at cost. This includes the costs of construction and equipment and other direct costs. Borrowing costs that are directly attributable to the construction of property, plant and equipment are capitalized during the construction period. Construction in progress is not depreciated until such time that the relevant assets are ready for use.

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

Number of Years

Machinery and equipment 10 - 40Buildings and improvements 5 - 50Transportation equipment 5 - 7Office equipment, furniture and fixtures 2 - 6Tools and small equipment 2 - 5Leasehold improvements 5 - 50

or term of the lease, whichever is shorter

The remaining useful lives, residual values and depreciation and amortization method are reviewed and adjusted, if appropriate, at each financial year-end to ensure that such periods and method of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of property, plant and equipment.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization is credited or charged to current operations.

When each major inspection is performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied.

F-26

An item of property, plant and equipment is derecognized when either it has been disposed or when it is permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gains or losses arising on the retirement and disposal of an item of property, plant and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) are included in the pro forma consolidated statement of income in the period of retirement or disposal.

Business Combinations For Entities Under Common ControlBusiness combinations arising from transfers of interests in entities that are under the control of the shareholder that controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative period presented or, if later, at the date that common control was established. The assets and liabilities acquired are recognized at the carrying amounts recognized previously in the Group controlling shareholder’s consolidated financial statements.

Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is charged against profits in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the pro forma consolidated statement of income in the expense category consistent with the function of the intangible asset.

Amortization of computer software and licenses is computed using the straight-line method of over 2-8 years.

The Group assessed the useful life of the trademarks and brand names to be indefinite because based on an analysis of all the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate cash inflows for the Group.

Intangible assets with indefinite useful lives, such as trademarks, brands and licenses, are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Gains or losses arising from disposition of an intangible asset are measured as the difference between the disposal proceeds and the carrying amount of the asset and are recognized in the pro forma consolidated statement of income when the asset is disposed.

F-27

Impairment of Non-financial Assets with Definite Useful LivesThe carrying values of property, plant and equipment, containers, intangible assets with definite useful lives and idle assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists, and if the carrying value exceeds the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of the asset is the greater of fair value less costs to sell or value in use. The fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s-length transaction less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses of continuing operations are recognized in the pro forma consolidated statement of income in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

ProvisionsProvisions are recognized only when the Group has (a) a present obligation (legal or constructive) as a result of past event; (b) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense. Where the Group expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the receipt of the reimbursement is virtually certain.

Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:

Sales. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably, which is normally upon delivery.

Interest. Interest is recognized as the interest accrues, taking into account the effective yield on the asset.

F-28

LeasesThe determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Group as Lessee. Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the pro forma consolidated statement of income.

Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the assets or the respective lease terms, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term.

Leases which do not transfer to the Group substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the pro forma consolidated statement of income on a straight-line basis over the lease term. Associated costs such as maintenance and insurance are expensed as incurred.

Group as Lessor. Leases where the Group does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Lease income from operating leases is recognized as income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenues in the period in which they are earned.

Borrowing CostsBorrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition or construction of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are substantially ready for their intended use. If the carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized.

Research and Development CostsResearch costs are expensed as incurred. Development cost incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Any expenditure carried forward is amortized in line with the expected future sales from the related project.

The carrying value of development cost is reviewed for impairment annually when the related asset is not yet in use. Otherwise, this is reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

F-29

Share-based TransactionsUnder SMC’s Employee Stock Purchase Plan (ESPP), employees of the Group receive remuneration in the form of share-based payments transactions, whereby the employees render services as consideration for equity instruments of SMC. Such transactions are handled centrally by SMC.

Share-based transactions in which SMC grants option rights to its equity instruments direct to the Group’s employees are accounted for as equity-settled transactions. SMC charges the Group for the costs related to such transactions with its employees. The amount is charged to operations by the Group.

The cost of ESPP is measured by reference to the market price at the time of the grant less subscription price. The cumulative expense recognized for share-based transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and SMC’s best estimate of the number of equity instruments that will ultimately vest. Where the terms of a share-based award are modified, as a minimum, an expense is recognized as if the terms had not been modified. In addition, an expense is recognized for any modification, which increases the total fair value of the share-based payment agreement, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award.

Retirement CostsThe Parent Company has a funded, noncontributory retirement plan, administered by a trustee, covering all permanent employees. Retirement costs are actuarially determined using the projected unit credit method. This method reflects service rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Retirement cost includes current service cost, interest cost, expected return on plan assets, amortization of unrecognized past service costs, recognition of actuarial gains and losses, and effect of any curtailments or settlements. The past service cost, if any, is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, the plan, past service cost is recognized immediately as an expense. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses of the plan at the end of the previous reporting year exceed 10% of the higher of the present value of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized, reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the resulting asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

F-30

If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognized immediately.

Foreign Currency Transactions and TranslationsThe Group’s pro forma consolidated financial statements are presented in Philippine peso, which is also the Group’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are recorded using the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated using the closing rate of exchange at balance sheet date. All differences are taken to the pro forma consolidated statement of income. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

TaxesCurrent tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at balance sheet date.

Deferred tax. Deferred income tax is provided using the balance sheet liability method on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except:

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

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

F-31

Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits - Minimum Corporate Income Tax (MCIT) and unused tax losses - Net Operating Loss Carry Over (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward benefits of MCIT and NOLCO can be utilized, except:

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

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



Income tax relating to items recognized directly in equity is recognized in equity and not in the pro forma consolidated statement of income.


Value Added Tax (VAT). Revenues, expenses and assets are recognized net of the amount of VAT, except:

where the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

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

The net amount of tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the pro forma consolidated balance sheet.

Related PartiesParties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Transactions between related parties are on an arm’s length basis in a manner similar to transactions with non-related parties.

F-32

Earnings Per Share (EPS)Basic EPS is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period, with retroactive adjustments for any stock dividends declared.

ContingenciesContingent liabilities are not recognized in the pro forma consolidated financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the pro forma consolidated financial statements but are disclosed when an inflow of economic benefits is probable.

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

4. Significant Accounting Judgments, Estimates and Assumptions

The Group’s pro forma consolidated financial statements requires management to make judgments, estimates and assumptions that affect amounts reported in the pro forma consolidated financial statements and related notes, at the reporting date. However, uncertainty about these estimates and assumptions could result in outcome that could require a material adjustment to the carrying amount of the affected asset or liability in the future.

JudgmentsIn the process of applying the Group’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the pro forma consolidated financial statements:

Operating Leases. The Group has entered into various lease agreements as a lessee. The Group has determined that the lessor retains all significant risks and rewards of ownership of these properties which are leased out under operating lease arrangements.

Rent expense charged to operations amounted to P450 as of December 31, 2008(Note 17).

EstimatesThe key estimates and assumptions used in the pro forma consolidated financial statements are based on management’s evaluation of relevant facts and circumstances as of the date of the Group’s pro forma consolidated financial statements. Actual results could differ from such estimates.

F-33

Allowance for Doubtful Accounts. Provisions are made for specific and groups of accounts, where objective evidence of impairment exists. The Group evaluates these accounts on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Group’s relationship with the customers and counterparties, the customers’ current credit status based on third party credit reports and known market forces, average age of accounts, collection experience, and historical loss experience. The amount and timing of recorded expenses for any period would differ if the Group made different judgments or utilized different methodologies. An increase in allowance for doubtful accounts would increase the recorded administrative and selling expenses and decrease current assets.

The allowance for doubtful accounts amounted to P647 as of December 31, 2008 (Note 6). The carrying value of trade and other receivables amounted to P3,662 as of December 31, 2008 (Note 6).

Allowance for Inventory Losses. The Group provides allowance for inventory losses whenever net realizable value becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes.

Estimates of net realizable value are based on the most reliable evidence available at the time the estimates are made of the amount the inventories are expected to be realized. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after balance sheet date to the extent that such events confirm conditions existing at balance sheet date. The allowance account is reviewed periodically to reflect the accurate valuation in the financial records.

The allowance for inventory losses amounted to P335 as of December 31, 2008. The carrying value of inventories amounted to P3,279 as of December 31, 2008 (Note 7).

Estimated Useful Lives of Containers and Property, Plant and Equipment. The Group estimates the useful lives of containers and property, plant and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of containers and property, plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets.

In addition, estimation of the useful lives of containers and property, plant and equipment is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of containers and property, plant and equipment would increase recorded cost of sales and administrative and selling expenses and decrease noncurrent assets.

Accumulated depreciation and amortization of property, plant and equipment amounted to P15,682 as of December 31, 2008. Property, plant and equipment, net of accumulated depreciation and amortization, amounted to P12,932 as of December 31, 2008 (Note 9). Deferred containers, net of accumulated amortization, amounted to P4,537 as of December 31, 2008 (Note 11).

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Estimated Useful Lives of Intangible Assets with Finite Lives. The useful lives of intangible assets are assessed at the individual asset level as having either a finite or indefinite life. Intangible assets are regarded to have an indefinite useful life when, based on analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group.

Intangible assets with finite useful life amounted to P11 as of December 31, 2008 (Note 10).

Impairment of Brands and Other Intangible Assets with Indefinite Lives. The Group determines whether brands, including trademarks, copyrights, patents and other intellectual property rights and know- how are impaired at least annually. This requires the estimation of the value in use of brands and other intangible assets. Estimating value in use requires management to make an estimate of the expected future cash flows from the cash-generating unit and from the brands and other intangible assets and to choose a suitable discount rate to calculate the present value of those cash flows.

The carrying values of brands and other intangible assets amounted to P32,000 as of December 31, 2008 (Note 10).

Realizability of Deferred Tax Assets. The Group reviews its deferred tax assets at each balance sheet date and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. The Group’s assessment on the recognition of deferred tax assets on deductible temporary difference and carryforward benefits of MCIT and NOLCO is based on the projected taxable income in the following periods.

Deferred tax assets amounted to P312 as of December 31, 2008 (Note 14).

Impairment of Other +on-financial Assets. PFRS require that an impairment review be performed on property, plant and equipment, containers and intangible assets with definite useful lives when events or changes in circumstances indicate that the carrying value may not be recoverable. Determining the net recoverable value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. While it is believed that the assumptions used in the estimation of fair values reflected in the pro forma consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations.

There were no impairment losses of property, plant and equipment and other non-financial assets recognized as of December 31, 2008. The aggregate amount of property, plant and equipment, deferred containers and intangible assets with definite useful lives amounted to P17,480 as of December 31, 2008 (Notes 9, 10 and 11).

Present Value of Defined Benefit Obligation. The present value of the retirement obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. These assumptions are described in Note 23 to the pro forma consolidated financial statements and include discount rate, expected return on plan assets and salary increase rate. Actual results that differ from the assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods.

F-35

The assumption of the expected return on plan assets is determined on a uniform basis, taking into consideration the long-term historical returns, asset allocation and future estimates of long-term investment returns.

The Group determines the appropriate discount rate at the end of each year. It is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the retirement obligations. In determining the appropriate discount rate, the Group considers the interest rates on government bonds that are denominated in the currency in which the benefits will be paid. The terms to maturity of these bonds should approximate the terms of the related retirement liability.

Other key assumptions for retirement obligations are based in part on current market conditions.

While it is believed that the Group’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Group’s retirement and other retirement obligations.

The Group has a net cumulative unrecognized actuarial losses amounting to P379 as of December 31, 2008 (Note 23).

Financial Assets and Liabilities. The Group carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgment. Significant components of fair value measurement were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates). The amount of changes in fair value would differ if the Group utilized different valuation methodologies and assumptions. Any change in the fair value of these financial assets and liabilities would affect net income and equity.

Fair value of financial assets and liabilities are discussed in Note 27.

Asset Retirement Obligation. Determining asset retirement obligation requires estimation of the cost of dismantling property, plant and equipment and other costs of restoring the leased properties to their original condition. The Group determined that there are no significant asset retirement obligations as of December 31, 2008.

Provisions and Contingencies. The Group, in the ordinary course of business, sets up appropriate provisions for its present legal or constructive obligations, if any, in accordance with its policies on provisions and contingencies. In recognizing and measuring provisions, management takes risk and uncertainties into account.

5. Cash and Cash Equivalents

This account consists of:

Cash in banks and on hand P2,554Short-term investments 3,873

P6,427

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

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6. Trade and Other Receivables


,ote

Trade - netReceivables P2,340Amounts owed by related parties 21 569

NontradeAmounts owed by related parties 21 149Others - net 604

P3,662

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

As at December 31, 2008, the aging of trade and other receivables and the related allowance provided is as follows:

Owed byrelated

Trade parties .on-trade Total Allowance

Current P2,685 P446 P582 P3,713 P340Past due

Less than 30 days 22 182 2 206 2330-60 days 67 38 - 105 6761-90 days 6 2 - 8 6Over 90 days 150 92 35 277 211

P2,930 P760 P619 P4,309 P647

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

Balance at beginning of year P693Unused amounts reversed/reclassified (46)

Balance at end of year P647

Allowance for doubtful accounts related to amounts owed by related parties as of December 31, 2008 amounted to P42 (Note 21).

Various collaterals for trade receivables such as bank guarantees, time deposits and real estate mortgage are held by the Group for credit limits exceeding P0.275.

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7. Inventories


Finished goods and goods in process - at cost P866Containers - at net realizable value 1,093Materials and supplies - at net realizable value 1,320

Total inventories at lower of cost and net realizable value P3,279

The cost of containers and materials and supplies as of December 31, 2008 amounted to P1,413 and P1,335, respectively.

8. Prepaid Expenses and Other Current Assets


,ote

Prepaid taxes and licenses P274Derivative assets 26, 27 28Prepaid insurance 6Prepaid rentals 3Others 68

P379

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9. Property, Plant and Equipment

The movements in this account are as follows:

Machinery

and Buildings and

Land Equipment Improvements

Transportation LeaseholdEquipment

Improvements

OfficeEquipment, Tools and

Furniture and SmallFixtures Equipment

Construction in Progress Total

Cost:January 1, 2008 P7,068 P16,063 P3,533 P394 P81 P362 P9 P337 P27,847Additions for the year - 868 52 3 - 11 - - 934Disposals/reclassifications - (60) (53) (24) (19) (4) - (7) (167)

December 31, 2008 7,068 16,871 3,532 373 62 369 9 330 28,614

Accumulated depreciation andamortization:

January 1, 2008 - 13,003 1,419 340 42 351 8 - 15,163Depreciation and amortization

for the year - 529 101 19 4 6 - - 659Disposals/reclassifications - (65) (40) (24) (7) (4) - - (140)

December 31, 2008 - 13,467 1,480 335 39 353 8 - 15,682

.et book value:

December 31, 2008 P7,068 P3,404 P2,052 P38 P23 P16 P1 P330 P12,932

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

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10. Intangible Assets


Brands and other intangible assets P32,000Computer software - net 11

P32,011

The value of brands and other intangible assets was based on an independent valuation study and analysis made by UBS Investments Philippines Inc. (“UBS”). UBS identified and applied different methodologies to value the SMB Brands. However, the royalty relief (based on commercial rates) and advertising spend methodologies were viewed to be generally more relevant. Compared to the other methodologies used to value the SMB Brands, such methodologies have fewer assumptions and less reliance on subjective reasoning, as key assumptions come from primary sources based on the Company’s filings and projections, actual industry precedents and industry common practice. The Company arrived at the purchase price of P32 billion after giving due consideration to the valuation study and analysis of UBS. The purchase price agreed upon is within the value range yielded by the royalty relief and advertising spend methodologies, which value range is P25 to P32 billion.

The movements in the brands and other intangible assets are as follows:

,ote

Balance at beginning of year P -Additions resulting from business

acquisition 2 32,000

Balance at end of year P32,000

The recoverable amount of the brands and other intangible assets has been determined based on a valuation using cash flow projections covering a five year period based on long range plans approved by management. Cash flows beyond the five year period are extrapolated using a determined constant growth rate. This growth rate is consistent with the long-term average growth rate for the industry. The discount rate applied to after tax cash flow projection is 12% in December 31, 2008.

Management believes that any reasonably possible change in the key assumptions on which the recoverable amount of brands and other intangible assets is based would not cause its carrying amount to exceed its recoverable amount.

The calculations of value in use are most sensitive to the following assumptions:

Gross Margins. Gross margins are based on average values achieved in period immediately before the budget period. These are increased over the budget period for anticipated efficiency improvements. Values assigned to key assumptions reflect past experience, except for efficiency improvement.

Raw Material Price Inflation. Forecast consumer price are obtained from indices during the budget period from which raw materials are purchased. Value assigned to key assumption is consistent with external sources of information.

F-40

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

11. Other .oncurrent Assets


,ote

Deferred containers - netBottles P3,187Shells 1,350

4,537Retirement asset 23 41Others 22, 26 316

P4,894

The movements in the deferred containers are as follows:

,ote

Gross carrying amount:Beginning balance P4,814Additions 939

Ending balance 5,753

Accumulated amortization:Beginning balance 209Amortization for the year 18 1,007

Ending balance 1,216

P4,537

12. Accounts Payable and Accrued Expenses


,ote

TradePayables P1,250Amounts owed to related parties 21 622

NontradeAmounts owed to related parties 21 327Derivative liabilities 26, 27 273Accrued payroll 234Accrued utilities 44Accrued materials 15Others 235

P3,000

F-41

13. Long-term Debt

This account consists of the following obligations of the Parent Company:

Unsecured term notes peso-denominated:Fixed interest rate of 8% P14,881Fixed interest rate of 9% 18,620Fixed interest rate of 10% 4,946

P38,447

The amount represents unsecured long-term debt incurred by the Parent Company to finance its acquisition of the shares of stocks of IBI and BPI. Unamortized debt issue costs related to these long-term debt amounted to P353 as of December 31, 2008.

The debt agreements contain, among others, covenants relating to maintenance of certain financial ratios and controlling interests of SMC in the Parent Company; redemption or reduction of capital stock; and restrictions on payments of dividends, indebtedness, loans and guarantees, encumbrances and liens on properties and disposal of all or substantially all of the Parent Company’s assets.

As of December 31, 2008, the Group is in compliance with the covenants of the debt agreements.

The movements in debt issue costs are as follows:

Balance at beginning of year P -Addition 445Less amortization 92

Balance at end of year P353

Repayment ScheduleAs of December 31, 2008, the annual maturities of the long-term debt are as follows:

Year Gross Amount Debt Issue Cost .et2010 P15,000 P119 P14,8812012 18,800 180 18,6202017 5,000 54 4,946

P38,800 P353 P38,447

F-42

14. Income Taxes

Deferred tax assets arise from the following:

Allowance for doubtful accounts P194Allowance for inventory losses 101Derivatives 113Debt issue costs (106)Others 10

P312

The components of the income tax expense are shown below:

Current P4,198Deferred 105

P4,303

The reconciliation of statutory income tax rate on income before income tax and theGroup’s effective income tax rates are as follows:

Statutory income tax rate 35.00%Increase (decrease) in income tax rate

resulting from:Change in tax rate 0.39Income subjected to final tax (2.93)Others 0.38

Effective income tax rate 32.84%

15. Capital Stock

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

F-43

On September 27, 2007, the SEC approved the increase in authorized capital stock and decrease in par value of shares. As a standard condition of the SEC for approval of applications for increase in authorized capital stock, where the payment for the shares issued pursuant to such increase is made in the form of motor vehicles and receivables, 2,557,573,242 common shares that were issued by the Parent Company to SMC in exchange for motor vehicles and receivables out of the 15,308,416,960 common shares issued by the Parent Company were held in escrow by the SEC pending the transfer of ownership of those motor vehicles in the name of the Parent Company and proof of collection of receivables.

On November 5, 2008, the Parent Company submitted to the SEC the required documentation for the transfer of ownership of motor vehicles and proof of collection of receivables. As of January 30, 2009, this is being reviewed by the SEC.

Pursuant to the registration statement rendered effective by SEC on April 28, 2008 and the listing approval of the PSE, 77,052,000 common shares were sold by the Company to the public under a primary offering at P8.00 per share in April-May 2008.

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

Balance at beginning of year 15,333,426,960Issuance during the year 77,052,000

Balance at end of year 15,410,478,960

16. Cost of Sales


,oteTaxes and licenses P14,523Inventories 6,956Communications, light, fuel and water 1,538Personnel 19 797Depreciation and amortization 18 535Repairs and maintenance 353Others 98

P24,800

17. Administrative and Selling Expenses

Administrative and selling expenses consist of:

Administrative P3,768Selling 3,520

P7,288

F-44

Administrative expenses consist of:

,ote

Depreciation and amortization 4, 18 P1,173Personnel 19 903Advertising and promotion 389Management fees 295Breakages and losses 172Repairs and maintenance 149Professional fees 144Taxes and licenses 106Communications, light, fuel and water 80Rent 4, 22 35Others 322

P3,768

Selling expenses consist of:

,oteFreight, trucking and handling P1,485Personnel 19 691Advertising and promotion 436Rent 4, 22 415Taxes and licenses 103Communication, light, fuel and water 102Repairs and maintenance 71Depreciation and amortization 18 50Others 167

P3,520

18. Depreciation and Amortization

Depreciation and amortization are distributed as follows:

Cost of sales:Property, plant and equipment P535

Administrative and selling expenses:Property, plant and equipment 124Deferred containers 1,007Others 92

1,223

P1,758

F-45

19. Personnel Expenses


,oteSalaries and wages P1,457Retirement cost 23 157Other employee benefits 777

P2,391

Personnel expenses are distributed as follows:

Cost of sales P797Administrative expenses 903Selling expenses 691

P2,391

20. Other Income (Expense)


,ote

Foreign exchange gain - net P62Rental income 22 15Gain on sale of property, plant and

equipment - net 17Marked-to-market loss - net 26 (469)Others (2)

(P377)

F-46

21. Related Party Disclosures

The Group, in the normal course of business, purchases products and services from and sells products to related parties. Transactions with related parties are made at normal market prices.

Revenue Purchases Amounts AmountsRelationship From From Owed by Owed towith Related Related Related Related Related

Parties Parties Parties Parties Parties

San Miguel Corporation Parent Company P2,020 P499 P606 P261San Miguel Yamamura

Packaging Corporation(formerly San Miguel Under commonPackaging Specialists, Inc.) control 44 1,991 21 469

San Miguel Rengo Packaging Under commonCorporation control - 29 - 6

SMC Shipping and Lighterage Under commonCorporation control 3 415 4 92

Under commonSMITS, Inc. and a subsidiary control - 98 - 60San Miguel Yamamura Asia Under common

Corporation control 3 96 1 21Ginebra San Miguel, Inc. and a Under common

subsidiary control 8 - 7 3Under common

San Miguel Beverages, Inc. control 11 - 28 5San Miguel International Ltd. Under common

and subsidiaries control 3 - 73 4San Miguel Pure Foods

Company, Inc., and Under commonsubsidiaries control 28 1 20 21

Under commonOthers control - 16 - 7

P2,120 P3,145 P760 P949

a. Purchases consist of purchase of materials, bottles, shells, cartons and services rendered from related parties.

b. Amounts owed by related parties consist of trade receivables, share in expenses and tolling services.

c. Amounts owed to related parties consist of trade payables, professional fees, insurance and management fees.

d. The compensation of key management personnel of the Group, by benefit type, follows:

Short-term employee benefits P81Retirement costs 6

P87

F-47

22. Leasing Agreements

Finance Leases

Leases as LessorThe Group leases some of its machinery and equipment under finance lease agreements to a third party logistics provider. The Group provides the lessee the option to purchase the equipment at a beneficial price.

The current and noncurrent portion of finance lease receivables included under “Trade and other receivables” and “Other noncurrent assets” accounts, respectively, in the balance sheet are as follows:

Minimumlease

receivable Interest Principal

Within one year P6 P1 P5After one year but not more than five

years 5 - 5

P11 P1 P10

23. Retirement Plan

The Parent Company has a funded, noncontributory retirement plan covering all of its permanent employees. Contributions and costs are determined in accordance with the actuarial studies made for the plan. Annual cost is determined using the projected unit credit method. The Parent Company’s latest actuarial valuation date is December 31, 2008. Valuations are obtained on a periodic basis.

Retirement costs charged by the Parent Company to operations amounted to P157 in 2008. The Parent Company’s annual contribution to the retirement plan consists of payments covering the current service cost and amortization of past service liability.

The components of retirement cost recognized in the pro forma consolidated statement of income and the amounts recognized in the pro forma consolidated balance sheet are as follows:

Interest cost P295Current service cost 179Net actuarial loss to be recognized 24Expected return on plan assets (341)

Net retirement cost P157

Actual return on plan assets P243

F-48

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

Cost of sales P53Administrative and selling expenses 104

P157

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

Present value of defined benefit obligation P4,000Fair value of plan assets 3,662

338Unrecognized actuarial losses (379)

Net retirement asset (P41)

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

Beginning balance P4,175Interest cost 295Current service cost 179Transfer from other plan 47Actuarial gains (463)Benefits paid (204)Transfer to other plan (29)

Ending balance P4,000

The movements in the fair value of the plan assets are as follows:

Beginning balance P3,407Expected return on plan assets 341Contributions by employer 198Transfer from other plan 47Benefits paid (204)Actuarial losses (98)Transfer to other plan (29)

Ending balance P3,662

Plan assets consist of the following:

In Percentages

Fixed income portfolio 79Stock trading portfolio 21

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

F-49

The principal actuarial assumptions used to determine retirement benefits are as follows:

In Percentages

Discount rate 8.1Salary increase rate 6.0Expected return on plan assets 9.0

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

Present value of the defined benefit obligation P4,000Fair value of plan assets 3,662Deficit in the plan (338)Experience adjustments on plan liabilities 463Experience adjustments on plan assets (98)

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

24. Basic Earnings Per Share

Basic EPS is computed as follows:

Net income attributable to equity holdersof the Parent Company (a) P8,787

Weighted average number of sharesOutstanding (in millions) - basic (b) 15,372

Basic EPS (a/b) P0.57

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

25. Employee Stock Purchase Plan

SMC offers shares of stocks to employees of SMC and its subsidiaries under the Employee’s Stock Purchase Plan (ESPP). Under the ESPP, all permanent Philippine-based employees of SMC and its subsidiaries who have been employed for a continuous period of one year prior to the subscription period will be allowed to subscribe at a price equal to the weighted-average of the daily closing prices for three months prior to the offer period less 15% discount. A participating employee may acquire at least 100 shares of stock through payroll deductions.

The ESPP requires the subscribed shares and stock dividends accruing thereto to be pledged to SMC until the subscription is fully-paid. The right to subscribe under the ESPP cannot be assigned or transferred. A participant may sell his shares after the second year from exercise date.

The ESPP also allows subsequent withdrawal and cancellation of participants’ subscriptions under certain terms and conditions.

F-50

Expenses for share-based payments charged to operations under “Management fees” account amounted to P0.429 in 2008.

26. Financial Risk Management Objectives and Policies

Objectives and PoliciesThe Group’s principal financial instruments other than derivatives include cash and cash equivalents, trade receivables, trade payables and long-term debt, which arise directly from its operations. The main purpose of these financial instruments is to raise financing for the Group’s operations.

The Group also enters into derivative transactions such as commodity options. The Group uses derivatives to manage its exposures to commodity price risks arising from the Group’s operations.

The main risks arising from the use of financial instruments are credit risk, liquidity risk and market risk - interest rate risk, foreign currency risk and commodity price risk. The BOD has the overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s risk management policies are established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.

The Group’s accounting policies in relation to derivatives are set out in Note 3.

Interest Rate RiskThe Group’s exposure to changes in interest rates relates primarily to the Group’s long-term debt obligations.

The Group’s policy is to manage its interest cost using fixed rate debts.

In managing interest rate, the Group aims to reduce the impact of short-term fluctuations and the Group’s earnings. Over the longer term, however, permanent changes in interest rates would have an impact on consolidated earnings.

The sensitivity to reasonably possible 1% increase in the interest rates, with all other variables held constant, would have decreased the Group’s profit before tax (through the impact on floating rate borrowings) by P387 as of December 31, 2008. A 1% decrease in the interest rate would have had the equal but opposite effect. There is no impact on the Group’s equity.

As at December 31, 2008, the Group’s long-term debt, presented by maturity profile, are as follows:

Fixed ratePhilippine peso Interest rate

1 - 3 years P15,000 8%> 3 - 5 years 18,800 9%> 5 years 5,000 10%

P38,800

F-51

Foreign Currency RiskThe Group’s exposure to foreign currency risk results from its business transactions and purchase of materials denominated in foreign currency. The Group uses a combination of natural hedges and derivative hedges to manage its foreign currency exposure. It uses currency derivatives to reduce earnings volatility related to foreign exchange movements.

Information on the Group’s foreign currency-denominated monetary assets and liabilities and their Philippine peso equivalents are as follows:

U.S. Dollar* Peso Equivalent

AssetsCash and cash equivalents $5 P243Trade and other receivables 4 181LiabilitiesAccounts payable and accrued expenses 2 77Net foreign currency-denominated

monetary assets $7 P347

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

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

Peso to US Dollar

December 31, 2008 47.52

The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Group’s equity as of December 31, 2008 are as follows:

P1 decrease in the US dollarP1 increase in the US dollarexchange rate exchange rate

Effect on Effect onIncome before Effect on Income before Effect on

Income Tax Equity Income Tax Equity

Cash and cash equivalents (P5) P - P5 P -Trade and other receivables (4) - 4 -Derivative assets 12 - (11) -

3 - (2) -

Accounts payable andaccrued expenses 2 - (2) -

Derivative liabilities 11 (1) (13) 1

13 (1) (15) 1

(P10) P1 P13 (P1)

F-52

Commodity Price RiskThe Group enters into various commodity derivatives to manage its price risks on strategic commodities. Commodity hedging allows stability in prices, thus offsetting the risk of volatile market fluctuations. Through hedging, prices of commodities are fixed at levels acceptable to the Group, thus protecting raw material cost and preserving margins. For hedging transactions, if prices go down, hedge positions may show marked-to-market losses; however, any loss in the marked-to-market positions is offset by the resulting lower physical raw material cost.

SMC enters into commodity derivative transactions in behalf of the Group to reduce cost by optimizing purchasing synergies within the SMC Group of Companies and managing inventory levels of common materials.

Commodity Options. Commodity options are used to manage the Group’s exposures to volatility in prices of certain commodities such as fuel oil.

Liquidity RiskLiquidity risk arises from the possibility that the Group may encounter difficulties in raising funds to meet commitments from financial instruments or that a market for derivatives may not exist in some circumstances.

The Group’s objectives to manage its liquidity profile are: a) to ensure that adequate funding is available at all times; b) to meet commitments as they arise without incurring unnecessary costs; c) to access funding when needed at the least possible cost; and d) to maintain an adequate time spread of refinancing maturities.

The table below summarizes the maturity profile of the Group’s financial liabilities as of December 31, 2008 based on contractual undiscounted payments:

> 1 >2.on-derivative Carrying Contractual 1 year year - 2 years - Over

financial liabilities amount cash flow or less years 5 years 5 yearsAccounts payable and

accrued expenses P2,727 P2,727 P2,679 P48 P - P -Long-term debt, gross

of debt issue costs 38,800 52,468 3,392 18,392 23,684 7,000

Credit RiskCredit risk or the risk of counterparties defaulting is controlled by the application of credit approvals, limits and monitoring procedures. It is the Group’s policy to enter into transactions with a diversity of creditworthy parties to mitigate any significant concentration of credit risk. The Group ensures that sales of products are made to customers with appropriate credit history and has internal mechanism to monitor the granting of credit and management of credit exposures. The Group has made provisions, where necessary, for potential losses on credits extended. Where appropriate, the Group obtains collateral or arranges master netting agreements.

With respect to credit risk arising from the other financial assets of the Group, which comprise of cash and cash equivalents and certain derivative instruments, the Group’s exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amount of these instruments, net of the value of collaterals, if any. Financial information on the Group’s maximum exposure to credit risk as of December 31, 2008, without considering the effects of collaterals and other risk mitigation techniques is presented below.

F-53

,ote

Cash and cash equivalents 5 P6,427Trade and other receivables - net 6 3,662Derivative assets 8 28Noncurrent receivables 11 11

P10,128

The Group has no significant concentration of credit risk with any counterparty.

Capital ManagementThe primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it, in the light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

The Group defines capital as paid-in capital stock, additional paid-in capital, retained earnings, both appropriated and unappropriated. Other components of equity such as treasury stock and translation are excluded from capital for purposes of capital management.

The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles for capital ratios are set in the light of changes in the Group’s external environment and the risks underlying the Group’s business, operation and industry.

The Group monitors capital on the basis of debt-to-equity ratio, which is calculated as total debt divided by total equity. Total debt is equivalent to current and noncurrent liabilities. Total equity comprises of equity including capital stock, additional paid-in capital, cumulative translation adjustments and retained earnings.

There were no changes in the Group’s approach to capital management during the year.

The Group is not subject to externally imposed capital requirements.

F-54

27. Financial Assets and Liabilities

The table below presents a comparison by category of carrying amounts and fair values of all of the Group’s financial instruments as of December 31, 2008:

CarryingAmount Fair Value

AssetsCash and cash equivalents P6,427 P6,427Trade and other receivables - net 3,662 3,662Derivative assets (included under “Prepaid

expenses and other current assets” account in thebalance sheet) 28 28

Noncurrent receivables and deposits - net(included under “Other noncurrent assets”account in the balance sheet) 11 11

LiabilitiesAccounts payable and accrued expenses 2,727 2,727Derivative liabilities (included under “Accounts

payable and accrued expenses” account in thebalance sheet) 273 273

Long-term debt 38,447 42,481

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents, Trade and Other Receivables and +oncurrent Receivables and Deposits. The carrying amount of cash and cash equivalents and receivables approximates fair value primarily due to the relatively short-term maturity of these financial instruments. In the case of long-term receivables, the fair value is based on the present value of expected future cash flows using the applicable discount rates.

Derivatives. The fair values of forward exchange contracts are calculated by reference to current forward exchange rates.

The fair values of commodity derivatives are determined based on prices obtained from the market and counterparties. Fair values are also based on standard valuation models.

Accounts Payable and Accrued Expenses. The carrying amount of accounts payable and accrued expenses approximates fair value due to the relatively short-term maturity of these financial instruments.

Long-term Debt. The fair value of the long-term debt is based on the discounted value of expected future cash flows using the applicable rates for similar types of long-term debt as of balance sheet date. As of December 31, 2008, discount rates used are from 8% to 10%.

F-55

Derivative Financial InstrumentsThe Group’s derivative financial instruments according to the type of financial risk being managed and the details of freestanding and embedded derivative financial instruments that are categorized into those accounted for as hedges and those that are not designated as hedges are discussed as follows:

The Group enters into various commodity options to manage its exposure on commodity price risk covering the Group’s requirement on fuel oil.

Derivative Instruments Accounted for as Hedges

Cash Flow Hedges

Commodity OptionsAs of December 31, 2008, the Group has outstanding option agreements covering its fuel oil requirements with notional quantities of 3,391. The call and put options can be exercised at various dates in 2009 with specific quantities on each calculation date. The net unrealized fair value change (after tax) deferred under “Cumulative translation adjustments” account on these call options as of December 31, 2008 amounted to P45.

Derivative Instruments Not Designated as HedgesThe Group enters into certain derivatives as economic hedges of certain underlying exposures. These include freestanding and embedded derivatives found in host contracts, which are not designated as accounting hedges. Changes in fair value of these instruments are accounted for directly in the pro forma consolidated statement of income. Details are as follows:

Freestanding Derivatives

Freestanding derivatives consist of commodity options entered into by the Group.

Commodity OptionsAs of December 31, 2008, the Group has outstanding bought and sold options covering its fuel oil requirements with notional quantities of 10,174. These options can be exercised at various calculation dates in 2009 with specific quantities on each calculation date. The net negative fair value of these options as of December 31, 2008 amounted to P212.

Embedded Derivatives

The Group’s embedded derivatives include currency derivatives (forwards) embedded in nonfinancial contracts.

Embedded Currency ForwardsAs of December 31, 2008, the total outstanding notional amount of currency forwards embedded in nonfinancial contracts amounted to US$31. These nonfinancial contracts consist mainly of foreign-currency denominated purchase orders, sales agreements and capital expenditures. As of December 31, 2008, the net negative fair value of these embedded currency forwards amounted to P33.

F-56

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

Beginning balance (P16)Net changes in fair value of derivatives:

Designated as accounting hedges (62)Not designated as accounting hedges (470)

(548)Less fair value of settled instruments (303)

Ending balance (P245)

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

28. Cash Dividends

Cash dividends declared and paid for the period ended December 31, 2008 amounted to P0.41 per share.

29. Other Matters

a. CommitmentsThe outstanding purchase commitments of the Group as of December 31, 2008 amounted to P522.

Amount authorized but not yet disbursed for capital projects as of December 31, 2008 is approximately P238.

b. Foreign Exchange RateThe foreign exchange rate of P47.52 was used in translating the U.S. dollar monetary assets and liabilities to Philippine peso as of December 31, 2008.

F-57

Appendix A Page 1 of 50

SA. MIGUEL BREWERY I.C.(A Subsidiary of San Miguel Corporation and Formerly the Domestic

Beer Division of San Miguel Corporation)

FINANCIAL STATEMENTSDecember 31, 2008 and 2007

F-58


Manabat Sanagustin & Co.Certified Public Accountants

The KPMG Center, 9/F6787 Ayala AvenueMakati City 1226, Metro Manila, Philippines

Branches Subic Cebu Bacolod Iloilo� � � �

Telephone +63 (2) 885 7000Fax +63 (2) 894 1985Internet www.kpmg.com.phE-Mail [email protected]

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

REPORT OF I.DEPE.DE.T AUDITORS

The Stockholders and the Board of Directors San Miguel Brewery Inc.No. 40 San Miguel Avenue Mandaluyong City

We have audited the accompanying financial statements of San Miguel Brewery Inc.[a subsidiary of San Miguel Corporation (SMC) and formerly the Domestic Beer Division ofSMC], which comprise the balance sheets as at December 31, 2008 and 2007, and the statements of income, statements of changes in equity and statements of cash flows for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007 and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on the auditors’judgment, including the assessment of the risks of material misstatement of the financialstatements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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


Opinion

In our opinion, the financial statements present fairly, in all material respects, the financialposition of San Miguel Brewery Inc. as of December 31, 2008 and 2007, and its financialperformance and its cash flows for the year ended December 31, 2008 and for the period from July 26, 2007 to December 31, 2007 in accordance with Philippine Financial Reporting Standards.

MA.ABAT SA.AGUSTI. & CO.

JOSE P. JAVIER, JR.PartnerCPA License No. 0070807SEC Accreditation No.: 0678-ATax Identification No. 112-071-224BIR Accreditation No. 08-001987-16-2007Issued December 11, 2007; Valid until December 10, 2010

PTR No. 1564061MBIssued January 5, 2009 at Makati City

January 30, 2009Makati City, Metro Manila

F-60


SA. MIGUEL BREWERY I.C.(A Subsidiary of San Miguel Corporation and

Formerly the Domestic Beer Division of San Miguel Corporation)BALA.CE SHEETS

(In Millions)

December 31

,ote 2008 2007*

ASSETS

Current AssetsCash and cash equivalents 5, 24, 25 P6,041 P5,262Trade and other receivables - net 4, 6, 24, 25 3,661 3,676Inventories - net 4, 7 3,279 2,447Prepaid expenses and other current assets 8, 25 418 180

Total Current Assets 13,399 11,565

.oncurrent AssetsPlant and equipment - net 4, 9 5,864 5,616Intangible assets 4 11 3Deferred tax assets 4, 12 427 398Other noncurrent assets - net 4, 10, 25 4,933 5,026

Total .oncurrent Assets 11,235 11,043

P24,634 P22,608

LIABILITIES A.D EQUITY

Current LiabilitiesAccounts payable and accrued expenses 11, 24, 25 P3,000 P3,243Income and other taxes payable 12 2,585 1,710

Total Current Liabilities 5,585 4,953

.oncurrent Liabilities 39 12

EquityCapital stock 13 15,410 15,333Additional paid-in capital 515 -Cumulative translation adjustments 25 (45) -Retained earnings 3,130 2,310

Total Equity 19,010 17,643

P24,634 P22,608

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

See +otes to the Financial Statements.

F-61



Formerly the Domestic Beer Division of San Miguel Corporation)STATEME.TS OF I.COME

(In Millions, Except Basic Earnings Per Share)

For the Year For the PeriodEnded from July 26 to

December 31, December 31,,ote 2008 2007*

SALES P48,787 P12,180

COST OF SALES 14 24,800 6,333

GROSS PROFIT 23,987 5,847

ADMI.ISTRATIVE A.D SELLI.GEXPE.SES 15 (8,366) (2,349)

I.TEREST I.COME 264 36

OTHER I.COME (EXPE.SE) - Net 18 (377) 15

I.COME BEFORE I.COME TAX 15,508 3,549

I.COME TAX EXPE.SE 12 5,466 1,239

.ET I.COME P10,042 P2,310

Basic Earnings Per Share 22 P0.65 P0.15



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Formerly the Domestic Beer Division of San Miguel Corporation)STATEME.TS OF CHA.GES I. EQUITY

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



CAPITAL STOCK - P1 par value 13Authorized - 25,000,000,000 sharesBalance at beginning of period P15,333 P -Issuances during the period 77 15,333

Balance at end of period 15,410 15,333

ADDITIO.AL PAID-I. CAPITAL 515 -

CUMULATIVE TRA.SLATIO.ADJUSTME.TS 25 (45) -

RETAI.ED EAR.I.GSBalance at beginning of period 2,310 -Net income for the period 10,042 2,310Cash dividends 26 (9,222) -

Balance at end of period 3,130 2,310

P19,010 P17,643



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Formerly the Domestic Beer Division of San Miguel Corporation)STATEME.TS OF CASH FLOWS

(In Millions)



CASH FLOWS FROM OPERATI.GACTIVITIES

Income before income tax P15,508 P3,549Adjustments for:

Depreciation and amortization 16 1,758 415Interest income (264) (36)Reversal of allowance for doubtful accounts,

inventory losses and others (127) -Gain on sale of plant and equipment - net 18 (17) (8)

Operating income before working capital changes 16,858 3,920Decrease (increase) in:

Trade and other receivables 66 (930)Inventories (751) 607Prepaid expenses and other current assets (238) 218

Increase (decrease) in:Accounts payable and accrued expenses (307) 1,556Income and other taxes payables 453 466

Cash generated from operations 16,081 5,837Income taxes paid (5,054) (6)

Net cash flows from operating activities 11,027 5,831

CASH FLOWS FROM I.VESTI.GACTIVITIES

Increase in other noncurrent assets (1,002) (448)Increase in intangible assets (12) -Additions to plant and equipment 9 (934) (208)Proceeds from sale of plant and equipment 44 10Interest received 259 36

Net cash flows used in investing activities (1,645) (610)

Forward

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CASH FLOWS FROM FI.A.CI.GACTIVITIES

Increase in noncurrent liabilities P27 P12Proceeds from issuances of capital stock 13 592 29Cash dividends paid 26 (9,222) -

Net cash flows provided by (used in)financing activities (8,603) 41

.ET I.CREASE I. CASH A.D CASHEQUIVALE.TS 779 5,262

CASH A.D CASH EQUIVALE.TSAT BEGI..I.G OF PERIOD 5,262 -

CASH A.D CASH EQUIVALE.TSAT E.D OF PERIOD 5 P6,041 P5,262



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.OTES TO THE FI.A.CIAL STATEME.TS(Amounts in Millions, Except Per Share and Number of Shares Data)

1. Reporting Entity

San Miguel Brewery Inc. (the “Company or SM Brewery”) [formerly the domestic beer division of San Miguel Corporation (“SMC or the Parent Company”)] was registered with the Philippine Securities and Exchange Commission (SEC) on July 26, 2007. The Company is engaged in manufacturing, selling and distribution of fermented and malt-based beverages. The registered office address of the Company is 40 San Miguel Avenue, Mandaluyong City, Philippines.

SMC is the ultimate parent company.

On July 24, 2007, the stockholders of SMC, during the annual stockholders’ meeting, approved the transfer of SMC’s domestic Philippine beer business assets to a wholly-owned subsidiary of SMC, the Company, in exchange for shares of stock. The assets transferred to the Company comprise the domestic beer business’ net assets as of June 30, 2007 excluding land, brands, and income and other taxes payable. The transfer of SMC’s domestic beer business’ net assets to the Company is pursuant to the listing with the Philippine Stock Exchange (PSE) and the public offering of the shares of the Company. The actual transfer of the net assets in exchange for shares of stock took effect on October 1, 2007.

On May 12, 2008, the Company’s shares were listed with the PSE.

The financial statements as of and for the year ended December 31, 2008 were approved and authorized for issue by the Board of Directors (BOD) on January 30, 2009.

2. Basis of Preparation

The financial statements of the Company have been prepared on a historical cost basis, except for derivative financial instruments which are measured at fair value.

The financial statements are presented in Philippine peso, which is the Company’s functional and presentation currency, and all values are rounded to the nearest million (P000,000), except when otherwise indicated.

Statement of ComplianceThe financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRSs). PFRS includes statements named PFRS and Philippine Accounting Standards (PAS), including Philippine Interpretations from International Financial Reporting Interpretation Committee (IFRIC), issued by the Financial Reporting Standards Council (FRSC).

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3. Significant Accounting Policies

The accounting policies set out below have been applied consistently by the Company to all periods presented in the financial statements.

Adoption of New Standards, Amendments to Standards and InterpretationsThe FRSC approved the adoption of new standards, amendment to standards, and interpretations.

Amendments to Standard and Interpretation Adopted in 2008Starting January 1, 2008, the Company adopted the following amendments to standard and Philippine Interpretations from IFRIC:

Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions: This interpretation describes how to apply PFRS 2, Share-based Payment to share-based payment arrangements involving an entity’s own equity instruments and share-based payment arrangements of subsidiaries involving equity instruments of its parent company. The adoption of this interpretation did not have a material effect on the Company’s financial statements.

Philippine Interpretation IFRIC 14, IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction: This interpretation provides general guidance on how to assess the limit in PAS 19, Employee Benefits, on the amount of the surplus that can be recognized as an asset. It also explains how the retirement asset or liability may be affected when there is a statutory or contractual minimum funding requirement. The adoption of this interpretation did not have a material effect on the Company’s financial statements.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement and PFRS 7 Financial Instruments: Disclosures: This standard permits an entity to reclassify non-derivative financial assets, other than those designated at fair value through profit or loss upon initial recognition, out of the trading category in certain circumstances. The amendments also permit an entity to transfer from the available-for-sale category to the loans and receivables category a financial asset that otherwise would have met the definition of loans and receivables, if the entity has the intention and ability to hold that financial asset for the foreseeable future. The adoption of these amendments to standard did not have an effect on the Company’s financial statements.

+ew and Revised Standards and Amendments to Standards +ot Yet AdoptedThe following are the new and revised standards and amendments to standards which are not yet effective for the year ended December 31, 2008, and have not been applied in preparing these financial statements:

PFRS 8, Operating Segments, becomes effective for financial years beginning on or after January 1, 2009 and will replace PAS 14, Segment Reporting. This standard introduces the “management approach” to segment reporting. It will require a change in the presentation and disclosure of segment information based on the internal reports regularly reviewed by the Company’s Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. The Company has determined that this standard has no impact on its financial statements since it operates as one segment only (both in terms of business and geography).


Revised PAS 1, Presentation of Financial Statements, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to introduce the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement), or in an income statement and a separate statement of comprehensive income. The Company is currently assessing the impact of the revised standard on the financial statements when it adopts the standard on January 1, 2009.

Revised PAS 23, Borrowing Costs, becomes effective for financial years beginning on or after January 1, 2009. The standard has been revised to require an entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The Company will assess the impact of this revised standard on the financial statements when it adopts the standard on January 1, 2009.

Amended PFRS 1 and PAS 27, Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate, becomes effective for financial years beginning on or after January 1, 2009. The amendments to PFRS 1 allow a first-time adopter, at its date of transition to PFRSs in its separate financial statements, to use deemed cost to account for an investment in a subsidiary, jointly controlled entity or associate. The amendments to PAS 27 remove the definition of “cost method” currently set out in PAS 27, and instead require all dividend from a subsidiary, jointly controlled entity or associate to be recognized as income in the separate financial statements of the investor when the right to receive the dividend is established. The Company will assess the impact of this revised standard on the financial statements when it adopts the standard on January 1, 2009.

Improvements to PFRSs 2008 discusses 35 amendments and is divided into two parts: a) Part I includes 24 amendments that result in accounting changes for presentation, recognition or measurement purposes; and b) Part II includes 11 terminology or editorial amendments that the International Accounting Standards Board expects to have either no or only minimal effects on accounting. These amendments are generally effective for annual periods beginning on or after January 1, 2009. The adoption of the amendments in 2009 is not expected to have any material effect on the Company’s financial statements.

Revised PFRS 3, Business Combinations, incorporates the following changes that are likely to be relevant to the Company’s operations:

The definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations.

Contingent consideration will be measured at fair value, with subsequent changes therein recognized in profit or loss.

Transaction costs, other than share and debt issue costs, will be expensed as incurred.

Any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognized in profit or loss.


Any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.

Revised PFRS 3 will be applied prospectively and therefore there will be no impact on prior periods in the Company’s financial statements.

Amended PAS 27, Consolidated and Separate Financial Statement, requires accounting for changes in ownership interests by the Company in a subsidiary, while maintaining control, to be recognized as an equity transaction. When the Company loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognized in profit or loss. The amendments to PAS 27 are not expected to have a significant impact on the Company’s financial statements.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement -Eligible Hedged Items, becomes effective for financial years beginning on or after July 1, 2009. The standard has been amended to provide for the following: a) new application guidance to clarify the existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedge relationship; and b) additional application guidance on qualifying items; assessing hedge effectiveness; and designation of financial items as hedged items. The amendments to PAS 39, which will become mandatory for the Company’s 2010 financial statements, are not expected to have a significant impact on the financial statements.

Philippine Interpretation IFRIC 17, Distributions of +on-cash Assets to Owners, becomes effective for financial years beginning on or after July 1, 2009. This interpretation provides guidance on the accounting for non-reciprocal distributions of non-cash assets to owners acting in their capacity as owners. It also applies to distributions in which the owners may elect to receive either the non-cash asset or a cash alternative. The liability for the dividend payable is measured at fair value of the assets to be distributed. The Company will assess the impact of this interpretation on the financial statements when it adopts the standard on July 1, 2009.

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

Financial Assets and LiabilitiesDate of Recognition. The Company recognizes a financial asset or a financial liability in the balance sheets when it becomes a party to the contractual provisions of the financial instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, are done using settlement date accounting.


Initial Recognition of Financial Instruments. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The fair value of the consideration given or received is determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rate of interest for similar instruments with similar maturities. The initial measurement of financial instruments, except for those designated at fair value through profit and loss (FVPL), includes transaction costs.

Subsequent to initial recognition, the Company classifies its financial assets and liabilities in the following categories: held-to-maturity (HTM) financial assets, available-for-sale (AFS) investments, FVPL financial assets, and loans and receivables. The classification depends on the purpose for which the investments are acquired and whether they are quoted in an active market. Management determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

Determination of Fair Value. The fair value for financial instruments traded in active markets at the balance sheet date is based on their quoted market price or dealer price quotation (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models.

Day 1 Profit. Where the transaction price in a non-active market is different from the fair value of the other observable current market transactions for same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 Profit) in the statements of income unless it qualifies for recognition as some other type of asset. In cases where use is made of data which are not observable, the difference between the transaction price and model value is only recognized in the statements of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the ‘day 1’ profit amount.

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

Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gains or losses on investments held for trading are recognized in the statements of income.

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Financial assets may be designated by management at initial recognition as at FVPL, when any of the following criteria is met:

the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a different basis; or

the assets are part of a group of financial assets, financial liabilities or both which are managed and the performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recognized.

Derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

The Company accounts for its derivative transactions (including embedded derivatives) under this category with fair value changes being reported directly to profit or loss, except when the derivative is treated as an effective accounting hedge, in which case the fair value change is deferred in equity under the “Cumulative translation adjustments” account.

The Company’s derivative assets are classified under this category (Notes 8 and 25).

The carrying values of financial assets under this category amounted to P28 and P66 as of December 31, 2008 and 2007, respectively (Notes 8 and 25).

Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not designated as AFS or financial assets at FVPL. Loans and receivables are carried at cost or amortized cost, less impairment in value. Amortization is determined using the effective interest method.

The Company’s cash and cash equivalents, trade and other receivables and noncurrent receivables and deposits are included in this category (Notes 5, 6 and 10).

The carrying values of financial assets under this category amounted to P9,752 and P8,988 as of December 31, 2008 and 2007, respectively (Note 25).

HTM Investments. HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Company’s management has the positive intention and ability to hold to maturity. Where the Company sells other than an insignificant amount of HTM investments, the entire category would be tainted and classified as AFS investments. After initial measurement, these investments are measured at amortized cost using the effective interest method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate.

Gains and losses are recognized in the statements of income when the HTM investments are derecognized or impaired, as well as through the amortization process.


The Company has no investments classified as HTM investments as of December 31, 2008 and 2007.

AFS Investments. AFS investments are non-derivative financial assets that are designated in this category or are not classified in any of the other categories. Subsequent to initial recognition, AFS investments are carried at fair value in the balance sheets. Changes in the fair value of such assets are reported in the equity section of the balance sheets until the investment is derecognized or the investment is determined to be impaired. On derecognition or impairment, the cumulative gain or loss previously reported in equity is transferred to the statements of income. Interest earned on holding AFS investments is recognized in the statements of income using effective interest rate.

The Company has no investments classified under this category as of December 31, 2008 and 2007.

Financial LiabilitiesFinancial Liabilities at FVPL. Financial liabilities are classified in this category if these result from trading activities or derivative transactions that are not accounted for as accounting hedges, or when the Company elects to designate a financial liability under this category.

Included in this category are the Company’s derivative financial instruments with negative fair values (Notes 11 and 25).

The carrying values of financial liabilities under this category amounted to P273 and P82 as of December 31, 2008 and 2007, respectively (Notes 11 and 25).

Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings.

Financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs.

Included in this category are the Company’s accounts payable and accrued expenses (Notes 11 and 25).

The carrying values of financial liabilities under this category amounted to P2,727 and P3,161 as of December 31, 2008 and 2007, respectively (Note 25).

Derivative Financial Instruments and Hedging

Freestanding DerivativesFor the purpose of hedge accounting, hedges are classified as either: a) fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment (except for foreign currency risk); b) cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment; orc) hedges of a net investment in foreign operations.


At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an on-going basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Fair Value Hedge. Derivatives classified as fair value hedges are carried at fair value with corresponding change in fair value recognized in the statements of income. The carrying amount of the hedged asset or liability is also adjusted for changes in fair value attributable to the hedged item and the gain or loss associated with that remeasurement is also recognized in the statements of income.

When the hedge ceases to be highly effective, hedge accounting is discontinued and the adjustment to the carrying amount of a hedged financial instrument is amortized immediately.

As of December 31, 2008 and 2007, the Company has no outstanding derivatives accounted for as fair value hedges.

Cash Flow Hedge. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are included in the statements of changes in equity under the “Cumulative translation adjustments” account. The ineffective portion is immediately recognized in the statements of income.

If the hedged cash flow results in the recognition of an asset or a liability, all gains and losses previously recognized directly in equity are transferred from equity and included in the initial measurement of the cost or carrying value of the asset or liability. Otherwise, for all other cash-flow hedges, gains and losses initially recognized in equity are transferred from equity to net income in the same period or periods during which the hedged forecasted transaction or recognized asset or liability affect the statements of income.

When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that has been reported directly in equity is retained in equity until the forecasted transaction occurs. When the forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in equity is recognized in the statements of income.

As of December 31, 2008, the Company has outstanding commodity options designated as effective cash flow hedges amounting to P59. As of December 31, 2007, the Company has no commodity options designated as effective cash flow hedges.

+et Investment Hedge. As of December 31, 2008 and 2007, the Company has no hedge of a net investment in a foreign operation.

For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value of derivatives are taken directly to profit or loss during the year incurred.

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Embedded DerivativesThe Company assesses whether embedded derivatives are required to be separated from host contract when the Company becomes a party to the contract. An embedded derivative is separated from the host contract and accounted for as a derivative if all of the following conditions are met: a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host contract; b) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c) the hybrid or combined instrument is not recognized at fair value through profit or loss. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

Derecognition of Financial Assets and LiabilitiesFinancial Assets. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:

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

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

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

When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset.

Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statements of income.

Impairment of Financial AssetsThe Company assesses at balance sheet date whether a financial asset or group of financial assets is impaired.

Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of loss shall be recognized in the statements of income.

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The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the statements of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

Assets Carried at Cost. If there is objective evidence of an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or of a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

AFS Financial Assets. If an AFS financial asset is impaired, an amount comprising the difference between the cost (net of any principal payment and amortization) and its current fair value, less any impairment loss on that financial asset previously recognized in the statements of income, is transferred from equity to the statements of income. Reversals in respect of equity instruments classified as AFS are not recognized in profit or loss. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in the statements of income.

Classification of Financial Instruments Between Debt and EquityA financial instrument is classified as debt if it provides for a contractual obligation to:

deliver cash or another financial asset to another entity; or

exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Company; or

satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability.

Offsetting Financial InstrumentsFinancial assets and financial liabilities are offset and the net amount is reported in the balance sheets if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the balance sheets.


InventoriesFinished goods, goods in process and materials and supplies are valued at the lower of cost and net realizable value.

Costs incurred in bringing each inventory to its present location and conditions are accounted for as follows:

Finished goods and goods in -process

Materials and supplies -

cost includes direct materials and labor and a proportion of manufacturing overhead costs based on normal operating capacity but excluding borrowing costs; cost is determined using the moving-average method;

at cost using the moving-average method.

Net realizable value of finished goods and goods in process is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

Net realizable value of materials and supplies is the current replacement cost.

Containers (i.e., returnable bottles and shells) are stated at deposit values. The excess of the acquisition cost of the containers over their deposit value is presented under deferred containers included under “Other noncurrent assets” account in the balance sheets and is amortized over the estimated useful lives of ten (10) years. Amortization of deferred containers is included under “Administrative and selling expenses” account in the statements of income.

Plant and EquipmentPlant and equipment are stated at cost less accumulated depreciation and amortization and any accumulated impairment in value. Such cost includes the cost of replacing part of the plant and equipment at the time that cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing.

The initial cost of plant and equipment comprises of its purchase price, including import duties, taxes and any directly attributable costs in bringing the asset to its working condition and location for its intended use. Cost also includes any related asset retirement obligation and interest incurred during the construction period on funds borrowed to finance the construction of the projects. Expenditures incurred after the asset has been put into operation, such as repairs, maintenance and overhaul costs, are normally recognized as expense in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have improved the condition of the asset beyond the originally assessed standard of performance, the expenditures are capitalized as an additional cost of plant and equipment.

Construction in progress represents structures under construction and is stated at cost. This includes the costs of construction and equipment and other direct costs. Borrowing costs that are directly attributable to the construction of plant and equipment are capitalized during the construction period. Construction in progress is not depreciated until such time that the relevant assets are ready for use.

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

Number of Years

Machinery and equipment 10 - 40Buildings and improvements 5 - 50Transportation equipment 5 - 7Office equipment, furniture and fixtures 2 - 6Tools and small equipment 2 - 5Leasehold improvements 5 - 50

or term of the lease, whichever is shorter

The remaining useful lives, residual values and depreciation and amortization method are reviewed and adjusted, if appropriate, at each financial year-end to ensure that such periods and method of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of plant and equipment.

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

Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization is credited or charged to current operations.

When each major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied.

An item of plant and equipment is derecognized when either it has been disposed or when it is permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gains or losses arising on the retirement and disposal of an item of plant and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) are included in the statements of income in the period of retirement or disposal.

Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is charged against profits in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each balance sheet date. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the statements of income in the expense category consistent with the function of the intangible asset.

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Amortization of computer software and licenses is computed using the straight-line method of over 2-8 years.

Intangible assets with indefinite useful lives, such as trademarks, brands and licenses, are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

Gains or losses arising from disposition of an intangible asset are measured as the difference between the disposal proceeds and the carrying amount of the asset and are recognized in the statements of income when the asset is disposed.

Impairment of Non-financial Assets with Definite Useful LivesThe carrying values of plant and equipment, containers, intangible assets with definite useful lives and idle assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists, and if the carrying value exceeds the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of the asset is the greater of fair value less costs to sell or value in use. The fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s-length transaction less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses of continuing operations are recognized in the statements of income in those expense categories consistent with the function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss. After such a reversal, the depreciation and amortization charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

ProvisionsProvisions are recognized only when the Company has (a) a present obligation (legal or constructive) as a result of past event; (b) it is probable (i.e., more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense. Where the Company expects a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the receipt of the reimbursement is virtually certain.

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Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized:

Sales. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably, which is normally upon delivery.

Interest. Interest is recognized as the interest accrues, taking into account the effective yield on the asset.

LeasesThe determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Company as Lessee. Finance leases, which transfer to the Company substantially all the risks and rewards incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the statements of income.

Capitalized leased assets are depreciated over the shorter of the estimated useful lives of the assets or the respective lease terms, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term.

Leases which do not transfer to the Company substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the statements of income on a straight-line basis over the lease term. Associated costs such as maintenance and insurance are expensed as incurred.

Company as Lessor. Leases where the Company does not transfer substantially all the risks and benefits of ownership of the assets are classified as operating leases. Lease income from operating leases is recognized as income on a straight-line basis over the lease term. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenues in the period in which they are earned.

Research and Development CostsResearch costs are expensed as incurred. Development cost incurred on an individual project is carried forward when its future recoverability can reasonably be regarded as assured. Any expenditure carried forward is amortized in line with the expected future sales from the related project.

The carrying value of development cost is reviewed for impairment annually when the related asset is not yet in use. Otherwise, this is reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.


Share-based TransactionsUnder SMC’s Employee Stock Purchase Plan (ESPP), employees of the Company receive remuneration in the form of share-based payments transactions, whereby the employees render services as consideration for equity instruments of SMC. Such transactions are handled centrally by SMC.

Share-based transactions in which SMC grants option rights to its equity instruments direct to the Company’s employees are accounted for as equity-settled transactions. SMC charges the Company for the costs related to such transactions with its employees. The amount is charged to operations by the Company.

The cost of ESPP is measured by reference to the market price at the time of the grant less subscription price. The cumulative expense recognized for share-based transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and SMC’s best estimate of the number of equity instruments that will ultimately vest. Where the terms of a share-based award are modified, as a minimum, an expense is recognized as if the terms had not been modified. In addition, an expense is recognized for any modification, which increases the total fair value of the share-based payment agreement, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award.

Retirement CostsThe Company has a funded, noncontributory retirement plan, administered by a trustee, covering all permanent employees. Retirement costs are actuarially determined using the projected unit credit method. This method reflects service rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Retirement cost includes current service cost, interest cost, expected return on plan assets, amortization of unrecognized past service costs, recognition of actuarial gains and losses, and effect of any curtailments or settlements. The past service cost, if any, is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, the plan, past service cost is recognized immediately as an expense. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses of the plan at the end of the previous reporting year exceed 10% of the higher of the present value of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized, reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the resulting asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan.

If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recognized

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immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recognized immediately. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recognized immediately if the asset is measured at the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recognized immediately.

Foreign Currency Transactions and TranslationsThe Company’s financial statements are presented in Philippine peso, which is also the Company’s functional and presentation currency. Transactions in foreign currencies are recorded using the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated using the closing rate of exchange at balance sheet date. All differences are taken to the statements of income. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

TaxesCurrent tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at balance sheet date.

Deferred tax. Deferred income tax is provided using the balance sheet liability method on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except:

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

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

Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits - Minimum Corporate Income Tax (MCIT) and unused tax losses - Net Operating Loss Carry Over (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward benefits of MCIT and NOLCO can be utilized, except:

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

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



Income tax relating to items recognized directly in equity is recognized in equity and not in the statements of income.


Value Added Tax (VAT). Revenues, expenses and assets are recognized net of the amount of VAT, except:

where the tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the tax is recognized as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

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

The net amount of tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheets.

Related PartiesParties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. Transactions between related parties are on an arm’s length basis in a manner similar to transactions with non-related parties.

Earnings Per Share (EPS)Basic EPS is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period, with retroactive adjustments for any stock dividends declared.

ContingenciesContingent liabilities are not recognized in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but are disclosed when an inflow of economic benefits is probable.

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

4. Significant Accounting Judgments, Estimates and Assumptions

The Company’s financial statements prepared in accordance with PFRS requires management to make judgments, estimates and assumptions that affect amounts reported in the financial statements and related notes, at the reporting date. However, uncertainty about these estimates and assumptions could result in outcome that could require a material adjustment to the carrying amount of the affected asset or liability in the future.

JudgmentsIn the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements:

Operating Leases. The Company has entered into various lease agreements as a lessee. The Company has determined that the lessor retains all significant risks and rewards of ownership of these properties which are leased out under operating lease arrangements.

Rent expense charged to operations amounted to P638 and P175 as of December 31, 2008 and 2007, respectively (Note 15).

EstimatesThe key estimates and assumptions used in the financial statements are based on management’s evaluation of relevant facts and circumstances as of the date of the Company’s financial statements. Actual results could differ from such estimates.

Allowance for Doubtful Accounts. Provisions are made for specific and groups of accounts, where objective evidence of impairment exists. The Company evaluates these accounts on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, the length of the Company’s relationship with the customers and counterparties, the customers’ current credit status based on third party credit reports and known market forces, average age of accounts, collection experience, and historical loss experience. The amount and timing of recorded expenses for any period would differ if the Company made different judgments or utilized different methodologies. An increase in allowance for doubtful accounts would increase the recorded administrative and selling expenses and decrease current assets.

The allowance for doubtful accounts amounted to P647 and P693 as of December 31, 2008 and 2007, respectively (Note 6). The carrying value of trade and other receivables amounted to P3,661 and P3,676 as of December 31, 2008 and 2007, respectively (Note 6).

Allowance for Inventory Losses. The Company provides allowance for inventory losses whenever net realizable value becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes.


Estimates of net realizable value are based on the most reliable evidence available at the time the estimates are made of the amount the inventories are expected to be realized. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after balance sheet date to the extent that such events confirm conditions existing at balance sheet date. The allowance account is reviewed periodically to reflect the accurate valuation in the financial records.

The allowance for inventory losses amounted to P335 and P416 as of December 31, 2008 and 2007, respectively. The carrying value of inventories amounted to P3,279 and P2,447 as of December 31, 2008 and 2007, respectively (Note 7).

Estimated Useful Lives of Containers and Plant and Equipment. The Company estimates the useful lives of containers and plant and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of containers and plant and equipment are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets.

In addition, estimation of the useful lives of containers and plant and equipment is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in estimates brought about by changes in factors mentioned above. The amounts and timing of recorded expenses for any period would be affected by changes in these factors and circumstances. A reduction in the estimated useful lives of containers and plant and equipment would increase recorded cost of sales and administrative and selling expenses and decrease noncurrent assets.

Accumulated depreciation and amortization of plant and equipment amounted to P15,682 and P15,163 as of December 31, 2008 and 2007, respectively (Note 9). Plant and equipment, net of accumulated depreciation and amortization, amounted to P5,864 and P5,616 as of December 31, 2008 and 2007, respectively (Note 9). Deferred containers, net of accumulated amortization, amounted to P4,537 and P4,605 as of December 31, 2008 and 2007, respectively (Note 10).

Estimated Useful Lives of Intangible Assets with Finite Lives. The useful lives of intangible assets are assessed at the individual asset level as having either a finite or indefinite life. Intangible assets are regarded to have an indefinite useful life when, based on analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Company.

Intangible assets with finite useful life amounted to P11 and P3 as of December 31, 2008 and 2007, respectively.

Realizability of Deferred Tax Assets. The Company reviews its deferred tax assets at each balance sheet date and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. The Company’s assessment on the recognition of deferred tax assets on deductible temporary difference and carryforward benefits of MCIT and NOLCO is based on the projected taxable income in the following periods.

Deferred tax assets amounted to P427 and P398 as of December 31, 2008 and 2007, respectively (Note 12).

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Impairment of Other +on-financial Assets. PFRS require that an impairment review be performed on plant and equipment, containers and intangible assets with definite useful lives when events or changes in circumstances indicate that the carrying value may not be recoverable. Determining the net recoverable value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets. While it is believed that the assumptions used in the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations.

There were no impairment losses of plant and equipment and other non-financial assets recognized as of December 31, 2008 and 2007. The aggregate amount of plant and equipment, deferred containers and intangible assets with definite useful lives amounted to P10,412 and P10,224 as of December 31, 2008 and 2007, respectively (Notes 9 and 10).

Present Value of Defined Benefit Obligation. The present value of the retirement obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. These assumptions are described in Note 21 to the financial statements and include discount rate, expected return on plan assets and salary increase rate. Actual results that differ from the assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods.

The assumption of the expected return on plan assets is determined on a uniform basis, taking into consideration the long-term historical returns, asset allocation and future estimates of long-term investment returns.

The Company determines the appropriate discount rate at the end of each year. It is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the retirement obligations. In determining the appropriate discount rate, the Company considers the interest rates on government bonds that are denominated in the currency in which the benefits will be paid. The terms to maturity of these bonds should approximate the terms of the related retirement liability.

Other key assumptions for retirement obligations are based in part on current market conditions.

While it is believed that the Company’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Company’s retirement and other retirement obligations.

The Company has a net cumulative unrecognized actuarial losses amounting to P379 and P768 as of December 31, 2008 and 2007, respectively (Note 21).

Financial Assets and Liabilities. The Company carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgment. Significant components of fair value measurement were determined using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates). The amount of changes in fair value would differ if the Company utilized different valuation methodologies and assumptions. Any change in the fair value of these financial assets and liabilities would affect net income and equity.

Fair value of financial assets and liabilities are discussed in Note 25.


Asset Retirement Obligation. Determining asset retirement obligation requires estimation of the cost of dismantling plant and equipment and other costs of restoring the leased properties to their original condition. The Company determined that there are no significant asset retirement obligations as of December 31, 2008 and 2007.

Provisions and Contingencies. The Company, in the ordinary course of business, sets up appropriate provisions for its present legal or constructive obligations, if any, in accordance with its policies on provisions and contingencies. In recognizing and measuring provisions, management takes risk and uncertainties into account.

5. Cash and Cash Equivalents


2008 2007

Cash in banks and on hand P2,168 P803Short-term investments 3,873 4,459

P6,041 P5,262

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

6. Trade and Other Receivables


,ote 2008 2007

Trade - netReceivables P2,340 P2,301Amounts owed by related parties 19 569 537

NontradeAmounts owed by related parties 19 149 476Others - net 20 603 362

P3,661 P3,676

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

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Owed byrelated

Trade parties .on-trade Total Allowance


Less than 30 days 22 182 2 206 2330-60 days 67 38 - 105 6761-90 days 6 2 - 8 6Over 90 days 150 92 35 277 211

P2,930 P760 P618 P4,308 P647


Owed byrelated

Trade parties Non-trade Total Allowance


Less than 30 days 15 63 31 109 5930-60 days 6 31 10 47 161-90 days 29 - - 29 11Over 90 days 217 56 - 273 229

P2,890 P1,097 P382 P4,369 P693

The movements in the allowance for doubtful accounts in 2008 and 2007 are as follows:

2008 2007

Balance at beginning of period P693 P -Transferred from SMC - 693Unused amounts reversed/reclassified (46) -

Balance at end of period P647 P693

Allowance for doubtful accounts related to amounts owed by related parties as of December 31, 2008 and 2007 amounted to P42 and P84, respectively (Note 19).

Various collaterals for trade receivables such as bank guarantees, time deposits and real estate mortgage are held by the Company for credit limits exceeding P0.275.

7. Inventories


2008 2007

Finished goods and goods in process - at cost P866 P689Containers - at net realizable value 1,093 1,291Materials and supplies - at net realizable value 1,320 467

Total inventories at lower of cost and netrealizable value P3,279 P2,447

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The cost of containers as of December 31, 2008 and 2007 amounted to P1,413 and P1,677, respectively. The cost of materials and supplies as of December 31, 2008 and 2007 amounted to P1,335 and P497, respectively.

8. Prepaid Expenses and Other Current Assets


,ote 2008 2007

Prepaid taxes and licenses P274 P42Prepaid rentals 41 40Derivative assets 24, 25 28 66Prepaid insurance 6 11Others 69 21

P418 P180

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9. Plant and Equipment

The movements in this account are as follows:

OfficeEquipment, Tools and

Machinery and Buildings and Transportation Leasehold Furniture and Small Construction inEquipment Improvements Equipment Improvements Fixtures Equipment Progress Total

Cost:Transferred from SMC P16,083 P3,502 P401 P81 P362 P9 P212 P20,650Additions for the year 62 18 2 - 1 - 125 208Disposals/reclassifications (82) 13 (9) - (1) - - (79)

December 31, 2007 16,063 3,533 394 81 362 9 337 20,779Additions for the year 868 52 3 - 11 - - 934Disposals/reclassifications (60) (53) (24) (19) (4) - (7) (167)

December 31, 2008 16,871 3,532 373 62 369 9 330 21,546

Accumulated depreciationand amortization:

Transferred from SMC 12,923 1,391 343 41 350 8 - 15,056Additions for the year 151 25 6 1 2 - - 185Disposals/reclassifications (71) 3 (9) - (1) - - (78)

December 31, 2007 13,003 1,419 340 42 351 8 - 15,163Additions for the year 529 101 19 4 6 - - 659Disposals/reclassifications (65) (40) (24) (7) (4) - - (140)

December 31, 2008 13,467 1,480 335 39 353 8 - 15,682

.et book value:

December 31, 2007 P3,060 P2,114 P54 P39 P11 P1 P337 P5,616

December 31, 2008 P3,404 P2,052 P38 P23 P16 P1 P330 P5,864

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

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10. Other .oncurrent Assets


,ote 2008 2007

Deferred containers - netBottles P3,187 P3,110Shells 1,350 1,495

4,537 4,605Retirement asset 21 41 -Amounts owed by related parties 19 39 39Others 20, 24 316 382

P4,933 P5,026

The movements in the deferred containers are as follows:

,ote 2008 2007

Gross carrying amount:Beginning balance P4,814 P -Transferred from SMC - 4,422Additions 939 392

Ending Balance 5,753 4,814

Accumulated amortization:Beginning balance 209 -Amortization for the period 16 1,007 209

Ending Balance 1,216 209

P4,537 P4,605

11. Accounts Payable and Accrued Expenses


,ote 2008 2007

TradePayables P1,250 P879Amounts owed to related parties 19 622 610

NontradeAmounts owed to related parties 19 327 900Derivative liabilities 25 273 82Accrued expenses

Payroll 234 290Utilities 44 23Materials 15 54

Others 235 405

P3,000 P3,243

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12. Income Taxes

Deferred tax assets arise from the following:

2008 2007

Allowance for doubtful accounts P194 P242Allowance for inventory losses 101 146Derivatives 113 3Others 19 7

P427 P398

The components of the income tax expense are shown below:


December 31, December 31,2008 2007

Current P5,476 P1,249Deferred (10) (10)

P5,466 P1,239

The reconciliation of statutory income tax rate on income before income tax and theCompany’s effective income tax rates are as follows:



Statutory income tax rate 35.00% 35.00%Increase (decrease) in income tax rate

resulting from:Change in tax rate 0.43 -Interest income subjected to final tax (0.25) (0.12)Others 0.06 0.03

Effective income tax rate 35.24% 34.91%

13. Capital Stock

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

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On September 27, 2007, the SEC approved the increase in authorized capital stock and decrease in par value of shares. As a standard condition of the SEC for approval of applications for increase in authorized capital stock, where the payment for the shares issued pursuant to such increase is made in the form of motor vehicles and receivables, 2,557,573,242 common shares that were issued by the Company to SMC in exchange for motor vehicles and receivables out of the 15,308,416,960 common shares issued by the Company were held in escrow by the SEC pending the transfer of ownership of those motor vehicles in the name of the Company and proof of collection of receivables.

On November 5, 2008, the Company submitted to the SEC the required documentation for the transfer of ownership of motor vehicles and proof of collection of receivables. As of January 30, 2009, this is being reviewed by the SEC.

Pursuant to the registration statement rendered effective by the SEC on April 28, 2008 and the listing approval of the PSE, 77,052,000 common shares were sold by the Company to the public under a primary offering at P8.00 per share in April-May 2008.

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

2008 2007Balance at beginning of period 15,333,426,960Issuance during the period 77,052,00015,333,426,960Balance at end of period 15,410,478,96015,333,426,960

14. Cost of Sales



December 31, December 31,,ote 2008 2007

Taxes and licenses P14,523 P3,918Inventories 6,956 1,473Communications, light, fuel and water 1,538 405Personnel 17 797 194Depreciation and amortization 16 535 149Repairs and maintenance 353 85Others 98 109

P24,800 P6,333

15. Administrative and Selling Expenses

Administrative and selling expenses consist of:



Administrative P4,846 P1,584Selling 3,520 765

P8,366 P2,349

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Administrative expenses consist of:



Depreciation and amortization 4, 16 P1,173 P246Royalty 974 243Personnel 17 903 183Advertising and promotion 389 421Management fees 295 159Rent 4, 20 223 73Breakages and losses 172 -Repairs and maintenance 149 28Professional fees 144 52Communications, light, fuel and water 80 16Taxes and licenses 22 151Others 322 12

P4,846 P1,584

Selling expenses consist of:



Freight, trucking and handling P1,485 P338Personnel 17 691 158Advertising and promotion 436 25Rent 4, 20 415 102Taxes and licenses 103 22Communication, light, fuel and water 102 27Repairs and maintenance 71 29Depreciation and amortization 4, 16 50 20Others 167 44

P3,520 P765

16. Depreciation and Amortization

Depreciation and amortization are distributed as follows:



Cost of sales:Plant and equipment P535 P149

Administrative and selling expenses:Plant and equipment 124 36Deferred containers 1,007 209Others 92 21

1,223 266

P1,758 P415

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17. Personnel Expenses




Salaries and wages P1,457 P215Retirement cost 21 157 42Other employee benefits 777 278

P2,391 P535

Personnel expenses are distributed as follows:



Cost of sales P797 P194Administrative expenses 903 183Selling expenses 691 158

P2,391 P535

18. Other Income (Expense)




Foreign exchange gain (loss) - net P62 (P12)Rental income 20 15 4Gain on sale of plant and equipment - net 17 8Marked-to-market gain (loss) - net 25 (469) 14Others (2) 1

(P377) P15

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19. Related Party Disclosures

The Company, in the normal course of business, purchases products and services from and sells products to related parties. Transactions with related parties are made at normal market prices.

Revenue Purchases Amounts AmountsRelationship From From Owed by Owed towith Related Related Related Related Related

Parties Year Parties Parties Parties Parties

ParentSan Miguel Corporation Company 2008 P2,020 P1,660 P645 P298

2007 654 450 955 892San Miguel Yamamura

Packaging Corporation Under(formerly San Miguel commonPackaging Specialists, Inc.) control 2008 44 1,991 21 469

2007 55 499 62 497Under

San Miguel Rengo Packaging commonCorporation control 2008 - 29 - 6

2007 - 10 2 10Under

SMC Shipping and Lighterage commonCorporation control 2008 3 415 4 92

2007 - 102 - 53Under

commonSMITS, Inc. and a subsidiary control 2008 - 98 - 60

2007 - 26 - 27Under

San Miguel Yamamura Asia commonCorporation control 2008 3 96 1 21

2007 - 29 1 21Under

Ginebra San Miguel, Inc. and a commonsubsidiary control 2008 8 - 7 3

2007 2 - 20 -Under

commonSan Miguel Beverages, Inc. control 2008 11 - 28 5

2007 3 5 18 7Under

San Miguel International Ltd. commonand subsidiaries control 2008 3 - 73 4

2007 25 - 60 -Under

San Miguel Pure Foods commonCompany, Inc. and subsidiaries control 2008 28 1 20 21

2007 24 1 16 1Under

commonOthers control 2008 - 16 - 7

2007 - 2 2 11

2008 P2,120 P4,306 P799 P986

2007 P763 P1,124 P1,136 P1,519

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a. Purchases consist of purchase of materials, bottles, shells, cartons and services rendered from related parties.

b. Amounts owed by related parties consist of trade receivables, share in expenses, tolling services and rental. Amounts owed by related parties included under “Other noncurrent assets” account amounted to P39 as of December 31, 2008 and 2007.

c. Amounts owed to related parties consist of trade payables, professional fees, insurance, rental, royalties and management fees. Amounts owed to related parties included under “Noncurrent liabilities” account amounted to P37 and P9 as of December 31, 2008 and 2007, respectively.

d. The compensation of key management personnel of the Company, by benefit type, follows:

2008 2007

Short-term employee benefits P81 P15Retirement costs 6 4

P87 P19

20. Leasing Agreements

Finance Leases

Leases as LessorThe Company leases some of its machinery and equipment under finance lease agreements to a third party logistics provider. The Company provides the lessee the option to purchase the equipment at a beneficial price.

The current and noncurrent portion of finance lease receivable included under “Trade and other receivables” and “Other noncurrent assets” accounts, respectively in the balance sheets are as follows:

December 31, 2008 Minimum

leasereceivable Interest Principal


years 5 - 5

P11 P1 P10

December 31, 2007Minimum

leasereceivable Interest Principal


years 11 1 10

P17 P2 P15

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Operating Leases

Leases as LesseeThe Company leases the land where its breweries and some of its sales offices and a number of offices and warehouses are situated under operating leases arrangements. The leases typically run for a period of one to five years. The escalation clause for the lease of the land is reviewed every five years. Some lease agreements provide an option to renew the lease at the end of the lease term and are subject to review to reflect current market rentals.

Lease payments for the lease of the land are as follows:

2008 2007

Within one year P174 P158After one year but not more than five years 570 744

P744 P902

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

21. Retirement Plan

The Company has a funded, noncontributory retirement plan covering all of its permanent employees. Contributions and costs are determined in accordance with the actuarial studies made for the plan. Annual cost is determined using the projected unit credit method. The Company’s latest actuarial valuation date is December 31, 2008. Valuations are obtained on a periodic basis.

Retirement costs charged by the Company to operations amounted to P157 and P42 in 2008 and 2007, respectively. The Company’s annual contribution to the retirement plan consists of payments covering the current service cost and amortization of past service liability.

The components of retirement cost recognized in the statements of income and the amounts recognized in the balance sheets are as follows:



Interest cost P295 P -Current service cost 179 42Net actuarial loss to be recognized 24 -Expected return on plan assets (341) -

Net retirement cost P157 P42

Actual return on plan assets P243 P0.531

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The retirement cost is recognized in the following line items in the statements of income:



Cost of sales P53 P12Administrative and selling expenses 104 30

P157 P42

The reconciliation of the assets and liabilities recognized in the balance sheets included underthe “Other noncurrent assets” account is as follows:

2008 2007

Present value of defined benefit obligation P4,000 P4,175Fair value of plan assets 3,662 3,407

338 768Unrecognized actuarial losses (379) (768)

Net retirement asset (P41) P -

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

2008 2007

Beginning balance P4,175 P -Interest cost 295 -Current service cost 179 42Transfer from other plan 47 3,448Actuarial losses (gains) (463) 769Benefits paid (204) (84)Transfer to other plan (29) -

Ending balance P4,000 P4,175

The movements in the fair value of the plan assets are as follows:

2008 2007

Beginning balance P3,407 P -Expected return on plan assets 341 -Contributions by employer 198 42Transfer from other plan 47 3,448Benefits paid (204) (84)Actuarial gains (losses) (98) 1Transfer to other plan (29) -

Ending balance P3,662 P3,407

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Plan assets consist of the following:

In Percentages2008 2007

Fixed income portfolio 79 100Stock trading portfolio 21 -

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

The principal actuarial assumptions used to determine retirement benefits are as follows:

In Percentages2008 2007

Discount rate 8.1 7.1Salary increase rate 6.0 6.0Expected return on plan assets 9.0 10.0

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

2008 2007

Present value of the defined benefit obligation P4,000 P4,175Fair value of plan assets 3,662 3,407Deficit in the plan (338) (768)Experience adjustments on plan liabilities 463 769Experience adjustments on plan assets (98) 1

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

22. Basic Earnings Per Share

Basic EPS is computed as follows:

2008 2007

Net income (a) P10,042 P2,310Weighted average number of shares

outstanding (in millions) - basic (b) 15,372 15,333

Basic EPS (a/b) P0.65 P0.15

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

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23. Employee Stock Purchase Plan

SMC offers shares of stocks to employees of SMC and its subsidiaries under the Employee’s Stock Purchase Plan (ESPP). Under the ESPP, all permanent Philippine-based employees of SMC and its subsidiaries who have been employed for a continuous period of one year prior to the subscription period will be allowed to subscribe at a price equal to the weighted-average of the daily closing prices for three months prior to the offer period less 15% discount. A participating employee may acquire at least 100 shares of stock through payroll deductions.

The ESPP requires the subscribed shares and stock dividends accruing thereto to be pledged to SMC until the subscription is fully-paid. The right to subscribe under the ESPP cannot be assigned or transferred. A participant may sell his shares after the second year from exercise date.

The ESPP also allows subsequent withdrawal and cancellation of participants’ subscriptions under certain terms and conditions.

Expenses for share-based payments charged to operations under “Management fees” account amounted to P0.429 in 2008.

24. Financial Risk Management Objectives and Policies

Objectives and PoliciesThe Company’s principal financial instruments other than derivatives include cash and cash equivalents, receivables and trade payables, which arise directly from its operations. The main purpose of these financial instruments is to raise financing for the Company’s operations.

The Company also enters into derivative transactions such as commodity options. The Company uses derivatives to manage its exposures to commodity price risks arising from the Company’s operations.

The main risks arising from the use of financial instruments are credit risk, liquidity risk and market risk - foreign currency risk and commodity price risk. The BOD has the overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.

The Company’s accounting policies in relation to derivatives are set out in Note 3.

Foreign Currency RiskThe Company’s exposure to foreign currency risk results from its business transactions and purchase of materials denominated in foreign currency. The Company uses a combination of natural hedges and derivative hedges to manage its foreign currency exposure. It uses currency derivatives to reduce earnings volatility related to foreign exchange movements.

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Information on the Company’s foreign currency-denominated monetary assets and liabilities and their Philippine peso equivalents are as follows:

December 31, 2008 December 31, 2007U.S. Peso Peso

Dollar* Equivalent U.S. Dollar Equivalent

AssetsCash and cash equivalents $5 P243 $ - P -Trade and other receivables 4 181 3 127

LiabilitiesAccounts payable and accrued expenses 2 77 1 29

Net foreign currency - denominated monetaryassets $7 P347 $2 P98

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

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

Peso to US Dollar

December 31, 2007 41.28December 31, 2008 47.52

The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other variables held constant, of the Company’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Company’s equity as of December 31, 2008 and 2007 are as follows:

2008P1 decrease in the US dollar

exchange rateEffect on

Income before Effect onIncome Tax Equity

P1 increase in the US dollar exchange rate

Effect onIncome before Effect on

Income Tax Equity

Cash and cash equivalents (P5) P - P5 P -Trade and other

receivables (4) - 4 -Derivative assets 12 - (11) -

3 - (2) -


Derivative liabilities 11 (1) (13) 1

13 (1) (15) 1

(P10) P1 P13 (P1)


2007

P1 decrease in the US dollar exchange rate


Income Tax Equity

P1 increase in the US dollar exchange rate


Income Tax Equity

Cash and cash equivalents P - P - P - P -Trade and other

receivables (3) - 3 -Derivative assets (27) - (48) -

(30) - (45) -


Derivative liabilities (9) - 9 -

(8) - 8 -

(P22) P - (P53) P -

Commodity Price RiskThe Company enters into various commodity derivatives to manage its price risks on strategic commodities. Commodity hedging allows stability in prices, thus offsetting the risk of volatile market fluctuations. Through hedging, prices of commodities are fixed at levels acceptable to the Company, thus protecting raw material cost and preserving margins. For hedging transactions, if prices go down, hedge positions may show marked-to-market losses; however, any loss in the marked-to-market positions is offset by the resulting lower physical raw material cost.

SMC enters into commodity derivative transactions in behalf of the Company to reduce cost by optimizing purchasing synergies within the SMC Group of Companies and managing inventory levels of common materials.

Commodity Options. Commodity options are used to manage the Company’s exposures to volatility in prices of certain commodities such as fuel oil.

Liquidity RiskLiquidity risk arises from the possibility that the Company may encounter difficulties in raising funds to meet commitments from financial instruments or that a market for derivatives may not exist in some circumstances.

The Company’s objectives to manage its liquidity profile are: a) to ensure that adequate funding is available at all times; b) to meet commitments as they arise without incurring unnecessary costs; c) to access funding when needed at the least possible cost; and d) to maintain an adequate time spread of refinancing maturities.

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The table below summarizes the maturity profile of the Company’s financial liabilities as of December 31, 2008 and 2007 based on contractual undiscounted payments:

2008.on-derivative Carrying Contractual 1year > 1 year - >2 years Over

financial liabilities Amount cash flow or less 2 years - 5 years 5 years

Accounts payable andaccrued expenses P2,727 P2,727 P2,679 P48 P - P -

2007Non-derivative Carrying Contractual 1year > 1 year - >2 years Over

financial liabilities Amount cash flow or less 2 years - 5 years 5 years

Accounts payable andaccrued expenses P3,161 P3,161 P3,161 P - P - P -

Credit RiskCredit risk or the risk of counterparties defaulting is controlled by the application of credit approvals, limits and monitoring procedures. It is the Company’s policy to enter into transactions with a diversity of creditworthy parties to mitigate any significant concentration of credit risk. The Company ensures that sales of products are made to customers with appropriate credit history and has internal mechanism to monitor the granting of credit and management of credit exposures. The Company has made provisions, where necessary, for potential losses on credits extended. Where appropriate, the Company obtains collateral or arranges master netting agreements.

With respect to credit risk arising from the other financial assets of the Company, which comprise of cash and cash equivalents and certain derivative instruments, the Company’s exposure to credit risk arises from default of the counterparty with a maximum exposure equal to the carrying amount of these instruments, net of the value of collaterals, if any. Financial information on the Company’s maximum exposure to credit risk as of December 31, 2008 and 2007, without considering the effects of collaterals and other risk mitigation techniques is presented below.

,ote 2008 2007

Cash and cash equivalents 5 P6,041 P5,262Trade and other receivables - net 6 3,661 3,676Derivative assets 8 28 66Noncurrent receivables 10 50 50

P9,780 P9,054

The Company has no significant concentration of credit risk with any counterparty.

Capital ManagementThe primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value.

The Company manages its capital structure and makes adjustments to it, in the light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

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The Company defines capital as paid-in capital stock, additional paid-in capital, retained earnings, both appropriated and unappropriated. Other components of equity such as treasury stock and translation are excluded from capital for purposes of capital management.

The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles for capital ratios are set in the light of changes in the Company’s external environment and the risks underlying the Company’s business, operation and industry.

The Company monitors capital on the basis of debt-to-equity ratio, which is calculated as total debt divided by total equity. Total debt is equivalent to current and noncurrent liabilities. Total equity comprises of equity including capital stock, additional paid-in capital, cumulative translation adjustments and retained earnings.

There were no changes in the Company’s approach to capital management during the year.

The Company is not subject to externally imposed capital requirements.

25. Financial Assets and Liabilities

The table below presents a comparison by category of carrying amounts and fair values of all of the Company’s financial instruments as of December 31, 2008 and 2007:

2008 2007Carrying CarryingAmount Fair Value Amount Fair Value

Financial AssetsCash and cash equivalents P6,041 P6,041 P5,262 P5,262Trade and other receivables - net 3,661 3,661 3,676 3,676Derivative assets (included under “Prepaid

expenses and other current assets” account inthe balance sheets) 28 28 66 66

Noncurrent receivables and deposits - net (included under “Other noncurrent assets”

account in the balance sheets) 50 50 50 50

Financial LiabilitiesAccounts payable and accrued expenses 2,727 2,727 3,161 3,161Derivative liabilities (included under

“Accounts payable and accrued expenses”account in the balance sheets) 273 273 82 82

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

Cash and Cash Equivalents, Trade and Other Receivables and +oncurrent Receivables and Deposits. The carrying amount of cash and cash equivalents and receivables approximates fair value primarily due to the relatively short-term maturity of these financial instruments. In the case of long-term receivables, the fair value is based on the present value of expected future cash flows using the applicable discount rates.

Derivatives. The fair values of forward exchange contracts are calculated by reference to current forward exchange rates.

The fair values of commodity derivatives are determined based on prices obtained from the market and counterparties. Fair values are also based on standard valuation models.

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Accounts Payable and Accrued Expenses. The carrying amount of accounts payable and accrued expenses approximates fair value due to the relatively short-term maturity of these financial instruments.

Derivative Financial InstrumentsThe Company’s derivative financial instruments according to the type of financial risk being managed and the details of freestanding and embedded derivative financial instruments that are categorized into those accounted for as hedges and those that are not designated as hedges are discussed as follows:

The Company enters into various commodity options to manage its exposure on commodity price risk covering the Company’s requirement on fuel oil.

Derivative Instruments Accounted for as Hedges

Cash Flow Hedges

Commodity OptionsAs of December 31, 2008, the Company has outstanding option agreements covering its fuel oil requirements with notional quantities of 3,391. The call and put option can be exercised at various dates in 2009 with specific quantities on each calculation date. The net unrealized fair value change (after tax) deferred under “Cumulative translation adjustments” account on these call options as of December 31, 2008 amounted to P45.

As of December 31, 2007, the Company has no outstanding options designated as hedge on the purchase of commodity.

Derivative Instruments Not Designated as HedgesThe Company enters into certain derivatives as economic hedges of certain underlying exposures. These include freestanding and embedded derivatives found in host contracts, which are not designated as accounting hedges. Changes in fair value of these instruments are accounted for directly in the 2008 and 2007 statements of income. Details are as follows:

Freestanding Derivatives

Freestanding derivatives consist of commodity options entered into by the Company.

Commodity OptionsAs of December 31, 2008, the Company has outstanding bought and sold options covering its fuel oil requirements with notional quantities of 10,174. These options can be exercised at various calculation dates in 2009 with specific quantities on each calculation date. The net negative fair value of these options as of December 31, 2008 amounted to P212.

As of December 31, 2007, the Company has no outstanding options on the purchase of commodity.

Embedded Derivatives

The Company’s embedded derivatives include currency derivatives (forwards) embedded in nonfinancial contracts.

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Embedded Currency ForwardsAs of December 31, 2008 and 2007, the total outstanding notional amount of currency forwards embedded in nonfinancial contracts amounted to US$31 and US$14, respectively. These nonfinancial contracts consist mainly of foreign-currency denominated purchase orders, sales agreements and capital expenditures. As of December 31, 2008 and 2007, the net negative fair value of these embedded currency forwards amounted to P33 and P16, respectively.

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

2008 2007

Beginning balance (P16) (P2)Net changes in fair value of derivatives:

Designated as accounting hedges (62) -Not designated as accounting hedges (470) (13)

(548) (15)Less fair value of settled instruments (303) 1

Ending balance (P245) (P16)

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

26. Cash Dividends

Cash dividends declared and paid for the period ended December 31, 2008 amounted to P0.60 per share.

On January 27, 2009, the Company declared cash dividends of P0.19 per share payable to stockholders of record as of February 13, 2009 to be paid on February 23, 2009.

27. Subsequent Events

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

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On the same date, the Company’s BOD also approved the purchase of all the interests of SMC in Brewery Properties Inc. (BPI) after (i) SMC has transferred certain land used in the domestic beer operations of the Company to BPI in exchange for BPI common shares, and (ii) San Miguel Brewery Inc. Retirement Plan has transferred its shares in Brewery Landholdings, Inc. (BLI) to BPI in exchange for BPI preferred shares. The purchase price will be the appraised value of the land transferred by SMC to BPI amounting to P6,829. The proposed acquisition will be financed by the Company through borrowings. The sale of SMC’s interests in BPI to the Company will be implemented after obtaining all the required approvals from the appropriate regulatory agencies.

28. Other Matters

a. CommitmentsThe outstanding purchase commitments of the Company as of December 31, 2008 and 2007 amounted to P522 and P3,491, respectively.

Amount authorized but not yet disbursed for capital projects as of December 31, 2008 and 2007 is approximately P238 and P801, respectively.

b. Foreign Exchange RateThe foreign exchange rate of P47.52 and P41.28 was used in translating the U.S. dollar monetary assets and liabilities to Philippine peso as of December 31, 2008 and 2007, respectively.

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smb bond prospectus

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