1. art and entertainment
2. movies and tv
3. television

COVER SHEET
August 13, 2009
1 8 0 3
SEC Registration Number
A B S - C B N
A N D
B R O A D C A S T I N G
C O R P O R A T I O N
S U B S I D I A R I E S
(Company’s Full Name)
A B S - C B N
S G T .
MO .
B R O A D C A S T
E S G U E R R A
I G N A C I A
Q U E Z O N
S T .
S T .
C E N T E R
C O R N E R
D I L I M A N
C I T Y
(Business Address: No. Street City/Town/Province)
Rolando P. Valdueza
415-2272
(Contact Person)
(Company Telephone Number)
0 6
3 0
1 7 Q
Month
Day
(Form Type)
Month
Day
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
6,805
Total No. of Stockholders
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
ABS-CBN BROADCASTING CORPORATION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(b)(2) THEREUNDER
1. For the fiscal year ended June 30, 2009
2. SEC Identification Number 1803
3. BIR Tax Identification No. VAT 000-406-761-000
4. Exact name of issuer as specified in its charter: ABS-CBN BROADCASTING CORPORATION
5. Philippines
Province, Country or other jurisdiction of
incorporation or organization
6.
(SEC Use Only)
Industry Classification Code
7. ABS-CBN Broadcasting Center, Sgt. Esguerra st. cor Mo Ignacia St., Quezon City 1103
Address of principal office
8. (632) 924-41-01 to 22 / 415-2272
Issuer's telephone number, including area code
9. Not applicable
Former name, former address, and former fiscal year, if changed since last report.
10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA
Title of Each Class
Common Stock, =P1.00 par value
Number of Shares of Common Stock Outstanding
and Amount of Debt Outstanding
779,584,602
Short-term & Long-term debt (current & non-current)
=P9,513 million
11. Are any or all of these securities listed on a Stock Exchange.
Yes [x]
No [ ]
If yes, state the name of such stock exchange and the classes of securities listed therein:
Philippine Stock Exchange
Class A
12. Check whether the issuer:
(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section
11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the
Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was
required to file such reports);
Yes [x]
No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes [x]
No [ ]
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item 1
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Item 2
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
PART II -- OTHER FINANCIAL INFORMATION
Exhibit 1 Aging of Accounts Receivable
Exhibit 2 Business Segment & Geographical Segment Results
Exhibit 3 Roll-forward of PPE
SIGNATURES
MANAGEMENT’S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE 1ST HALF OF 2009
ABS-CBN Broadcasting Corporation generated consolidated revenues of P11.7 billion in
the first six months of 2009, 14% higher than consolidated revenues in the first half of
2008.
Airtime revenues of P6.7 billion for the first half of the year reflect an overall growth of
6% year-on-year. Airtime revenues in the second quarter of P3.96 billion is 12% higher
than last year’s, reversing the first quarter’s 3% year-on-year revenue decline due to
slow January and February airtime sales.
Consolidated direct sales amount to P4.97 billion for the first half of 2009, nearly P1.1
billion or 28% more than in the same period last year. This includes Skycable’s revenue
contribution to-date of P1.79 billion. (ABS-CBN’s financial results include the
contributions of Skycable for the 1st and 2nd quarters of 2009 and the 2nd quarter of
2008.)
Tight control of production costs and operating expenses limited the increase in total
expenses from core businesses to only 6%, which stood at P8.67 billion for the first half
of the year. Total expenses reached P10.4 billion, an increase of 16% year-on-year, after
Skycable’s operating expenses are included.
EBITDA in the second quarter jumped P370 million or 22% year-on-year to P2 billion,
bringing first half 2009 EBITDA to P3.37 billion, and posting a P692 million or 26%
improvement over EBITDA in the first six months last year. EBITDA margin for the
period is 29%, 2 percentage points better than in the same period last year.
ABS-CBN’s first half 2009 net income of P813 million is an 8% year-on-year
improvement. The combined benefit of stronger consolidated revenue growth and a
tight rein on spending helped ABS-CBN deliver profits of P621 million in the second
quarter, a 21% year-on-year gain, after yielding only P191 million in the first quarter of
the year.
Revenues
ABS-CBN Broadcasting Corporation generated consolidated revenues of P11.7 billion in
the first six months of 2009.
Airtime revenues of P6.7 billion, including Skycable’s airtime revenue contribution of
P58 million, accounted for 57% of consolidated revenues in the first half of the year.
Consolidated direct sales of P4.97 billion for the period improves the share of direct
sales to consolidated revenues to 43%, from 39% at the end of 2008. This includes
Skycable’s subscription and other service revenues to-date of P1.79 billion. Skycable’s
share of consolidated revenues is about 15% for the first half of 2009.
Amounts in million Pesos
Airtime revenue
Direct Sales
Sale of Services
Sale of Goods
Core Business
Add: SkyCable revenues
Consolidated revenues
1H09
6,661
Consolidated
Variance
1H08
Amount
%
6,339
322
5
3,009
2,761
225
274
9,895 9,374
1,790
879
11,685 10,253
248
(49)
521
911
1,432
9
(18)
6
104
14
Airtime Revenues
ABS-CBN strengthened its offerings for the primetime and afternoon blocks in the first
half of the year.
Weekday afternoon drama programs like Kambal Sa Uma and Precious Hearts
Romances, hooked and engaged female viewers. Weekday primetime shows such as the
widely-followed May Bukas Pa, the comedy drama I Love Betty La Fea, the touching and
heart-rending dramas Tayong Dalawa, Only You, Boys over Flowers, and and the
entertainment news program Showbiz News Ngayon or SNN, all had something to offer
both male and female viewers, young and old.
This program line-up boosted ABS-CBN’s ratings and audience shares in the first half of
the year to reach new heights and reaffirm Channel 2’s national ratings leadership.
Coming from a TNS National Urban Philippines TV ratings score of 16% in February, a
three ratings point lead over GMA 7, Channel 2 increased its lead to 6 ratings points by
reaching nationwide total-day ratings of 18.2% in June and 18.6% in July, versus its
competitor’s ratings of 13%.
National primetime ratings of Channel 2 likewise widened its six-ratings point lead in
February —at 28%, versus GMA 7’s 22%—to ten ratings points, at 29.7% in June and
30.2% in July against GMA 7’s 19.8%.
ABS-CBN’s national audience shares for its primetime programs reached the 50% mark
in June and July, from 48% in April, versus GMA 7’s 36% to 34% from April to June.
For the month of July, ABS-CBN programs held the top 11 most watched programs
nationally. ABS-CBN’s weekday primetime programs held the top 4 slots. Wowowee, a
daytime program, also reached the top 10, besting all of competition’s primetime
programs.
Strong ratings translated into higher airtime revenues. From low sales levels in January
and February, airtime revenues rebounded, posting a record breaking P1.4 billion in
May.
Consolidated airtime revenues from all platforms reached P6.72 billion, P355 million or
6% better than it was in the same period last year.
The company’s consolidated airtime revenues in the 2nd quarter rose by P423 million or
12% year-on-year to reach P3.96 billion, recovering from the 1st quarter’s 2% airtime
revenue decline against the 1st quarter of 2008’s airtime revenues.
Parent company revenues of P6.15 billion from free TV and radio grew 3% year-on-year
for the first half of the year. Airtime sales from our seven cable channels also registered
strong growth of 62% year-on-year. Skycable delivered an additional P58 million of
airtime revenues in the first six months of 2008.
Amounts in million Pesos
Parent airtime revenue
Other platforms
Gross airtime revenues
Add: SkyCable airtime revenues
Consolidated Gross airtime revenues
1H09
6,151
510
6,661
58
6,719
Consolidated
Variance
1H08
Amount %
5,946
205
3
393
117 30
6,339
322
5
25
33 132
6,364
355
6
Direct Sales
Direct sales from core businesses rose by P199 million or 7% to P3.2 billion in the first
six months of the year.
ABS-CBN Global continued to deliver double-digit growth in peso terms in the sale of
both services and goods. Despite an economic recession in most developed economies,
ABS-CBN Global’s subscription base still managed to grow by 8%.
ABS-CBN Film Productions, Inc.’s five film releases in the first half of the year yielded
close to P700 million in box office receipts. Three of these surpassed P100 million in
box-office receipts.
Skycable’s revenue contribution from subscription and other service revenues for the
first half of 2009 reached P1.73 billion, an increase of P878 million or 103% from its
contribution in the first half of 2008, driven by strong subscription growth in prepaid
cable TV and broadband services.
Skycable’s revenue performance boosted total direct sales in the first half of the year to
P4.97 billion pushing direct sales growth for the period to 28% year-on-year.
Amounts in million Pesos
ABS-CBN Global
Other subsidiaries
Direct Sales from core businesses
Add: SkyCable sale of services
Total Direct Sales
1H09
2,438
797
3,235
1,732
4,967
Consolidated
Variance
1H08
Amount %
2,219
219 10
817
(20) (2)
3,036
199
7
854
878 103
3,890
1,077 28
Expenses
The increase in total expenses from core businesses excluding Skycable was kept to only
6% by tight control of production costs and operating expenses, to close the first half at
P8.7 billion.
Amounts in million Pesos
Production Cost
General and Administrative Expenses
Cost of Sales and Services
Agency commission, incentives &
Co-prod share
Other expenses (income)
Total Expenses from core businesses
Add: Skycable expenses
Total Expenses
1H09
2,939
2,553
1,743
1,209
229
8,673
1,742
10,415
Consolidated
Variance
1H08
Amount
%
2,949
(10)
0
2,442
110
5
1,593
150
9
1,214
(27)
8,171
813
8,984
(5)
0
256 (948)
502
6
929
114
1,431
16
Consolidating Skycable’s contributions to total expenses of P1.74 billion for the first six
months of this year, total expenses reached P10.4 billion, or a 16% increase from P9.0
billion in the same period last year.
Production Costs
Production costs for the first half of 2009 is P10 million lower than in the same period
last year at P2.94 billion even as the number of locally produced afternoon and
primetime programs increased.
Total cash production costs went down by P108 million or 5% year-on-year to P2.24
billion from savings from facilities-related and other program expenses due to
continuing production process improvements and tighter control of production crew
and equipment deployment. However, these cash production cost savings were largely
offset by higher depreciation expenses from new broadcast and production equipment.
Amounts in million Pesos
Personnel expenses and talent fees
Facilities-related expenses
Other program expenses
Sub-total: Cash production costs
Non-cash production cost
Total production cost
1H09
1,304
529
405
2,238
701
2,939
Consolidated
Variance
1H08
Amount %
1,309
(5)
0
542
(13) (2)
495
(90) (18)
2,346
(108) (5)
603
98 16
2,949
(10)
0
Cost of Sales and Services
Total cost of sales and services from core businesses including ABS-CBN Global reached
P1.7 billion in the first six months of the year, a 9% increase from last year.
Nearly sixty percent of total cost of sales and services is accounted for by ABS-CBN
Global. The main cost drivers for ABS-CBN Global are higher satellite costs in North
America, Europe, the Middle East and Australia, as well as bandwidth costs in Canada
for IPTV services.
Amounts in million Pesos
ABS-CBN Global
Other subsidiaries
Cost of sales from core businesses
Add: SkyCable cost of sales
Total Cost of Sales
1H09
1,005
739
1,743
621
2,365
Consolidated
Variance
1H08
Amount %
904
101 11
688
51
7
1,593
150
9
256
365 143
1,849
516 28
Skycable’s contribution to cost of sales and services in the first half of 2009 amounted to
P621 million, an increase of P365 million or 143% from its contribution in the same
period last year. The cost of sales of Skycable for the 2nd quarter is P313 million, an
increase of P57 million or 22% from the 2nd quarter of 2008.
With the inclusion of Skycable’s cost of sales, total cost of sales went up to P2.37 billion
an increase of P516 million or 28% year-on-year.
General and Administrative Expenses
Operating expenses of core businesses — or General and Administrative Expenses
(GAEX) — increased by P111 million or 5% year-on-year to P2.55 billion. The increase
in operating expenses came mostly from personnel expenses, but were offset by P146
million of savings in facilities-related and other expenses.
Cash GAEX for the first half of the year amounted to P2.2 billion, just P46 million or 2%
higher from last year, while non-cash GAEX went up by P65 million, or 22%.
Amounts in million Pesos
Personnel expenses
Advertising and promotions
Facilities-related expenses
Contracted services
Taxes and licenses
Entertainment, amusement and recreation
Other expenses
Sub-total, Cash GAEX of core businesses
Non-cash GAEX of core businesses
Total GAEX from core businesses
Add: SkyCable GAEX
Total GAEX
1H09
1,209
72
222
285
90
66
250
2,194
359
2,553
1,087
3,640
Consolidated
Variance
1H08
Amount
%
1,055
154
15
64
8
13
245
(23)
(9)
253
32
13
98
(8)
(8)
60
6
10
373
(123) (33)
2,148
46
2
294
65
22
2,442
111
5
491
596 121
2,933
707
24
Skycable’s incremental contribution to total GAEX for the first semester amounts to
nearly P1.1 billion, an increase of P596 million or 121% versus last year. Skycable’s
GAEX in the 2nd quarter amounted to P546 million or an increase of 11% from last year.
Consolidating Skycable’s operating expenses, consolidated GAEX amounts to P3.6 billion
for the first half, an increase of P707 million or 24% over the same period last year.
Net Income
Net income in the 2nd quarter reached P621 million, a 21% year-on-year increase,
boosting net income attributable to shareholders for the first half of 2009 to P813
million. This is a P59 million increase or 8% improvement from the net income of P754
million in the first half of 2008.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the first
semester reached P3.37 billion, 26% better than EBITDA of P2.68 billion in the first half
of 2008. EBITDA margin for the period is 29%, which is 2 percentage points better than
in the same period last year.
Balance Sheet Accounts
Total consolidated assets increased by P2 billion or 6% versus the end-2008 level to
P34.8 billion as at June 30, 2009.
Cash and cash equivalents of P3.45 billion is P924 million or 37% better than the yearend 2008 balance.
Consolidated trade and other receivables stood at P5.6 billion, or 12% more than at the
end of 2008, as trade receivables increased by P617 million or 13% to P5.2 billion.
Days sales outstanding for the period is 80 days, 5 days longer than the 75 days as at
December 31, 2008.
Total interest-bearing loans increased by about P800 million billion from the year-end
2008 balance to P9.5 billion. The parent company’s short-term borrowings increased by
P300 million to fund working capital requirements while Skycable added P500 million
of long-term debt primarily to fund its network expansion .
Shareholder’s equity stands at P15.34 billion, a P190 million or 1% increase over the
value at the end of 2008.
The company’s net debt-to-equity ratio improved slightly to 0.40x versus 0.41x as at
December 31, 2008.
*
*
*
*
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2009 and December 31, 2008
(In Thousands, Except Par Value and Number of Shares)
2009
June
Unaudited
ASSETS
Current Assets
Cash and cash equivalents
Trade and other receivables
Derivative assets
Program rights and other intangible assets - current
Other current assets
Total Current Assets
Noncurrent Assets
Property and equipment at cost - net
Noncurrent program rights and other intangible assets
Goodwill
Deferred tax assets
Other noncurrent assets - net
Total Non Current Assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Trade and other payables
Income tax payable
Obligations for program rights - current
Interest-bearing loans and borrowings - current
Total Current Liabilities
Noncurrent Liabilities
Interest-bearing loans and borrowings - net of current portion
Obligations for program rights - net of current portion
Deferred tax liabilities - net
Accrued pension obligation
Asset retirement obligation
Other noncurrent liabilities - net
Total Noncurrent Liabilities
Stockholders' Equity
Capital Stock - P1 par value
Authorized - 1,500,000,000 shares
Issued - 779,583,312 shares
Capital paid in excess of par value
Cumulative translation adjustments
Retained earnings
Philippine depositary receipts convertible to common shares
Total Stockholers' Equity attributable to Equity holders of Parent Company
Minority Interest
Total Stockholders' Equity
2008
December
Audited
3,447,880
5,643,000
1,317,390
1,536,507
11,944,777
2,524,254
5,040,139
16,223
1,439,876
1,099,747
10,120,240
14,604,015
2,240,109
1,905,035
599,204
3,553,103
22,901,465
34,846,241
14,735,554
2,170,856
1,906,211
603,191
3,299,621
22,715,433
32,835,673
6,283,773
841,835
1,113,320
998,088
9,237,017
5,642,073
489,963
1,063,365
1,131,783
8,327,184
8,514,733
118,009
662,708
753,845
15,861
206,171
10,271,327
7,582,621
151,994
632,600
791,936
17,787
184,149
9,361,087
779,583
725,276
(127,979)
14,246,623
(375,201)
15,248,302
89,595
15,337,897
34,846,241
779,583
725,276
(169,514)
14,121,335
(376,324)
15,080,356
67,046
15,147,402
32,835,673
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Statement of Income and Expenses
For the period ended June 30
(Unaudited)
(In Thousands)
For the quarter ended
June 30
2009
2008
REVENUES
Airtime revenues
Sale of services
Sale of goods
EXPENSES (INCOME)
General and administrative
Production costs
Cost of sales and services
Agency commission, incentives and co-producers' share
Finance costs
Finance revenue
Equity in net losses of associates
Foreign exchange (gain) loss - net
Other income
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX
NET INCOME
Attributable to :
Equity holders of Parent Company
Minority Interest
EBITDA
For the period ended
June 30
2009
2008
3,955,610
2,326,340
115,761
6,397,711
3,532,298
2,349,059
106,944
5,988,301
6,719,239
4,741,223
225,484
11,685,945
6,364,702
3,615,235
274,052
10,253,989
1,929,052
1,485,961
1,213,910
696,906
232,748
(15,494)
58
24,418
(104,119)
5,463,441
934,270
294,086
640,184
1,816,576
1,434,731
1,114,747
662,551
174,363
(19,971)
(477)
16,552
(92,496)
5,106,577
881,725
348,639
533,086
3,639,925
2,938,599
2,364,703
1,209,122
476,427
(52,173)
58
56,633
(218,098)
10,415,195
1,270,750
441,402
829,348
621,382
18,801
640,184
511,993
21,093
533,086
812,715
16,633
829,348
753,519
22,860
776,379
2,016,731
1,646,358
3,368,569
2,676,827
0.810
0.666
1.059
0.981
2,932,323
2,949,177
1,848,650
1,214,287
301,359
(62,776)
(5,064)
(4,136)
(189,266)
8,984,554
1,269,435
493,055
776,379
EARNINGS PER SHARE (EPS)
Basic EPS
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
June 30, 2009 and June 30, 2008
(In Thousands, Except Per Share Amounts)
At January 1, 2009
Prior period adjustments
At January 1, 2009, as restated
Increase (Decrease) in Minority Interest
Cash flow hedges
Amortization of initial CTA
Cash dividend declared
Translation adjustments during the year
Unrealized fair value gain on available-for-sale investment
Total income and expense for the year recognized directly in equity
Net income
Total income and expense for the year
Issuance/ Receipt of treasury shares
At June 30, 2009
Capital
Stock
779,583
779,583
779,583
Capital
in Excess of
Par Value
725,276
725,276
725,276
At January 1, 2008
Prior period adjustment
At January 1, 2008, as restated
Increase (Decrease) in Minority Interest
Cash flow hedges
Amortization of initial CTA
Cash dividend declared
Translation adjustments during the year
Unrealized fair value gain on available-for-sale investment
Total income and expense for the year recognized directly in equity
Net income
Total income and expense for the year
Issuance/ Receipt of treasury shares
At June 30, 2008
779,583
779,583
779,583
725,276
725,276
725,276
Attributed to equity holders of parent
Excess of
Acquisition
Cumulative
Cost over the
Unappropriated
Appropriated
Translation
Carrying Value
Retained
Retained
Adjustments of Minority Int
Earnings
Earnings
(169,514)
5,821,335
8,300,000
(169,514)
5,821,335
8,300,000
(687,427)
880
40,655
41,535
(687,427)
812,715
41,535
125,288
(127,979)
5,946,623
8,300,000
(257,861)
(257,861)
222,419
22,501
244,920
244,920
(12,941)
-
5,052,202
5,052,202
(643,156)
(643,156)
753,519
110,363
5,162,565
8,300,000
8,300,000
8,300,000
Philippine
Depository
Receipts
Convertible to
Common Shares
(376,324)
(376,324)
1,123
(375,201)
Total
15,080,356
15,080,356
(687,427)
880
40,655
(645,892)
812,715
166,823
1,123
15,248,302
(323,967)
(323,967)
(11,760)
(335,727)
14,275,233
14,275,233
(643,156)
222,419
22,501
(398,236)
753,519
355,283
(11,760)
14,618,756
Minority
Interest
67,046
67,046
5,917
5,917
16,633
22,550
89,596
Total
Equity
15,147,402
15,147,402
5,917
(687,427)
880
40,655
(639,975)
829,348
189,372
1,123
15,337,897
45,894
45,894
75,067
-
14,321,127
14,321,127
75,067
(643,156)
222,419
22,501
(323,169)
776,379
453,210
(11,760)
14,762,577
75,067
22,860
97,927
143,821
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
For the period ended June 30
(Unaudited)
(In Thousands)
For the quarter ended
June 30
2009
2008
CASH FLOWS FROM OPERATING ACTIVITIES
Income from before income tax
Adjustments for :
Depreciation
Interest expense
Amortization of :
Program rights and other intangibles
Debt issue cost
Deferred charges
Provisions for :
Retirement expense
Other employee benefit
Doubtful accounts
Inventory obsolescence
Interest income
Equity in net losses of investees
Mark to market (gain) loss
Unrealized foreign exhange (gain) loss
Gain on sale of property and equipment
Operating income before working capital changes
Decrease (increase) in :
Trade and other receivables
Program rights and other intangible assets
Other current assets
Increase (decrease) in :
Trade and other payables
Obligations for program rights
Payment of accrued pension obligation
Cash generated from operations
Income tax paid
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment
Decrease (increase) in :
Other non-current assets
Long-term receivables from a related party
Interest received
Proceeds from sale of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of :
Long-term debt
Interest and other financial charges
Bank loans
Capital lease
Cash dividends
Proceeds from :
Bank loans
Long-term debt
Cash received from settlement of derivatives
Net cash used in financing activities
EFFECTS OF EXCHANGE RATE & TRANSLATION ADJUSTMENTS ON CASH
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
For the period ended
June 30
2009
2008
934,270
881,725
1,270,750
1,269,435
568,012
214,777
442,342
161,709
1,120,728
445,392
761,910
280,306
328,108
7,930
-
198,139
5,828
-
589,620
14,827
-
444,233
11,460
-
40,717
25,684
44,264
300
(15,494)
58
407
(478)
2,148,555
62,830
24,688
52,797
300
(19,971)
(477)
(1,901)
9,083
1,817,092
88,534
51,271
80,976
600
(52,173)
58
1,233
29,368
3,641,184
102,919
43,153
73,033
600
(62,776)
(5,064)
(1,901)
(16,824)
2,900,483
(296,850)
(232,181)
(401,119)
(159,101)
24,383
(283,460)
(679,601)
(246,233)
(687,668)
(148,447)
(211,722)
(952,633)
150,282
(174,710)
(20,820)
1,173,157
130,500
1,303,656
(71,213)
(118,663)
(17,113)
1,191,925
(105,370)
1,086,555
603,269
(274,067)
(126,624)
2,230,259
154,051
2,384,310
385,671
(201,664)
(54,238)
1,717,450
317,922
2,035,372
(446,174)
(498,656)
(987,801)
(717,449)
10,192
(58)
10,790
(425,251)
64,696
22,078
20,027
4,932
(386,924)
(196,611)
(58)
47,938
(1,136,533)
(362,365)
11,473
62,846
8,616
(996,878)
(45,686)
(196,416)
(21,875)
(31,986)
(687,427)
(3,375)
(151,202)
(49,481)
(643,156)
(16,000)
(413,564)
(21,875)
(104,228)
(687,427)
(3,375)
(262,201)
(129,097)
(643,156)
500,000
(483,390)
43,354
438,370
3,009,510
3,447,880
591,250
(255,965)
7,676
451,343
2,559,159
3,010,502
900,000
0
(343,095)
18,943
923,626
2,524,254
3,447,880
591,250
(446,579)
272,809
864,724
2,145,778
3,010,502
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands Unless Otherwise Specified)
1. Summary of Significant Accounting Policies
Basis of Preparation
The consolidated financial statements of ABS-CBN and all its subsidiaries (collectively
referred to as “the Company”) have been prepared on a historical cost basis, except for
derivative financial instruments and available-for-sale (AFS) investments that have been
measured at fair value.
The consolidated financial statements are presented in Philippine Peso, which is the functional
and presentation currency of the Parent Company. All values are rounded to the nearest
thousand, except when otherwise indicated.
Statement of Compliance
The consolidated financial statements of the Company have been prepared in compliance with
Philippine Financial Reporting Standards (PFRS) issued by the Philippine Financial Reporting
Standards Council.
Changes in Accounting Policies
Amended PFRS and Philippine Interpretations. The Company has adopted the following
Philippine Interpretations which became effective January 1, 2008 and amendments to
existing standards which became effective July 1, 2008:
Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions
This interpretation requires arrangements whereby an employee is granted rights to an
entity’s equity instruments to be accounted for as an equity-settled scheme by the entity
even if (a) the entity chooses or is required to buy those equity instruments (e.g., treasury
shares) from another party, or (b) the shareholder(s) of the entity provide the equity
instruments needed. It also provides guidance on how subsidiaries, in their separate
financial statements, account for such schemes when their employees receive rights to the
equity instruments of the parent. This interpretation did not have an impact to the
Company as it currently does not have any stock option plan.
Philippine Interpretation IFRIC 12, Service Concession Arrangements
This interpretation applies to service concession operators and explains how to account
for the obligations undertaken and rights received in service concession arrangements.
This interpretation did not have an impact to the Company as it has no service concession
arrangements.
Philippine IFRIC 14, Philippine Accounting Standards (PAS) 19 - The Limit on a Defined
Benefit Asset, Minimum Funding Requirements and their Interaction
This interpretation provides guidance on how to assess the limit on the amount of surplus
in a defined benefit scheme that can be recognized as an asset under PAS 19, Employee
Benefits. This interpretation did not have an impact to the Company as all defined benefit
schemes are currently not fully funded.
Amendments to PAS 39, Financial Instruments: Recognition and Measurement, and
PFRS 7, Financial Instruments: Disclosures - Reclassification of Financial Assets
The amendments allow reclassification of certain held-for-trading investments to either
held-to-maturity (HTM), loans and receivables or AFS financial instruments and certain
AFS to loans and receivables. The Company does not have investments eligible for
reclassification under the amendments.
Voluntary Change in Accounting for Acquisition of Minority Interest. In 2008, the Company
changed its accounting for acquisition of minority interest from entity concept method to
parent entity extension method to be aligned with the accounting policy of Benpres Holdings
Corporation (Benpres), its intermediate holding company. Under parent entity extension
method, the difference between the fair value of the consideration and the net book value of
the net assets acquired is presented as goodwill. The change was accounted for retrospectively
and the 2007 consolidated financial statements have been restated. The change resulted in the
increase and decrease in the “Goodwill” and “Excess of acquisition cost over the carrying
value of minority interests”, a separate component of equity, respectively, by =
P20 million.
There was no impact on the consolidated net income for the years ended December 31, 2007
and 2006.
Basis of Consolidation
The consolidated financial statements include the financial statements of the Parent Company
and its subsidiaries. Control is normally evidenced when the Parent Company owns, either
directly or indirectly, more than 50% of the voting rights of an entity’s capital stock.
Following is a list of the subsidiaries or companies, which ABS-CBN controls as of June 30,
2009, December 31, 2008 and 2007:
Company
ABS-CBN Global Ltd.
(ABS-CBN Global) (a) (l)
ABS-CBN International (b) (l)
ABS-CBN Australia Pty. Ltd.
(ABS-CBN Australia) (b) (l)
ABS-CBN Telecom North
America, Inc.) (b) (l)
The Filipino Channel Canada,
ULC (ABS-CBN
Canada)(b) (c) (l)
ABS-CBN Europe Ltd.
(ABS-CBN Europe) (b) (d) (l)
ABS-CBN Japan, Inc.
(ABS-CBN Japan) (b) (e) (l) (m)
ABS-CBN Middle East FZ-LLC
(ABS-CBN Middle East) (b) (l)
ABS-CBN Middle
East LLC (b) (l)
Place of
Incorporation
Cayman Islands
California, USA
Victoria, Australia
California, USA
Principal Activities
Holding company
Functional
Currency
United States Dollar
(USD)
USD
Cable and satellite
programming services
Cable and satellite
Australian Dollar
programming services
(AUD)
Telecommunications
USD
Ownership Interest
2008
2007
2009
100.0 100.0 100.0
98.0
98.0
98.0
100.0
100.0
100.0
100.0
100.0
100.0
Canada
Cable and satellite
Canadian Dollar
programming services
(CAD)
100.0
100.0
100.0
United Kingdom
Cable and satellite
programming services
Cable and satellite
programming services
Cable and satellite
programming services
Trading
Great Britain Pound
(GBP)
Japanese Yen (JPY)
100.0
100.0
100.0
100.0
100.0
100.0
USD
100.0
100.0
100.0
USD
100.0
100.0
100.0
Japan
Dubai, UAE
Dubai, UAE
Company
E-Money Plus, Inc. (b)
Place of
Incorporation
Philippines
Functional
Currency
Philippine Peso
Ownership Interest
2008
2007
2009
100.0 100.0 100.0
Philippine Peso
100.0
100.0
100.0
ABS-CBN Center for
Communication Arts, Inc. (f)
ABS-CBN Film Productions, Inc.
(ABS-CBN Films)
ABS-CBN Interactive, Inc.
(ABS-CBN Interactive)
ABS-CBN Multimedia, Inc.
(ABS-CBN Multimedia)
(see Note 11) (g)
ABS-CBN Integrated and
Strategic Property
Holdings, Inc.
ABS-CBN Publishing, Inc.
(ABS-CBN Publishing)
Philippines
Principal Activities
Services – money
remittance
Educational/training
Philippines
Movie production
Philippine Peso
100.0
100.0
100.0
Philippines
Services – interactive
Philippine Peso
media
Digital electronic content Philippine Peso
distribution
100.0
100.0
100.0
100.0
100.0
100.0
Philippines
Real estate
Philippine Peso
100.0
100.0
100.0
Philippines
Print publishing
Philippine Peso
100.0
100.0
100.0
Culinary Publications, Inc. (h)
Creative Programs, Inc. (CPI)
Philippines
Philippines
70.0
100.0
70.0
100.0
70.0
100.0
Professional Services for
Television & Radio, Inc.
Sarimanok News Network, Inc.
Philippines
Print publishing
Philippine Peso
Content development and Philippine Peso
programming services
Services - production
Philippine Peso
100.0
100.0
100.0
Philippine Peso
100.0
100.0
100.0
Sky Films, Inc. (i)
Philippines
Philippine Peso
–
–
100.0
Star Recording, Inc.
Philippines
Philippine Peso
100.0
100.0
100.0
Star Songs, Inc.
Studio 23, Inc. (Studio 23)
Philippines
Philippines
Philippine Peso
Philippine Peso
100.0
100.0
100.0
100.0
100.0
100.0
TV Food Chefs, Inc.
Philippines
Philippine Peso
100.0
100.0
100.0
Roadrunner Network, Inc.
(Roadrunner)
Sky Cable Corporation
(Sky Cable) (see Note 4)
Bright Moon Cable
Networks, Inc. (j)
Cavite Cable Corporation (j)
Cepsil Consultancy and
Management Corporation (j)
HM Cable Networks, Inc. (j)
HM CATV, Inc. (j)
Hotel Interactive Systems, Inc. (j)
Isla Cable TV, Inc. (j)
Satellite Cable TV, Inc. (j)
Sunvision Cable, Inc. (j)
Sun Cable Holdings,
Incorporated (SCHI) (j)
Tarlac Cable Television
Network, Inc. (j)
JMY Advantage Corporation (j)
Suburban Cable Network, Inc. (j)
Discovery Cable, Inc. (j)
Home-Lipa Cable, Inc. (j)
Pilipino Cable Corporation
(PCC) (j) (k)
Bisaya Cable Television
Network, Inc. (j)
Moonsat Cable Television, Inc. (j)
Sun Cable Systems Davao, Inc. (j)
Telemondial Holdings, Inc.
(THI) (j) (k)
First Ilocandia CATV, Inc. (j)
Mactan CATV Network, Inc. (j)
Philippines
Content development and
programming services
Services - film
distribution
Audio and video
production and
distribution
Music publishing
Content development and
programming services
Services - restaurant and
food
Services - post production
Philippine Peso
98.9
98.9
98.9
Philippines
Cable television services
Philippine Peso
65.3
65.3
–
Philippines
Cable television services
Philippine Peso
65.3
65.3
–
Philippines
Philippines
Cable television services
Cable television services
Philippine Peso
Philippine Peso
65.3
65.3
65.3
65.3
–
–
Philippines
Philippines
Philippines
Philippines
Philippines
Philippines
Philippines
Cable television services
Cable television services
Cable television services
Cable television services
Cable television services
Cable television services
Cable television services
Philippine Peso
Philippine Peso
Philippine Peso
Philippine Peso
Philippine Peso
Philippine Peso
Philippine Peso
65.3
65.3
65.3
65.3
65.3
65.3
65.3
65.3
65.3
65.3
65.3
65.3
65.3
65.3
–
–
–
–
–
–
–
Philippines
Cable television services
Philippine Peso
65.3
65.3
–
Philippines
Philippines
Philippines
Philippines
Philippines
Cable television services
Cable television services
Cable television services
Cable television services
Cable television services
Philippine Peso
Philippine Peso
Philippine Peso
Philippine Peso
Philippine Peso
62.0
60.7
45.7
39.2
65.3
62.0
60.7
45.7
39.2
65.3
–
–
–
–
–
Philippines
Cable television services
Philippine Peso
65.3
65.3
–
Philippines
Philippines
Philippines
Cable television services
Cable television services
Cable television services
Philippine Peso
Philippine Peso
Philippine Peso
65.3
65.3
65.3
65.3
65.3
65.3
–
–
–
Philippines
Philippines
Cable television services
Cable television services
Philippine Peso
Philippine Peso
59.4
59.4
59.4
59.4
–
–
Philippines
Philippines
Company
Pacific CATV, Inc. (Pacific) (j)
Cebu Cable Television, Inc. (j)
Davao Cableworld Network,
Inc. (j)
Place of
Incorporation
Philippines
Philippines
Philippines
Principal Activities
Cable television services
Cable television services
Cable television services
Functional
Currency
Philippine Peso
Philippine Peso
Philippine Peso
Ownership Interest
2008
2007
2009
59.4
–
59.4
41.8
–
41.8
39.2
–
39.2
(a)
With a branch in the Philippines
(b)
Through ABS-CBN Global
Incorporated and started commercial operations in 2007
(d)
With a branch in Italy
(e)
Incorporated in 2006 and started commercial operations in 2007
(f)
Nonstock ownership interest
(g )
Through ABS-CBN Interactive
(h)
Through ABS-CBN Publishing
(i)
Merged with ABS-CBN Films in 2007
(j)
Through Sky Cable
(k)
Subsidiary of SCHI
(l)
Considered as foreign subsidiaries
(m)
Subsidiary of ABS-CBN Europe
(c)
The financial statements of the subsidiaries are prepared for the same reporting quarter as the
Parent Company, using consistent accounting policies. All significant intra-group balances,
transactions, income and expenses and profits and losses resulting from intra-group
transactions that are recognized in assets and liabilities, are eliminated in full on consolidation.
Unrealized gains and losses are eliminated unless costs cannot be recovered.
Subsidiaries are fully consolidated from the date on which control is transferred to the
Company. Control is achieved when the Company has the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
Consolidation of subsidiaries ceases when control is transferred out of the Company. The
results of subsidiaries acquired or disposed of during the year are included in the consolidated
statement of income from the date of acquisition or up to the date of disposal, as appropriate.
As a result of the conversion of the convertible note in Sky Cable in 2008, the related accounts
of Sky Cable and subsidiaries have been included in the 2008 consolidated financial
statements effective March 15, 2008 (see Note 2).
Minority Interests
Minority interests represent the portion of profit or loss and net assets not held by the
Company and are presented separately in the consolidated statement of income and within the
equity section of the consolidated balance sheet, separately from equity attributable to equity
holders of the Parent Company. This includes the equity interests in ABS-CBN International,
Culinary Publications, Inc., Roadrunner and Sky Cable and its subsidiaries.
Acquisition of minority interest is accounted for using the parent entity extension method,
whereby, the difference between the fair value of the consideration and net book value of the
share in the net assets acquired is presented as goodwill.
The proportionate amount of the fair values of identifiable assets and liabilities upon
acquisition of a consolidated subsidiary and any subsequent changes in equity of a
consolidated subsidiary attributable to a minority shareholder’s interest are shown separately
as “Minority interests” in the consolidated balance sheet. A minority shareholder’s interest in
the results of operations of a subsidiary is shown as “Minority interests” in the consolidated
statement of income. Any losses applicable to a minority shareholder in a consolidated
subsidiary in excess of the minority shareholder’s equity in the subsidiary are charged against
the minority interest to the extent that the minority shareholder has binding obligation to, and
is able to, make good of the losses.
Business Combination and Goodwill
Business combinations are accounted for using the purchase accounting method. This
involves recognizing identifiable assets (including previously unrecognized intangible assets)
and liabilities (including contingent liabilities and excluding future restructuring) of the
acquired business at fair value.
Goodwill acquired in a business combination is initially measured at cost, being the excess of
the cost of the business combination over the Company’s interest in the net fair value of the
acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial
recognition, goodwill is measured at cost less any accumulated impairment losses. For
impairment testing, goodwill acquired in a business combination is, from the acquisition date,
allocated to each of the Company’s cash-generating units or group of cash-generating units
that are expected to benefit from the synergies of the combination, irrespective of whether
other assets or liabilities of the Company are assigned to those units or groups of units. Each
unit or group of units to which goodwill is allocated represents the lowest level within the
Company at which goodwill is monitored for internal management purposes.
Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and
part of the operation within that unit is disposed of, the goodwill associated with the operation
disposed of is included in the carrying amount of the operation in determining the gain or loss
on disposal of the operation. Goodwill disposed of in this circumstance is measured based on
the relative values of the operation disposed of and the portion of the cash-generating unit
retained.
When subsidiaries are sold, the difference between the selling price and the net assets plus
cumulative translation adjustments and goodwill is recognized in the consolidated statement of
income.
Goodwill on investments in associates is included in the carrying amount of the related
investments.
Functional and Presentation Currency
The consolidated financial statements are presented in Philippine Peso, which is ABS-CBN’s
functional and presentation currency. Each entity determines its own functional currency,
which is the currency that best reflects the economic substance of the underlying events and
circumstances relevant to that entity, and items included in the financial statements of each
entity are measured using that functional currency.
The functional currency of all the subsidiaries, except foreign subsidiaries, is the Philippine
Peso. The functional currencies of the foreign subsidiaries are disclosed under the Basis of
Consolidation section. As of reporting date, the assets and liabilities of foreign subsidiaries
are translated into the presentation currency of the Company (the Philippine Peso) at the rate
of exchange ruling at balance sheet date and, their statements of income are translated at the
weighted average exchange rates for the quarter. The exchange differences arising on the
translation are taken directly to “Cumulative translation adjustments” account within the
equity section of the consolidated balance sheet. Upon disposal of any of these foreign
subsidiaries, the deferred cumulative amount recognized in equity relating to that particular
foreign entity will be recognized in the consolidated statement of income.
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of
three months or less and that are subject to an insignificant risk of change in value.
Financial Instruments
Date of Recognition. Financial instruments are recognized in the consolidated balance sheet
when the Company becomes a party to the contractual provisions of the instrument. Purchases
or sales of financial assets that require delivery of assets within the time frame established by
regulation or convention in the marketplace are recognized using the trade date. Derivatives
are recognized on trade date basis.
Initial Recognition of Financial Instruments. All financial instruments are initially recognized
at fair value. The initial measurement of financial instruments includes transaction costs,
except for securities at fair value through profit or loss (FVPL). The Company classifies its
financial assets in the following categories: financial assets at FVPL, HTM investments, loans
and receivables and AFS investments. Financial liabilities are classified as either financial
liabilities at FVPL or other financial liabilities at amortized cost. The classification depends
on the purpose for which the investments were acquired and whether they are quoted in an
active market. Management determines the classification of its investments at initial
recognition and, where allowed and appropriate, re-evaluates such designation at every
reporting date.
Determination of Fair Value. The fair value of financial instruments traded in organized
financial markets is determined by reference to quoted market bid prices or dealer price
quotations (bid price for long positions and ask price for short positions), without any
deduction for transaction costs, that are active at the close of business at balance sheet date.
When current bid and asking prices are not available, the price of the most recent transaction
is used since it provides evidence of current fair value as long as there has not been 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. Such techniques include using reference to similar
instruments for which observable prices exist, discounted cash flows analyses, and other
relevant valuation models.
Day 1 Profit. Where the transaction price in a non-active market is different to the fair value
from 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 profit) in the
consolidated statement of income. In cases where use is made of data which is not observable,
the difference between the transaction price and model value is only recognized in the
consolidated statement of income when the inputs become observable or when the instrument
is derecognized. For each transaction, the Company determines the appropriate method of
recognizing the “Day 1” profit amount.
Financial Assets and Liabilities at FVPL. Financial assets and liabilities at FVPL include
financial assets and liabilities held for trading and financial assets and liabilities designated
upon initial recognition as at FVPL. Financial assets and liabilities are classified as held for
trading if they are acquired for the purpose of selling in the near term.
Derivatives are also classified under financial assets or liabilities at FVPL, unless they are
designated as hedging instruments in an effective hedge.
Financial assets or liabilities may be designated by management at initial recognition as at
FVPL if any of the following criteria are met:
The designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or recognizing gains or losses on them on a
different basis;
The assets and liabilities are part of a group of financial assets, liabilities or both which
are managed and their performance are evaluated on a fair value basis in accordance with
a documented risk management 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 recorded.
Financial assets or liabilities at FVPL are recorded in the consolidated balance sheet at fair
value. Subsequent changes in fair value are recognized directly in the consolidated statement
of income. Interest earned or incurred is recorded as interest income or expense, respectively,
while dividend income is recorded as other income according to the terms of the contract, or
when the right of payment has been established.
The Company’s embedded derivative instruments are classified under this category.
Loans and Receivables. Loans and receivables are nonderivative 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 classified as at FVPL, designated as
AFS financial assets or HTM investments. After initial measurement, loans and receivables
are subsequently carried at amortized cost using the effective interest rate method, less any
allowance for impairment. Gains and losses are recognized in the consolidated statement
income when the loans and receivables are derecognized or impaired, as well as through the
amortization process.
Loans and receivables are included in current assets if maturity is within 12 months from
balance sheet date. Otherwise, these are classified as noncurrent assets.
This category includes the Company’s cash and cash equivalents, trade and other receivables,
and long-term receivables from related parties.
HTM Investments. Quoted nonderivative financial assets with fixed or determinable payments
and fixed maturities are classified as HTM investments when the Company’s management has
the positive intention and ability to hold to maturity. Investments intended to be held for an
undefined period are not included in this category. After initial measurement, HTM
investments are measured at amortized cost. This cost is computed as the amount initially
recognized minus principal repayments, plus or minus the cumulative amortization using the
effective interest rate method of any difference between the initially recognized amount and
the maturity amount, less allowance for impairment. This calculation includes all fees paid or
received between parties to the contract that are an integral part of the effective interest rate,
transaction costs and all other premiums and discounts.
Gains and losses are recognized in the consolidated statement of income when the investments
are derecognized or impaired, as well as through the amortization process.
The Company has no HTM investments as of June 30, 2009 and December 31, 2008.
AFS Financial Assets. AFS financial assets are those nonderivative financial assets that are
designated as AFS or are not classified in any of the three preceding categories. After initial
measurement, AFS financial assets are measured at fair value, with unrealized gains or losses
being recognized as a separate component of equity until the investment is derecognized or
determined to be impaired, at which time the cumulative gain or loss previously reported in
equity account is included in the consolidated statement of income.
AFS financial assets are included in current assets if management intends to sell these
financial assets within 12 months from balance sheet date. Otherwise, these are classified as
noncurrent assets.
The Company’s AFS financial assets include investments in ordinary common shares.
Other Financial Liabilities. Financial liabilities are classified in this category if these 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.
Other financial liabilities are initially recognized at fair value of the consideration received,
less directly attributable transaction costs. After initial recognition, other financial liabilities
are subsequently measured at amortized cost using the effective interest rate method.
Amortized cost is calculated by taking into account any related issue costs, discount or
premium. Gains and losses are recognized in the consolidated statement of income when the
liabilities are derecognized, as well as through the amortization process.
Expenditures incurred in connection with availments of long-term debt are deferred and
amortized using effective interest rate method over the term of the loans. Debt issue costs are
netted against the related long-term debt allocated correspondingly to the current and
noncurrent portion.
Classified under other financial liabilities are trade and other payables, interest-bearing loans
and borrowings, obligations for program rights and customers’ deposits.
Derivative Financial Instruments and Hedge Accounting
The Company uses derivative financial instruments such as interest rate swaps and cross
currency swaps to hedge its risks associated with interest rate and foreign currency
fluctuations.
Derivative financial instruments are initially recognized at fair value on the date on which a
derivative contract is entered into and are subsequently remeasured at fair value. The fair
value of interest swaps and cross currency swaps is determined by reference to market values
for similar instruments. Derivatives are carried as assets when the fair value is positive and as
liabilities when the fair value is negative. Any gains or losses arising from changes in fair
value on derivatives that do not qualify for hedge accounting are taken directly to the
consolidated statement of income for the current year as mark-to-market gain or loss.
For the purpose of hedge accounting, derivatives can be designated as cash flow hedges or fair
value hedges, depending on the type of risk exposure.
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 ongoing basis to determine that they
actually have been highly effective throughout the financial reporting periods for which they
were designated.
Cash Flow Hedges. Cash flow hedges are hedges of the exposures to variability in cash flows
that are attributable to a particular risk associated with a recognized asset or liability or a
highly probable forecast transaction and could affect the consolidated statement of income.
Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow
hedge are recognized directly in equity, while any hedge ineffectiveness is recognized
immediately in the consolidated statement of income.
Amounts taken to equity are transferred to the consolidated statement of income when the
hedged transaction affects profit or loss, such as when the hedged financial income or
financial expense is recognized or when a forecast sale or purchase occurs. Where the hedged
item is the cost of a nonfinancial asset or liability, the amounts taken to equity are transferred
to the initial carrying amount of the nonfinancial asset or liability.
If the forecast transaction is no longer expected to occur, amounts previously recognized in
equity are transferred to the consolidated statement of income. If the hedging instrument
expires or is sold, terminated or exercised without replacement or rollover, or if its designation
as a hedge is revoked, amounts previously recognized in equity remain in equity until the
forecast transaction occurs. If the related transaction is not expected to occur, the amount is
taken to the consolidated statement of income.
The Company’s interest rates and cross currency swaps designated as cash flow hedges were
terminated in 2007 as a result of the prepayment of the underlying obligation. There are no
outstanding cash flow hedges as of June 30, 2009.
The Company has no derivatives that are designated or accounted for as fair value hedges as
of June 30, 2009 and December 31, 2008.
Embedded Derivatives
An embedded derivative is separated from the host contract and accounted for as derivative if
all the following conditions are met: (a) the economic characteristics and risks of the
embedded derivative are not closely related to the economic characteristic of the host contract;
(b) a separate instrument with the same terms as the embedded derivative would meet the
definition of the derivative; and (c) the hybrid or combined instrument is not measured at
FVPL.
The Company assesses whether embedded derivatives are required to be separated from host
contracts when the Company first becomes party to the contract. Re-assessment only occurs if
there is a change in the terms of the contract that significantly modifies the cash flows that
would otherwise be required.
Impairment of Financial Assets
The Company assesses at each balance sheet date whether a financial asset or group of
financial assets is impaired.
Loans and Receivables. For loans and receivables carried at amortized cost, the Company
first assesses whether an objective evidence of impairment exists individually for financial
assets that are individually significant, and individually or collectively for financial assets that
are not individually significant. If it is determined that no objective evidence of impairment
exists for an individually assessed financial asset, whether significant or not, the asset is
included in a group of financial assets with similar credit risk characteristics and that group of
financial assets is collectively assessed for impairment. Assets that are individually assessed
for impairment and for which an impairment loss is or continues to be recognized are not
included in a collective assessment of impairment.
If there is an objective evidence that an impairment loss on loans and receivables carried at
amortized cost has been incurred, the amount of the loss is measured as the difference between
the asset’s carrying amount and the present value of estimated future cash flows (excluding
future credit losses that have not been incurred) discounted at the financial asset’s original
effective interest rate (i.e., the effective interest rate computed at initial recognition).
The carrying amount of the asset is reduced either directly or through use of an allowance
account and the amount of the loss is recognized in the consolidated statement of income.
Interest income continues to be accrued on the reduced carrying amount based on the original
effective interest rate of the asset. If in case the receivable has proven to have no realistic
prospect of future recovery, any allowance provided for such receivable is written off against
the carrying value of the impaired receivable.
If in a subsequent year, the amount of the estimated impairment loss increases or decreases
because of an event occurring after the impairment was recognized, the previously recognized
impairment loss is increased or reduced by adjusting the allowance account. If a future writeoff is later recovered, the recovery is recognized in the consolidated statement of income. Any
subsequent reversal of an impairment loss is recognized in the consolidated statement of
income, to the extent that the carrying value of the asset does not exceed its amortized cost at
the reversal date.
A provision for impairment is made when there is objective evidence (such as the probability
of insolvency or significant financial difficulties of the debtor) that the Company will not be
able to collect all of the amounts due under the original terms of the invoice. The carrying
amount of the receivable is reduced through use of an allowance account. Impaired debts are
derecognized when they are assessed as uncollectible.
Likewise, for other receivables, it was also established that accounts outstanding for less than
a year should have no provision for impairment but accounts outstanding over a year should
have a 100% provision, which was arrived at after assessing individually significant balances.
Provision for individually non-significant balances was made on a portfolio or group basis
after performing the regular review of the age and status of the individual accounts and
portfolio/group of accounts relative to historical collections, changes in payment terms and
other factors that may affect ability to collect payments.
Assets Carried at Cost. If there is an objective evidence that an impairment loss on an
unquoted equity instrument that is not carried at fair value because its fair value cannot be
reliably measured, or on a derivative asset that is linked to and must be settled by delivery of
such an unquoted equity instrument has been incurred, the amount of the loss is measured as
the difference between the asset’s carrying amount and the present value of estimated future
cash flows discounted at the current market rate of return for a similar financial asset.
AFS Financial Assets. For AFS investments, the Company assesses at each balance sheet date
whether there is objective evidence that a financial asset or group of financial assets is
impaired.
In case of equity investments classified as AFS, impairment indications would include a
significant or prolonged decline in the fair value of the investments below its cost. Where
there is evidence of impairment, the cumulative loss, measured as the difference between the
acquisition cost and the current fair value, less any impairment loss on that financial asset
previously recognized in the consolidated statement of income, is removed from equity and
recognized in the consolidated statement of income. Impairment losses on equity investments
are not reversed through the consolidated statement of income. Increases in fair value after
impairment are recognized directly in equity.
Derecognition of Financial Assets and Liabilities
Financial Assets. A financial asset (or, where applicable a part of a financial asset or part of a
group of similar financial assets) is derecognized where:
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 ‘passthrough’ 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.
Where 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. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of original carrying amount of the
asset and the maximum amount of consideration that the Company could be required to repay.
Financial Liabilities. A financial liability is derecognized when the obligation under the
liability is discharged, cancelled or expires.
Where 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 consolidated statement of income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the
consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset
the recognized amounts and there is an intention to settle on a net basis, or to realize the asset
and settle the liability simultaneously. This is not generally the case with master netting
agreements, and the related assets and liabilities are presented gross in the consolidated
balance sheet.
Inventories
Inventories, included under “Other current assets” account in the consolidated balance sheet,
are valued at the lower of cost or net realizable value. Cost is determined on the weighted
average method. Net realizable value of inventories that are for sale is the selling price in the
ordinary course of business, less the cost of marketing and distribution. Net realizable value
of inventories not held for sale is the current replacement cost. Unrealizable inventories are
written off.
Preproduction Expenses
Preproduction expenses, included under “Other current assets” account in the consolidated
balance sheet, represent costs incurred prior to the airing of the programs or episodes. These
costs include talent fees of artists and production staff and other costs directly attributable to
production of programs. These are charged to expense upon airing of the related program or
episodes. Costs related to previously taped episodes determined not to be aired are charged to
expense.
Property and Equipment
Property and equipment, except land, are carried at cost (including capitalized interest),
excluding the costs of day-to-day servicing, less accumulated depreciation, amortization and
impairment in value. Such cost includes the cost of replacing part of such property and
equipment when that cost is incurred if the recognition criteria are met. Land is stated at cost,
which includes initial purchase price and other cost directly attributable in bringing such asset
to its working condition, less any impairment in value.
Subscriber’s initial installation costs, including materials, labor and overhead costs are
capitalized as distribution equipment (included in the “Television, radio, movie and auxiliary
equipment” account) and depreciated over a period no longer than the depreciation period of
the distribution equipment. The costs of subsequent disconnection and reconnection are
charged to current operations.
Unissued spare parts and supplies represent major spare parts that can be used only in
connection with the distribution equipment. Unissued spare parts and supplies are not
depreciated but tested for impairment until become available for use. These are included in
the “Other equipment” account.
When each major inspection is performed, its cost is recognized in the carrying amount of the
property and equipment as a replacement if the recognition criteria are satisfied.
Depreciation and amortization are computed on a straight-line method over the useful lives of
property and equipment.
The property and equipment’s residual values, useful lives and method of depreciation and
amortization are reviewed, and adjusted if appropriate, at each financial year-end.
Construction in progress represents equipment under installation and building under
construction and is stated at cost which includes cost of construction and other direct costs.
Construction in progress is not depreciated until such time that the relevant assets are
completed and become available for operational use.
An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds and the carrying amount
of the asset) is included in the consolidated statement of income in the year the asset is
derecognized.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is the fair value as at the date of
acquisition. Following initial recognition, intangible assets are carried at cost less any
accumulated amortization in the case of intangible assets with finite lives, and any
accumulated losses. 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 method for an intangible asset with a finite useful life
is reviewed at least at each financial year-end. 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 on intangible assets with finite lives is
recognized in the consolidated statement of income in the expense category consistent with the
function of the intangible asset.
Intangible assets with indefinite useful lives 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.
A summary of the policies applied to the Company’s acquired intangible assets is as follows:
Amortization
Method Used
Impairment
Testing/
Recoverable
Amount Testing
Current and
Noncurrent
Portion
Intangible Asset
Useful Lives
Program Rights
Finite (license term
or economic life,
whichever is
shorter)
Amortized on the
basis of program
usage, except for
CPI, which is
amortized on a
straight-line
method over the
license term or
economic life,
whichever is
shorter.
If the remaining
expected benefit
period is shorter
than the
Company’s initial
estimates, the
Company
accelerates
amortization of the
purchase price or
license fee.
Based on the
estimated year of
usage except CPI,
which is based on
license term.
Story, Music and
Publication Rights
Finite (useful
economic benefit)
Amortized on the
basis of the useful
economic life.
If the remaining
expected benefit
period is shorter
than the
Company’s initial
estimates, the
Company
accelerates
amortization of the
cost.
Based on the
estimated year of
usage.
Movie In-Process
Finite
No amortization,
recognized as
expense upon
showing
If the unamortized
film cost is less
than the fair value
of the film, the
asset is written
down to its
recoverable
amount.
Based on the
estimated year of
usage.
Video Rights and
Record Master
Finite (six months
or 10,000 copies
sold of video discs
and tapes,
whichever comes
first)
Amortized on the
basis of number of
copies sold.
If the remaining
expected benefit
period is shorter
than the
Company’s initial
estimates, the
Company
accelerates
amortization of the
cost.
Current.
Cable Channels CPI
Indefinite
No amortization.
Annually and more Noncurrent.
frequently when an
indication of
impairment exists.
Intangible Asset
Useful Lives
Production and
Distribution
Business - Middle
East
Finite - 25 years
Amortization
Method Used
Amortized on a
straight-line basis
over the period of
25 years.
Impairment
Testing/
Recoverable
Amount Testing
If the remaining
expected benefit
period is shorter
than the
Company’s initial
estimates, the
Company
accelerates
amortization of the
cost.
Current and
Noncurrent
Portion
Noncurrent.
Customer relationships acquired in a business combination (see Note 2) is amortized on a
straight-line basis over the estimated customer service life ranging from three to fifteen years.
Investment Properties
Investment properties, except land, are measured at cost, including transaction costs, less
accumulated depreciation and any impairment in value. The carrying amount includes the
cost of replacing part of an existing investment property at the time the cost is incurred if the
recognition criteria are met, and excludes day-to-day servicing of an investment property.
Land is stated at cost less any impairment in value.
Transfers are made to investment property when, and only when, there is a change in use,
evidenced by ending of owner-occupation, commencement of an operating lease to another
party or ending of construction or development. Transfers are made from investment property
when, and only when, there is a change in use, evidenced by commencement of owneroccupation or commencement of development with a view to sale.
For a transfer from investment property to owner-occupied property or inventories, the cost of
property for subsequent accounting is its carrying value at the date of change in use. If the
property occupied by the Company as an owner-occupied property becomes an investment
property, the Company accounts for such property in accordance with the policy stated under
“Property and Equipment” up to the date of change in use.
Investment properties are derecognized when either they have been disposed of or when the
investment property is permanently withdrawn from use and no future economic benefit is
expected from its disposal. Any gains or losses on the retirement or disposal of an investment
property are recognized in the statement of operations in the year of retirement or disposal.
These are included under “Other noncurrent assets” account in the consolidated balance sheet.
Investments in Associates
The Company’s investments in associates, included as part of “Other noncurrent assets”
account in the consolidated balance sheet, are accounted for under the equity method of
accounting. An associate is an entity over which the Company has significant influence but
not control, generally accompanying a shareholding of between 20% and 50% of the voting
rights.
Under the equity method, investment in associates is carried in the consolidated balance sheet
at cost plus post-acquisition changes in the Company’s share in net assets of the associate.
Goodwill relating to an associate is included in the carrying amount of the investment and is
not amortized. The consolidated statement of income reflects the share on the results of
operations of an associate. When ABS-CBN’s share of losses in an associate equals or
exceeds its interest in the associate, including any other unsecured receivables, ABS-CBN’s
does not recognize further losses, unless it has incurred obligations or made payments on
behalf of the associate. Where there has been a change recognized directly in the equity of the
associate, the Company recognizes its share in any changes and discloses this, when
applicable, in the consolidated statement of changes in equity.
The reporting dates of the associates and the Company are identical and the associates’
accounting policies conform to those used by the Company for like transactions and events in
similar circumstances. Unrealized intercompany profits arising from the transactions with the
associate are eliminated.
Tax Credits
Tax credits from government airtime sales availed under Presidential Decree (PD) No. 1362
are recognized in the books upon actual airing of government commercials and
advertisements. These are included under “Other noncurrent assets” account in the
consolidated balance sheet.
Impairment of Nonfinancial Assets
The Company assesses at each reporting date whether there is an indication that property and
equipment, noncurrent program rights and other intangible assets with finite lives, and tax
credits may be impaired. If any such indication exists, or when annual impairment testing for
an asset is required, the Company makes an estimate of the asset’s recoverable amount. An
asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less
costs to sell and its value in use and is determined for an individual asset, unless the asset does
not generate cash inflows that are largely independent of those from other assets or groups of
assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific
to the asset. Impairment losses are recognized in the consolidated statement of income in
those expense categories consistent with the function of the impaired asset.
For assets excluding goodwill, 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 the consolidated statement of income.
After such a reversal, the depreciation and amortization are 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.
The following criteria are also applied in assessing impairment of specific nonfinancial assets:
Goodwill and Cable Channels. Goodwill and cable channels are reviewed for impairment,
annually or more frequently if events or changes in circumstances indicate that the carrying
value may be impaired. Impairment is determined for goodwill and cable channels by
assessing the recoverable amount of the cash-generating units, to which the goodwill and
cable channels relates. Where the recoverable amount of the cash-generating unit (or group of
cash-generating units) is less than the carrying amount of the cash-generating unit (or group of
cash-generating units) to which the goodwill and cable channels has been allocated, an
impairment loss is recognized in the consolidated statement of income. Impairment losses
relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in
future periods. The Company performs its annual impairment test of goodwill and cable
channels as of December 31 of each year.
Investments in Associates. After application of the equity method, the Company determines
whether it is necessary to recognize any additional impairment loss with respect to the
Company’s net investment in the associate. The Company determines at each balance sheet
date whether there is any objective evidence that the investments in associates are impaired. If
this is the case, the Company calculates the amount of impairment as being the difference
between the fair value of the associate and the acquisition cost and recognizes the amount in
the consolidated statement of income.
Revenue
Revenue is recognized when it is probable that the economic benefits associated with the
transaction will flow to the Company and the amount of the revenue can be measured reliably.
Airtime revenue is recognized as income on the dates the advertisements are aired. The fair
values of barter transactions are included in airtime revenue and the related accounts. These
transactions represent advertising time exchanged for program materials, merchandise or
service.
Sale of services include:
a. Subscription fees which are recognized as follows:
DTH Subscribers and Cable Operators. Subscription fees are recognized under the
accrual basis in accordance with the terms of the agreements.
Share in DirecTV Subscription Revenue. Subscription revenue from subscribers of
DirecTV who subscribe to the “The Filipino Channel” is recognized in accordance with
the Deal Memorandum.
Subscription Revenue from ABS-CBN Now. Subscription revenue from online streaming
services of Filipino-oriented content and programming is received in advance (included as
“Deferred revenue” under “Trade and other payables” account in the consolidated balance
sheet) and is deferred and recognized as revenue over the period during which the service
is performed.
Cable Subscribers. Subscription fees are recognized under the accrual basis in accordance
with the terms of the agreements. Subscription fees billed or collected in advance are
deferred and shown as “Deferred revenue” under “Trade and other payables” account in
the consolidated balance sheet and recognized as revenue when service is rendered.
b. Telecommunications revenue which is recognized when earned. These are stated net of
the share of the other telecommunications carriers, if any, under existing correspondence
and interconnection agreements. Interconnection fees and charges are based on agreed
rates with the other telecommunications carriers.
Income from prepaid phone cards are realized based on actual usage hours or expiration of
the unused value of the card, whichever comes earlier. Income from prepaid card sales for
which the related services have not been rendered as of balance sheet date, is presented as
“Other current liabilities” under “Trade and other payables” account in the consolidated
balance sheet.
c. Channel lease revenue which is recognized as income on a straight-line basis over the
lease term.
d. Income from film exhibition which is recognized, net of theater shares, on the dates the
films are shown.
e. Income from TV rights and cable rights which are recognized on the dates the films are
permitted to be publicly shown as stipulated in the agreement.
f.
Pay-per-view fees are recognized on the date the movies or special programs are viewed.
Sale of goods is recognized when delivery has taken place and transfer of risks and rewards
has been completed. These are stated net of sales discounts, returns and allowances.
Income and related costs pertaining to the sale and installation of decoders and set-top boxes
which has no stand alone value without the subscription revenue are aggregated and
recognized ratably over the longer of subscription contract term or the estimated customer
service life.
Short-messaging-system/text-based revenue, sale of news materials and Company-produced
programs included under “Sale of services” account in the consolidated statement of income
are recognized upon delivery.
Royalty income, included as part of “Sale of services” account in the consolidated statement
of income, is recognized upon rendering of service based on the terms of the agreement and is
reduced to the extent of the share of the composers or co-publishers of the songs produced for
original sound recording.
Installation/reconnection/disconnection fees (shown as part of “Other income” account in the
consolidated statement of income) are recognized when the services are rendered.
Management fees, included as part of “Other income” account in the consolidated statement of
income, are recognized based on the terms of the management agreement.
Rental income is recognized as income on a straight-line basis over the lease term.
Interest income is recognized on a time proportion basis that reflects the effective yield on the
asset.
Dividends are recognized when the shareholders’ right to receive payment is established.
Channel License Fees
Channel license fees included under “Cost of sales and services” account in the consolidated
statement of income are charged to operations in the year these fees are incurred.
Leases
The determination whether an arrangement is, or contains a lease is based on the substance of
the arrangement at the inception date of whether the fulfillment of the arrangement is
dependent on the use of a specific asset or the arrangement conveys a right to use the asset. A
reassessment is made after inception of the lease only if one of the following applies:
a. there is a change in contractual terms, other than a renewal or extension of the agreement;
b. a renewal option is exercised or extension granted, unless the term of the renewal or
extension was initially included in the lease term;
c. there is a change in the determination of whether the fulfillment is dependent on a
specified asset; or
d. there is 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 gave rise to the reassessment for scenarios a, c or d and the date
of renewal or extension period for scenario b.
Finance Leases. Finance leases, which transfer to the Company substantially all the risks and
benefits 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 charged directly against the consolidated statement of income.
Capitalized leased assets are depreciated over the shorter of the estimated useful life of the
asset and the lease term, if there is no reasonable certainty that the Company will obtain
ownership by the end of the lease term.
Operating Leases. Leases where the Company retains substantially all the risks and benefits
of ownership of the asset are classified as operating leases. 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.
Operating lease payments are recognized as expense in the consolidated statement of income
on a straight-line basis over the lease term.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive)
as a result of a past event, it is probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable estimate can be made of the
amount of the obligation. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to
the liability. Where discounting is used, the increase in the provision due to the passage of
time is recognized as an interest expense.
Customers’ Deposits
Customers’ deposits, included as part of “Other noncurrent liabilities” account in the
consolidated balance sheet, are initially recognized at fair value. The discount is recognized
as deferred revenue and amortized over the estimated remaining term of the deposit using the
effective interest rate method.
Asset Retirement Obligation
The net present value of legal obligations associated with the retirement of an item of property
and equipment that resulted from the acquisition, construction or development and the normal
operations of property and equipment is recognized in the period in which it is incurred and a
reasonable estimate of the obligation can be made. This is included as part of “Other
noncurrent liabilities” account in the consolidated balance sheet.
Borrowing Costs
Borrowing costs include interest charges and other costs incurred in connection with the
borrowing of funds.
Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they
are directly attributable to the acquisition, construction or production of a qualifying asset
until such time that the assets are substantially ready for their intended use or sale, which
necessarily take a substantial period of time. Capitalization of borrowing costs commences
when the activities to prepare the asset are in progress and expenditures and borrowing costs
are being incurred and ceases when the assets are ready for their intended use. If the resulting
carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized
in the consolidated statement of income.
Pension Costs
The Company’s pension plans are funded (Parent Company and Sky Cable) and unfunded
(other subsidiaries) defined benefit pension plans, except for ABS-CBN International, which
has a defined contribution pension plan. The cost of providing benefits under the defined
benefit plans is determined separately for each plan using the projected unit credit method.
Actuarial gains and losses are recognized as income or expense when the net cumulative
unrecognized actuarial gains and losses for each individual plan at the end of the previous
reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value
of plan assets at that date. These gains or losses are recognized over the expected average
remaining working lives of the employees participating in the plans.
The past service cost is recognized as an expense on a straight-line basis over the average
period until the benefits become vested. If the benefits are already vested immediately
following the introduction of, or changes to, a pension plan, past service cost is recognized
immediately.
The defined benefit liability is the aggregate of the present value of the defined benefit
obligation and actuarial gains and losses not recognized, reduced by past service cost not yet
recognized and the fair value of plan assets out of which the obligations are to be settled
directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or
the aggregate of cumulative unrecognized net actuarial losses and past service cost and the
present value of any economic benefits available in the form of refunds from the plan or
reductions in the future contributions to the plans.
For ABS-CBN International, the defined contribution pension plan is composed of the
contribution of ABS-CBN International or employee (or both) to the employee’s individual
account. These contributions generally are invested on behalf of the employee through
American Funds. Employees ultimately receive the balance in their account, which is based
on contributions plus or minus investment gains or losses. The value of each account will
fluctuate due to changes in the value of investments.
Income Taxes
Current Tax. Current tax assets and liabilities for the current and prior periods are measured
at the amount expected to be recovered from or paid to the taxation authorities. The tax rates
and tax laws used to compute the amount are those that are enacted or substantively enacted at
balance sheet date.
Deferred Tax. Deferred income tax is provided, using the balance sheet liability method, on
all temporary differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, including
asset revaluations. Deferred income tax assets are recognized for all deductible temporary
differences and carry-forward benefits of unused tax credits from excess minimum corporate
income tax (MCIT) over the regular corporate income tax and unused net operating loss
carryover (NOLCO), to the extent that it is probable that taxable profit will be available
against which the deductible temporary differences and carry-forward benefits of unused tax
credits from excess MCIT and unused NOLCO can be utilized. Deferred income tax,
however, is not recognized when it 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.
Deferred income tax liabilities are not provided on nontaxable temporary differences
associated with investments in domestic subsidiaries and associates. With respect to
investments in other subsidiaries and associates, deferred income tax liabilities are recognized
except where the timing of the reversal of the temporary difference can be controlled and it is
probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be available
to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred
income tax assets are measured at each balance sheet date and are recognized to the extent that
it has become probable that future taxable profit will allow the deferred income tax to be
recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to
apply in the period 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 consolidated statement of income.
Deferred income tax assets and liabilities are offset, if a legally enforceable right exists to
offset current tax assets against current tax liabilities and the deferred taxes relate to the same
taxable entity and the same taxation authority.
Foreign Currency-denominated Transactions
Transactions in foreign currencies are initially recorded in the functional currency rate ruling
at the date of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the functional currency closing exchange rate at balance sheet
date. All differences are taken to the consolidated statement of income. Nonmonetary items
that are measured in terms of historical cost in a foreign currency are translated using the
exchange rates 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.
Dividends on Common Shares of the Parent Company
Dividends on common shares are recognized as liability and deducted from equity when
approved by the shareholders of the Parent Company. Dividends for the year that are
approved after balance sheet date are dealt with as an event after balance sheet date.
Earnings Per Share (EPS) attributable to the Equity Holders of the Parent Company
Basic EPS amounts are calculated by dividing the net income attributable to equity holders of
the Parent Company for the year over the weighted average number of common shares
outstanding during the year, with retroactive adjustments for any stock dividends and stock
split.
Diluted EPS amounts are computed in the same manner, adjusted for the dilutive effect of any
potential common shares. As the Company has no dilutive potential common shares
outstanding, basic and diluted EPS are stated at the same amount.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are
disclosed in the notes to consolidated financial statements unless the possibility of an outflow
of resources embodying economic benefits is remote. A contingent asset is not recognized in
the consolidated financial statements but disclosed in the notes to consolidated financial
statements when an inflow of economic benefits is probable.
Events after Balance Sheet Date
Any event after balance sheet date that provides additional information about the Company’s
financial position at balance sheet date (adjusting events) are reflected in the consolidated
financial statements. Events after balance sheet date that are not adjusting events are disclosed
in the notes to consolidated financial statements when material.
Segment Reporting
For management purposes, the Company’s operating businesses are organized and managed
separately into three business activities. Such business segments are the bases upon which the
Company reports its primary segment information. The Company operates in three
geographical area where it derives its revenue. Financial information on segment reporting is
presented in Note 9, Segment Information.
Future Changes in Accounting Policies
The Company did not early adopt the following standards and Philippine Interpretations that
have been approved but are not yet effective.
Effective in 2009
PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective January 1,
2009)
The amended PFRS 1 allows an entity, in its separate financial statements, to determine
the cost of investments in subsidiaries, jointly controlled entities or associates (in its
opening PFRS financial statements) as one of the following amounts: a) cost determined
in accordance with PAS 27; b) at the fair value of the investment at the date of transition
to PFRS, determined in accordance with PAS 39; or c) previous carrying amount (as
determined under generally accepted accounting principles) of the investment at the date
of transition to PFRS. The new requirements will not have a significant impact on the
consolidated financial statements.
Amendments to PFRS 2, Share-based Payments - Vesting Condition and Cancellations
(effective January 1, 2009)
This standard restricts the definition of “vesting condition” to a condition that includes an
explicit or implicit requirement to provide services. Any other conditions are non-vesting
conditions, which have to be taken into account to determine the fair value of the equity
instruments granted. In the case that an award does not vest as the result of a failure to
meet a non-vesting condition that is within the control of either the entity or the
counterparty, this must be accounted for as cancellation. The Company has not entered
into share-based payment schemes with non-vesting conditions attached and, therefore,
does not expect significant impact on its consolidated financial statements.
PFRS 8, Operating Segments (effective January 1, 2009)
PFRS 8 will replace PAS 14, Segment Reporting, and adopts a full management approach
to reporting segment information. The information reported would be that which
management uses internally for evaluating the performance of operating segments and
allocating resources to those segments. Such information may be different from that
reported in the consolidated balance sheet and consolidated statement of income and the
Company will provide explanations and reconciliations of the differences. This standard
is only applicable to an entity that has debt or equity instruments that are traded in a public
market or that files (or is in the process of filing) its financial statements with a securities
commission or similar party. The Company will assess the impact of this standard to its
current manner of reporting segment information.
PAS 23, Borrowing Costs (effective January 1, 2009)
The standard requires capitalization of borrowing costs when such costs relate to a
qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period
of time to get ready for its intended use or sale. In accordance with the transitional
requirements in the standard, the Company will adopt this as a prospective change. The
Company assessed that adoption of this amendment will have no significant impact on its
consolidated financial statements.
Amendments to PAS 1, Presentation of Financial Statements (effective January 1, 2009)
The amended standard requires that the statement of changes in equity includes only
transactions with owners and all non-owner changes are presented in equity as a single
line with details included in a separate statement. The standard also introduces a new
statement of comprehensive income that combines all items of income and expense
recognized in profit or loss together with “other comprehensive income.” The revisions
specify what is included in other comprehensive income, such as gains and losses on AFS
investments, actuarial gains and losses on defined benefit pension plans and changes in the
asset revaluation reserve. Entities can choose to present all items in one statement or to
present two linked statements, a separate statement of income and statement of
comprehensive income. The Company will apply the amended standard in 2009. The
Company is still evaluating whether it will have one or two statements.
Amendments to PAS 27, Consolidated and Separate Financial Statements - Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective January 1,
2009)
The changes are in respect of the holding companies separate financial statements
including (a) the deletion of ‘cost method’, making the distinction between pre- and postacquisition profits no longer required; and (b) in cases of reorganizations where a new
parent is inserted above an existing parent of the group (subject to meeting specific
requirements), the cost of the subsidiary is the previous carrying amount of its share of
equity items in the subsidiary rather than its fair value. All dividends will be recognized
in profit or loss. However, the payment of such dividends requires the entity to consider
whether there is an indicator of impairment. The Company is currently evaluating the
impact of the changes in accounting policies when it adopts the foregoing amendments on
January 1, 2009.
Amendments to PAS 32, Financial Instruments: Presentation, and PAS 1, Presentation of
Financial Statements - Puttable Financial Instruments and Obligations Arising on
Liquidation (effective January 1, 2009)
These amendments specify, among others, that puttable financial instruments will be
classified as equity if they have all of the following specified features: (a) the instrument
entitles the holder to require the entity to repurchase or redeem the instrument (either on
an ongoing basis or on liquidation) for a pro rata share of the entity’s net assets, (b) the
instrument is in the most subordinate class of instruments, with no priority over other
claims to the assets of the entity on liquidation, (c) all instruments in the subordinate class
have identical features, (d) the instrument does not include any contractual obligation to
pay cash or financial assets other than the holder’s right to a pro rata share of the entity’s
net assets, and (e) the total expected cash flows attributable to the instrument over its life
are based substantially on the profit or loss, a change in recognized net assets, or a change
in the fair value of the recognized and unrecognized net assets of the entity over the life of
the instrument. The Company assessed that adoption of this amendment will have no
significant impact on its consolidated financial statements.
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (effective July 1,
2008)
This interpretation requires customer loyalty award credits to be accounted for as a
separate component of the sales transaction in which they are granted and therefore part of
the fair value of the consideration received is allocated to the award credits and realized in
income over the period that the award credits are redeemed or expire. The Company is
still evaluating the impact of adoption of this interpretation on its consolidated financial
statements.
Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation
(effective October 1, 2008)
This interpretation provides guidance on identifying foreign currency risks that qualify for
hedge accounting in the hedge of net investment; where within the group the hedging
instrument can be held in the hedge of a net investment; and how an entity should
determine the amount of foreign currency gains or losses, relating to both the net
investment and the hedging instrument, to be recycled on disposal of the net investment.
The Company assessed that adoption of this interpretation will have no significant impact
on its consolidated financial statements.
Improvements to PFRS. In May 2008, the International Accounting Standards Board issued
its first omnibus of amendments to certain standards, primarily with a view to removing
inconsistencies and clarifying wording. The Company has not yet adopted the following
relevant amendments and anticipates that these changes will have no material effect on the
consolidated financial statements.
PFRS 5, Non-current Assets Held for Sale and Discontinued Operations
When a subsidiary is held for sale, all of its assets and liabilities will be classified as held
for sale under PFRS 5, even when the entity retains a non-controlling interest in the
subsidiary after the sale.
PAS 1, Presentation of Financial Statements
Assets and liabilities classified as held for trading in accordance with PAS 39, Financial
Instruments: Recognition and Measurement, are not automatically classified as current in
the balance sheet.
PAS 16, Property, Plant and Equipment
The amendment replaces the term “net selling price” with ”fair value less costs to sell” to
be consistent with PFRS 5, Non-current Assets Held for Sale and Discontinued
Operations, and PAS 36, Impairment of Assets.
Items of property, plant and equipment held for rental that are routinely sold in the
ordinary course of business after rental, are transferred to inventory when rental ceases
and they are held for sale. Proceeds of such sales are subsequently shown as revenue.
Cash payments on initial recognition of such items, the cash receipts from rents and
subsequent sales are all shown as cash flows from operating activities.
PAS 19, Employee Benefits
This revises the definition of ‘past service costs’ to include reductions in benefits related
to past services (‘negative past service costs’) and to exclude reductions in benefits related
to future services that arise from plan amendments. Amendments to plans that result in a
reduction in benefits related to future services are accounted for as a curtailment.
This also revises the definition of ‘return on plan assets’ to exclude plan administration
costs if they have already been included in the actuarial assumptions used to measure the
defined benefit obligation and the definition of ‘short-term’ and ‘other long-term’
employee benefits to focus on the point in time at which the liability is due to be settled
and deletes the reference to the recognition of contingent liabilities to ensure consistency
with PAS 37, Provisions, Contingent Liabilities and Contingent Assets.
PAS 23, Borrowing Costs
This revises the definition of borrowing costs to consolidate the types of items that are
considered components of “borrowing costs,” i.e., components of the interest expense
calculated using the effective interest rate method.
PAS 28, Investments in Associates
If an associate is accounted for at fair value in accordance with PAS 39, only the
requirement of PAS 28 to disclose the nature and extent of any significant restrictions on
the ability of the associate to transfer funds to the entity in the form of cash or repayment
of loans applies. An investment in an associate is a single asset for the purpose of
conducting the impairment test. Therefore, any impairment test is not separately allocated
to the goodwill included in the investment balance.
PAS 31, Interests in Joint Ventures
If a joint venture is accounted for at fair value, in accordance with PAS 39, only the
requirements of PAS 31 to disclose the commitments of the venturer and the joint venture,
as well as summary financial information about the assets, liabilities, income and expense
will apply.
PAS 36, Impairment of Assets
When discounted cash flows are used to estimate “fair value less cost to sell” additional
disclosure is required about the discount rate, consistent with disclosures required when
the discounted cash flows are used to estimate “value in use”.
PAS 38, Intangible Assets
Expenditure on advertising and promotional activities is recognized as an expense when
the Company either has the right to access the goods or has received the services.
Advertising and promotional activities now specifically include mail order catalogues.
This deletes references to there being rarely, if ever, persuasive evidence to support an
amortization method for finite life intangible assets that results in a lower amount of
accumulated amortization than under the straight-line method, thereby effectively
allowing the use of the unit of production method.
PAS 39, Financial Instruments: Recognition and Measurement
Changes in circumstances relating to derivatives - specifically derivatives designated or
de-designated as hedging instruments after initial recognition are not reclassifications.
When financial assets are reclassified as a result of an insurance company changing its
accounting policy in accordance with paragraph 45 of PFRS 4, Insurance Contracts, this
is a change in circumstance, not a reclassification.
This removes the reference to a ‘segment’ when determining whether an instrument
qualifies as a hedge and requires use of the revised effective interest rate (rather than the
original effective interest rate) when re-measuring a debt instrument on the cessation of
fair value hedge accounting.
PAS 40, Investment Properties
This revises the scope (and the scope of PAS 16, Property, Plant and Equipment) to
include property that is being constructed or developed for future use as an investment
property. Where an entity is unable to determine the fair value of an investment property
under construction, but expects to be able to determine its fair value on completion, the
investment under construction will be measured at cost until such time as fair value can
be determined or construction is complete.
Effective 2010
PFRS 3 (Revised), Business Combinations, and PAS 27 (Revised), Consolidated and
Separate Financial Statements (effective July 1, 2009)
The revised standards will supersede the existing PFRS 3 and PAS 27, respectively, with
earlier application permitted. PFRS 3 (Revised) introduces a number of changes in the
accounting for business combinations that will impact the amount of goodwill recognized,
the reported results in the period in which an acquisition occurs, and future reported
results. PAS 27 (Revised) requires that a change in the ownership interest of a subsidiary
is accounted for as an equity transaction. Therefore, such change will have no impact on
goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard
changes the accounting for losses incurred by the subsidiary as well as the loss of control
of a subsidiary. The changes introduced by PFRS 3 (Revised) must be applied
prospectively while PAS 27 (Revised) must be applied retrospectively subject to certain
exceptions. These will affect future acquisitions and transactions with minority interest.
Amendment to PAS 39, Financial Instruments: Recognition and Measurement -Eligible
Hedged Items (effective July 1, 2009)
This addresses only the designation of a one-sided risk in a hedged item, and the
designation of inflation as a hedged risk or portion in particular situations. The
amendment clarifies that an entity is permitted to designate a portion of the fair value
changes or cash flow variability of a financial instrument as a hedged item. The Company
assessed that adoption of this amendment will have no significant impact on its
consolidated financial statements.
Effective 2012
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
(effective January 1, 2012)
This interpretation covers accounting for revenue and associated expenses by entities that
undertake the construction of real estate directly or through subcontractors. The Company
assessed that adoption of this interpretation will have no significant impact on its consolidated
financial statements.
2. Business Combination and Acquisitions
a. Conversion of Note and Advances
On June 30, 2004, Sky Vision Corporation (Sky Vision) and Sky Cable (“Issuer”) issued a
convertible note (“the Note”) to the Parent Company amounting to US$30.0 million
(P
=1,581 million). The amount for conversion also includes advances of the Parent
Company to Sky Cable amounting to =
P459 million and accrued interest receivable of =
P459
million. As December 31, 2007, the Note, including advances and interest, amounted to =
P
2,499 million (see Note 16).
The Note was subject to interest of 13.0% compounded annually and matured on June 30,
2006. The principal and accrued interest as of maturity date is mandatorily converted into
common shares of the Issuer, based on the prevailing USD to Philippine Peso exchange
rate on maturity date, at a conversion price equivalent to a 20% discount of: (a) the market
value of the shares, in the event of a public offering of the Issuer before maturity date; (b)
the valuation of the shares by an independent third party appraiser that is a recognized
banking firm, securities underwriter or one of the big three international accounting firms
or their Philippine affiliate jointly appointed by Lopez, Inc. and Benpres (collectively
referred to as Benpres Group) and Philippine Long Distance Telephone Company and
Mediaquest Holdings, Inc. (collectively referred to as PLDT Group) pursuant to the
Master Consolidation Agreement dated July 18, 2001, as amended or supplemented.
The Note does not specifically state that interest shall accrue after June 30, 2006 in the
event that the Note is not converted for any reason. Thus, no interest was charged after
June 30, 2006. Interest income amounted to =
P115 million in 2006.
As of December 31, 2007, the conversion price of the Note had not yet been determined.
Based on the provisions of the Note, the conversion of the Note cannot be completed
without the determination of the conversion price, which in turn depends on the valuation
of Sky Cable by an independent third party. Thus, the Parent Company did not convert
the Note at that time without such valuation. The conversion date was effectively
extended.
On May 20, 2008, the Benpres Group and the PLDT Group acknowledged the fairness
and reasonableness of the valuation for Sky Cable effective March 15, 2008. Based on
this final valuation of Sky Cable, the Parent Company’s convertible note of =
P2,499
million, including advances and interest of =
P918 million, has an equivalent subscription to
269,645,828 Sky Cable shares, representing 65.3% effective interest in Sky Cable.
Consequently, for financial reporting purposes, effective March 15, 2008, Sky Cable is
considered as a subsidiary of the Parent Company with a 65.3% effective interest.
On December 8, 2008, the Parent Company and Sky Vision entered into an Assignment
Agreement, where the Parent Company assigned the Note in Sky Cable to Sky Vision in
consideration of Philippine Depository Receipts (PDRs) to be issued by Sky Vision upon
approval by the Securities and Exchange Commission (SEC) of the increase in the
authorized capital stock of Sky Cable. The PDRs are convertible into the underlying Sky
Cable shares discussed in the foregoing. Pursuant to this Assignment Agreement, Sky
Vision is contractually bound to issue the PDRs to the Parent Company upon the issuance
of the underlying Sky Cable shares to Sky Vision. Effectively, the economic interest over
the underlying Sky Cable shares still remains with the Parent Company. However, Sky
Vision is the legal owner of the subscription to the 65.3% effective interest in Sky Cable.
The PDR will grant the Parent Company the right, upon payment of the exercise price and
subject to certain other conditions, the delivery of Sky Cable shares or the sale of and
delivery of the proceeds of such sale of Sky Cable shares. The PDR may be exercised at
any time by the Parent Company, thus, providing potential voting rights to the Parent
Company. Any cash dividends or other cash distributions in respect of the underlying Sky
Cable shares shall be distributed to the Parent Company.
The voting rights will remain with Sky Vision as legal owner. However, by virtue of the
PDR, the Parent Company has economic benefits over the underlying Sky Cable shares
and voting rights upon exercise of the PDRs.
As of June 30, 2009, the PDRs of Sky Vision have not yet been issued to the Parent
Company pending approval by the SEC of the increase in the authorized capital stock of
Sky Cable.
The conversion of Note is considered as a business combination and accounted for using
purchase method. Accordingly, the consideration of =
P2,499 million was allocated to the
identifiable assets and liabilities based on the fair values at conversion date. The fair
values of the identifiable assets and liabilities of Sky Cable at the date of conversion and
the corresponding carrying amounts immediately before the acquisition were:
Cash and cash equivalents
Trade and other receivables
Prepaid expenses and other current assets
Property and equipment
Customer relationships
Other noncurrent assets
Trade and other current liabilities
Long-term debt
Due to related parties
Deferred tax liability
Other noncurrent liabilities
Net assets
Acquired ownership interest
Net assets acquired
Goodwill arising on acquisition
Consideration
Fair Value
Recognized on
Acquisition
=
P836,657
393,921
603,186
4,959,816
607,166
1,378,030
(2,562,550)
(2,919,270)
(674,582)
(614,965)
(213,451)
1,793,958
65.3%
1,171,275
1,327,696
=
P2,498,971
Carrying Value
=
P836,657
393,921
603,186
3,547,717
–
1,469,630
(2,562,550)
(2,919,270)
(674,582)
–
(213,451)
=
P481,258
There is no cash outflow on the acquisition.
From the date of conversion of Note, Sky Cable has contributed =
P29 million to the net income of the
Company. If the combination had taken place at the beginning of the year, the net income for the
Company would have been P
=1,441 million and revenue would have been =
P25,868 million.
On February 19, 2009, the BOD of ABS-CBN approved the conversion of =
P1,798 million
loan and P
=900 million advances to PDRs with underlying 278,588,814 Sky Cable shares
at conversion price of P
=9.69 a share. The conversion will be considered as acquisition of
minority interest. Upon conversion of the foregoing loan and advances, the effective
interest of ABS-CBN will increase from 65.3% to 79.3%. The loan and advances were
eliminated upon consolidation of Sky Cable to ABS-CBN.
On March 2, 2009, by virtue of a separate Assignment Agreement, ABS-CBN assigned
the =
P1,798 million loan to Sky Vision. As a consideration for the assignment, Sky Vision
agreed to issue ABS-CBN PDRs which shall be convertible into Sky Cable shares. The
terms of the agreement are similar to the Assignment Agreement discussed in the
foregoing.
b. Acquisition of PCC
On May 23, 2008, Sky Cable, through Sky Vision, acquired the minority interest in PCC
from SCHI for a cash payment of =
P1,248 million and an assumption of liability of THI of
=106 million. SCHI owns THI, which in turn owns the remaining 45.5% equity of PCC.
P
Consequently, as of December 31, 2008, PCC became a wholly owned subsidiary of Sky
Cable. The difference between the fair value of the consideration transferred and liability
assumed and the carrying value of the minority interest in PCC, amounting to =
P558
million, is recognized as goodwill.
3. Seasonality or Cyclicality of Interim Operations
The Company’s operations are not generally affected by any seasonality or cyclicality.
4. Nature and Amount of Changes of Estimates
The effect of changes in estimates or amounts reported in prior interim periods do not
have a material effect in the current interim period.
5. Repayments of Debt
Repayments of long-term debt are scheduled as follows:
2009
257,583
2010
109,484
2011
440,133
2012
3,926,023
2013 to 2028
3,730,260
Total
8,463,484
6. Dividends Paid
On March 25, 2009, the BOD approved the declaration of cash dividend of =
P0.90 per share or
an aggregate amount of P
=701 million to all stockholders of record as of May 5, 2009 payable
on or before May 29, 2009. On March 26, 2008, the BOD approved the declaration of cash
dividend of =
P0.825 per share or an aggregate amount of =
P643 million to all stockholders of
record as of April 30, 2008 payable on or before May 27, 2008. On March 28, 2007, the BOD
approved the declaration of cash dividend of =
P0.45 per share or an aggregate amount of =
P351
million to all stockholders of record as of April 20, 2007 payable on May 15, 2007.
7. Earnings Per Share Computation
Basic EPS amounts are calculated by dividing the net income attributable to equity holders of
the Parent Company for the year over the weighted average number of common shares
outstanding during the period. Weighted average shares outstanding are 767,390,563.
8. Material Events
A. Any known trends, demands, commitments, events or uncertainties that will have a
material impact on the issuer's liquidity.
In June 2004, the Company successfully signed a syndicated loan for US$120 million
to refinance the Company’s existing debts and to fund further investments in cable
television operations. The new loan is secured by the Company’s real property and
certain equipment and other assets and will be guaranteed by certain of the
Company’s subsidiaries.
On January 11, 2007, the Parent Company signed a commitment letter with ABN
Amro Bank N.V., BPI Capital Corporation and ING Bank N.V. (together, the
Mandated Lead Arrangers) to arrange and underwrite on a firm commitment basis the
refinancing/ restructuring of the existing long-term loan. Consequently, the execution
copies of the agreement amending the SCA facility was signed on March 27, 2007.
The major amendments to the existing agreement that were agreed upon with the
mandated lead arrangers are as follows:
a. There will be an additional amount that will be available for drawdown amounting
to US$5 million. Once effected, total outstanding loan will be around =
P4.44
billion, P
=270 million more than the =
P4.17 billion that is currently outstanding;
b. The Tranche B and C will have bullet repayment schemes maturing in March
2012 while maintaining the original structure of the Tranche A facility with a final
due date of until June 2009. Interest payments will continue to be paid on a
quarterly basis;
c. The applicable margins added to the benchmark interest rates will be reduced
from 3.50% to an average of about 2.20%;
d. Except for the Quezon City Broadcast Complex and certain broadcast machinery
and equipment contained therein, all other assets will be removed from the
Mortgage Trust Indenture and will no longer form part of the security package;
e. Certain mandatory prepayment provisions will be removed;
f.
The Parent Company financial ratio requirement will be removed, while
maintaining a financial ratio requirement on a consolidated basis but at more
relaxed thresholds;
g. The Company will be allowed to make interest bearing advances and guarantees
to Sky Vision of up to P
=400 million;
h. The Company will be allowed to convert into equity outstanding advances
amounting to US$30 million including interest and =
P437 million, respectively
made to Sky Vision by the Parent Company and CPI.
On September 14, 2007, the relevant parties to the SCA Facility executed the “First
Amendment Agreement. The amendments centered mainly on following provisions:
a. Allow the Company to incur additional unsecured financial indebtedness; and
b. Increase the amount of support that the Company can extend to Sky Vision and/or
Sky Cable; and
The amendment of the SCA facility substantially modified the terms of Tranche C.
Accordingly, this resulted in the derecognition of the original liability and recognition
of a new liability. Loss on derecognition, included as part of “Other income” account
in the consolidated statement of income, amounted to =
P16 million (P
=11 million, net of
tax) in 2007 (see Note 25).
On December 19, 2007, the relevant parties to the SCA facility executed the Second
Amendment Agreement. The amendments centered mainly on the removal of the prorata requirement in cases of prepayment.On December 18, 2007, the Company
prepaid all outstanding Tranche A of the SCA facility amounting to US$27 million (P
=
1,132 million) from the proceeds of the =
P1,350 million term loan from Banco de Oro
Universal Bank (BDO).
On September 18, 2007, the Company successfully signed a syndicated loan for P854
million with the previous lenders of the Sky Cable, namely, United Coconut Planters
Bank, Bank of the Philippine Islands, Mega International Commercial Bank Co., Ltd.,
Olga Vendivel and Wise Capital Investment & Trust Company, Inc. with Banco De
Oro – EPCI, Inc. acting as the facility agent. The loan is unsecured and
unsubordinated with a fixed coupon of 2% with a final maturity of September 18,
2014.
On September 20, 2007, the Company successfully signed a syndicated loan for P800
million with ING Bank N.V. and Mizuho Corporate Bank, Ltd., Manila Branch with
Mizuho Corporate Bank, Ltd., Manila Branch acting as the facility agent. The money
will be used to fund the purchase of Sky Cable debt. On the same day, the Company
withdrew the amount of P662 million to fully settle a total of P945 million Sky Cable
loan. The loan is unsecured and unsubordinated with interest rate of 3mPHIBOR plus
2.75% per annum with a final maturity of September 20, 2012.
On September 20, 2007, Sky Cable issued two Promissory Notes to ABS-CBN
Broadcasting Corporation in the aggregate amount of =
P1,798 million. As a
consequence, ABS-CBN Broadcasting Corporation becomes the eventual lender on
record of Sky Cable due the loans that were absorbed by it. This loan currently pays
monthly interest at 3mPDST-F plus 1% with a final maturity of June 30, 2011. Sky
Cable has a pending proposal to restructure certain terms and conditions and extend
maturity until 2016.
On February 21, 2008, ABS-CBN and the remaining third party creditors of Sky
Cable approved the amendment of the Sky Cable Debt under a Facility Agreement.
The amendment mainly focused on the extension of the repayment period from
December 2011 to September 2016 and pertained to certain terms and conditions
related to the term loan agreement.
As of September 30, 2008, total loan to fund the purchase of Sky Cable debt
amounted to =
P1,516 million and total notes receivable from Sky Cable amounted to
=1,798 million.
P
On August 15, 2008, the Company successfully signed a P1,000 million loan facility
with Security Bank Corporation jointly arranged by BPI Capital Corp and SB Capital
Investment Corp. The funds will be used for capital expenditure and general
corporate purposes. This was fully drawn on August 27, 2008. The new loan is
unsecured and unsubordinated and guaranteed by certain of the Company’s
subsidiaries. The loan interest rate is 3mPDSTF plus 2.15% per annum with a final
maturity of August 27, 2013
On September 30, 2008, the Company successfully signed a P2,000 million loan
facility with BPI Bank of the Philippine Islands Asset Management and Trust Group
as Investment Manager for ALFM Peso Bond Fund, Inc., Bank of the Philippine
Islands Asset Management and Trust Group as Trustee for various Trust Accounts,
The Philippine American Life and General Insurance Company and The Insular Life
Assurance Company, Ltd., as Fixed Loan Lenders and Allied Banking Corporation
and Allied Savings Bank as Variable Loan Lenders. This was jointly arranged by BPI
Capital Corp and SB Capital Investment Corp. The funds will be used for capital
expenditure and general corporate purposes. The loan facility is unsecured and
unsubordinated and guaranteed by certain of the Company’s subsidiaries.
On October 30, 2008, the Company availed P1,000 million from the Fixed Loan
Lenders with fixed loan interest rate of 7yrPDSTF plus 1.5% per annum. This loan
will have a final maturity of October 30, 2015.
On September 30, 2008, the Company signed the Combined Facility Agreement with
Security Bank Corporation, lender of the facility agreement executed on August 15,
2008, BPI Bank of the Philippine Islands Asset Management and Trust Group as
Investment Manager for ALFM Peso Bond Fund, Inc., Bank of the Philippine Islands
Asset Management and Trust Group as Trustee for various Trust Accounts, The
Philippine American Life and General Insurance Company and The Insular Life
Assurance Company, Ltd., as Fixed Loan Lenders and Allied Banking Corporation
and Allied Savings Bank as Variable Loan Lenders, all lenders of the facility
agreement executed on September 30, 2008, together with BPI Capital Corp and SB
Capital Investment Corp acting as joint arrangers of both facilities. The agreement
shall combine both loan facilities in all material respects to be administered by BPI
Asset Management and Trust Group acting as facility agent.
B. Any material commitments for capital expenditures, the general purpose of such
commitments and the expected sources of funds for such expenditures.
For 2009, ABS-CBN Broadcasting Corp. expects to invest approximately =
P2.4 billion
for capital expenditure and acquisition of film and program rights. This funding
requirement will be financed through internally generated funds.
C. Any known trends, events or uncertainties that have had or that are reasonably
expected to have a material favorable or unfavorable impact on net
sales/revenues/income from continuing operations.
ABS-CBN Broadcasting Corp.’s results of operations depend largely on the ability to
sell airtime for advertising. The company’s business may be affected by the general
condition of the economy of the Philippines.
D. Any event that will trigger direct or contingent financial obligation that is material to
the company, including any default or acceleration of an obligation.
The Senior Credit Agreement dated 18 June 2004, amended and restated on March 27,
2007, September 14, 2007 and December 19, 2007, between the Company and several
creditor banks contains customary events of default which may trigger material
financial obligations on the part of the Company, such as, non-payment of financial
obligations, breach of material provisions and covenants, cancellation of the
Company’s key licenses, insolvency, cessation of business, expropriation, issuance of
final judgment against the Company involving a significant amount, material adverse
change in the operations and structure of the Company.
The Company has contingent liabilities with respect to claims filed by third parties.
The events that transpired last February 4, 2006, which resulted in the death of 71
people and injury to about 1,000 others led the Company to shoulder the burial
expenses of the dead and medical expenses of the injured, which did not result in any
direct or contingent financial obligation that is material to the Company. The
Company has settled all of the funeral and medical expenses of the victims of the
tragedy. Given the income flows and net asset base of the Company, said expenses do
not constitute a material financial obligation of the Company, as the Company
remains in sound financial position to meet its obligations.
As of June 30, 2009, the claims in connection with the events of February 4, 2006 are
still pending and remain contingent liabilities. While the funeral and medical
expenses have all been shouldered by the Company, there still exist claims for
compensation for the deaths and injuries upon evaluation of these claims, the amount
of which have not been declared and cannot be determined with certainty at this time.
Management is nevertheless of the opinion that should there be any adverse judgment
based on these claims, this will not materially affect the Company’s financial position
and results of operations.
On May 23, 2008, ABS-CBN guaranteed a long term loan of Sky Vision Corporation
from Banco de Oro in the principal amount of P600 million. ABS-CBN also
advanced the amount of P300 million to Sky Vision Corporation.
On September 10, 2008, the guarantee provided by ABS-CBN on the P600 m loan of
Sky Vision Corporation from Banco de Oro was fully extinguished when the loan was
prepaid. The money used to prepay the loan came from additional advances by ABSCBN. This makes total cash outlay made to Sky Vision from May 23, 2008 to
September 10, 2008 amount to P900 million.
E. Any significant elements of income or loss that did not arise from the issuer’s
continuing operations.
As of June 30, 2009, there are no significant elements of income that did not arise
from the Company’s continuing operations.
F. Any seasonal aspects that had a material effect on the financial condition or results of
operations.
There were no seasonal aspects that had a material effect on the financial condition or
results of operations for the interim period.
G. Any material events that were unusual because of their nature, size or incidents
affecting assets, liabilities, equity, net income, or cash flows
On May 23, 2008, ABS-CBN guaranteed a short term loan of Sky Vision Corporation
from Banco de Oro in the principal amount of P600 million. ABS-CBN also
advanced the amount of P300 million to Sky Vision Corporation.
In May 2008, the Benpres Group and the PLDT Group acknowledged the fairness and
reasonableness of the valuation for Sky Cable. Based on this final valuation, the
convertible note amounting to =
P2,499.0 million, including the advances from Unilink
of P
=386.2 million, was converted into deposits for future stock subscriptions to
311,314,045 shares effective March 15, 2008.
On February 19, 2009, the BOD of ABS-CBN approved the conversion of =
P1,798
million loan and P
=900 million advances to PDRs with underlying 278,588,814 Sky
Cable shares at conversion price of =
P9.69 a share. The conversion will be considered
as acquisition of minority interest. Upon conversion of the foregoing loan and
advances, the effective interest of ABS-CBN will increase from 65.3% to 79.3%. The
loan and advances were eliminated upon consolidation of Sky Cable to ABS-CBN.
As of June 30, 2009, the conversion has not materialized and actual conversion has
not taken place.
H. Any material events subsequent to the end of the interim period that have not been
reflected in the financial statements for the interim period.
There are no known material events subsequent to the end of the interim period that
have not been reflected in the financial statements for the interim period.
9. Segment Information
Segment information is prepared on the following bases:
Business segments
For management purposes, the Company is organized into three business activities broadcasting, cable and satellite, and other businesses. This segmentation is the basis upon
which the Company reports its primary segment information. The broadcasting segment is
principally the television and radio broadcasting activities which generates revenue from sale
of national and regional advertising time. Cable and satellite business primarily develops and
produces programs for cable television, including delivery of television programming outside
the Philippines through its DTH satellite service, cable television channels and blocked time
on television stations. In 2008, as a result of the conversion of the Note in Sky Cable (see
Note 2), the cable and satellite business includes cable television services of Sky Cable and its
subsidiaries in Metro Manila and in certain provincial areas in the Philippines. Other
businesses include movie production, consumer products and services.
Geographical segments
Although the Company is organized into three business activities, they operate in three major
geographical areas. In the Philippines, its home country, the Company is involved in
broadcasting, cable operations and other businesses. In the United States and other locations
(which includes Middle East, Europe, Australia, Japan and Canada), the Company operates its
cable and satellite operations to bring television programming outside the Philippines.
Inter-segment transactions
Segment revenue, segment expenses and segment results include transfers among business
segments and among geographical segments. Such transfers are accounted for at competitive
market prices charged to unaffiliated customers for similar services. Those transfers are
eliminated in consolidation.
Financial information on business segments and geographical segments is presented in Exhibit
2.
10. Changes in Composition of Issuer
There are no changes in the composition of the Issuer since the last balance sheet date.
11. Changes in Contingent Liabilities or Assets
There are no changes in contingent liabilities or contingent assets since the last balance sheet
date.
12. Material Contingencies
There are no contingent liabilities, events or transactions that will materially affect the
company’s financial position and results of operations.
13. Property, Plant and Equipment
(See Exhibit 3)
14. Related Party Transactions
Parties are considered to be related if one party has the ability, directly or indirectly, to control
the other party or exercise significant influence over the other party in making financial and
operating decisions. Parties are also considered to be related if they are subject to common
control or common significant influence.
Transactions with Related Parties
In addition to the related party transactions discussed in Notes 2, significant transactions of the
Company with its associates and related parties follow:
June 2009
Associates
Interest on noncurrent receivable from Sky Vision
License fees charged by CPI to Sky Cable(a), PCC
and Home Cable
Blocktime fees paid by Studio 23 to Amcara
Blocktime fees paid by ABS-CBN to Amcara
Management and other service fees by ABS-CBN to
Amcara
Affiliates
Expenses paid by Parent Company & subsidiaries to
Manila Electric Company (Meralco), Bayan
Telecommunications Holding, Inc. (Bayantel)
& other related parties
Termination cost charges of Bayantel, a subsidiary
of Lopez, to ABS-CBN Global
Airtime revenue from Manila North Tollways Corp.
(MNTC) (b), Bayantel and Meralco, an associate
June 2008
P
=0
=
P29,683
0
0
13,632
27,150
17,530
412
412
= 185,042
P
=
P198,169
102,296
126,022
21,588
23,160
of Lopez
Expenses and charges paid for by the
Parent Company which are reimbursed
by the concerned related parties
Management and other service fees by ABS-CBN to
Bayantel
(a)
(b)
10,043
10,161
10,755
0
Effective March 15, 2008, Sky Cable became a subsidiary of ABS-CBN (see Note 5).
Disposed of in November 2008.
The related receivables from and payables to related parties, presented under “Trade and other
receivables” and “Trade and other payables” accounts, respectively, in the consolidated
balance sheet, are as follows:
Due from associates
Due from affiliates
Total
Due to associates
Due to affiliates
Total
June 2009
P
= 1,330
46,731
P
=48,062
December 2008
=
P 1,326
122,577
=
P123,903
P
=281,228
269,059
P
=550,286
=
P328,981
468,994
=
P797,975
a. License Fees Charged by CPI to Sky Cable
CPI has an existing cable lease agreement (Agreement) with Sky Cable for the airing of
the cable channels to the franchise areas of Sky Cable and its cable affiliates. The initial
Agreement with Sky Cable is for a period of five years effective January 1, 2001,
renewable on a yearly basis upon mutual consent of both parties. Said Agreement was
renewed for one year in 2006 and 2007 and under negotiation for 2008. Under the terms
of the Agreement, CPI receives license fees from Sky Cable and its cable affiliates
computed based on agreed percentage of subscription revenue of Sky Cable and its cable
affiliates. As the owner of the said cable channels, CPI develops and produces its own
shows and acquires program rights from various foreign and local suppliers.
b. Management Fees Charged to Amcara
The Parent Company renders management services to Amcara through designated
employees.
c. Blocktime Fees Paid by the Parent Company to Amcara
The Parent Company owns the program rights being aired in UHF Channel 23 of Amcara..
The Parent Company has an existing blocktime agreement with Amcara for its provincial
operations.
d. Other transactions with associates include cash advances for working capital
requirements.
Terms and Conditions of Transactions with Related Parties
The sales to and purchases from related parties are made at normal market prices.
Outstanding balances as of quarter-end are unsecured, interest-free and settlement occurs in
cash, except for the long-term receivables from Sky Cable. For the period ended March 31,
2009 and December 31, 2008, the Company has not made any provision for doubtful accounts
relating to amounts owed by related parties. This assessment is undertaken each financial year
by examining the financial position of the related party and the market in which the related
party operates.
Certain obligations of the Parent Company are jointly and severally guaranteed by its principal
subsidiaries.
Compensation of Key Management Personnel of the Company
Compensation
Pension benefit
Vacation leaves and sick leaves
Termination benefits
June 2009
P
=320,986
20,146
27,364
12,367
P
=380,857
June 2008
=
P261,006
15,368
32,125
203
=
P308,702
15. Investments in Associates
The Company’s investments in associates, included as part of “Other noncurrent assets” account in
the consolidated balance sheet, are accounted for under the equity method of accounting. An
associate is an entity in which the Company has significant influence and which is neither a
subsidiary nor a joint venture.
Under the equity method, investment in associates is carried in the consolidated balance sheet at
cost plus post-acquisition changes in the Company’s share in net assets of the associate. Goodwill
relating to an associate is included in the carrying amount of the investment and is not amortized.
The consolidated statement of income reflects the share on the results of operations of an
associate. Where there has been a change recognized directly in the equity of the associate, the
Company recognizes its share in any changes and discloses this, when applicable, in the
consolidated statement of changes in equity. The reporting dates of the associates and the
Company are identical and the associates’ accounting policies conform to those used by the
Company for like transactions and events in similar circumstances.
The detailed carrying values of investments which are carried under the equity method follow:
Amcara
June 2009
P
= 43,301
December 2008
=
P 43,301
16. Long-term Receivables from Related Parties
In 2007, this account consists of the following:
Convertible note (see Note 4)
Long-term receivables
Less accumulated equity in net losses of Sky Vision
=
P2,498,971
1,434,314
3,933,285
40,049
=
P3,893,236
On September 20, 2007, related to the acquisition by the Parent Company of about 66% of Sky
Cable Debt from third party creditors, Sky Cable issued two Promissory Notes to the Parent
Company in the aggregate amount of =
P1,798 million. As a consequence, the Parent Company
became the eventual lender on record of Sky Cable due to the loans that it absorbed. The loan
pays monthly interest at 3mPDST-F plus 1% with a final maturity of September 2016, as amended
on February 21, 2008. The Promissory Notes are further governed by the terms and conditions of
the Facility Agreement dated July 2, 2004. Interest income amounted to =
P13 million and =
P25
million in 2008 and 2007.
This amount of support of the Company to Sky Cable was in compliant with the Senior Credit
Agreement (SCA) and the First Amendment Agreement dated September 14, 2007, which
increased previous threshold of =
P400 million aggregated advances and guarantees to
=2,250 million.
P
In 2007, the long-term receivables from Sky Cable were recorded at fair value amounting to
=1,434 million. Unamortized receivable discount amounted to =
P
P364 million as of December 31,
2007. Accretion of receivable, included as part of interest income, amounted to =
P9 million and
=10 million in 2008 and 2007, respectively.
P
In December 2008, the Parent Company purchased additional Sky Cable Debt for a consideration
of P
=103 million or 55% of the principal amount of =
P188 million. The receivable from Sky Cable
pays monthly interest at 3mPDST-F plus 1% with final maturity on September 2016.
In 2008, upon consolidation of Sky Cable to ABS-CBN, the long-term receivables from Sky Cable
totaling =
P1,537 million were eliminated and the difference between the carrying value of Sky
Cable’s debt and the carrying value of ABS-CBN’s long-term receivables from Sky Cable
amounting P
=309 million was recognized as gain.
17. Equity
a. Capital Stock
Details of authorized and issued capital stock follow:
December 2008
Number of
Shares
Amount
(In Thousands)
June 2009
Number of
Shares
Amount
(In Thousands)
Authorized Common shares - P
=1 par
value
1,500,000,000
Issued Common shares
779,583,312
P
=1,500,000 1,500,000,000
=
P1,500,000
779,583,312
=
P779,583
P
=779,583
b. Unappropriated retained earnings available for dividend distribution is adjusted to exclude
the Parent Company’s accumulated equity in net losses of subsidiaries and associates
amounting to P
=1,124 million and =
P1,244 million as of March 31, 2009 and December 31,
2008, respectively
On March 25, 2009, the BOD approved the declaration of cash dividend of =
P0.90 per
share or an aggregate amount of =
P701 million to all stockholders of record as of May 5,
2009 payable on May 29, 2009.
On March 26, 2008, the BOD approved the declaration of cash dividend of =
P0.825 per
share or an aggregate amount of =
P643 million to all stockholders of record as of April 30,
2008 payable on May 27, 2008.
On March 28, 2007, the BOD approved the declaration of cash dividend of =
P0.45 per
share or an aggregate amount of =
P351 million to all stockholders of record as of April 20,
2007 payable on May 15, 2007.
c. Philippine Depository Receipts (PDRs) convertible to common shares
June 2009
Number of
Shares
Amount
(In Thousands)
Balance at beginning of year
Acquisition during the year
Issuance during the year
Balance at end of period/year
15,776,742
0
(52,600)
15,724,142
P
=376,324
0
(1,123,285)
P
=375,201
December 2008
Number of
Shares
Amount
(In Thousands)
12,778,120
2,998,622
0
15,776,742
=
P323,867
52,357
0
=
P376,324
This account represents ABS-CBN PDRs held by the Parent Company which are convertible
into ABS-CBN shares. These PDRs were listed in the Philippine Stock Exchange on
October 7, 1999. Each PDR grants the holders, upon payment of the exercise price and
subject to certain other conditions, the delivery of one ABS-CBN share or the sale of and
delivery of the proceeds of such sale of one ABS-CBN share. The ABS-CBN shares are still
subject to ownership restrictions on shares of corporations engaged in mass media and
ABS-CBN may reject the transfer of shares to persons other than Philippine nationals. The
PDRs may be exercised at any time from October 7, 1999 until the expiry date as defined in
the terms of the offering. Any cash dividends or other cash distributions in respect of the
underlying ABS-CBN shares shall be applied by ABS-CBN Holdings Corporation, issuer of
PDRs, towards payment of operating expenses and any amounts remaining shall be distributed
pro-rata among outstanding PDR holders.
In 2008, the Parent Company acquired 2,998,622 PDRs and common shares for =
P52 million.
In 2007, the Parent Company acquired 5,595,790 PDRs for =
P182 million.
In June 2007 and December 2006, the Parent Company issued =
P36 million and =
P22 million of
these PDRs, which are convertible into 1,698,741 and 1,118,929 ABS-CBN shares,
respectively, to some of its officers as payment for their bonuses. The PDRs issued were
based on quoted prices at the time of issuance.
18. Agency Commission, Incentives and Co-producers’ Share
Agency commission
Incentives and co-producers’ share
June 2009
P
=925,254
283,868
P
=1,209,122
June 2008
=
P 877,214
337,073
=
P1,214,287
June 2009
P
=1,303,828
529,382
289,068
411,685
404,637
P
=2,938,599
June 2008
=
P1,309,364
541,722
266,510
336,766
494,816
=
P2,949,177
June 2009
P
= 428,223
197,441
86,007
176,317
247,540
8498
1220,676
P
=2,364,703
June 2008
=
P371,483
122,879
125,591
157,231
169,989
10,845
890,633
=
P1,848,650
19. Production Costs
Personnel expenses and talent fees
Facilities related expenses
Amortization of program rights
Depreciation
Other program expenses
20. Cost of Sales and Services
Facilities related expenses
Termination costs
Inventory cost
Personnel expenses
Amortization of program rights
Depreciation
Other expenses
21. General and Administrative Expenses
Personnel expenses
Depreciation
Advertising and promotions
Facilities related expenses
Contracted services
Provision for doubtful accounts
Taxes and licenses
Entertainment, amusement and recreation
Amortization of goodwill/deferred charges
Other expenses
June 2009
P
=1,553,206
700,545
118,530
310,844
419,013
80,976
113,943
66,267
49,070
227,532
P
=3,639,925
June 2008
=
P1,241,476
414,300
75,482
284,065
322,096
73,033
110,302
60,584
2,854
348,131
=
P2,932,323
June 2009
P
=55,353
10,755
13,255
139,969
(1,233)
P
=218,098
June 2008
=
P 50,626
5,478
14,182
117,079
1,901
=
P189,365
June 2009
= 52,173
P
June 2008
=
P 62,776
June 2009
June 2008
P
=445,392
14,827
16,208
P
=476,427
=
P 280,306
11,460
9,594
=
P301,359
22. Other Income and Expenses
Other Income
Space rental
Management fees
Royalty income
Other
Mark to market (loss) gain – net
Finance Revenue
Interest income
Finance Cost
Interest expense
Amortization of debt issue costs
Bank service charges
23. Financial Assets and Liabilities
The following table sets forth the carrying values and estimated fair values of consolidated
financial assets and liabilities recognized as of June 30, 2009. There are no material unrecognized
financial assets and liabilities as of June 30, 2009.
Financial Assets
Cash and cash equivalents
Trade and other receivables – net
Available-for-sale investments
Long-term receivables from related parties
Total financial assets
Financial Liabilities
Trade and other payables
Interest-bearing loans and borrowings
Total financial liabilities
Carrying Amount
Fair Value
P
=3,447,880
5,643,000
123,588
0
P
=9,214,468
=
P3,447,880
5,643,000
123,588
0
=
P9,214,468
Carrying Amount
Fair Value
P
=6,283,773
7,781,960
P
=14,065,733
=
P6,283,773
8,710,934
=
P14,994,707
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:
Cash and Cash Equivalents, Trade and Other Receivables and Trade and OtherPayables: Due to
the short-term nature of transactions, the fair values of these instruments approximate the carrying
amount as of balance sheet date.
Derivative Assets. The fair values were determined using forward exchange market rates as of
balance sheet date.
Available-for-Sale Investments. The fair values of publicly-traded instruments were determined
by reference to market bid quotes as of balance sheet date. Investments in unquoted equity
securities for which no reliable basis for fair value measurement is available are carried at cost, net
of impairment.
Long-term Receivables from Related Parties. The receivable from Sky Cable, which is subjected
to monthly repricing, is not discounted since it approximates fair value.
Interest-bearing loans and borrowings: Fair value was computed based on the following:
Debt Type
Fair Value Assumptions
Term loan
Estimated fair value is based on the discounted value of
future cash flows using the applicable risk free rates for
similar types of loans adjusted for credit risk. The interest
rates used to discount the future cash flows have ranged
from
4.3% to 5.4% for those that are dollar-denominated and
from
4.4% to 12.5% for those that are peso-denominated.
Other variable rate loans
The face value approximates fair value because of recent
and frequent repricing (i.e., 3 months) based on market
conditions.
Obligations for Program Rights. Estimated fair value is based on the discounted value of future
cash flows using the applicable risk-free rates for similar types of loans adjusted for credit risk.
Customers’ Deposits. The fair values were calculated by discounting the expected future
cashflows at prevailing credit adjusted MART1 interest ranging from 5.6% to 11.5% as of balance
sheet date.
Derivative Instruments
Cross Currency Swaps. In 2004, the Parent Company entered into long-term cross currency
swaps that hedge 100% of the Tranche A Principal against foreign exchange risk. Under these
agreements, the Parent Company effectively swaps the principal amount of certain US dollardenominated loans under the SCA into Philippine peso-denominated loans with payments up to
June 2009.
The Company is also obligated to pay swap costs based on a fixed rate of 8.0% on a notional
amount of P
=353 million, 5.125% on a notional amount of =
P55 million, 3-month PHIREF minus
2.9% on a notional amount of =
P2 billion and 3-month PHIREF minus 3.1% on a notional amount
of P
=264 million.
On December 18, 2007, the Company prepaid all its outstanding loan obligations under Tranche A
of the SCA facility amounting to US$27 million (P
=1,132 million). This made it necessary for the
Company to unwind the existing cross currency swaps. On December 20, 2007, the Company
paid =
P393 million to unwind the hedges. Cumulative Translation Adjustment (CTA) amounting to
=232 million previously recorded in equity were recognized in the 2007 consolidated statement of
P
income.
Interest Rate Swaps. To manage the interest rate exposure from the floating rate loans, the
Company also entered into USD interest rate swaps and PHP interest rate swaps which effectively
swap certain floating rate loans into fixed-rate loans. In 2007, the USD interest rate swaps have
been terminated as a result of the prepayment of the outstanding loan obligations under Tranche A
of the SCA facility. The Company received a total of US$12,000 (P
=0.5 million) as net settlement
for the unwinding of the interest rate swaps. CTA amounting to =
P44 million previously recorded
in equity were recognized in the 2007 consolidated statement of income.
Hedge Accounting Implications of Swaps. The Parent Company’s principal-only currency swaps
and USD interest rate swap are designated as cash flow hedges on October 1, 2005 to manage the
Parent Company’s exposure to variability in cash flows attributable to foreign exchange and
interest rate risks of the underlying debt obligations. Since the critical terms of the swaps and the
outstanding debt obligations coincide, the hedges are expected to exactly offset changes in
expected cash flows due to fluctuations in foreign exchange and the prime rate over the term of the
debt obligations.
From October 1, 2005 up to December 31, 2005, the effective net mark-to-market losses that have
been deferred in equity for these cash flow hedges amounted to =
P53 million (P
=34 million, net of
tax). Prior to designation as cash flow hedges, the principal-only currency swaps accounted for
mark-to-market losses in the consolidated statement of income of about =
P32 million (net of
=316 million gain on the swap differentials), while the USD interest rate swap accounted for
P
mark-to-market gains in the consolidated statement of income of =
P48 million.
The effective net mark-to-market losses that have been deferred in equity for these cash flow
hedges amounted to =
P249 million (P
=162 million, net of tax) in 2006.
As previously discussed, in December 2007, the Company terminated all outstanding cross
currency swap and interest rate swap contracts as a result of the prepayment of all the outstanding
Tranche A loan of the SCA facility. The net mark-to-market losses amounting to =
P277 million
previously recorded in equity were recognized in the 2007 consolidated statement of income.
As part of the transition adjustments as of January 1, 2005, the Company initially recognized an
aggregate amount of =
P117 million (P
=76 million net of tax), representing the fair value for the
principal-only currency swaps (net of the impact of the foreign exchange restatement) and the
USD and PHP interest rate swaps. This amount is initially recorded as a credit adjustment in CTA
(‘initial CTA’) and will be amortized using the effective interest method over the remaining term
of the underlying related loans. Amortization of the initial CTA amounted to =
P54 million in 2007
and P
=31 million in 2006. This is recorded as a reduction in interest expense.
In 2006, the Company made a reassessment of its outstanding cross currency swap and interest
rate swap. The valuation of each swap transaction was remeasured to conform with the values
derived by each of the counterparties to the hedges. This recalibration resulted in the increase of
the derivative liability and decrease of the derivative asset by =
P105 million and =
P26 million,
respectively, in 2006. The aggregate total of =
P131 million was then recorded in equity and was
transferred to the 2007 consolidated statement of income when the Company terminated the hedge
contracts as a result of the prepayment of all outstanding Tranche A loan of the SCA facility in
2007.
In 2007, movements in the CTA related to derivative instruments are as follows:
Balance at beginning of year
Amounts taken to equity
Reversal of tax effect
Amounts transferred to profit and loss:
Due to the termination of hedged item
and related cross currency swap
Due to the termination of hedged item
and related interest rate swap
Amortization of initial CTA
Balance at end of year
(P
=160,986)
24,874
(86,685)
232,335
44,359
(53,897)
=
P–
Embedded Derivatives. As of December 31, 2008 and 2007, the Parent Company has outstanding
embedded foreign currency derivatives which were bifurcated from various non-financial
contracts. The impact of these embedded derivatives is not significant.
Sky Cable bifurcated embedded derivatives from its various nonfinancial contracts. These are
denominated in USD which is not the functional currency of Sky Cable or its counterparty. The
total notional amount as of December 31, 2008 amounted to $0.7 million. The fair value of the
embedded derivative assets as of December 31, 2008 amounted to =
P16 million.
The net movements in fair value changes of the Company’s derivative instruments as of
December 31, 2008 and 2007 are as follows:
Balance at beginning of year
Effect of business combination
Net changes in fair value of derivatives:
Not designated as accounting hedges
Designated as accounting hedges
Less fair value of settled instruments
Balance at end of year
2008
P
=–
33,043
2007
(P
=345,482)
–
(216)
–
32,827
(16,604)
P
=16,223
–
(47,124)
(392,606)
(392,606)
=
P–
The Company is not exposed to material financial risks that would materially impact its
financial condition and results of operations.
24. Causes for Material Changes in the Financial Statements
Balance Sheet (June 30, 2009 vs December 31, 2008)
• Cash and cash equivalents increased by 37% to =
P3,448 million due to aggressive cash
collection.
• Trade and other receivables increased by 12% to =
P5,643 million due to increase in Sales of
Services.
• Combined program rights-current and non-current program rights and other intangible assets
decreased by 1% to =
P3,557 million due to slowdown in program rights acquisition.
• Goodwill arose from the acquisition of Sky Cable.
• Other current assets increased by 40% to =
P1,537 million from end 2008 levels due to
production expenses of yet to be aired episodes of the Company’s programs, prepaid taxes
and expenses.
• Deferred tax assets declined to P
=599 million from =
P603 million due to decrease in temporary
tax differences.
• Total interest-bearing loans and borrowings increased by 9% to =
P9,513 million from =
P8,714
million due to additional short-term borrowings to fund CAPEX.
• The change in income tax payable is the result of the ordinary course of business of the
Company.
25. Other Notes to 3-month 2009 Operations and Financials
The key performance indicators that we monitor are the following:
Gross Revenues
Gross Airtime Revenues
Sale of Services
Sale of Goods
Operating Income
Net Income
EBITDA
EPS
YTD June 2009
P11,686 million
=
6,719 million
4,741 million
225 million
1,534 million
813 million
3,369 million
1.059
Current Ratio
Net debt-to-Equity
Consolidated Trade DSO
As of June 30, 2009
1.29x
0.40x
80 days
26. Note to Statements of Cash Flow
YTD June 2008
=
P10,234 million
6,364 million
3,615 million
254 million
1,310 million
754 million
2,676 million
0.981
As of December 31, 2008
1.22x
0.41x
75 days
Noncash investing and financing activities:
Acquisition of property and equipment
under capital lease
Acquisition of program rights on account
2009
2008
P
= 723
148,836
=
P16,829
279,543
27. Reclassifications
The following accounts in the June 30, 2009 consolidated financial statements have been
reclassified to conform to the 2008 consolidation and annual presentation:
Nature
Statement of Income:
Reclassification of Global’s Commission and Incentive
expense from COS to Revenue Deduction
Reclassification of amount eliminated in Star Record’s cost
of inventory to Sale of Goods to conform with year-end
consolidation
Reclassification of distribution cost of Star Record’s from
GAEX to Cost of Sales to conform with year-end
consolidation
Reclassification of ABS-CBN’s Line Production Cost from
Production Cost-Others to Production Cost-Personnel
Reclassification of cost of magazine business of ABS-CBN
Publishing from GAEX to Cost of Sales
Amount
=
P71,127
19,932
12,984
24,616
16,476
EXHIBIT 1
ABS - CBN BROADCASTING CORPORATION
AGING OF ACCOUNTS RECEIVABLE
AS OF JUNE 30, 2009
Neither Past Due nor
Impaired
Trade Receivables
Airtime
Subscription
Others
Nontrade Receivables
Due from related parties
Total
1,564,537
360,922
236,599
78,554
2,240,612
PAST DUE ACCOUNTS
Less than 30 Days
30 Days and Over
581,628
82,832
82,198
20,945
767,602
612,726
429,670
652,179
280,533
48,062
2,023,169
Impaired
400,087
113,240
91,279
43,295
647,901
Allowance
(245,945)
(75,882)
(97,823)
(42,984)
(462,634)
Total
2,913,033
910,782
964,432
380,342
48,062
5,216,650
EXHIBIT 2
ABS-CBN Broadcasting Corporation
Business Segment Data
In Thousands
Revenues
External Sales
Inter-segment sales
Total Revenues
Results
Segment Result
Equity in net earnings (losses)
Other Income
Finance Revenue
Finance Cost
Foreign exchange gain (loss)
Income Tax
Net Income (Loss)
Assets and Liabilities
Segment Assets
Investment in equity method associates
Segment Liabilities
Other Segment Information
Capital Expenditures :
Property and Equipment
Intangible Assets
Depreciation and amortization of program rights & other intangibles
Noncash expenses other than
depreciation and amortization of program rights
BROADCASTING
CABLE AND SATELLITE
OTHER BUSINESSES
ELIMINATIONS
CONSOLIDATED
For the period ended June 30
For the period ended June 30
For the period ended June 30
For the period ended June 30
For the period ended June 30
2009
2009
2009
2009
2009
2008
11,685,945
11,685,945
10,253,989
10,253,989
6,199,718
26,645
6,226,364
799,648
351,886
75,785
(384,487)
(31,738)
(250,116)
560,978
2008
6,035,988
26,066
6,062,054
735,137
332,857
76,571
(261,591)
(31,913)
(312,587)
538,474
4,678,267
119,112
4,797,378
253,811
(58)
75,699
20,546
(115,496)
(21,549)
(101,919)
111,032
2008
3,404,774
91,344
3,496,119
216,496
5,064
15,541
19,739
(71,720)
28,472
(113,570)
100,021
2008
2008
807,961
58,285
866,246
813,227
76,788
890,015
(204,042)
(204,042)
(194,198)
(194,198)
113,644
55,055
1,041
(122)
(3,346)
(59,259)
107,013
107,828
44,866
1,335
(1,015)
7,577
(66,898)
93,693
366,494
(264,541)
(45,199)
23,678
(30,107)
50,325
250,091
(205,899)
(34,869)
34,869
44,193
1,533,597
(58)
218,098
52,173
(476,427)
(56,633)
(441,402)
829,348
1,309,552
5,064
187,365
62,776
(299,458)
4,136
(493,055)
776,379
21,946,795
6,976,740
18,677,205
6,706,372
14,465,082
-
10,691,959
-
2,281,228
-
2,982,117
-
(4,206,991)
(6,923,551)
(1,245,001)
(6,663,071)
34,486,114
53,189
31,106,280
43,301
5,680,635
4,956,918
6,282,367
5,838,824
769,498
1,790,784
(3,107,419)
(2,001,728)
9,625,080
10,584,798
449,848
546,149
969,982
432,557
247,677
784,037
981,833
7,506
707,678
142,735
267,893
391,402
1,581,031
535,011
1,710,348
610,528
491,265
1,206,143
24,967
33,044
66,222
51,905
96,403
87,313
149,350
(18,645)
32,493
5,214
35,237
(24,305)
30,670
2,363
195
-
34
-
EXHIBIT 3
ABS-CBN Broadcasting Corporation and Subsidiaries
Schedule of Property, Plant & Equipment Roll-Forward
As of June 30, 2009
Land and
Land
Improvements
Cost:
Balance at beginning of year
Additions
Effect of business combination
Disposals/retirements
Reclassifications
Translation adjustments
Balance as of June 30, 2009
Accumulated depreciation:
Balance at beginning of year
Depreciation
Disposals/retirements
Reclassifications
Translation adjustments
Balance as of June 30, 2009
Net book value
494,141
1,019
495,160
4,447
(248)
4,199
490,961
Building
and
Improvements
10,106,215
5,370
1
6,074
2,216
10,119,876
3,103,787
239,313
(26)
(655)
2,477
3,344,895
6,774,981
Television,
Radio, Movie
and Auxiliary
Equipment
Other
Equipment
Construction
In Progress
Equipment
in Transit
As of June 30
2009
December 31
2008
11,458,215
685,272
(420,581)
190,237
184,385
12,097,527
4,937,305
734,359
(622,040)
(170,946)
(135,991)
4,742,687
167,674
156,030
(25,364)
2,325
300,664
67,146
(4,934)
62,213
27,230,697
1,581,031
(1,042,620)
0
49,019
27,818,127
20,306,551
2,225,896
4,959,817
(273,283)
11,716
27,230,697
5,999,220
634,617
(102,902)
99,227
(9,300)
6,620,862
5,476,665
3,387,688
247,047
(113,702)
(98,572)
(178,305)
3,244,156
1,498,531
300,664
62,213
12,495,143
1,120,728
(216,630)
(185,129)
13,214,112
14,604,015
10,839,436
1,841,737
(200,984)
14,953
12,495,143
14,735,554