August 10, 2004 COVER SHEET 1 8 0 3 S.E.C. Registration Numer A B S - C B N B ROA DCA S T I NG C O R P O R A T I ON (Company's Full Name) A B S - C B N B ROA DCA S T I NG S G T . E S G U ERRA CENT E R A V E . QUE Z ON CI T Y (Business Address: No. Street City / Town / Province) Randolph T. Estrellado 415-2272 Contact Person 1 2 3 1 Day Month Fiscal Year Company Telephone Number 1 7 - Q 0 4 Day Month Annual Meeting FORM TYPE Secondary License Type, If Applicable Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings 8 5 8 3 Total No. of Stockholders Domestic To be accomplished by SEC Personnel concerned File Number LCU Document I.D. Cashier STAMPS Foreign 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 quarterly period ended June 30, 2004 2. SEC Identification No. 1803 3. BIR Tax Identification No. VAT 000-406-761-000 4. Exact name of registrant as specified in its charter : ABS-CBN Broadcasting Corporation 5. Philippines _ Province, Country or other jurisdiction of incorporation or organization 6. Industry Classification Code : _________ (SEC Use Only) 7. ABS-CBN Broadcasting Center Complex, Sgt. Esguerra Avenue cor. Mo. Ignacia St.,Quezon City, Metro Manila Address of principal office 1100 _ Postal Code 8. (632) 924-41-01 up to 22 / 415-22-72 Registrant’s telephone no. and area code 9. Not applicable _ Former name, address, and fiscal year, if changed since last report 10. Securities registered pursuant to Sections 4 & 8 of the RSA: No. of Shares of Common Stock Outstanding &/or Amount of Debt Outstanding Title of Each Class 779,583,312 shares Common Stock, P 1 par value 11. Are any or all of these securities listed on the Philippine Stock Exchange? Yes [x] 12. No [ ] Indicate by check mark whether the registrant: (a) has filed all reports required to be filed by Section 17 of the Securities Regulation Code and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports): Yes [x] (b) No [ ] has been subject to such filing requirements for the past 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 and Unappropriated Retained Earnings Consolidated Statements of Changes in Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Financial Statements PART II -- OTHER FINANCIAL INFORMATION Exhibit 1 Schedule of Investments and Advances Exhibit 2 Aging of Accounts Receivable Exhibit 3 Business Segment Results Exhibit 4 Roll-forward of PPE SIGNATURES Management’s Discussion and Analysis of Financial Condition and Results of Operations for the Quarter and Six Months Ended June 30, 2004 ABS-CBN Broadcasting Corporation registered a net income of P560 million in the first half of 2004, reflecting a 10% growth year-on-year (YoY). The growth in net income was primarily brought about by overall revenue growth as well as lower interest expense. Airtime revenues and broadcast related revenues Airtime revenues and broadcast related revenues increased by 5% to P5,556 million in the first half of the year (1H’04) primarily driven by higher revenues from TV Channel 2. Airtime revenues from TV Channel 2 grew by 5% in 1H’04 brought about by a combination of an increase in advertising rates and an increase in advertising minutes where total VHF industry minutes was down by 1%. Airtime revenues from other platforms, on the other hand, fell by 7% as advertisers adopted a wait-and-see attitude in view of the national elections. While political advertising was higher in this recently concluded elections compared to the 2001 elections, over 90% of the approximately P480 million political ads was placed in Channel 2, which has a wider audience reach compared to the other platforms owned by the company. Other broadcasting related revenues composed primarily of SMS related revenues increased by 38% in 1H’04 as the nature of SMS activities has evolved from audience interaction via SMS in Game K N B? to the more lucrative downloading of new services such as polytones, java games, and wallpapers. SMS revenues also grew with the introduction of promos which include voting for the Star Circle Quest, Star in a Million and Sana’y Wala Nang Wakas ending. Net sales and services The company’s net sales and services continued to post healthy growth rates as 1H’04 increased by 23% to P2,055 million with ABS-CBN Global continuing to account for bulk of net sales and services. In the first half of the year, ABS-CBN Global reported net revenues of P1,412 million, up 24% from P1,135 million in 1H’03. ABS-CBN Global’s reach continued to expand as its viewer ship grew 24% YoY to 1.5 million by end-June 2004 from 1.2 million the year ago. To reach even more viewers, ABS-CBN Global launched its own DTH service in Australia last June where ABS-CBN’s channels were previously distributed by a third party DTH provider. Other subsidiaries turned in equally notable results with a growth of 21% in 1H’04 to P643 million from P531 million in 1H’03. ABS-CBN Films continued to produce blockbuster movies with the showing of Milan and All My Life which grossed over P100 million each from box-office receipts and from shares in video sales. Star Records and ABS-CBN Publishing likewise registered strong double digit growth rates in the first half of the year. Net sales of Star Records grew primarily from video sales of movies produced by ABS-CBN Films while, ABS-CBN Publishing’s revenue growth came from an increase in circulation as well as an increase in ad page rate. With net airtime and broadcast related revenues growing by 5% and net sales and services growing by 23%, total net revenues grew 10% to P6,614 million. 1 Operating expenses Operating expenses grew 15% YoY to P5,594 million from P4,885 million in 1H’03. This growth came from an increase in cash operating expenses consisting of production cost, general and administrative costs, and cost of sales and services. These cash expenses grew by 19% to P4,541 million from P3,832 million in the same period last year. Production costs in 1H’04 increased by 21% to P1,911 million from P1,576 million with the increase due in part to the cost of covering the recently concluded national elections. Without the cost of the Halalan 2004 coverage, production cost increased by 19% as the company produced two new shows in the non-primetime afternoon slot in place of canned animation programs. Furthermore, the growth in production cost also reflected the impact of the reduction in movie nights starting in June 2003. Also contributing to production cost growth was the re-launch of Studio 23 with its new tagline “Kabarkada Mo!” in efforts to widen its youth market. Studio 23’s re-launch included a reprogramming strategy to produce more programs such as Wazzup Wazzup (a daily news program with a comic twist), Sports TV (sports news delivered in a fast-paced style), and Nginig:Hidden Files (a reality TV horror program). General and administrative expenses (GAEX) grew by 17% to P1,592 million from P1,356 million. The growth in GAEX came from expenses of ABS-CBN Europe which began start-up operations in June 2003 and partly from ABS-CBN Films which was incorporated only in 2Q’03. Without the expenses due to ABS-CBN Europe and the 1Q’04 impact of ABS-CBN Films, recurring GAEX YoY growth was at 10%. This growth was due to various training programs for employees as well as repairs and maintenance costs that were slashed the previous year as a result of cost cutting measures. Cost of sales and services, the cost related to net sales and services, increased by 15% to P1,038 million from P900 million in 1H’03. Cost of sales as a per cent to net sales and services was down to 51% in 1H’04 from 54% the year ago reflecting the improving operating margins of the subsidiaries. Non-cash operating expenses consisting of depreciation and amortization of program rights was flat from the same period last year at P1,053 million as the reduction in depreciation expense was tempered by an increase in amortization of program rights. Depreciation expense decreased by 11% to P561 million with the reduction in the company’s capital spending compared to the previous years. Amortization of program rights, on the other hand, increased by 17% YoY to P493 million in 1H’04 from P421 million in 1H’03 due to the impact of an aggressive amortization policy adopted at the beginning of the year. Overall, since consolidated net revenues grew at a slower rate than operating expenses, operating income fell 11% to P1,020 million, bringing operating margin to 15% from 19% the year before. Net income and EBITDA Tempering the decline in operating income were significantly lower other expenses. Other expenses in 1H’04 were lower by 37% at P193 million from P307 million in 1H’03. The improvement in other expenses was due to lower interest expense as the company paid down 2 P1.5 billion worth of maturing debt obligations from internally generated cash in the first half of the year. However, beginning July 2004, interest expense is expected to increase with the signing of the US$120 million loan of which around US$100 million was drawn in June. With operating income at over P1.0 billion and with the improvement in other expenses, net income grew by 10% to P560 million from P507 million the year ago. Earnings before interest, taxes, depreciation, and amortization (EBITDA) stood at P2,132 million, a slight decline of 3% from the P2,197 in 1’H’03 as cash expenses overtook revenue growth in 1H’04. Asset and Capitalization Total consolidated assets reached P24,538 million by end-June 2003, up by 11% from end-2003 levels. Accounts receivables stood at P4,277 million with trade receivables accounting for 98% of the total at P4,174 million. Parent trade days sales outstanding (DSO) was at 75-days from 72 days in 2003. Consolidated trade DSO, meanwhile, was at 99-days from 83-days in 2003. Total interest bearing debt reached P6,019 million as the company signed a five year syndicated loan agreement for US$120 million in June 2004. Part of the US$120 million loan was used to refinance all existing loans of ABS-CBN while US$30 million will be invested in Beyond Cable in the form of a convertible debt instrument which will be converted into equity after two years. The foreign exchange exposure of the principal amount is fully hedged hence the company will not be exposed to foreign exchange risk other than on the interest. Despite a higher debt level from December 2003, the company continued to keep a strong balance sheet, maintaining a debt-to-equity ratio of 78%. 2 ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2004 and December 31, 2003 (In Thousands, Except Par Value and Number of Shares) 2004 June Unaudited ASSETS Current Assets Cash and cash equivalents Accounts Receivable - net Program rights - Current Other Current Assets Total Current Assets Due from Affiliated Companies Investment and Advances Property and Equipment - net Program rights - Non Current Assets of Discontinuing Operations Other Assets Total Non Current Assets LIABILITIES AND STOCKHOLDER'S EQUITY Current Liabilities Bank Loans Accounts Payable and accrued expenses Income Tax Payable Obligations for program rights - Current Current portion of long-term debt Total Current Liabilities Due to Affiliated Companies Long Term Debt (net of current portion) Obligations for program rights - Non Current Liabilities of Discontinuing Operations Deferred Income Tax Total Noncurrent Liabilities Minority Interest Stockholders' equity Capital Stock - P1 par value Authorized - 1,500,000,000 shares Issued and outstanding 779,583,312 shares Capital Paid in excess of par Revaluation Increment Translation Adjustment Retained Earnings Appropriated for expansion projects Uappropriated Notes Convertible to common shares 2003 December Audited 2,797,899 4,277,183 990,789 806,791 8,872,661 303,401 355,236 10,631,126 829,129 17,118 3,528,977 15,664,987 24,537,649 1,580,355 3,787,808 880,975 574,486 6,823,624 273,303 342,111 10,843,512 936,212 17,118 2,966,841 15,379,097 22,202,721 44,118 3,772,750 218,576 321,361 216,369 4,573,173 29,542 5,758,667 130,914 16,652 213,905 6,149,681 146,714 220,577 2,442,234 124,357 256,183 2,115,971 5,159,322 75,473 3,453,903 13,370 16,652 224,870 3,784,268 151,049 779,583 706,047 779,583 706,047 130,251 130,251 8,300,000 3,952,199 13,868,080 (200,000) 13,668,080 24,537,649 8,300,000 3,392,201 13,308,082 (200,000) 13,108,082 22,202,721 ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES Consolidated Statement of Income and Expenses For the period ended June 30 (Unaudited) (In Thousands) AIRTIME & OTHER BROADCASTING RELATED REVENUE Less: Agency commission, marketing expenses and co-producers' share NET SALES & SERVICES OPERATING EXPENSES Production costs General & administrative Cost of sales and services Depreciation and amortization Amortization of program rights INCOME FROM OPERATIONS OTHER INCOME ( EXPENSES) Interest-net Equity in net income (losses) of investees Miscellaneous-net INCOME BEFORE INCOME TAX PROVISON FOR INCOME TAX NET INCOME BEFORE DISCONTINUED OPERATIONS LOSS FROM DISCONTINUED OPERATIONS NET INCOME EBITDA EARNINGS PER SHARE (EPS) Basic EPS Diluted EPS Computation of EPS: (a) Net income (b) Weighted average shares outstanding (c) Adj weighted average common shares - diluted Basic EPS (a/b) Diluted EPS (a/c) For the quarter ended June 30 2004 2003 3,144,140 3,032,152 For the period ended June 30 2004 2003 5,556,467 5,279,020 560,884 2,583,256 1,029,770 3,613,025 522,727 2,509,425 922,217 3,431,641 996,643 4,559,825 2,054,620 6,614,445 918,286 4,360,734 1,666,351 6,027,085 999,687 817,298 554,741 280,062 269,781 2,921,570 691,456 802,324 736,966 504,215 305,939 255,875 2,605,319 826,323 1,910,519 1,591,817 1,038,470 560,524 492,769 5,594,100 1,020,345 1,576,257 1,355,557 900,063 631,449 421,313 4,884,638 1,142,447 (124,360) 7,564 46,050 (70,747) 620,709 184,799 435,909 435,909 (159,927) (10,525) (2,607) (173,059) 653,264 253,837 399,427 399,427 (250,981) (15,573) 73,966 (192,588) 827,757 267,759 559,998 559,998 (308,384) (33,747) 35,489 (306,642) 835,805 328,822 506,983 506,983 1,294,912 1,375,005 2,132,031 2,196,950 0.57 0.57 435,909 769,583 769,583 0.57 0.57 0.52 0.52 399,427 769,583 769,583 0.52 0.52 0.73 0.73 559,998 769,583 769,583 0.73 0.73 0.66 0.66 506,983 769,583 769,583 0.66 0.66 ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES Unaudited Consolidated Statements of Changes in Stockholders' Equity For the six months ended June 30, 2004 and 2003 (In Thousands, Except Par Value and Number of Shares) 2004 June 2003 June CAPITAL STOCK-P1 par value Authorized - P1,500,000,000 shares Issued and Outstanding - 779,583,312 shares 779,583 779,583 CAPITAL PAID IN EXCESS OF PAR VALUE 706,047 706,047 EQUITY ADJUSTMENT FROM TRANSLATION OF SUBSIDIARIES Balance at beginning of year Translation adjustments during the year Balance at end of year 130,251 130,251 109,201 4,534 113,735 8,300,000 8,300,000 8,300,000 8,300,000 RETAINED EARNINGS Appropriated: Balance at beginning of year Appropriation for expansion projects Balance at end of year Unappropriated: Balance at beginning of year Net Income Cash and scrip dividends Appropriation for expansion projects Balance at end of year PHILIPPINE DEPOSIT RECEIPTS CONVERTIBLE TO COMMON SHARES 3,392,201 559,998 3,952,199 12,252,199 (200,000) 13,668,080 2,396,317 506,983 (13,291) 2,890,009 11,190,009 (200,000) 12,589,374 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 2004 2003 For the period ended June 30 2004 2003 435,909 399,427 559,998 506,983 280,062 269,781 184,799 124,360 305,939 255,875 253,837 159,927 560,524 492,769 267,759 250,981 631,449 421,313 328,822 308,384 EBITDA Less Interest - net 1,294,912 124,360 1,375,004 159,927 2,132,031 250,981 2,196,950 308,384 CASH FROM NET INCOME Adjustments to reflect cash from operations: Lower (higher) accounts receivable Lower (higher) other current assets Acquisitions of film rights Increase (decrease) in other liabilities Decrease (increase) in other assets Net Cash provided by operations CASH FROM INVESTING ACTIVITIES Net Investments in capital expenditures Net Investments in subsidiaries and affiliates Decrease (Increase) in assets of discontinuing operations Increase (Decrease) in liabilities of discontinuing operations 1,170,552 1,215,078 1,881,050 1,888,567 NET INCOME Add back: Depreciation & Amortization Amortization of film rights Provision for income tax Interest - net (32,193) 92,382 (165,270) 88,680 (587,934) 566,216 (652,203) 37,200 (188,779) (187,749) 126,698 350,244 (489,375) (232,305) (377,955) 1,206,854 (562,136) 1,426,132 (676,447) (94,876) (401,758) 100,094 154,023 969,602 (143,136) (76,085) (219,221) (171,644) 242 (2,095) 7,073 (166,423) (348,138) (89,154) (437,292) (399,577) (1,059) (2,095) 7,073 (395,657) (176,459) 1,309,507 1,133,048 (21) (20,366) (13,291) (33,678) (176,459) 405,162 228,703 1,771 (39,999) (13,291) (51,519) EFFECT OF ADJUSTMENTS ARISING FROM CHANGE IN FOREIGN EXCHANGE RATES NET INCREASE(DECREASE) IN CASH 1,480,043 4,534 154,677 1,217,543 4,534 526,960 CASH BALANCE, BEGINNING 1,317,855 1,087,871 1,580,355 715,588 CASH BALANCE, END 2,797,898 1,242,548 2,797,898 1,242,548 CASH FROM FINANCING ACTIVITIES Decrease (increase) in short term investments Increase (decrease) in bank loans Payment of long term debt Payment of Scrip Dividends ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (Amounts in Thousands Unless Otherwise Specified) 1. Basis of Preparation The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the Philippines under the historical cost convention. 2. Accounting Policies and Methods The same accounting policies and methods of computation are followed in the interim financial statements as compared with the most recent annual financial statements. 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: 2005 2006 2007 2008 2009 Total 649,834 1,226,317 1,497,081 1,627,787 974,259 5,975,278 6. Dividends paid No dividends were paid in the current interim period. On June 30, 2004, the company disclosed that its Board of Directors declared a sixty-four centavo (P0.64) per share cash dividend to all stockholders of record as of July 26, 2004, payable on August 10, 2004. 7. Earnings Per Share Computation Basic earnings per share are calculated by dividing the net income for the period attributable to common shareholders by the weighted average number of common shares outstanding during the period. Weighted average shares outstanding is 769,583,312. 10 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 will be secured by the Company’s real property and certain equipment and other assets and will be guaranteed by certain of the Company’s subsidiaries. B. Any material commitments for capital expenditures, the general purpose of such commitments and the expected sources of funds for such expenditures. -- For 2004, ABS-CBN Broadcasting Corp. is budgeting Php1.5 billion for capital expenditures and acquisition of film and program rights. This will be financed through internally generated funds. For the January to June 2004 period, the Company disbursed 48% of the full year budget. 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 significant elements of income or loss that did not arise from the issuer’s continuing operations. -- There were no significant elements of income or loss that did not arise from the issuer’s continuing operations for the interim period. E. 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. F. Any material events that were unusual because of their nature, size or incidents affecting assets, liabilities, equity, net income, or cash flows -- There were no material events that were unusual because of their nature, size or incidents affecting assets, liabilities, equity, net income, or cash flows. G. 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 were no material events subsequent to the end of the interim period that have not been reflected in the financial statements of the interim period. 11 9. Business Segment Results Segment information is prepared on the following bases: a. Business segments For management purposes, the Company is organized into three business activitiesbroadcasting, 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 program 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. Other businesses include movie production, consumer products and services. b. 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 Unites States and other locations (which includes Middle East and Milan), the company operates its cable and satellite operations to bring television programming outside the Philippines. c. 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 3. 10. Changes in Composition of Issuer Operations of Creative Creatures, Inc., a wholly owned subsidiary of ABS-CBN was discontinued in October 2003. 11. Changes in Contingent Liabilities or Assets There are no changes in contingent liabilities or contingent assets since the last annual 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. SFAS 16/IAS 16, “Property, Plant and Equipment.” (See Exhibit 4) 11 14. SFAS 24/IAS 24, “Related Party Disclosures.” In the consolidated financial statements, transactions of the Company with its associates and related parties follow: Amcara(a) Blocktime fees paid by Studio 23 to Expenses and charges paid for by the Parent Company which are reimbursed by the concerned related parties License fees charged by CPI to Central, PCC and Homecable(b) 2nd Qtr 2004 33,994 2nd Qtr 2003 37,509 17,738 23,743 68,721 67,877 Other transactions with associates include cash advances for working capital requirements. The amounts and balances resulting from the above transactions are reflected in the consolidated balance sheets in the following accounts: Advances Due from related parties Due to related parties a. June 2004 62,057 303,401 29,542 December 2003 56,104 273,303 75,473 Blocktime Fees Paid to Amcara Studio 23, Inc. owns the program rights being aired in UHF Channel 23 of Amcara. On July 1, 2000, it entered into a blocktime agreement with Amcara for its provincial operations. b. License Fees Charged to Central On December 29, 2000, the Parent Company and CPI entered into a Sale Agreement with Central, an associate engaged in cable operations, for the acquisition of the following assets: ! ! ! Production and distribution business and the related program rights and property and equipment of three cable channels, namely, Lifestyle Channel, Pinoy Blockbuster Channel and Video-ok Channel for P =671,141; 100% equity in Shopping Network, Inc. for P =25,259; and 49% equity in SNN for P =3,600. CPI entered into a channel carriage agreement (Agreement) with Central for the airing of these channels to the franchise areas of Central and its cable affiliates. The Agreement with Central is for a period of five years effective January 1, 2001, renewable upon mutual agreement. Under the terms of the Agreement, CPI will receive license fees from Central computed based on agreed rates and on the number of subscribers of Central. As the owner of the said cable channels, CPI will develop and produce its own shows and acquire program rights from various foreign and local suppliers. 11 15. SFAS 27/IAS 27, “Consolidated Financial Statements and Accounting for Investments in Subsidiaries The consolidated financial statements of the Company include the Parent Company and its Subsidiaries as of June 30, 2004. Subsidiaries are consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which control is transferred out of the group. The purchase method of accounting is used for acquired businesses. Companies acquired or disposed of during the year are included in the consolidated financial statements from the date of acquisition to the date of disposal. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Intercompany balances and transactions, including intercompany profits and unrealized profits and losses are eliminated. In the Parent Company financial statements, investments in subsidiaries and associates are accounted for under the equity method of accounting. All other investments held on a long-term basis are valued at cost less any permanent decline in value and are included in the “Investments and Advances” account in the consolidated balance sheets Investments in subsidiaries and associates follow: Place of Company Incorporation Subsidiaries Continuing Operations ABS-CBN Center for Communication Arts, Inc. Philippines ABS-CBN Global Ltd. (ABS-CBN Global) Cayman Islands ABS-CBN Interactive, Inc. Philippines ABS-CBN Publishing, Inc. Philippines Principal Activities Services Holding company Services Consumer products publishing Services Broadcasting Services Ownership Interest 2004 2003 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Creative Creatures, Inc. (CCI) Creative Programs, Inc. (CPI) Professional Services for Television & Radio, Inc. Sarimanok News Network, Inc. (SNN) Sky Films International, Inc. (Sky Films) Philippines Philippines Philippines Star Recording, Inc. Philippines Studio 23, Inc. (Studio 23) TV Food Chefs Inc. Philippines Philippines ABS-CBN Integrated & Strategic Property Holdings, Inc. E-Money Plus Philippines Broadcasting Services - film distribution Consumer products audio recording and distribution Broadcasting Restaurant and catering services Holding company Philippines Services 100.0 ABS-CBN Europe Ltd. England and Wales Cable and satellite operations 100.0 Philippines Philippines 12 (a) 60.0 (a) – ABS-CBN FCLLZ Dubai Dubai, KSA ABS-CBN International, Inc. (ABS-CBN International) Cable and satellite operations Philippines Movie production Philippines Services -post production California, USA Cable and satellite operations Discontinuing Operations ABS-CBN Consumer Products, Inc. (b) ABS-CBN Europe Societa Per Azioni (b) Cinemagica, Inc. (b) ABS-CBN Hongkong, Ltd. (b) Shopping Network, Inc. (c) Philippines Italy Philippines Hong Kong Philippines Consumer products Services Services Services Consumer products Philippines Services Philippines Philippines Movie production Cable operation ABS-CBN Film Productions, Inc. Roadrunner Network, Inc. (Roadrunner) Associates AMCARA Broadcasting Network, Inc. (Amcara) Star Cinema Productions, Inc. (Star Cinema) Sky Vision Corporation (Sky Vision) (a) 100.0 100.0 – – 98.9 98.9 80.0(a) 80.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 49.0 45.0 10.2 49.0 45.0 10.2 indirectly-owned through ABS-CBN Global ceased commercial operations on December 31, 2002 (c)ceased commercial operations on December 31, 2001 (a) (b) 16. SFAS 28/IAS 28, “Accounting for Investments in Associates.” The group’s investment in its associate is accounted for under the equity method of accounting. This is an entity in which the group has significant influence and which is not a subsidiary. The investment in its associate is carried in the balance sheets at cost plus post-acquisition changes in the group’s share of net assets of the associate, less any impairment in value. The statements of income reflects the group’s share of the results of operations of the associate. Unrealized gains arising from transactions with its associate are eliminated to the extent of the group’s interest in the associate, against the investment in the associate. Unrealized losses are eliminated similarly but only to the extent that there is no evidence of impairment of the asset transferred. The group’s investment in its associate includes goodwill (net of accumulated amortization) on acquisition, which is treated in accordance with the accounting policy for goodwill stated below. The detailed carrying values of investments which are carried under the equity method follow: Sky Vision Amcara June 2004 P =247,507 45,673 P = 293,180 12 December 2003 = P240,334 45,673 = P286,007 Combined financial information of unconsolidated associates follows: Current Assets Noncurrent Assets Current Liabilities Noncurrent Liabilities Revenues Cost and Expenses Operating income (loss) Net income (loss) June 2004 1,232,616 7,311,137 3,322,141 5,586,801 1,022,515 1,134,502 (111,987) (212,678) June 2003 1,115,873 6,008,534 3,096,099 3,064,297 1,018,729 1,193,457 (174,728) (267,657) 17. SFAS 31/IAS 31, “Financial Reporting of Interest in Joint Ventures” Not Applicable. 18. SFAS 35/IAS 35, “Discontinuing Operations” In 2002, following the rigid review of the operations of the various subsidiaries, the Parent Company’s Board of Directors (BOD) approved the discontinuance of operations of ABS-CBN Consumer Products, Inc., ABS-CBN Europe Societa Per Azioni, Cinemagica, Inc., ABS-CBN Hongkong, Ltd. and Shopping Network, Inc., which have been incurring losses. These subsidiaries are engaged in varied businesses including operating retail stores and direct sales service centers, cable shopping network, concert production, remittances and telecom retail, and local and foreign film productions, which were deemed not aligned with the Parent Company’s core businesses. The results of operations of the abovementioned subsidiaries for the period until discontinuance have been presented in the statements of income as “Income (Loss) from Discontinuing Operations After Income Tax.” In accordance with SFAS 35/IAS 35, comparative information for the prior period have been restated to segregate continuing and discontinuing assets, liabilities, income, expenses and cash flows. Total assets and liabilities of the discontinued subsidiaries are presented in the consolidated balance sheets separately as “Assets of discontinuing operations” and “Liabilities of discontinuing operations”. Assets and liabilities of discontinuing operations are as follows: December June 2003 2004 Assets: Cash Accounts receivables-net Other current assets Due from affiliated companies Property and equipment Other noncurrent assets P13,191 1,023 653 67 167 2,017 P17,118 15 P13,191 1,023 653 67 167 2,017 P17,118 Liabilities: Accounts payable and accrued expenses Due to affiliated companies 12,645 4,007 P16,652 12,645 4,007 P16,652 The results of discontinuing operations are as follows: Net sales and services Costs and expenses Cost of sales and services General and administrative 2ndQtr 2004 0 0 0 0 2nd Qtr 2003 0 0 0 0 Income (loss) from operations Other income (expenses) - net: Interest Miscellaneous 0 0 0 0 0 0 Income (loss) from discontinuing operations before income tax Provision for income tax Income (loss) after tax 0 0 0 0 0 0 19. SFAS 36/IAS 36, “Impairment of Assets.” Starting January 1, 2002, an assessment is made at each balance sheet date whenever there is any indication of impairment of any asset. If any such indication exists, the asset’s recoverable amount is estimated. An asset’s recoverable amount is calculated as the higher of the asset’s value in use or its net selling price. An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to operations in the period in which it arises. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however, not to an amount higher than the carrying amount that would have been determined (net of any depreciation), had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is credited to current operations. Pending the outcome of certain events, the Company has not and does not believe that it is appropriate to perform an asset impairment analysis for its investments in and advances to Sky Vision Corporation and the cable channels of Creative Programs, Inc. as of June 30, 2004. 20. Causes for Material Changes in the Financial Statements Balance Sheet (June 30, 2004 vs December 31, 2003) Accounts receivable-net increased by 13% to P4,277 million from end-2003 levels due to an increase in the customer base of the company’s international business. Program rights – current increased by 12% to P991 million from end-2003 levels as the Company estimates a higher usage of program and film inventory in the 12 months going forward. Other current assets increased by 40% to P807 million from end-2003 levels due to various prepaid expenses typical at the start of the year. Program rights – non current decreased by 11% to P829 million from end-2003 levels as the company anticipates a higher usage of its existing program and film inventory and as acquisition of film and program rights slowed down. Other assets increased by 19% to P3,529 million from end-2003 levels due to deferred cost of the new syndicated loan agreement. Bank loans decreased by 80% to P44 million from end-2003 levels as the company used part of the proceeds from its US$120 million loan to refinance all its previous short-term and long-term loans. Accounts payable and accrued expenses increased by 54% to P3,773 million from end-2003 due to an increase in payables to suppliers. Income tax payable increased by 76% to P219 million from end-2003 due to improved profitability of the Company. Current portion of long-term debt decreased by 90% to P216 million from end-2003 as first principal amortization on the new five-year US$120 million syndicated loan is scheduled on June 2005. Long-term debt (net of current portion) increased by 67% to P5,759 million with the signing of the US$120 million syndicated loan in June 2004. The change in due from and due to affiliated companies is the result of the ordinary course of business of the Company. The changes in obligations for program rights-current and obligations for program rights-non current are due to new program rights acquisition in 2004. Deferred income tax decreased by 5% to P214 million due to the ordinary course of business of the Company. 21. Other Notes to 2Q 2004 Operations and Financials 21.1 The key performance indicators that we monitor are the following: Net Airtime Revenues Net Sales and Services Operating Income Net Income EBITDA EPS YTD June 2004 4,560 million 2,055 million 1,020 million 560 million 2,132 million 0.73 YTD June 2003 4,361 million 1,666 million 1,142 million 507 million 2,197 million 0.66 Current Ratio Net debt-to-Equity Debt-to-EBITDA EBITDA-to-Interest Expense As of Jun 30, 2004 1.94x 0.24x 1.42x 7.25x As of Dec 31, 2003 1.32x 0.32x 1.35x 6.73x Consolidated Trade DSO Parent Trade DSO 99 days 75 days 83 days 72 days 21.2 Any event that will trigger direct or contingent financial obligation that is material to the company, including any default or acceleration of an obligation: None 21.3 All material off-balance sheet transaction, arrangement, obligation (including contingent obligations), and other relationships of the company with unconsolidated entities or other persons created during the reporting period: None EXHIBIT 1 ABS-CBN BROADCASTING CORPORATION Non-current Marketable Securities, Other long term Investments, and Other Investments As of June 30, 2004 Name of Issuing Equity and Description of Investment Amount in Pesos Unaudited June 2004 At Equity: Skyvision Amcara Broadcasting Network, Inc. 247,506,873 45,672,921 293,179,794 Advances: AMCARA Star Cinema 62,056,606 62,056,606 355,236,400 NOTE: Balance of investment to Star Cinema was charged against advances NORMAL OPERATING CYCLE 1 TRADE RECEIVABLES 2 NON TRADE RECEIVABLES ACCOUNTS RECEIVABLE DESCRIPTION NET RECEIVABLES ACCRUED INTEREST RECEIVABLE ADVANCES TO SUPPLIERS & CONTRACTORS ADVANCES TO TALENTS ADVANCES AGAINST CLAIMS - SSS AR NON-TRADE OTHERS NET AR - NON TRADE II. NON - TRADE RECEIVABLES NET AR - TRADE ALLOWANCE FOR DOUBTFUL ACCOUNTS TRADE RECEIVABLES I. TRADE RECEIVABLES TYPE OF ACCOUNTS RECEIVABLE ABS - CBN BROADCASTING CORPORATION AGING OF ACCOUNTS RECEIVABLE AS OF JUNE 30, 2004 EXHIBIT 2 9% 3,784,337 13% 486,356 47% 37% 387,648.41 CURRENT 1,783,075 1,543,082.76 NOT YET DUE -calendar year 8% 286,509 7% 282,546.45 30 DAYS - accumulated through the normal course of business i.e. sale of airing spots - accumulated through transactions other than sale of airing spots 4,277,182.91 682 63,164 81,936 6,030 379,096 530,909 3,746,274.38 436,255.74 4,182,530.13 TOTAL 5% 199,452 6% 253,678.96 60 DAYS 4% 141,586 6% 262,759.90 90 DAYS 15% 562,569 20% 854,322.18 120 - 360 DAYS 15% 562,059 mar - PAST DUE & ITEMS IN LITIGATION 14% jun 598,491.47 OVER 360 DAYS Other Segment Information Depreciation and amortization Noncash expenses other than depreciation and amortization 919,815 42,102 44,481 19,004,699 2,352,503 21,357,202 8,685,600 896,854 (314,710) (17,532) 213,051 (266,097) 511,566 4,102,822 4,102,822 902,615 19,612,997 2,673,660 22,286,657 8,593,726 625,219 (256,120) 105,709 243,902 (209,468) 509,242 Results Segment Result Interest and other financial charges - net Equity in net earnings (losses) Others Minority Interest Income tax Loss from Discontinued Operations Net Income (Loss) Assets and Liabilities Segment Assets Investment in equity method associates Consolidated total assets Segment Liabilities 4,315,379 4,315,379 BROADCASTING 2004 2003 Revenues External Sales Inter-segment sales Total Revenues ABS-CBN Broadcasting Corporation Business Segment Data In Thousands EXHIBIT 3 44,465 96,458 3,885,144 3,885,144 2,167,041 138,463 1,256 (13,040) (3,944) (14,845) 107,891 1,673,798 47,508 1,721,307 44,936 63,294 2,088,524 2,088,524 762,914 24,975 57,015 955,001 955,001 388,137 95,243 3,883 9,248 (43,447) 64,928 625,267 26,317 651,584 6,659 69,653 938,293 938,293 422,132 69,934 1,082 9,156 (36,461) 43,711 479,296 58,616 537,912 For the period ended June 30 OTHER BUSINESSES 2004 2003 57 5,245 795 (5,739) (26,265) (25,907) 1,392,906 37,368 1,430,275 CABLE AND SATELLITE 2004 2003 - (2,796) (136,107) (2,453,046) (2,589,153) (279,335) 161,420 (121,282) (162,227) 27 (122,063) (73,825) (73,825) 6,043 - 121,734 (1,990,509) (1,868,775) 55,223 175,601 (16,215) (181,644) (130) (22,388) 52,061 (95,985) (43,923) ELIMINATIONS 2004 2003 113,921 1,053,293 24,317,035 220,614 24,537,649 10,869,569 1,020,345 (250,981) (15,573) 77,883 (3,917) (267,759) 559,998 6,614,445 6,614,445 99,740 1,052,762 22,153,249 361,994 22,515,243 9,925,869 1,142,447 (308,384) (33,747) 41,358 (5,869) (328,822) 506,983 6,027,085 6,027,085 CONSOLIDATED 2004 2003 . At June 30 Accumulated depreciation: Beginning Balance Depreciation Charge for the year Disposals Reclassifications Transfers from subsidiaries At June 30 Net book value Cost: Beginning Balance Additions Disposals Transfer w/in company Reclassifications Transfers to/ from subsidiaries 9,424,763 867,593 180,857 1,048,450 8,376,312 292,775 9,400,820 1,963 21,980 - 292,775 292,775 - Radio, Movie and Improvements Land Improvements 3,754,161 182,708 (53) 3,936,817 1,100,922 5,037,739 4,930,469 82,455 24,815 - and Auxiliary Equipment Television, Building Land and ABS-CBN Broadcasting Corporation and Subsidiaries Schedule of Property, Plant & Equipment Roll-Forward As of June 30, 2004 EXHIBIT 4 1,784,639 196,959 (20,245) 53 1,961,405 660,679 2,622,084 2,454,982 104,357 (21,697) 84,442 - Equipment Other 200,437 200,437 171,217 160,458 (131,238) In Progress Construction - - - in Transit Equipment 6,406,393 560,524 (20,245) (0) 6,946,672 10,631,126 17,577,798 17,250,262 349,232 (21,697) - 2004 June 30 240,191,692.47 6,406,494 10,843,511 5,224,855 1,218,101 (36,462) - 17,250,004 - 16,491,309 825,042 (66,346) 2003 December 31 SIGNATURES For SEC 17-Q Second Quarter 2004 Report Pursuant to the requirements of the Securities Regulation Code, the issuer has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Registrant: ABS-CBN BROADCASTING CORPORATION By: LUIS F. ALEJANDRO President and Chief Operating Officer RANDOLPH T. ESTRELLADO Chief Financial Officer & VP-Finance Date: 10 August 2004
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