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Aalusl Amos Fax Market Value if Gitar Exempt ncomerReseip AiG Brarpl neameF_| Other rapt eee wz [6 Oto: Exemot income/Recelis Undar [So. 32 (8) of ho Tax Codo, at amended (Speci) Ayal AmounUFair Hark Valet Capa Gane T rr [Elaine Recaps Era From ene Tx (Sum oon 7 A 6B TART]Audit | Tax | Consulting | BSO rw rosie b axe 632) 6442048 J BDO Poxas cruz Tagle and Co. sis apaa erik Cy TS eines INDEPENDENT AUDITOR'S REPORT TO ACCOMPANY INCOME TAX RETURN ‘The Shareholders and the Board of Directors Lexmedia Digital Corporation (A wholly-owned subsidiary of FEP Printing Corporation) Print Town Compiex Lot 2532-C-1-28 Mamplasan Bifian City, Laguna Philippines We have audited the financial statements of Lexmedia Digital Corporation (the Company), a wholly owned subsidiary of FEP Printing Corporation, as at and for the year ended December 31, 2018, on which we have rendered the attached report dated March 25, 2019. 'n compliance with Revenue Regulations No, V-20, we are stating that no partner of our Firm {s related by consanguinity or affinity to the president, manager or principal shareholders of the Company. ROXAS CRUZ TAGLE AND Co, yam mM. Wing Warren M. Urriza Partner CPA Certificate No. 106419 Tax Identification No. 246-618-363 PTR No. 7378451, issued on January 24, 2019, Makati City PRC/BOA Accreditation No. 0005 (Firm), issued on December 13, 2018, effective until July 20, 2021 ‘SEC Accreditation No, 0007-FR-5 (Firm), Group A, Issued on July 5, 2018, effective until July 4, 2021 BIR Accreditation No. 08-001682-017-2019, issued on February 8, 2019, effective until February 7, 2022 March 25, 2019 ‘Makati City TREE {az and Ce. a Phitppine professional parnership isa member of 800 international Limited, a UK company \ited by guarantee. (BOO isthe brand name for the 800 network and for each of the BOO monber Henc.1 Fr a OH Fexmengia ‘STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR ANNUAL INCOME TAX RETURN The Management of LEXMEDIA DIGITAL CORPORATION (the Company) is responsible for all {information and representations contained in the Annual Income Tax Retum for the year ended December 31, 2018. Management is likewise responsible for all information and representations contained in the financial statements accompanying the Annual Income Tax Return covering the same reporting period. Furthermore, the management is responsible for all information and representations contained in all the other tax retums filed for the reporting period, including, but not limited, to the value-added tax and/or percentage tax returns, withholding tax returns, documentary stamp tax returns, and any and all other tax returns. In this regard, the Management affirms that the attached audited financial statements for the year ended December 31, 2018 and the accompanying Annual Income Tax Return are in accordance with the books and records of the Company, complete and correct in all material respects. Management, likewise affirms that: (@) the Annual Income Tax Return has been prepared in accordance with the provisions of the National Internal Revenue Code, as amended, and pertinent tax regulations and other issuances of the Department of Finance and the Bureau of Internat Revenue; (b) any disparity of figures in the submitted reports arising from the preparation of financial statements pursuant to financial accounting standards and the preparation of the income ‘ax return pursuant to tax accounting rules has been reported as reconciling items and ‘maintained in the Company's books and records in accordance with the requirements of Revenue Regulations No. 8-2007 and other relevant issuances; and. (© the Company has filed all applicable tax returns, reports and statements required to be filed under Philippine tax laws for the reporting period, and all taxes and other impositions shown thereon to be due and payable have been paid for the reporting period, except those ‘contested in good faith. TIN#104-131-699 font [ President as mt 8 or. erGiS pricnncio avenue oficet! ‘MANUEL R. CHANCO Tit TIN#104-094-414 Treasure esc REL 7 SWORN TO ME wero ts Daye APR12 2019 iy cxry ar sanatt METRO WA BaILaP I SUT ERHIBITING HIS! ENT 10 QUED IN se anes, Ban, Lag ‘ToL ATHSRBRS Fax F938836 Appl. tio We TP HOE 190 a co 30t6 MCLE Gomplionge Ne ‘Unt 01 2° Flr ©: 401 Urban Aversa,BDO Roxas Cruz Tagle and Co. Sesaya acne: aaa Oe Tae ees Audit | Tex | Consulting | 650 Syratestinaeon Fans 652) 84 2045 INDEPENDENT AUDITOR'S REPORT ‘The Shareholders and the Board of Directors Lexmedia Digital Corporation (4 wholly-owned subsidiary of FEP Printing Corporation) Print Town Complex Lot 2532-C-1-28 Mamplasan Bifian City, Laguna Philippines Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Lexmedia Digital Corporation (“the Company"), a wholly. Suined subsidiary of FEP Printing Corporation, which comprise the statements of financial pogition ve 2c Becember 31, 2018 and 2017, and the statements of income, statements of comprehensive income, qacements of changes in equity and statements of cash flows for the years then ended, ané notes to financial statements, including a summary of significant accounting policies, {n our opinion, the accompanying financial statements present fairly, in all material respects, the ‘fbancial position of the Company as at December 31, 2018 and 2047, and its financial performed ang its cash flows for the years then ended in accordance with Philippine Financial, Reporting Standards (PFRS), Basis for Opinion We conducted our audits in accordance with Philippine Standards on Auditing (PSA). Sur Fesponsibilities under those standards are further described in the Auditor's Responsibilities for.the Audit of the Financial Stetements section of our report. We are independent of the Company in Responsibilities of Management and Those Charged With Governance for the Financial Statements Management 's responsible for the preparation and fair presentation of the financial statements in accordance with PFRS, and for such internal control as management determines 1s Necessary to enable the preparation of financial statements that are free from material misstatement, whether due es fraud or error, In preparing the financial statements, management is responsible for assessing the Company's abitity to Seine 2s BS & Goins concer, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to iguidate the Company or to Cease operations, or has no realistic alternative but to do so. ‘Those charged with governance are responsible for overseeing the Company’s financial oa I= RDO - 87 conbeeToN SECTION msn ioe 7 mae Roras Cruz Tagle and Co., @ Philippine professional partnership, is a member of 800 International Lh sIGNACIO \imited by guarantee. 800 ts the brand name for the BDO network and for each of the BOO meer ARE nue Officer!2+ Auditor's Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole afe free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion, Reasonable assurance is a high level of assurance, but is not a guarantees that aan audit conducted in accordance with PSA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 4s part of an audit in accordance with PSA, we exercise professional judgment and maintain professtonal skepticism throughout the audit. We also: * Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. ‘The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may invatve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of intemal control relevant to the audit 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 Company's internal control. * Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. * Conclude on the appropriateness of management's use of the going concem basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related te events of conditions that may cast significant doubt on the Company’s ability to continue as a going concern. if we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern, * Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned Scope and timing of the audit and significant audit findings, ineluding any significant deficiencies in internal control that we identify during our audit. BIR - ROO «57 JON SECTION cou LEcTion SECHO!Sale Report on the Supplementary Information Required by the Bureau of internal Revenue (BIR) ‘Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information as disclosed in Note 21 to the financial statements is presented for purposes of filing with the BIR and is not a required part of the basic financial statements. Such information is the responsibility of management. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In aur opinion, the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole, ROXAS CRUZ TAGLE AND CO. Yawn mM. Warren M. Urriza Partner: CPA Certificate No. 106419 Tax Identification No. 246-618-363 PTR No. 7378451, issued on January 24, 2019, Makati City PRC/BOA Accreditation No. 0005 (Firm), issued on December 13, 2018, effective until July 20, 2021 SEC Accreditation No. 0007-FR-5 (Firm), Group A, issued on July 5, 2018, effective until July 4, 2024 BIR Accreditation No. 08-001682-017-2019, issued on February 8, 2019, effective until February 7, 2022 March 25, 2019 ‘Makati City BIR=ROQ.- 87 Gh SECTION Coa ex wea Fe 26 209 ayy me JERIGO PAOLO P. IGNACIO Rqvenue Officer |LEXMEDIA DIGITAL CORPORATION (A wholly-owned subsidiary of FEP Printing Corporation) STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2018 AND 2017 Note 2018 2017 ASSETS Current Assets Cash 5 P22,435,287 36,342,457 ‘Trade and other receivables 6 72,799,802 85,861,208 Inventories 7 78,717,206 74,505,188 Other current assets & 21,577,769 13,992,756. Total Current Assets 795,530,065 210,701,609 Noncurrent Assets Property and equipment 9 243,377,062 262,933,427 Retirement asset 5 2,215,320 ‘903,357 Deferred tax assets, net 16 12,364,858 13,915,747 Other noncurrent assets 12,000 12,000 ‘Total Noncurrent Assets 757,969,240 277,764,531 453,499,304 488,466,140 LIABILITY AND EQUITY Liability Trade and other payables 10__P44,279,653 __B76,065,490 Equity Share capital 1 500,000,000 500,000,000 Deficit (91,748,275) (87,989,915) Remeasurement gain on retirement benefits 15 967,926 390,565 Total Equity 409,219,651 412,400,650 453,499,304 488,466,140 ‘See Notes to the Financial Statements.LEXMEDIA DIGITAL CORPORATION (A wholly-owned subsidiary of FEP Printing Corporation) STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 Note 2078, 2017 REVENUES 245,129,265 280,718,480 COST OF SALES AND SERVICES 12__ (232,992,277) _ (239,658,566) GROSS INCOME 12,136,988 1,056,914 GENERAL AND ADMINISTRATIVE EXPENSES. 13 (16,749,266) (19,689,620) INTEREST INCOME 5 40,152 76,659 INTEREST EXPENSE . (1,029,473) OTHER INCOME - Net 14 3,230,960 3,687,073 INCOME (LOSS) BEFORE INCOME TAX (1,341,166) 24,101,553 INCOME TAX EXPENSE 16___ (2,409,934) (7,200,339) NET INCOME (LOSS) (P3,751,100) 16,901,214 ‘ee Notes to the Financial Statements BIR - RDQ- 57 COLLEGTION SECTION tery fou: 6 sr SERICO RAOLO P. IGNACIO 26 2019 Revenue Officer |LEXMEDIA DIGITAL CORPORATION {A wholly-owned subsidiary of FEP Printing Corporation) STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 Note 2018 2017 NET INCOME (LOSS) (3,751,100) _P16,901,214 OTHER COMPREHENSIVE INCOME Item that may be reclassified to profit or loss Remeasurement gain on retirement benefits, net of tax 15 824,801 1,002,752 Deferred tax expense (247,440) (300,826) OTHER COMPREHENSIVE INCONE - Net of tax 577,361 701,926 ‘TOTAL COMPREHENSIVE INCOME (LOSS) - Net of tax (R3,173,739) 17,603,140 See Notes to the Financial Statements. piR- RDO-87 IN SECTION COLLECTION SESS" +m iS eMonncid fiver!LEXMEDIA DIGITAL CORPORATION (A wholly-owned subsidiary of FEP Printing Corporation) STATEMENTS OF CHANGES IN EQUITY. FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 Note 2018 2017 SHARE CAPITAL 11 _P500,000,000 __P500,000,000 DEFICIT Balance at beginning of year (87,989,915) (104,891,129) Net income (loss) (3,751,100) __16,901,214 Balance at end of year (91,741,015) (87,989,975) OTHER COMPREHENSIVE INCOME (LOSS) Net of tax 15 Balance at beginning of year 390,565 (311,361) Remeasurement gain for the year 577,361 701,926 Balance at end of year 967,926 390,565 409,226,911 P412,400,650 ‘See Notes to the Financial Statements.LEXMEDIA DIGITAL CORPORATION (A wholly-owned subsidfary of FEP Printing Corporation) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 Note 2076 2017 CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before income tax (P1,341,166) —B24,101,553 Adjustments for: Depreciation and amortization 9 25,281,117 26,791,799 Provision for (reversal of): Expected credit loss on trade and other receivables 6 3,256,620 871,925 Retirement benefit expense 15 41,101,040 1,545,241 Gain on sale of property and equipment 9 (295,104) : Inventories previously provided with allowance for decline in value 7 (14,126) (217,180) Impairment toss on property and equipment 9 : 3,017,894 Unrealized foreign exchange loss (gain) 14 186,942 (177,680) Finance income 6 (40,152) (76,659) Finance costs : 1,029,473 Operating income before working capital changes 76,138,172 36,886,366 Decrease (increase) in: Trade and other receivables 9,828,984 (345,538) Inventories (4,200,892) 10,793,135 Other current assets (8,698,759) 4,231,997 Decrease in trade and other payables (31,882,659) (22,905,748) Cash generated from operations (6,839,353) 45,660,212 Retirement fund contribution 15 (4,588,202) (1,868,266) Finance income received 40,152 76,659 Income tax paid = (4,474,544) Net cash flows provided by (used in) operating activities (8,290,580) __ 39,394,061 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment 9 (6,044,902) (6,402,195) Proceeds from sale of property and equipment 9 615,254 - Net cash flows used in investing activities 5,429,648) (6,402,195) CASH FLOWS FROM FINANCING ACTIVITIES Payments of borrowings = (36,375,000) Finance costs patd : (1,029,473) Net cash flows used in financing activities = G7, 404,473) EFFECT OF EXCHANGE RATE CHANGES ON CASH (186,942) 177,680 NET DECREASE IN CASH (13,907,170) (4,234,927) CASH AT BEGINNING OF YEAR 6 36,342,457 40,577,384 CASH AT-END OF YEAR 6_ 22,435,287 P36,342,457 ‘See Notes to the Financlal Statements,LEXMEDIA DIGITAL CORPORATION (A wholly-owned subsidiary of FEP Printing Corporation) NOTES TO THE SEPARATE FINANCIAL STATEMENTS 1. Reporting Entity Lexmedia Digital Corporation (the Company) was incorporated under the Laws of the Republic of the Philippines. The Company was registered with the Philippine Securities and Exchange Commission (SEC) on June 15, 2001. The Company is engaged in transmitting, sending and communicating all kinds of digital information, data, pictures and other advertising materials. The Company is also engaged in printing and publishing of books, magazines, papers, advertising materials and literatures in the Company's primary operations. ‘The Company is a wholly-owned subsidiary of FEP Printing Corporation (FEPPC), a Company registered with the SEC and domiciled in the Philippines. The FEPPC is engaged in printing newspapers. The ultimate Parent Company is Pinnacle Printers Corporation (PPC), a company registered with the SEC and domiciled in the Philippines. PPC is a holding company. April 20, 2018, the Board of Directors (BOD) and stockholders of the Company approved the merger of the Company, Newspaper Paraphernalia, Inc. (NPI) and Lexmedia Digital Corporation (LOC) with and unto’ Alliance Media Printing, Inc. (AMPI), related entities, effective January 1, 2019, The merger was made as it will result in efficiency of operations and will make the productive use of the sales network of the parties. Under the terms of the merger, AMPI will issue 69,048,734 shares of stock with par value of P10 per share to the respective stockholders of the Company, NPI and LDC in exchange for the net assets acquired. AAs at March 25, 2019, the parties are in the process of filing the required documentation with the SEC. The registered office address and principal place of business of the Company is located at Print Town Complex, Lot 2532 C-1-28, Mamplasan, Bifan City, Laguna, Philippines. ‘The financial statements were approved and authorized for issue in accordance with a resolution by the Board of Directors (BOD) on March 25, 2019. 2. Basis of Preparation Statement of Compliance ‘The accompanying financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRS). PFRS are based on International Financial Reporting Standards issued by the Intemational Accounting Standards Board (\ASB). PFRS consist of PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations issued by the Phitippine Financial Reporting Standards Council (FRSC). Basis of Measurement ‘The financial statements of the Company have been prepared on the historical cost basis. Functional and Presentation Currency ‘The financial statements are presented in Philippine peso, which is the functional currency of the Company. All values are rounded off to the nearest Peso (P), except when otherwise indicated.Significant Accounting Policies ‘Adoption of New and Amended PERS ‘The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the following new and amended PFRS which the Company adopted effective for annual periods beginning on or after January 1, 2018: + PFRS 9, Financial Instruments - This standard replaces PAS 39, Financial Instruments: Recognition and Measurement (and all the previous versions of PFRS9). It provides requirements for the classification and measurement of financial assets and liabilities, impairment, hedge accounting, recognition, and derecognition. © PERS 9 requires all recognized financial assets to be subsequently measured at amortized cost or fair value (through profit or loss or through other comprehensive income), depending on their classification by reference to the business model within which these are held and its contractual cash flow characteristics. © For financial liabilities, the most significant effect of PFRS 9 relates to cases where the fair value option is taken: the amount of change in fair value of a financial liability designated as at fair value through profit or loss that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income (father than in profit or loss), unless this creates an accounting mismatch. © For the impairment of financial assets, PFRS 9 introduces an “expected credit loss” model based on the concept of providing for expected losses at inception of a contract; recognition of a credit loss should no longer wait for there to be objective evidence of impairment. © For hedge accounting, PFRS9 introduces a substantial overhaul allowing financial statements to better reflect how risk management activities are undertaken when hedging financial and non-financial risk exposures. ‘© The derecognition provisions are carried over almost unchanged from PAS 39. Based on the Company's analysis of its business model and the contractual cash flow characteristics of its financial assets and liabilities as at December 31, 2018, the Company hhas concluded that all of its financial assets and liabilities shall continue to be measured on the same basis as under PAS 39. ‘The Company's cash and trade and other receivables previously classified under PAS 19 as loans and receivables are now classified under PFRS 19 as financial assets at amortized cost. ‘The Company assessed that the adoption of PFRS 9, specifically on determining impairment loss using simplified approach (or general approach, as applicable), has no impact on the carrying amounts of the Company's financial assets carried at amortized cost. ‘* PFRS 15, Revenue from Contracts with Customers - The new standard replaces PAS 11, Construction Contracts, PAS 18, Revenue, and their related interpretations, It establishes a single comprehensive framework for revenue: recognition to apply consistently across transactions, industries and capital markets, with a core principle (based on a five-step model to be applied to all contracts with customers), enhanced disclosures, and new or improved guidance (e.g. the point at which revenue is recognized, accounting for variable considerations, costs of fulfilling and obtaining a contract, etc.).Based on the Company’s assessment, all of the Company's contracts with customers generally undertake to provide single performance obligation at a fixed price which is mainly the rendering of services. Thus, the allocation of transaction price to the single performance ‘obligation is not applicable, The Company recognizes revenue as the services are rendered over time. Accordingly, the adoption of PFRS 15 has no impact in the timing of the Company's revenue recognition. + Amendments to PFRS 15, Revenue from Contract with Customers - Clarification to PFRS 15 - ‘The amendments provide clarifications on the following topics: (a) fdentifying performance obligations; (b) principal versus agent considerations; and (c) licensing. The amendments also provide some transition relief for modified contracts and completed contracts. + Amendments to PAS 28, Investments in Associates and Joint Ventures - Measuring an Associate or Joint Venture at Fair Value - The amendments are part of the Annual Improvements to PFRS 2014-2016 Cycle and clarify that the election to measure at fair value through profit or {oss an investment in an associate or a joint venture that is held by an entity that isa venture capital organization, mutual fund, unit trust or other qualifying entity, is available for each {investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition, + Amendments to PAS 40, Investment Property - Transfers of Investment Property - The amendments clarify that transfers to, or from, investment property (Including assets under ‘construction and development) should be made when, and only when, there is evidence that a change in use of a property has occurred. + Philippine Interpretation IFRIC 22, Foreign Currency Transactions and Advance Consideration - The interpretation provides guidance clarifying that the exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency is, the one at the date of initial recognition of the non-monetary prepayment asset or deferred ‘income ability. The adoption of the foregoing new and amended PFRS did not have any material effect on the financial statements except for PFRS 9 and PFRS 15. Additional disclosures have been included in the notes to financial statements, as applicable, New and Amended PFRS Issued But Not Yet Effective Relevant new and amended PFRS which are not yet effective for the year ended December 31, 2018 and have not been applied in preparing the financial statements are summarized below. Effective for annual periods beginning on or after January 1, 2019: ‘+ PFRS 16, Leases - This standard will replace PAS 17, Leases and its related interpretations. ‘The most significant change introduced by the new standard is that almost all leases will be brought onto lessees’ statement of financial position under a single model (except leases of {ess than 12 months and leases of low-value assets), eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged and the distinction between operating and finance lease is retained, For the Company’s non-cancellable operating lease commitments as at December 31, 2018, a preliminary assessment indicates that these arrangements will continue to meet the definition of a lease under PFRS 16. Thus, the Company will have to recognize a right-of-use asset and a corresponding liability in respect of all these leases - unless these qualify for low value or short-term leases upon the application of PFRS 16 - which might have a significant impact. on the amounts recognized in the Company's financial statements. However, it is not practicable to provide a reasonable estimate of that effect until the Company complete the review.Philippine Interpretation IFRIC 23, Uncertainty Over income Tax Treatments - The interpretation provides guidance on how to reflect the effects of uncertainty in accounting for income taxes under PAS 12, Income Taxes, in particular (i) whether uncertain tax treatments should be considered separately, (ii) assumptions for taxation authorities’ examinations, (ili) determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, and (Iv) effect of changes in facts and circumstances. Amendments to PFRS 9, Financial Instruments - Prepayment Features with Negative Compensation - The amendments allow entities to measure particular prepayable financial assets with negative compensation at amortized cost or at fair value through other comprehensive income (instead of at fair value through profit or loss) if a specified condition fs met. It also clarifies the requirements in PFRS 9, Financial instruments for adjusting the amortized cost of a financial lability when a modification or exchange does not result in its derecognition (as opposed to adjusting the effective interest rate). ‘Amendments to PAS 28, investments in Associates and Joint Ventures - Long-term Interests in Associates and Joint Ventures - The amendments clarify that long-term interests in an associate or joint venture that, in substance, form part of the entity’s net investment but to Which the equity method is riot applied, are accounted for using PFRS 9, Financial Instruments. Amendments to PAS 19, Employee Benefits - Plan Amendment, Curtailment or Settlement - ‘The amendments specify how companies remeasure a defined benefit plan when a change - an amendment, curtailment or settlement - to a plan takes place during a reporting period. It requires entities to use the updated assumptions from this remeasurement to determine current service cost and net interest cost for the remainder of the reporting period after the change to the plan. ‘Amendments to PFRS 3, Business Combinations and PFRS 11, Joint Arrangements - Previously Held Interest in a Joint Operation - The amendments are part of the Annual Improvements to PFRS 2015-2017 Cycle. ‘The amendment to PFRS 3, Business Combinations clarifies that when an entity obtains control of a business that is a joint operation, the acquirer applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the joint operation at its acquisition-date fair value. ‘The amendment to PFRS 11, Joint Arrangements clarifies that when an entity obtains joint control of a business that is a joint operation, the previously held interests in that business are not remeasured. ‘Amendments to PAS 12, Income Taxes - Income Tax Consequences of Payments on Financial Instruments Classified as Equity - The amendments are part of the Annual Improvements to PFRS 2015-2017 Cycle and clarify that income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distribution to owners and thus, should be recognized in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. Amendments to PAS 23, Borrowing Costs - Borrowing Costs Eligible for Capitalization - The amendments are part of the Annual Improvements to PFRS 2015-2017 and clarify that in calculating the capitalization rate on general borrowings, if any specific borrowing remains outstanding after the related quatifying asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally,Deferred effectivity ~ © Amendments to PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates and Joint Ventures - Sale or Contribution of Assets Between an Investor and its Associate or Joint Venture - The amendments address a current conflict between the two standards and clarify that a gain or loss should be recognized fully when the transaction ‘involves a business, and partially if it involves assets that do not constitute a business. The effective date of the amendments, initially set for annual periods beginning on or after January 1, 2016, was deferred indefinitely in December 2015 but earlier application is still permitted, Under prevailing circumstances, the adoption of the foregoing new and amended PFRS is not expected to have any material effect on the financial statements of the Company except for PERS 16. Current versus Noncurrent Classification ‘The Company presents assets and liabilities in the statements of financial position based on current and noncurrent classification. An asset is current when it is: (a) expected to be realized or intended to be sold or consumed in the normal operating cycle; (b) held primarily for the purpose of trading; (c) expected to be realized within 12 months after the reporting period; or (4) cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. A liability is currerit when it is: (a) expected to be settled in the normal operating cycle; (b) held primarily for trading; (c) due to be settled within 12 months after the reporting period; or (d) there is no unconditional right to defer the settlement of the liability for at least 12 months after the reporting period. ‘The Company classifies all other assets and lfabilities as noncurrent. Deferred tax assets and liabilities are classified as noncurrent. inancial Assets and Financial Liabilities Date of Recognition. The Company recognizes a financial asset or a financial ability in the statements of financial position when it becomes a party to the contractual provisions of a financial instrument. in the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is done using settlement date accounting. Initial Recognition and Measurement. 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 initfal measurement of financial instruments, except for those designated at fair Value through profit and loss (FVPL), includes transaction cost, “Day 1" Difference, Where the transaction in a non-active market is different from the fair value of other observable current market transactions in the 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” difference) in profit or loss. In cases where there is no observable data on inception, the Company deems the transaction price as the best estimate of fair value and recognizes “Day 1” difference in profit or loss 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” difference. Classification. The Company classifies its financial assets at initial recognition under the following categories: (a) financial assets at FVPL, (b) financial assets at amortized cost and (c) financial assets at fair value through other comprehensive income (FVOCI). Financial liabilities, on the other hand, are classified as either financial liabilities at FVPL or financial liabilities at amortized cost, The classification of a financial instrument largely depends on the Company's business model and its contractual cash flow characteristics.Financial Assets and Liabilities at FVPL. Financial assets and ttabilities at FVPL are either classified as held for trading or designated at FVPL. A financial instrument is classified as held for trading if it meets either of the following conditions: + it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term; * on initial recognition, it is part of a portfolio of identified financial instruments that are ‘managed together and for which there fs evidence of a recent actual pattern of short-term profit-taking; or + it isa derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument). This category includes equity instruments which the Company had not irrevocably elected to classify at FVOCI at initial recognition. This category includes debt instruments whose cash flows are not “solely for payment of principal and interest” assessed at initlal recognition of the assets, for which are not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell. ‘The Company may, at initial recognition, designate a financial asset or financial liability meeting the criteria to be classified at amortized cost or at FVOCI, as a financial asset or financial liability, at FVPL, if doing so eliminates or significantly reduces accounting mismatch that would arise from measuring these assets or liabilities. After initial recognition, financial assets at FVPL and held for trading financial liabilities are subsequently measured at fair value. Unrealized gains or losses arising from the fair valuation of financial assets at FVPL and held for trading financial liabilities are recognized in profit or loss. For financial liabilities designated at FVPL under the fair value option, the amount of change in fair value that is attributable to changes in the credit risk of that liability fs recognized in other comprehensive income (rather than in profit or loss), unless this creates an accounting mismatch. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss. ‘As at December 31, 2018 and 2017, the Company does not have financial assets and liabilities at FVPL. Financial Assets at Amortized Cost. Financial assets shall be measured at amortized cost if both of the following conditions are met: ‘+ the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and ‘+ the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding. After initial recognition, financial assets at amortized cost are subsequently measured at amortized cost using the effective interest method, less allowance for impairment, if any. 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 profit or loss when the financial assets are derecognized and through amortization process. Financial assets at amortized cost are included under current assets if realizability or collectability is within 12 months after the reporting period. Otherwise, these are classified as oncurrent assets. As at December 31, 2018 and 2017, the Company’s cash and trade and other receivables are included under this category (Notes 5 and 6).Financial Assets at FVOCI. For debt instruments that meet the contractual cash flow characteristic and are not designated at FVPL under the fair value option, the financial assets shall be measured at FVOCI if both of the following conditions are met: ‘+ the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and selling the financial assets; and ‘+ the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding. For equity instruments, the Company may irrevocably designate the financial asset to be measured at FVOCI in case the above conditions are not met. Financial assets at FVOC! are initially measured at fair value plus transaction costs. After initial recognition, interest income (calculated using the effective interest rate method), foreign currency gains or losses and impairment losses of debt instruments measured at FVOCI are recognized directly in profit or loss, When the financial asset is derecognized, the cumulative gains or losses previously recognized in OCI are reclassified from equity to profit or loss as a feclassification adjustment, Dividends from equity instruments held at FVOCI are recognized in profit or loss when the right to receive payment is established, unless the dividend clearly represents a recovery of part of the cost of the investment. Foreign currency gains or losses and unrealized gains or losses from ‘equity instruments are recognized in OCI and presented in the equity section of the statements of financial position. ‘These fair value changes are recognized in equity and are not reclassified to profit or loss in subsequent periods. -As at December 31, 2018 and 2017, the Company does not have financial assets at FVOCI. Financial Liabilities at Amortized Cost. Financial liabilities are categorized as financial liabilities at amortized cost when the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to settle the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of its own equity instruments. These financial liabilities are initially recognized at fair value less any directly attributable transaction costs. After initial recognition, these financial liabilities are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking {nto account any discount or premium on the issue and fees that are an integral part of the effective interest rate. Gains and losses are recognized in profit or loss when the liabilities are derecognized or through the amortization process. As at December 31, 2018 and 2017, the Company’s liabilities arising from its accounts payable and other current liabilities, excluding statutory liabilities, are included under this category (Note 10). Reclassification ‘The Company reclassifies its financial assets when, and only when, it changes its business model for managing those financial assets. The reclassification is applied prospectively from the first day of the first reporting period following the change in the business model (reclassification date). For a financial asset reclassified out of the financial assets at amortized cost category to financial assets at FVPL, any gain or loss arising from the difference between the previous amortized cost of the financial asset and fair value is recognized in profit or loss. For a financial asset reclassified out of the financial assets at amortized cost category to financial assets at FVOCI, any gain or loss arising from a difference between the previous amortized cost of the financial asset and fair value is recognized in OCI.For a financial asset reclassified out of the financial assets at FVPL category to financial assets at amortized cost, its fair value at the reclassification date becomes its new gross carrying amount. For a financial asset reclassified out of the financial assets at FVOCI category to financial assets at amortized cost, any gain or loss previously recognized in OCI, and any difference between the new amortized cost and maturity amount, are amortized to profit or loss over the remaining life of the investment using the effective interest method. If the financial asset is subsequently impaired, any gain or loss that has been recognized in OC is reclassified from equity to profit or loss. In the case of a financial asset that does not have a fixed maturity, the gain or loss shall be recognized in profit or loss when the financial asset is sold or disposed. If the financial asset is subsequently impaired, any previous gain or oss that has been recognized in OCI is reclassified from equity to profit or loss. For a financial asset reclassified out of the financial assets at FVPL category to financial assets at FVOCI, its fair value at the reclassification date becomes its new gross carrying amount, Meanwhile, for a financial asset reclassified out of the financial assets at FVOCI category to financial assets at FVPL, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment at the reclassification date, Impairment of Financial Assets at Amortized Cost and FVOCI ‘The Company records an allowance for “expected credit loss” (ECL). ECL is based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive. The difference is then discounted at an approximation to the asset's original effective interest rate. For trade receivables, the Company has applied the simplified approach and has calculated ECLs based on the lifetime expected credit losses. The Company has established a provision matrix that fs based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. For debt instruments measured at amortized cost and FVOCI, the ECL is based on the 12-month ECL, which pertains to the portion of lifetime ECLs that result from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since initial recognition, the allowance will be based ‘on the lifetime ECL. When determining whether the credit risk of a financial asset has increased significantly since initial recognition, the Company compares the risk of a default occurring on the financial instrument as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of significant increases in credit risk since initial recognition. Derecognition of Financial Assets and Liabilities Financial Assets. A financial asset (or where appticable, a part of a financial asset or part of a group of similar financial assets) is derecognized when: * the right to receive cash flows from the asset has expired; * the Company retains the right to receive cash flows from the financial 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 right to receive cash flows from the financial 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 right to receive cash flows from a financial asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of ownership of the financial asset nor transferred control of the financial asset, the financial asset is recognized to the extent of the Company's continuing involvement in the financial asset. Continuing involvement that takes the form of a guarantee over the transferred financial asset is measured at the lower of the original carrying amount of the financial asset and the maximum amount of consideration that the Company could be required to repay. Financial Liabilities. A financial ability fs derecognized when the obligation under the liability is discharged, cancelled or has expired. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing Wability 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 comprehensive income. ‘A modification is considered substantial if the present value of the cash flows under the new terms, including net fees paid or received and discounted using the original effective interest rate, is different by at least 10% from the discounted present value of remaining cash flows of the original liability. ‘The fair value of the modified financial liability is determined based on its expected cash flows, discounted using the interest rate at which the Company could raise debt with similar terms and conditions in the market. The difference between the carrying value of the original liability and fair value of the new liability is recognized in the statements of comprehensive income. ‘On the other hand, if the difference does not meet the 10% threshold, the original debt is not extinguished but merely modified, In such case, the carrying amount is adjusted by the costs or fees paid or received in the restructuring, Offsetting of Financial Assets and Liabilities Financial assets and financial liabilities are offset and the net amount reported in the statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is 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 statements of financial position, Classification of Financial Instrument between Liability and Equity A financial instrument is classified as liability if it provides for a contractual obligation to: + Deliver cash or another financial asset to another entity; * 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.Inventories The Company recognizes inventories when the risk and rewards are transferred to the Company usually upon receipt from suppliers The purchase price and costs incurred in bringing each product to its present location are accounted for as follows: Raw Materials. All costs directly attributable to acquisition such as the purchase price and other taxes that are not subsequently recoverable from taxing authorities are included as part of costs of these inventories. Finished Goods - First-In, First-Out Method. Finished goods include the cost of raw materials, direct labor and a proportion of manufacturing overheads based on normal operating capacity. Inventories are valued at the lower of cost and net realizable value (NRV)._ NRV of finished goods is the estimated selling price in the ordinary course of business, less the estimated costs of completion of production and the estimated costs necessary to make the sale. NRV of raw materials and supplies is the current replacement cost. ‘When inventories are sold, the carrying amount of those inventories is recognized to profit or loss {in the period when the related revenue is recognized. Other Assets Other current assets consist of tools and spare parts, creditable withholding tax (CWT) and input value added tax (VAT). Tools and Spare Parts - First-In, First-Out Method. All costs directly attributable to acquisition of tools and spare parts are included as part of costs. Tools and spare parts are valued at the lower Of cost and NRV. NRV of tools and spare parts is the current replacement cost. GWT represents the amount withheld by the Company's customers in relation to its income, CWT can be utitized as payment for income taxes provided that these are properly supported by certificates of creditable tax withheld at source subject to the rules on Philippine income taxation. 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. Deferred input VAT represents the unamortized amount of input VAT on capital goods. Deferred input VAT that are expected to be claimed against output VAT for no more than 12 months after the reporting date are classified as current assets. Otherwise, these are classified as noncurrent assets. The net amount of tax recoverable from, or payable to, the taxation authority is included as part of “other current assets” or “Accounts payable and other current liabilities” accounts in the statements of financial position. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and any accumulated ‘impairment in value. Such cost includes the cost of replacing part of the property and equipment at the time the cost is incurred, if the recognition criteria are met, and excludes the costs of day- to-day servicing. 10‘The initial cost of property and equipment comprises its construction cost or 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. 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. Major repairs are capitalized as part ‘of property and equipment only when itis probable that future economic benefits associated with the items will flow to the Company and the cost of the items can be measured reliably. Depreciation, which commences when the assets are available for their intended use, is computed using the straight-line method over the following estimated useful lives of the assets: Number of Years Building 20 Building improvements 340 Machinery and equipment. 5-10 Leasehold improvements 10 ‘Transportation equipment 5 Office equipment, furniture and fixtures 3 Computer software 3 ‘The remaining useful lives, residual values and depreciation method are reviewed and adjusted periodically, if appropriate, to ensure that such periods and method of depreciation are consistent with the expected pattern of economic benefits from the iterns of property and equipment. The carrying amounts of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable. Fully depreciated assets are retained in the accounts until they are no longer in use, ‘An item of property and equipment is derecognized when either it has been disposed of or when {tis permanently withdrawn from use and no future economic benefits are expected from its use or disposal. Any gain or loss arising from the retirement and disposal of an item of property and equipment (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in the separate statements of income in the period of retirement and disposal. Impairment of Non-Financial Assets ‘The carrying amounts of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indication exists, and if the carrying amount exceeds the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of the asset fs the greater of fair value less costs to sell and value fn use. The fair value less costs to sell fs the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, less costs of disposal. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life, In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount 1s determined for the cash-generating unit to which the asset belongs. impairment losses are recognized in the separate statements of income in those expense categories consistent with the function of the impaired asset. "1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, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the separate statements of income. After such a reversal, the depreciation 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. Fair Value Measurements ‘The Company measures a number of financial and non-financial assets and tiabilities at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, The fair value measurement {s based on the presumption that the transaction to sell the asset or transfer the liability takes place either: (a) in the principal market for the asset or liability; or (b) in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or most advantageous market must be accessible to the Company. ‘The fair value of an asset or liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best ‘economic interest. ‘The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable ‘inputs and minimizing the use of unobservable inputs. ‘All assets and liabilities for which fair value is measured or disclosed in the separate financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: * Level 1: quoted prices (unadjusted) in active market for identical assets or abilities; "Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and * Level 3: inputs for the asset or liability that are not based on observable market data. For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re- assessing the categorization at the end of each reporting period. For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy. 2Provisions Provisions are recognized when: (a) the Company has a present obligation (legal or constructive) ‘as a result of past events; (b) itis 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 retiable estimate ‘of the amount of the obligation can be made. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recognized ‘as a separate asset only when it is virtually certain that reimbursement will be received. The ‘amount recognized for the reimbursement shall not exceed the amount of the provision. Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. 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 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. Capital Stock and Additional Paid-in Capital Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares are recognized as a deduction from equity, net of any tax effects. Retained Earnings Retained earnings represent the accumulated net income or losses, net of any dividend distributions and other capital adjustments. Appropriated retained earnings represent that portion which is restricted and therefore not available for any dividend declaration. Other Comprehensive Income (Loss) Other comprehensive income (loss) Comprises items of income and expense, including items previously presented under the statements of changes in equity, that are not recognized in profit or loss for the year. Other comprehensive income (loss) of the Company pertains to remeasurement gain (loss) on retirement benefits. Revenue Recognition Revenue from contract with customers is recognized when the performance obligation in the contract has been satisfied, either at a point in time or over time. Revenue is recognized over time if one of the following criteria is met: (a) the customer simultaneously receives and consumes the benefits as the Company perform its obligations; (b) the Company's performance creates or enhances an asset that the customer controls as the asset is created or enhanced; or (c) the Company's performance does not create an asset with an alternative use to the Company and the Company has an enforceable right to payment for performance completed to date. Otherwise, revenue is recognized at a point in time. The Company also assesses its revenue arrangements to determine if itis acting as a principal or as an agent. The Company has assessed that it acts as a principal in all of its revenue sources. Interest. Revenue is recognized as the interest accrues, taking into account the effective yield on the asset. Other income is recognized when earned. Costs and Expenses Costs and expenses are decreases in economic benefits during the accounting period in the form of outflows or decrease of assets or incurrence of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Expenses are recognized when incurred. BRetirement Benefits Short-term Employee Benefits. The Company recognizes a liability net of amounts already paid and an expense for services rendered by employees during the accounting period. A liability is also recognized for the amount expected to be paid under short-term cash bonus if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Short-term employee benefit tfabilities are measured on an undiscounted basis and are expensed as the related service is provided. Retirement Benefits. Retirement benefit costs are actuarially determined using the projected unit credit method, which reflects services rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries. ‘The Company recognizes service costs, comprising of current service costs, past service costs, gains and losses on curtailments and non-routine settlements and net interest expense or income in profit or loss. Net interest is calculated by applying the discount rate to the net retirement Uability or asset. Past service costs are recognized in profit or loss on the eartfer of the date of the plan amendment or curtailment and the date that the Company recognizes restructuring-related costs. Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit obligation) are recognized immediately in other comprehensive income in the period in which these arise. Remeasurements are not reclassified to profit or loss in subsequent periods. ‘The retirement liability is the aggregate of the present value of the defined benefit obligation and the fair value of plan assets out of which the obligations are to be settled directly. The present value of the retirement liability is determined by discounting the estimated future cash ‘outflows using interest rate on government bonds that have terms to maturity approximating the terms of the related retirement liability, ‘Actuarial valuations are made with sufficient regularity so that the amounts recognized in the financial statements do not differ materially from the amounts that would be determined at the reporting date. Leases The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after the inception of the lease only if one of the following applies: (@ there is a change in contractual terms, other than a renewal or extension of the arrangement; () a renewal option fs exercised or an extension is granted, unless the term of the renewal or extension was initially included in the lease term; (© there is @ change in the determination of whether fulfillment is dependent on a specific asset; or (@ there fs a substantial change to the asset. ‘Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gives rise to the reassessment for scenarios (a), (c) or (d), and at the date of renewal or extension perlod for scenario (b) above. 14Operating Lease ‘Company as Lessee. Leases which do not transfer to the Company substantially all the risks and rewards of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the separate statements of income on a straight-line basis over tthe lease term. Associated costs such as maintenance and insurance are expensed as incurred, Foreign Currency Translations Transactions in foreign currencies are translated to the functional currency of the Company at ‘exchange rates at the dates of the transactions. Monetary assets and monetary liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the reporting date. Nonmonetary assets and nonmonetary liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date the fair value was determined. Nonmonetary items in foreign currencies that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on translation are recognized in the separate statements of income, except for differences arising on the translation of AFS financial assets, a financial liability designated as an effective hedge of the net investment in a foreign operation or qualifying cash flow hedges, which are recognized in other comprehensive income. Taxes Current Tax. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax relating to items recognized directly in equity 1s recognized in equity and not in the separate statements of income. The Company periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretations and establishes provisions where appropriate. Deferred Tax. Deferred tax is recognized using the liability method in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax liabilities are recognized using the liability method 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 shares of stock of subsidiaries, 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, 5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 shares of stock of subsidiaries, 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 reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow atl or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting 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. ‘The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Current tax and deferred tax are recognized in the statements of income, except to the extent that ft relates to a business combination, or items recognized directly in equity or in other comprehensive 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. Related Parties Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to. common control and significant influence. Related parties may be individuals or corporate entities. Contingencies Contingent liabilities are not recognized in, the financial statements. They are disclosed in the notes to the financial statements 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 in the notes to the financial statements when an inflow of economic benefits is probable. Events After the Reporting Date Post year-end events that provide additional information about the Company's financial position at the reporting 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. 16“4, Use of Judgements, Estimates and Assumptions ‘The preparation of the financial statements in accordance with PFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts of assets, liabilities, income and expenses reported in the separate financial statements at the reporting date. However, uncertainty about these judgments, estimates and assumptions could result in an outcome that could require a material adjustment to the carrying amount of the affected asset or liability in the future. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions are recognized in the period in which the judgments and estimates are revised and in any future period affected. Judgments in the process of applying the accounting policies, the Company has made the following judgments, apart from those involving estimations, which have an effect on the amounts recognized in the financial statements: Operating Lease Commitments - Company as Lessee. The Company has entered into lease agreements for the lease of office space asa lessee. The Company has determined that the lessor retains all the significant risks and rewards of ownership of the property. Accordingly, the lease is classified as operating lease. Rent expense recognized in the statements of income amounted to P8.8 million and R10.1 million in 2018 and 2017, respectively (Note 18). Classifying Financial Instruments. The Company exercises judgments in classifying a financial instrument, or its component parts, on initial recognition as a financial asset, a financial liability, ‘or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial asset or liability. The substance of a financial instrument, rather than its legal form, governs its classification in the statements of financial position. Assessing going concern assumption. The Company's management has made an assessment on the Company's ability to continue as a going concer and is satisfied that the Company has the resources to continue their business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern. Estimates and Assumptions The key estimates and assumptions used in the financial statements are based upon the Company's evaluation of relevant facts and circumstances as at the date of the financial statements. Actual results could differ from such estimates. Estimating Allowance for Expected Credit Losses on Recelvables. 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 collectability of the accounts, These factors include, but are not limited to, the length of the Company's relationship with the counterparties, the 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 the recorded expenses for any period would differ if the Company made different judgments or utilized different methodologies. An increase in the allowance for impairment losses would ‘increase the recorded costs and expenses and decrease current assets. ‘The provision for expected credit losses on receivables amounted to P2.5 million and RO.9 million in 2018 and 2017, respectively, The allowance for expected credit losses on receivables amounted to R41.2 million and P38.7 million as at December 31, 2018 and 2017, respectively (Note 6). "7‘The carrying amounts of trade and other receivables amounted to R72.8 million and P85.9 million as at December 31, 2018 and 2017, respectively (Note 6). Assessing Net Realizable Value of inventories. ‘The Company recognizes impairment losses on inventories whenever its net realizable values becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes. Estimates of selling price less cost to complete and sell are based on the most reliable evidence available at the time the estimates are made of the amount the inventories are expected to be ealized, These estimates take into consideration fluctuations of price or cost directly relating to events occurring after reporting date to the extent that such events confirm conditions existing at reporting date. The allowance account is reviewed periodically to reflect the accurate valuation in the financial records. ‘The provision for inventory write down and losses amounted to P11,126 and P217,180 in 2018 and 2017, respectively. Allowance for inventory write down and losses amounted to PO.3 million as at December 31, 2018 and 2017 (Note 7). ‘The carrying value of inventories amounted to R78.7 million and R74.5 million as at December 31, 2018 and 2017, respectively (Note 7). Estimating Useful Lives of Property and Equipment. The Company estimates the useful tives of property and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of property 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 property and equipment is based on collective assessment of industry practice, internal technical evaluation and experience with similar assets. itis possible, however, that future financial performance 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 property and equipment and jnvestment property would increase the recorded costs and expenses and decrease noncurrent assets, ‘There were no changes in the estimated useful lives of property and equipment as at December 31, 2018 and 2017. The carrying value of depreciable property and equipment amounted to P243.4 million and 262.9 million as at December 31, 2018 and 2017, respectively (Note 9). Assessing Impairment of Non-Financial Assets. PFRS requires that an impairment review be performed on property and equipment when events or changes tn circumstances indicate that the carrying amount may not be recoverable. Determining the recoverable amounts of these 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 amounts and any resulting impairment loss could have a material adverse impact on the financial performance, ‘The Company assessed that its property and equipment with the carrying amounts of 243.4 milion and R262.9 million at December 31, 2018 and 2017, respectively, are not impaired (Note 9). 8Assessing Realizability of Deferred Tax Assets. The Company reviews its deferred tax assets at each reporting 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 assets to be utilized. The Company's assessment on the recognition of deferred tax assets on deductible temporary differences and carryforward benefits of CIT and NOLCO fs based on the projected taxable income in the following periods. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered. The deferred tax assets amounted to P12.4 million and 13.9 million as at December 31, 2018 and 2017, respectively (Note 16). Determining Retirement Liability. The determination of the obligation and cost of retirement benefits is dependent on the assumptions determined by management and used by the actuary in calculating such amounts. These assumptions are described in Note 15 to financial statements and include, among others, discount rate and salary increase rate. Actual results that differ from ‘the Company's assumptions are accumulated and recognized in other comprehensive income, therefore, generally affect the recognized expense and recorded obligation in such future years, Retirement assets amounted to R2.2 million and R0.9 million as at December 31, 2018 and 2017, respectively (see Note 15). 5. Cash This account consists of: 2018 2017 Tash on hand 20,081 20,000, Cash in banks 22,415,206. 36,322,457 22,435,287 36,342,457 Cash in banks earn interest at bank deposit rates. Interest income from cash in banks amounted ‘to P40, 152 and R76,659 in 2018 and 2017, respectively. %. Trade and Other Receivables ‘This account consists of: Note 2018 2017 ‘Trade receivables 17 _R105,179,188 __PID1,444,732 Advances to suppliers 6,958,683 2,234,189 Others 2,576,927 864,861 174,714,798 124,543,782 Less allowance for impairment losses (41,914,996) (38,682,574) R72,799,802 55,861,208 Trade receivables with related parties and third parties are unsecured, non-interest bearing and has normal credit terms of 30 to 60 days. ‘Advances to supplier pertains to down payments for contractual services or purchasing of materials. This will be applied against subsequent billings. Other receivables consist of emergency loans, communication advances, and advances to officers and employees which are subject to liquidation. 19‘As at December 31, 2018 and 2017, the aging of receivables is as follows: 2018 ovr roa aan Owed by Owed by Related other Related other Parties Recolvables Total Parles __ Recehatles Total tore FIG,tA7, 556 925,207,134 Fa4, 444,090 PRL,718,340 abe 851 959,583,607 Paste 111030 dave 10879,204 4722s 19,351,705 ,976,465 976,406 31 to devs s721960 2.817.255 4539815, 2081092 23051892 it to 90 days ye Syaaes han Samant ver 90 dy 2a3,069 __42)966)320___43,249;3 24,160,106, aA 0,186 Faz, 034,889 680,909 FI, 714,798 PTB. 67E 21 PECL EE 4 3,702 Majority of the receivables pertain to related party accounts that were not impaired, and are collectible based on historical payment behavior and analyses of the underlying counterparty credit ratings. There are no significant changes in the credit quality of the counterparties. Movements of allowance for impairment loss on trade and other receivables follows: Note 2018 2017 Beginning balance 38,682,574 37,810,647 Impairment 13 5,609,927 2,881,140 Reversal 3 (2,377,505) (2,009,215) Ending balance 41,914,996 P38,682,574 7. Inventories This account consists of: 2018 2017 Raw materials 76,875,951 74,453,520 Finished goods 116,345 337,884 78,992,296 74,791 ,A04 Allowance for dectine in value (275,090) (286,216) 78,717,206 ___®74,505,188 The cost of inventories used amounted to R111.2 million and R106.3 million in 2018 and 2017, respectively (Note 12). ‘There were neither restrictions on title, contractual commitments nor inventories pledged as security for liabilities as at December 31, 2018 and 2017. Movements of allowance for decline in value of inventories follows: Note 2018 2017 Beginning balance 286,216 F503, 396 Reversal 12 (11,126) (217,180), Ending balance 275,090 P286,216 208. Other Current Assets This account consists of: 2018 2017 ‘Tools and spare parts 10,299,786 10,147,938 Creditable withholding tax 5,976,171 3,183,422 Deferred input VAT 3,879,724 424,908 Input VAT ‘480,004 - Others 942,084 236,488 ¥29,577,769___ 13,992,756 Tools and spare parts are composed of belts, blade, bearings, ink inductor motors and boards which are to be used in maintenance of the machinery. Others include prepaid insurance for fire, auto and truck, life and accident, office and janitorial supplies. aTO0ZLE trea 30°Ee [so'siza 89 0s0"orea 7CRTTaE TUES UA SOEGPLd —9OW'GLIA OG OhEd _—LLSSON9ECA a 685° 6S)"Sta Fea LOE, 68 LIE BIOZ DUE T1071 BAUD W 68°Z10E FOB LIE “SUORIPPY - : L407 ‘i Aenwer 3 auowyedust pene nwnsoy EE eRL eee SERIE ego Tey WzevER'S Z90°S12"95 Bor Te Rau = = Toor'azz"o1) usa (cea‘ose) - - 7 yesodsig BOF‘ Le bov‘zor gee'sze'oz zh6'94a'e vorippy ose‘zsy2 _sza‘Ees‘tz ss‘G9z'9ly osi‘aes‘es L102 "1¢ seque2e0 66E°LLS ‘981096 ‘s60°85r HZ. 98" SuORIPPY bsp’see'l § —_Zho“eLe‘IZ 995"687'26E £2‘ 196'8 Lh07 , Arenuer uonezpuowe pue uopepeidep pere|nuinsoy WSOC vELGOSTZ 59406 Gre LOF IS BEL UELL HOT TE Ra ~ - ~ WevL6e ON) = (ceo‘est'y) - : : soe'eer’y - w6r'so6'hz_. s9s‘or6 za0'bLe‘eS9 GELLE6'LL L102 “te sequeced 3¥ erate - - uses - SUOTIPDY HOp'9ZL'6SLd SSL‘6OR'Ed ——F6Z"EOE'IZA—S9L“OLEd ©—=SOP‘ODL‘Lb9E IL'IL9'BA —GEL'L66'LLA sor *b Areruee ay 350) ToL quandnbs samy Ruewanodi] —waudinbs —suewendidan SupIIma uopeiodsues, pueoimyuin, ployesee] —pue Kaupey SuIpIING ue quowdinbs eso :moy}oy qunodDe siif Jo uUISAOW pue UOAIsodWo> juauidinbg pue Auadold “6Depreciation and amortization is presented as follows: Note 2018 2017 Cost of services 12 B25,147,709 26,363,200 General and administrative expenses 13 133,408 428,599 25,281,117 P26,791,799 In 2018, the Company sold transportation equipment amounting to BO.4 million resulting to a gain on sale of 0.3 miltion (Note 14). The costs of fully depreciated property and equipment still in use amounted to P73.7 million and 274.8 million as at December 31, 2018 and 2017, respectively. There were neither restrictions on title, contractual commitments nor property and equipment pledged as security for liabilities. The Company has no contractual commitments for the acquisition of asset. 70. Trade and Other Payables This account consists of: Note 2018 2017 ‘Trade payables 28,484,430 P59,897,613 Statutory liabilities Deferred output VAT 10,203,361 11,953,608 Output VAT 3,488,922 1,097,053 Withholding taxes 212,922 280,523 SS, Phithealth and HOMF 308,903 265,409 Accrued expenses 1,382,615 34,933, Others 198,500, 2,541,351 47__P44,279,653___P76,065,490 ‘Trade payables represent purchases from local suppliers and various importations of goods for printing materials. These are non-interest bearing and has normal credit terms of 30 to 120 days. ‘Trade and other payables to related parties are unsecured, non-interest bearing and has a normal credit terms of 30 days. ‘Accrued expenses are related to audit fees, utilities, payroll, outsourced service, and other employee benefits which are payable in the succeeding month, 11. Capital Stock Details of capital stock follows as at December 31, 2018 and 2017 follows: Shares Amount Authorized, issued and outstanding = F100 par value 5,000,000 500,000,00012. Costs of Services ‘This account consists of: Note 2018 2017 Inventories used 7 W1i1,192,656 _F106,285,428 Direct labor 17,710,242 19,465,213, Factory overhead Outsourced services 22,036,222 27,213,418 Depreciation and amortization 9 25,147,709 26,363,200 Utilities 15,093,662 14,771,196 Printing and other supplies 13,391,395 14,924,344 Rent 18 8,878,783, 10,104,545 Indirect labor 8,069,090 7,864,804 Repairs and maintenance 6,806,529 8,522,868 ‘Taxes and licenses 1,370,420 1,357,343 Shuttle services 1,038,246 58,151 Recovery of decline in value of inventories 7 (11,126) (217,180) Others 2,268,449 2,945,239 232,992,277 __¥239,658,566 13, General and Administrative Expenses This account consists of: Note 2018 2017 Utiities 3,422,634 3,498,499 Provision for impairment loss on: Trade and other receivables 6 3,232,422 871,925 Property and equipment a - 3,017,893 Taxes and licenses 2,049,496 3,453,379 Salaries and allowances 1,878,010 1,673,640 Outside services 1,870,073 2,444,626 ‘Transportation and travel 1,069,852 1,296,191 Advertising and promotions 840,674 93,816 Commission 837,416 41,284,723 Professional fees 394,939 389,594 ‘Communication 241,567 255,482 Insurance 196,535 76,977 Depreciation and amortization 9 133,408 428,599 Supplies 129,000 188,399 Retirement benefits expense 15 105,374 130,761 Meetings and conferences, 89,738 158,843 Repairs and maintenance 72,770 258,514 Others 185,358 467,759 16,749,266 589,62014, Other Operating Income (Expense) This account consists of: Note 2018 2017 Scrap sales 4,512,388 4,393,771 Gain on disposal of property and equipment, 9 295,104 : Others (1,576,532) (706,698) 3,230,960 3,687,073 15, Retirement Benefits ‘The Company is a participant in a trusted, funded, non-contributory retirement plan providing for retirement, death, disability and separation benefits to all regular and full time employees of the participating affiliated companies. Net retirement benefits asset is broken down as follows: 2018 2017 Present value of the obligation 187,064,187) __(F8,596,296) Fair value of plan assets 9,279,507 9,499,653 Retirement benefits asset 2,215,320 903,357 Retirement benefits expense follow: 2018 2017 Current service cost 1,045,140 7,085,890 Interest expense 504,506 471,303 Interest income (650,980) (448,492) Transferred liability 102,374 436,540 1,107,040, PT,545,247 Movements in the retirement asset (liability) follow: Present value Fair value cof obligation __of plan assets Total edecernber 37, 2016 (68,727,835) 8,305,415 (PAR2, 420) Movements during the year= Current service cost (1,085,890) : (1,085,890) Interest (expense) income (471,303) 448,492 2,811) Remeasurement gain (loss) 998,762 3,990 1,002,752 Transferred liability (436,540) - (436,540) Contributions to the fund - 1,868,266 1,868,266 Benefits paid 4,126,510 (4,126,510) 7 731,538 4,194,238 7,305,777 Ae December 31, 2077 18,596,296 79,499,651 7903, 357 Present value Fair value cof obligation __of plan assets. Total ‘Ae December 37, 2077 (78,596,296) 499,653 7903, 357 Movements during the ye Current service cost (4,045,140) . (1,045,140) Interest (expense) income (504,506) 550,980 46,474 Remeasurement gain (\oss) 2,026,544 (1,201,743) 824,801 ‘Transferred lability (102,374) - (102,374) Contributions to the fund : 4,588,202 1,588,202 Benefits paid 4,157,585 (4,157,585), - 1,532,109 (220, 145) 7,317,565 December 31, 2018 F 7,064,187) 79,279,507 72,215,320