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

COVER SHEET
1 8 0 3
SEC Registration Number
A B S - C B N
A N D
B RO A D C A S T I NG
CO 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 RO A D C A S T I NG
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
CO R N E R
D I L I MA N
C I T Y
(Business Address: No. Street City/Town/Province)
1 2
Month
Rolando P. Valdueza
415-2272
(Contact Person)
(Company Telephone Number)
3 1
1 7 A
0 6
1 8
Day
(Form Type)
Month
Day
(Fiscal Year)
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
6,881
Total No. of Stockholders
P
= 8.4 billion
$6 million
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
1
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended December 31, 2008
2. SEC Identification Number 1803
3. BIR Tax Identification No. 301-000-406-761V
4. Exact name of issuer as specified in its charter: ABS-CBN BROADCASTING CORP.
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 Ave cor Mo Ignacia St., QC 1100
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, Php1.00 par value
Number of Shares of Common Stock
Outstanding and Amount of Debt
Outstanding
779,584,602 (less treasury shares)
Short-term & Long-term debt (current & non-current) Php8,714 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
2
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 [ ]
3
TABLE OF CONTENTS
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II -- OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters
Item 6. Management’s Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
PART III – CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Issuer
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
PART IV – CORPORATE GOVERNANCE
Item 13. Corporate Governance
PART V – EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C
Item 15. 2008 Annual Report to Security Holders
SIGNATURES
4
PART I - BUSINESS AND GENERAL INFORMATION
Item 1. Business
Business Development
ABS-CBN Broadcasting Corporation (“ABS-CBN” or the “Company”) traces its roots from Bolinao
Electronic Corporation (“BEC”) which was established in 1946 as an assembler of radio transmitting
equipment. In 1952, BEC changed its corporate name to Alto Broadcasting Corporation (“ABS”). On
September 24, 1956, Chronicle Broadcasting Network (“CBN”) which is owned by the Lopez family was
organized. In 1957, ABS acquired CBN and on February 1, 1967, the corporate name was changed to
ABS-CBN Broadcasting Corporation.
With the imposition of martial law in September 1972, ABS-CBN’s operations ceased as the government
took over the Company’s studios and equipment. ABS-CBN resumed commercial operations in February
1986 during the height of the EDSA revolution.
Core Business
ABS-CBN is the largest integrated media and entertainment company in the Philippines. The Company
is principally involved in television and radio broadcasting, as well as the production of television
programming for domestic and international audiences and other related businesses.
The Company’s congressional franchise, Republic Act No. 7966, which allows the Company to operate
television and radio stations, was renewed on March 30, 1995 for 25 years. Its broadcasting operations
cover the production of television and radio programs that serve its target audience’s needs for news,
information and entertainment, and public service.
The Company’s Very High Frequency (“VHF”) television network, which consists of its flagship station
in Mega Manila, Channel 2, 25 other owned and operated television stations and 8 affiliated stations, is
the leading television network in the Philippines. The Company also operates Studio 23, the leading Ultra
High Frequency (“UHF”) television network with 34 television stations. The two networks reach an
estimated 97% and 50% of all television owning households in the Philippines, respectively. The
Company's VHF network broadcasts a wide variety of entertainment and news programs nationwide to
the mass market, primarily in Filipino. The Company's UHF network has in the past broadcast mostly
English language programs imported from the United States, targeting more affluent viewers, but is now
broadening the target audience for Studio 23 to include the mass market demographic segment. The
Company is also one of the leading radio broadcasting companies, with 18 owned AM and FM radio
stations throughout the Philippines. The Company’s anchor radio stations in Manila, DZMM and DWRR,
are the highest-rated stations in Mega Manila in the AM and FM bands, respectively.
Its subsidiaries and associates are involved in the following related businesses: video/audio post
production, content development and production, film production and distribution, audio recording and
distribution, cable and satellite programming services, and telecommunication services overseas. Other
activities of the subsidiaries include merchandising and licensing, internet services, publishing, money
remittance, property management, and food and restaurant service.
Gross revenues in 2008 amounted to P22,307 million of which 61%, or P13,510 million, came from airtime
revenues and 39%, or P8,796 million, from direct sales (sale of services and sale of goods). Sale of services
refer to revenues derived from cable and satellite programming services, film production and
distribution, interactive media, content development and programming services, post production, text
messaging, etc.
5
Meanwhile, sale of goods refer to revenues arising from the sale of consumer products such as
magazines, audio, video products, and phonecards.
The Company operates in three major geographical areas. In the Philippines, its home country, the
Company is involved in broadcasting, cable operation and other businesses. In the United States and
other locations (which includes Middle East, Europe, Japan, Australia, and Asia Pacific), the Company
operates its cable, satellite and broadband operations to bring television programming outside the
Philippines.
Subsidiaries and Affiliates
As of March 31, 2009, the following companies are active subsidiaries and affiliates of the Company
Philippine Subsidiaries and Affiliates (Direct Wholly-Owned & Majority Owned)
Company
Date of
Incorporation
Principal Activities
Ownership
Interest
ABS-CBN Publishing, Inc.
Star Recording, Inc. (Star Records)
03/09/92
02/02/95
100.0
100.0
Professional Services for
Television & Radio, Inc.
Star Songs, Inc.
Sarimanok News Network, Inc. (SNN)
09/01/95
Print publishing
Audio and video production
and distribution
Services
07/08/96
23/06/98
100.0
100.0
ABS-CBN Interactive, Inc.
Creative Programs, Inc.
29/01/99
24/10/2000
Studio 23, Inc. (Studio 23)
24/10/2000
TV Food Chefs, Inc.
ABS-CBN Film Productions, Inc. (ABSCBN Films)
ABS-CBN Integrated
and Strategic Property Holdings, Inc.
Roadrunner Network, Inc.
(Roadrunner)
Sky Cable Corporation (Sky Cable)
23/01/01
25/03/03
Music publishing
Content development and
programming services
Services - interactive media
Content development and
programming services
Content development and
programming services
Services -restaurant and food
Movie production
09/10/03
Real estate
100.0
23/11/95
Services - post production
98.9
06/06/90
Cable television services
65.3
100.0
100.0
100.0
100.0
100.0
100.0
Philippine Subsidiaries and Affiliates (Indirect Wholly-Owned & Majority Owned)
Company
Date of
Incorporation
Principal Activities
Ownership
Interest
E-Money Plus, Inc.
07/08/2000
Services – money remittance
ABS-CBN Multimedia, Inc.
25/08/04
Culinary Publications, Inc.
17/05/96
Digital electronic content
distribution
Print publishing
100.0 thru ABS-CBN
Global Ltd.
100.0 thru ABS-CBN
Interactive, Inc.
70.0
thru ABS- CBN
Publishing, Inc.
6
International subsidiaries
Company
Date of
Incorporation
Principal Activities
Ownership
Interest
ABS-CBN International
California, USA
22/03/79
Cable and satellite
programming services
ABS-CBN Telecom North America,
Inc.
California, USA
19/04/95
Cable and satellite
programming services
ABS-CBN Global Ltd. (with Branch
Offices at the following countries:
1. Philippines
2. Taiwan)
ABS-CBN Middle East LLC
Cayman Islands
03/01/02
Holding company
98.0
thru ABS-CBN
Global, Ltd.
100.0
thru ABS-CBN
International
100.0
Dubai, UAE
29/04/02
Trading
ABS-CBN Middle East FZ-LLC
Dubai, UAE
29/04/02
Cable and satellite
programming services
ABS-CBN Europe Ltd.
(with an Italian Branch Office)
United
Kingdom
08/05/03
Victoria,
Australia
18/05/04
Japan
22/03/06
Cable and satellite
programming services
Alberta, Canada
08/03/07
Cable and satellite
programming services
ABS-CBN Australia Pty. Ltd
ABS-CBN Japan, Inc.
The Filipino Channel Canada ULC
Cable and satellite
programming services
Cable and satellite
programming services
100.0
thru ABS-CBN
Middle East FZ-LLC
100.0
thru ABS-CBN
Global, Ltd.
100.0
thru ABS-CBN
Global, Ltd.
100.0
thru ABS-CBN
International
100.0
thru ABS-CBN
Global, Ltd.
100.0
thru ABS-CBN
International
Philippine affiliates
Company
Date of
Incorporation
Principal Activities
Ownership
Interest
AMCARA Broadcasting
Network, Inc.
Lopez, Inc.
Benpres Holdings Corporation
(Benpres)
First Philippine Holdings
Corporation (FPHC)
Bayan Telecommunications
Holdings Corporation (BTHC)
Sky Vision Corporation (Sky
Vision)
12/04/94
08/06/93
Television and radio
broadcasting
Holding company
Holding company
30/06/61
Holding company
15/10/93
Holding company
18/04/91
Beyond Cable Holdings, Inc.
07/12/01
Investing in ventures related to
cable television, cable
communications, cable systems,
television media and shopping
networks, and film distribution
Holding company
49.0 owned by ABSCBN
Parent of ABS-CBN
56.22 owned by
Lopez, Inc.
43.0 owned by Lopez,
Inc.
88.3 owned by Lopez,
Inc.
10.2 owned by ABSCBN; 70.0 owned by
Lopez, Inc.
7.0
7
Non-stock corporations
Company
Date of
Incorporation
Principal Activities
ABS-CBN Foundation, Inc.
ABS-CBN Center for
Communication Arts, Inc.
ABS-CBN Bayan Foundation, Inc.
71 Dreams Foundation, Inc.
05/07/89
10/06/99
Charitable institution
Educational/training
18/01/2000
24/03/06
Charitable institution
Charitable institution
Competition
There are currently 11 commercial television stations – those which derive the majority of their revenues
from the sale of advertising and airtime – in Mega Manila (which includes Metro Manila and parts of
Rizal, Laguna, Cavite and Bulacan), with 7 on very high frequency (VHF) and 4 on ultra high frequency
(UHF).
The Company's television broadcasting networks compete for advertising revenues, the acquisition of
popular programming and for the services of recognized talent and qualified personnel. The Company's
television stations also compete with other advertising media, such as radio, newspapers, outdoor
advertising and cable television channels, as well as with home video exhibition, the Internet and home
computer usage. The Company principally competes with 11 commercial television stations in Mega
Manila, including the channels of its major competitor, GMA, which owns and operates Channel 7 and
provides programming for Channel 11 in Manila, and which is affiliated with 49 other stations outside of
Manila.
The major VHF broadcasting networks in the country and their corresponding Mega Manila channels are
as follows:
ABS-CBN Broadcasting Corp.
National Broadcasting Network
Associated Broadcasting Corp.
GMA Network, Inc.
Radio Philippine Network
Zoe Broadcasting Corp. (QTV)
Intercontinental Broadcasting Corp.
--------
Channel 2
Channel 4
Channel 5
Channel 7
Channel 9
Channel 11
Channel 13
Channels 4, 9 and 13 are owned by the Philippine government, although the privatization of Channels 9
and 13 is currently in process. Meanwhile, Channel 5 entered into a blocktime agreement with Media
Prima Berhad, a Malaysian company, and was launched as TV5 last August 9, 2008.
The principal UHF networks operating in the Philippines and their corresponding Mega Manila channels
are as follows:
ABS-CBN Broadcasting Corp. (Studio 23)
Southern Broadcasting Network
RJ Broadcasting
Eagle Broadcasting
-----
Channel 23
SBN 21
RJTV 29
Net 25
At the start of 2008, Solar Entertainment Corporation, a Filipino company primarily in the business of
cable programming, entered into blocktime agreements with Channel 9, SBN 21 and RJTV 29. The 3
channels are currently airing Solar-produced and acquired programs.
8
Programming
The Company is a growing supplier of Filipino content for television and cable channels both in the
Philippines and, increasingly, throughout the world. The Company faces competition for distribution of
its programming from other producers of Filipino programming. The Company competes with other
programming providers for channel space and compensation for carriage from cable television operators
and other multi-channel distributors. For such program services, distributors select programming based
on various considerations, including the prices charged for the programming and the quality, quantity
and variety of programming.
International Cable and Satellite Services
The Company is the first media company in the Philippines which provided an international DTH and
cable channel service through The Filipino Channel (TFC). The channel is targeted specifically at overseas
Filipinos including Filipino immigrants and workers. In July 2005, ABS-CBN and its subsidiary ABS-CBN
International signed an affiliation agreement with DirecTV, one of the leading direct to home (DTH)
system providers in the US. Under the deal, DirecTV will have the exclusive right to air the TFC package
on its direct to home platform. In return, DirecTV will pay license fees to ABS-CBN and to ABS-CBN
International.
The Company's DTH satellite subscription service in the U.S. presently competes with other satellite
television and cable systems, national broadcast networks, and regional and local broadcast stations. In
2005, main competitor GMA-7 launched its own Filipino Channel in the US, Pinoy TV, which is also
available via DTH and cable platforms. GMA-7 has also launched a second international channel, Life TV.
Magazine Publishing
Each of the Company's magazine publications competes for readership and advertising revenues with
other magazines of similar format and with other forms of print and non-print media. Competition for
advertising is based on circulation levels, reader demographics and advertising rates.
Movie Production and Distribution
The production and distribution of feature films is a highly competitive business in the Philippines.
ABS-CBN Films competes for the services of recognized creative talents (both artists and production staff)
and for film rights to scripts, which are essential to the success of a movie. The Company likewise
competes with other feature film producers, including other Filipino studios, smaller independent
producers and major foreign studios such as Disney, Dreamworks, Fox, MGM, Sony, Universal and
Warner Bros. Success in the Philippine movie business depends on the quality of the film, its distribution
and marketing, and the public’s response to the movie which is difficult to predict. The number of films
released by the Company's competitors in any given period may create an oversupply of product in the
market, which may reduce the Company's share of gross box office admissions and make it more difficult
for its films to succeed. ABS-CBN Films also competes with other forms of entertainment and leisure time
activities such as DVDs, video cassettes and computer games.
Internet and Interactive Services
In connection with the Company's Internet services and other new interactive products including SMS
and MMS, the Company faces competition from Internet service providers, and personal communication
and telecommunications companies. Some of these companies are looking to develop their own SMSrelated content and value-added services.
9
Post-Production Services
The post-production services business is also highly competitive. In addition to other post-production
services companies, including one owned by GMA, television and movie studios themselves can also
perform similar services in-house. These studios could devote substantially greater resources to the
development of post-production services that compete with those provided by the Company. The
Company also actively competes with certain industry participants that are niche players or specialized
businesses.
Cable Television Operations
Sky Vision's cable operations directly compete for viewer attention and subscriptions with other
providers of entertainment, news and information, including other cable television systems, broadcast
television stations and DTH satellite companies. Cable television systems also face strong competition
from all media for advertising revenues. Important competitive factors include fees charged for basic and
premium services, the quantity, quality and variety of the programming offered, signal reception,
customer service, and the effectiveness of marketing efforts.
Transactions with and/or dependence on related parties
In the consolidated financial statements, significant transactions of the Company with its associates and
related parties follow:
Associates:
License fees charged by CPI to Sky Cable (a),
PCC and Home Cable
Blocktime fees paid by the Parent Company
to Amcara
Interest on noncurrent receivable from Sky
Cable (a)
Management fees charged to Sky Cable (a)
Blocktime fees paid by Studio 23 to Amcara
Affiliates:
Expenses paid by the Parent Company and
subsidiaries to Manila Electric Company
(Meralco), Bayan Telecommunications
Holding, Inc. (Bayantel) and other related
parties
Termination cost charges of Bayantel,
a subsidiary of Lopez, Inc., to ABS-CBN
Global
Airtime revenue from Manila North Tollways
Corp. (b), Bayantel and Meralco,
an associate of Lopez, Inc.
Expenses and charges paid for by the Parent
Company which are reimbursed by the
concerned related parties
(a)
2008
2007
2006
P
=108,599
=
P105,198
=
P104,927
40,191
–
–
29,683
6,302
–
35,280
21,184
53,960
115,424
–
57,078
540,733
424,825
413,036
266,972
277,094
236,244
55,604
74,025
50,718
15,661
27,859
36,862
Effective March 15, 2008, Sky Cable became a subsidiary of ABS-CBN.
of in November 2008.
(b) Disposed
10
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:
Affiliates
Associates
2008
2007
P
=122,577
1,326
P
=123,903
=
P110,416
42,993
=
P153,409
P
=468,994
328,981
P
=797,975
=
P173,180
69,178
=
P242,358
Due to:
Affiliates
Associates
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 Sky Cable
The Parent Company renders management services to Sky Cable through designated employees.
c.
Blocktime Fees Paid by the Parent Company and Studio 23 to Amcara
The Parent Company and Studio 23 own the program rights being aired in UHF Channel 23 of
Amcara. The Parent Company and Studio 23 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 year-end are unsecured, interest-free and settlement occurs in cash, except for the longterm receivables from Sky Cable. For the years ended December 31, 2008, 2007 and 2006, 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.
11
Compensation of Key Management Personnel of the Company
Compensation
Pension benefits
Vacation leaves and sick leaves
Termination benefits
2008
P
=708,705
45,833
28,818
640
P
=783,996
2007
=
P492,013
43,609
21,628
711
=
P557,961
2006
=
P413,692
47,840
29,484
–
=
P491,016
Patents, trademarks, licenses, franchises, concessions, royalty
Republic Act No. 7966, approved on March 30, 1995, granted ABS-CBN the franchise to operate TV and
radio broadcasting stations in the Philippines through microwave, satellite or whatever means including
the use of new technologies in television and radio systems. The franchise is for a term of 25 years. ABSCBN is required to secure from the National Telecommunications Commission (“NTC”) appropriate
permits and licenses for its stations and any frequency in the TV or radio spectrum.
Agreements of labor contracts, including duration
ABS-CBN management recognizes two labor unions, one for the supervisory employees and another for
the rank and file employees. The collective bargaining agreement (CBA) for the supervisory union
expired last July 31, 2005 while the CBA for the non-supervisory union expired last December 10, 2005.
Negotiations with both Unions started 2 years ago which covered the economic and non-economic
provisions for CBA cycle 2005-2010. CBA negotiations were successfully concluded in 2005.
Licenses from foreign and local film and programs aired through the networks
ABS-CBN and its subsidiaries have licenses from foreign and local program and feature film owners to
distribute the same through its networks. The licenses to distribute the foreign programs and foreign and
local feature films grant ABS-CBN and its subsidiaries the right to distribute said programs and films on
free TV, UHF, cable, and satellite TV in the Philippines and in territories wherein The Filipino Channel is
distributed. These licenses for TV rights have an average term of 2 to 3 years. Such programs comprise
approximately 25% of the programming of ABS-CBN's Manila VHF Channel 2 and approximately 30% of
the content of its Manila UHF Channel 23. ABS-CBN and its wholly-owned subsidiary, Sky Films, Inc.
(which was merged into ABS-CBN Films in November 2007), also have the license to distribute local and
foreign feature films in the Philippines for theatrical, TV, and video distribution, with limited ancillary
rights. The licenses for foreign films have an average term of 10 to 15 years.
Need for any governmental approval of principal products or services
The principal law governing the broadcasting industry is the 1936 Commonwealth Act. No. 146, as
amended, otherwise known as the Public Service Act. This Act seeks to protect the public against
unreasonable charges and inefficient service by public utilities, including companies engaged in
television and radio broadcasting as well as to prevent excessive competition.
The 1987 Philippine Constitution provides that “ownership and management of mass media shall be
limited to citizens of the Philippines, or to corporations, cooperatives or associations wholly-owned and
managed by such citizens” (Section 11, Article XVI). As a result, the Company is highly regulated by the
Philippine Government. The Company’s Congressional Franchise, renewed in 1995 for a term of 25
years, allows the Company to engage in the television and radio broadcasting business.
12
The government departments and agencies that administer the laws governing the broadcasting industry
and content are the National Telecommunications Commission (NTC), the Department of Transportation
and Communication (DOTC), the Movie and Television Review and Classification Board (MTRCB), the
Optical Media Board (OMB), and the Department of Labor and Employment.
The NTC is the government agency which regulates the broadcasting industry. Among its specific
functions is the granting of provisional authorities and certificates of public conveniences to own and
operate a broadcasting station within the Philippines. The NTC also regulates the bandwidth allocation
used by the different broadcasting companies through the grant of temporary permits and licenses to
operate television and radio stations.
The DOTC formulates general and specific policies on the broadcasting industry. Although the DOTC
exercises supervision and control over the NTC, it does not have the power to review the acts and
resolutions of the NTC. The MTRCB classifies television programs based on their content, including the
showing of indecent and excessively violent scenes on television. The OMB issues permits to television
stations or networks engaged in the exhibition and distribution of programs in video format.
In addition to the restrictions imposed by the government agencies, a broadcaster must also follow rules
and industry standards promulgated by the Kapisanan ng mga Brodkaster sa Pilipinas (KBP). The KBP is a
trade organization consisting of television and radio operators. It formulates policies and guidelines for
the operations of its members and enforces programming and advertising rules.
Costs and effect of compliance with environmental laws
Whenever required, the Company applies for and secures proper permits, clearances or exemptions from
the Department of Environment and Natural Resources, Department of Health, Air Transportation Office,
and other regulatory agencies, for the installation and operation of proposed broadcast stations
nationwide.
For the past three years, there were no costs related to the effect of compliance with environmental laws.
Employees
The number of employees and talents of the Parent Company was 4,210, 4,041, and 3,328 as of
December 31, 2008, 2007 and 2006, respectively. The number of employees and talents of the Parent
Company and its subsidiaries (collectively referred to as the “Company”) was 7,190, 7,406, and 5,836 as of
December 31, 2008, 2007 and 2006, respectively.
ABS-CBN management recognizes two labor unions, one for the supervisory employees and another for
the rank and file employees. The collective bargaining agreement (CBA) for the supervisory union
expired last July 31, 2005 while the CBA for the non-supervisory union expired last December 10, 2005.
Negotiations with both Unions started two years ago which covered the economic and non-economic
provisions for CBA cycle 2005-2008. Negotiations on the economic and non-economic provisions of the
CBA for both unions were successfully concluded in 2005. The Supervisory Union represents
approximately 8% of total Parent Company employees, while 27% of the total ABS-CBN regular
employees belong to the Rank & File Union.
In July 2005, the Company implemented an employee reduction program or SSP (special separation
package) in order to cut employee costs and improve efficiencies. Around 400 regular employees were
covered by the SSP. For 2008, there was no significant increase or decrease in Company headcount.
13
Risks Relating to the Company
The Company’s results of operations may be negatively affected by adverse economic conditions in the
Philippines since its operations depend largely on its ability to sell airtime for advertising. Historically,
the advertising industry, relative to other industries, has been particularly sensitive to the general
condition of the economy. Consequently, the Company’s business may be affected by the economic
condition of the country.
Item 2. Properties
The properties of the Company consist of production, broadcasting, transmission and office facilities,
majority of which are owned by the Company. Broadcast operations are principally conducted in the
44,000 square meter ABS-CBN complex located at Sgt. Esguerra Avenue, Quezon City. The complex also
houses the Company’s 650-foot transmitter tower and other broadcast facilities and equipment.
The Company also owns a modern 15-story building known as the Eugenio Lopez, Jr. Communications
Center (“ELJCC”) located beside the existing ABS-CBN complex. The building houses the corporate
offices of the Company and its subsidiaries engaged in related businesses. Aside from the corporate
offices, the building also has 3 television soundstages, 3 sound recoding studios and other television
production facilities. The building has a gross floor area of approximately 100,000 square meters and total
office space of approximately 58,000 square meters. The ground floor is leased to various businesses
including banks, retail stores, coffee shops and restaurants. The Company has received approval from the
Philippine Economic Zone Authority to operate as an Information Technology Zone, enabling potential
lessees to take advantage of the incentives and benefits under the Special Economic Zone Act of 1995.
The Company also owns television broadcast and production facilities and other real estate properties in
various parts of the Philippines, including local television and radio originating stations in Bacolod,
Cebu, Davao, Dagupan, Naga, Legaspi, Zamboanga, General Santos, Cagayan de Oro and Iloilo. Other
principal properties used in connection with the Company's operations include a training center and a
technical operations center. The Company also owns the production and transmission equipment and
facilities of its radio stations located both within and outside of Manila.
With the Company having made substantial investments in upgrading its production, broadcasting and
transmission equipment in recent years, the Company does not anticipate any major capital expenditures
in the near future.
Local and Regional Properties
ABS-CBN also owns real estate properties in various parts of the country. Originating stations have the
capacity to produce and broadcast their own programs and to air advertising locally. Relay stations can
only re-transmit broadcasts from originating stations. Affiliate stations are not owned by the Company.
Rather, they are typically independently owned by local Filipino business people and are contracted to
re-broadcast the Company’s originating signals during specified time blocks for negotiated fixed fees.
The following table sets forth the location and use of ABS-CBN’s television and radio stations as of
December 31, 2008:
VHF TV STATIONS
CH
STATION
1
2
Manila
Cebu
2
3
STATION
TYPE
Originating
Originating
Location
(Transmitter Site)
Mo. Ignacia St., Diliman, QC
Mt. Busay, Cebu City
14
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
Bacolod
Cagayan de Oro
Davao
General Santos
Zamboanga
Naga
Tacloban
Dumaguete
Isabela
Tuguegarao
Cotabato
Baguio
Iligan
Butuan
Ilocos Norte
Legaspi
Olongapo
Iloilo
Batangas
Bohol
Mt. Province
Zambales
Albay
Masbate Comm. Bctg. Co.
MIT-RTVN
MIT-RTVN
St. Jude Thaddeus Inst. of
Tech
Sulu Tawi-Tawi Broadcasting
Corporation
Our Lady’s Foundation (not
operating)
Calbayog Comm. Bctg. Corp.
Palawan Bctg. Corp.
UHF TV STATIONS
NO.
STATION
4
2
4
3
3
11
2
12
2
3
5
3
4
11
7
4
12
10
10
9
11
13
10
10
7
9
12
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Relay****
Originating
Relay****
Originating
Originating
Relay****
Originating
Originating
Relay****
Relay****
Originating
Relay****
Relay
Relay
Relay
Relay
Affiliate
Affiliate
Affiliate
Affiliate
Mt. Kanlandog, Murcia, Negros Occ.
Mt. Kitanglad, Bukidnon
Shrine Hills, Matina, Davao City
Brgy. Lagao, Gen. Santos City
Zamboanga City
Naga City
Mt. Naga-naga, Tacloban City
Valencia, Negros Or.
Santiago City, Isabela
Tuguegarao, Cagayan
Cotabato City
Mt. Sto. Tomas, Benguet
Iligan City
Butuan City
San Nicolas, Ilocos Norte
Mt. Bariw, Legaspi
Upper Mabayuan, Olongapo City
Jordan, Guimaras
Mt. Banoy, Batangas
Jagna, Bohol
Mt. Amuyao, Mt. Province
Botolan, Zambales
Tabaco, Albay
Masbate, Masbate
Ozamis City
Mt. Palpalan, Pagadian City
Surigao City
10
Affiliate
Jolo, Sulu
9
Affiliate
Sorsogon, Sorsogon
10
7
Affiliate
Affiliate
Calbayog City, Western Samar
Puerto Princesa, Palawan
CH
STATION
TYPE
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Manila**
Cebu
Davao
Dagupan
Naga
Batangas
Baguio**
Laoag
Bacolod
Iloilo**
Zamboanga
Gen. Santos
Tacloban***
Cagayan De Oro
Dumaguete
23
23
21
32
24
36
30
23
22
38
23
36
24
23
24
Originating
Relay Station
Relay Station
Originating
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
16
17
Botolan
Isabela (not operating)
23
23
Relay Station
Relay Station
STATION LOCATION
(Transmitter Site)
Metro Manila
Mt. Busay, Cebu City*
Matina Hills, Davao City*
Sto. Tomas, Benguet*
Naga City*
Mt. Banoy, Batangas*
Mt. Sto. Tomas (Baguio)*
San Nicolas, Laoag*
Bacolod City*
La Paz, Iloilo City*
Zamboanga City*
General Santos City*
Mt. Naga-Naga, Tacloban
Cagayan de Oro City*
Mt. Palimpinon, Valencia, Negros
Oriental*
Botolan, Zambales*
Santiago City*
15
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Bohol***
40
Relay Station
Jagna, Bohol
Marbel
24
Relay Station
Marbel, S. Cotabato
Rizal***
40
Relay Station
Antipolo, Rizal
Legaspi***
23
Relay Station
Legaspi City
Olongapo
24
Relay Station
Olongapo City*
Iligan
26
Relay Station
Iligan City*
Butuan***
22
Relay Station
Butuan City
Cotabato***
23
Relay Station
N. Cotabato
Pagadian
24
Relay Station
Pagadian City
Palawan
23
Relay Station
P. Princesa, Palawan
Surigao***
23
Relay Station
Surigao City
Roxas City
21
Relay****
Roxas City
Baler
22
Relay Station
Baler, Aurora
Camarines Norte
23
Relay****
Daet, Camarines Norte
Kalibo
23
Relay****
Aklan
Dipolog
42
Relay****
Dipolog City
Lucena City
24
Relay****
Lucena City, Quezon
Lipa City (closed as of Feb.
38
Relay Station
Lipa City, Batangas
2008)
36
Tarlac** (closed as of Oct.
34
Relay Station
Tarlac City
28, 2005)
37
San Miguel**
34
Relay Station
San Miguel, Bulacan
38
San Fernando, Pampanga**
46
Relay****
San Fernando, Pampanga
39
San Pablo**
46
Relay****
San Pablo, Laguna
40
Cabanatuan** (closed as of
30
Relay Station
Cabanatuan, Nueva Ecija
Oct. 28, 2005)
* co-located with VHF TV Stations ; **owned by ABS-CBN;*** with pending application with the NTC,****with
commercial insertion capability
FM STATIONS
STATION
FREQ.
MHz
CALL
SIGN
STATION
TYPE
LOCATION
Lopez Center, Antipolo City
Mt. Busay, Cebu City
Mt. Kanlandog, Murcia, Negros
Occ.
Shrine Hill, Matina, Davao City
Mt. Sto. Tomas, Benguet
Mt. Bariw, Legaspi
Naga City
San Nicolas, Ilocos Norte
Dagupan City
Iloilo City
Tacloban City
Bulua, Cagayan de Oro City
Cotabato City
Lagao, Gen. Santos City
Zamboanga City
1
2
3
Manila
Cebu
Bacolod
101.9
97.1
101.5
DWRR
DYLS
DYOO
Originating
Originating
Originating
4
5
6
7
8
9
10
11
12
13
14
15
Davao
Baguio
Legaspi
Naga
Laoag
Dagupan
Iloilo
Tacloban
Cagayan De Oro
Cotabato
Gen. Santos
Zamboanga
101.1
103.1
93.9
93.5
95.5
94.3
91.1
94.3
91.9
95.1
92.7
98.7
DXRR
DZRR
DWRD
DWAC
DWEL
DWEC
DYMC
DYTC
DXEC
DXPS
DXBC
DXFH
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
FREQ.
KHz
CALL
SIGN
STATION
TYPE
DZMM
DYAB
DXAB
Originating
Originating
Originating
AM STATIONS
STATION
1
2
3
Manila
Cebu
Davao
630
1512
1296
LOCATION
Obando, Bulacan
Pardo, Cebu City
Matina, Davao City
16
Item 3. Legal Proceedings
For the past 5 years, the Company is not a party in any legal proceedings which involves a claim for
damages in an amount, exclusive of interest and cost, exceeding 10% of the current assets of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year
covered by this report.
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters
The Company’s common shares have been listed on the Philippine Stock Exchange (PSE) since 1992. Its
Philippine Deposit Receipts (PDRs) were listed in 1999. Common shares may be exchanged for Philippine
Deposit Receipts, and vice-versa. The common shares (ABS) closed at Php17.50 while the Philippine
Deposit Receipts (ABSP) closed at Php17.00 on March 31, 2009.
Dividends
The declaration and payment of dividends are subject to certain conditions under the Company’s existing
Senior Credit Agreement (SCA) with creditor banks. Under the SCA, the Company may declare and pay
dividends provided: (a) all payments (including pre-payments) due on said loan and premiums on
insurance of assets are current and updated; (b) all financial covenants set forth therein are satisfied; (c)
certain financial ratios are met and such payment will not result in the violation of the required financial
ratios under the SCA; (d) no event of default as provided in the SCA shall exist or occur as a result of
such payment; and (e) the total amount of the cash dividends does not exceed 50% of the Company’s net
income after taxes for the fiscal year preceding the declaration.
Percent
Amount (in Pesos)
Php0.60
Php0.00
Php0.00
Php0.64
Php0.45
Php0.825
Php0.90
Stock Dividend (Per Share)
Declaration Date
Record Date
No stock dividend since 1996
Cash Dividend (Per Share)
Declaration Date
Record Date
March 28, 2001
April 25, 2001
----July 21, 2004
July 24, 2004
March 28, 2007
April 20, 2007
March 26, 2008
April 30, 2008
March 25, 2009
May 5, 2009
Payment Date
Payment Date
May 25, 2001
--August 10, 2004
May 15, 2007
May 27, 2008
May 29, 2009
17
First Quarter
ABS
High Low
17.50 12.00
ABSP
High Low
17.00 12.50
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
33.00
26.00
19.00
16.75
Low
23.00
17.00
15.50
13.50
High
35.00
29.00
19.25
16.50
Low
25.00
19.00
15.00
12.00
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
26.50
33.50
37.50
34.50
Low
18.75
26.00
29.50
30.00
High
26.00
33.50
39.00
37.00
Low
18.75
26.50
29.50
29.50
2009
2008
2007
The number of shareholders of record as of December 31, 2008 was 6,881. Common shares outstanding as
of December 31, 2008 were 779,584,602.
Top 20 Stockholders as of March 31, 2009
As of March 31, 2009, the Top 20 stockholders of ABS-CBN own an aggregate of 759,729,490 or 97.45% of
outstanding common shares.
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Stockholder
Lopez, Inc.
PCD Nominee Corporation
Ching Tiong Keng
ABS-CBN Foundation, Inc.
Eugenio Lopez III
Carlos Salinas Sr.
Creme Investment Corporation
FG Holdings
Charlotte C. Cheng
Cynthia D. Ching
Phil. Communication Satellite Corp.
Century Securities Corp.
Tiong Keng Ching
Federico M. Garcia
La Suerte Cigar & Cigarette Factory
Carlos C. Salinas
Alberto G. Mendoza &/or Jeanie
Mendoza
Mimi Chua
Josephine Go
Manuel M. Lopez
Sub-total Top 20 Stockholders
Others
TOTAL STOCKHOLDERS
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Record /
Beneficial
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Filipino
Filipino
Filipino
Record
Record
Record
Number of
Shares Held
446,231,607
307,075,400
859,500
780,995
651,191
490,800
415,500
386,270
340,000
337,500
325,500
320,000
252,000
226,207
205,000
195,000
168,250
Percent
57.24%
39.39%
0.11%
0.10%
0.08%
0.06%
0.05%
0.05%
0.04%
0.04%
0.04%
0.04%
0.03%
0.03%
0.03%
0.03%
0.02%
162,390
162,180
144,201
759,729,491
19,855,111
0.02%
0.02%
0.02%
97.45%
2.55%
779,584,602
100.00%
18
Employee Stock Option Plan
The Company had an employee stock option plan (ESOP) which covered 1,403,500 shares at 95% of offer
price during the initial public offering. Collections were made in 48 semi-monthly installments without
interest through payroll deductions. Shares offered under the Plan have been fully paid and issued since
1995.
On March 29, 2000, the Board of Directors approved another ESOP covering 6,080,306 shares. In 2002, all
the shares acquired by the Company covering this ESOP, were exercised by the employees. As of
December 31, 2003 and 2002, there are no more outstanding ESOP.
Item 6. Management’s Discussion and Analysis or Plan of Operation
The Management Discussion and Analysis of Financial Condition and the Results of Operation are
attached hereto as Annex A.
Information on Independent Accountant and other Related Matters
The principal accountants and external auditors of the Company is the accounting firm of Sycip, Gorres,
Velayo & Company (SGV & Co.). The accounting firm of SGV & Co. has been the Company’s
Independent Public Accountants for the last 5 years. There was no event in the past 5 years where SGV &
Co. and the Company had any disagreement with regard to any matter relating to accounting principles
or practices, financial statement disclosure or auditing scope or procedure.
SGV & Co. is being recommended for re-election at the scheduled Annual Stockholders’ Meeting.
Representatives of SGV & Co. for the current year and for the most recently completed fiscal year are
expected to be present at the Annual Stockholders’ Meeting. They will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to appropriate questions.
The aggregate fees billed for each of the last 2 fiscal years for professional services rendered by the
external auditor are as follows:
Audit Fees
2008
5,150,000
2007
4,220,000
The audit committee’s approval policies and procedures for the above services from Sycip, Gorres,
Velayo & Co., the external auditors are discussed in Section 7 of the Company’s Manual of Corporate
Governance filed with the Commission on September 2, 2002.
Item 7. Financial Statements
The Statement of Management’s Responsibility for Financial Statements prepared in accordance with
SRC Rule 68, as amended is attached hereto as Annex B.
The Audited Financial Statements as of December 31, 2008 prepared in accordance with SRC Rule 68, as
amended and Rule 68.1 is attached hereto as Annex B.
The Schedule for Determination of Retained Earnings available for Dividend Declaration prepared in
accordance SEC Memorandum Circular No. 11 is attached hereto as Annex C.
19
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There are no changes in and disagreements with accountants on accounting and financial disclosure
during the two most recent fiscal years or subsequent interim period.
PART III - CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Issuer
Board of Directors
Nominees for Election as Members of the Board of Directors
The following are expected to be nominated as members of the Board of Directors for the ensuing year:
Eugenio L. Lopez III
Augusto Almeda Lopez
Ma. Rosario Santos-Concio
Oscar M. Lopez
Presentacion L. Psinakis
Federico R. Lopez
Manuel L. Lopez, Jr.
Angel S. Ong
Federico M. Garcia (Independent Director)
Justice Jose C. Vitug (Independent Director)
Pedro N. Dy-liacco (Independent Director)
All of the above nominees are incumbent directors. They were formally nominated by a shareholder of
the Company, Lopez Inc., through its Chairman, Mr. Oscar M. Lopez. The nominees will serve as
directors of the Company for one year from date of election.
The Company has adopted the SRC Rule 38 (Requirements on Nomination and Election of Independent
Directors) and compliance therewith has been made.
Below is a summary of the nominees’ qualifications:
The following directors have held their current positions in their respective companies for more than 5
years unless otherwise indicated.
Eugenio L. Lopez III, Filipino, age 57
Chairman & CEO
Mr. Lopez was elected Chairman of the Company’s Board of Directors on December 10, 1997, when his
father, the late Eugenio “Geny” Lopez, Jr., turned over the reins of the family-owned company to the
younger Mr. Lopez, who had been President since 1993 and Director since 1986. He joined the Company
in 1986 as Finance Director before he became General Manager in 1988. He graduated with a Bachelor of
Arts degree in Political Science from Bowdoin College. He has a Masters degree in Business
Administration from Harvard Business School. He worked as General Manager of the MIS Group,
Crocker National Bank in San Francisco, USA. Mr. Lopez is a recipient of various Philippine broadcasting
industry awards.
20
Augusto Almeda-Lopez, Filipino, age 81
Vice-Chairman
Mr. Augusto Almeda- Lopez joined the Company in 1962. He has served as Vice Chairman since April
26, 1989. Mr. Almeda-Lopez is also the Vice-Chairman of First Philippine Holdings Corporation. He also
serves as the Chairman of ACRIS Corporation and ADTEL, Inc. while he serves as a Director of various
companies in the telecommunications, manufacturing, and service industries, namely First Philippine
Industrial Corporation, First Gen Renewables, Inc., First Electro Dynamics Corporation, Philippine
Electric Corporation, Bayan Telecommunications, Inc., and Sky Vision Corporation. He is an alumnus of
De La Salle College and Ateneo de Manila, is a graduate of the University of the Philippines College of
Law class 1952 and he finished an Advanced Management Program course at Harvard University in
1969.
Ma. Rosario Santos-Concio, Filipino, age 54
Board Member, President and Chief Operating Officer
Ms. Santos-Concio was Head of Channel 2 Mega Manila Management prior to her appointment as
President and Chief Operating Officer where she brought greater synergy between Marketing, Sales, and
Production. She was also was in charge of achieving profit margins, nationwide ratings, annual
programming strategy and customer development targets of the Company. She is also known as an
award-winning actress and an accomplished film and TV producer. Onscreen, Ms. Santos-Concio hosts
the network’s longest-running drama anthology Maalaala Mo Kaya. As President and COO, she leads the
Executive Committee and all subsidiary and division heads report to her.
Ms. Santos-Concio began her career in the Company as a Television Production Consultant in 1987 after
working as a line producer for BanCom, Audiovision, Vanguard Films, Regal Films and Vision
Exponents. She also worked as a Film Production Manager for the Experimental Cinema of the
Philippines. Ms. Santos-Concio was hailed as Best Actress in the 1978 Asian Film Festival in Sydney,
Australia for her work in the film, Itim, and is the recipient of many cinema and broadcast industryrelated awards over the years. Ms. Santos-Concio graduated cum laude from St. Paul’s College in Manila
with a Communications Arts degree. In 2007, Ms. Concio also completed the Advanced Management
Program at Harvard Business School.
Oscar M. Lopez, Filipino, age 79
Board Member
Mr. Oscar M. Lopez has served as Director since 1966. He also serves as Chairman and Chief Executive
Officer of the First Philippine Holdings Corp. (FPHC), and Chairman of Benpres Holdings Corporation
(Benpres) and all member-companies of First Gen Corp. (First Gen), First Gas groups of companies and
Energy Development Corp. Through his Chairmanship of FPHC and Benpres, Mr. Lopez serves as
Chairman of the Lopez Group of Companies. Mr. Lopez has led FPHC’s efforts in other businesses aside
from energy and power, including toll road construction, industrial park and real estate development,
and electronics manufacturing. Mr. Lopez has a Masters degree in Public Administration from the
Littauer School of Public Administration in Harvard University (1955), where he also earned his Bachelor
of Arts degree, cum laude (1951).
Presentacion L. Psinakis, Filipino, age 74
Board Member
Ms. Psinakis has served as a Director of the Company since 1988. Ms. Psinakis is the founder and
President of Griffin Sierra Travel, Inc. (formerly Sierra Tours, Inc.). She is a member of the Board of
Trustees of the Eugenio Lopez Foundation, Inc. and also serves as director of the following companies:
Lopez Inc., Benpres Insurance Agency, ADTEL Inc., and Philippine Commercial Capital, Inc. She took a
Bachelor of Arts course in St. Scholastica's College.
21
Federico R. Lopez, Filipino, age 48
Board Member
Mr. Lopez is a Director of the Company since 1999. He is President and CEO of First Gen and Managing
Director for Energy of First Philippine Holdings Corp. He is a member of the boards of First Philippine
Holdings Corp., Energy Development Corp., First Private Power Corp., and Bauang Private Power Corp.
He also serves as director, President and CEO of FG Luzon, FG Bukidnon Power Corp., First Gen Hydro
Power Corp., First Gen Geothermal Power Corp., First Gen Visayas Hydro Power Corp., First Gen
Mindanao Hydro Power Corp., First Gen Energy Solutions, Inc., First Gen Northern Energy Corp., First
Gen Premiere Energy Corp., Red Vulcan, Prime Terracota, First Gen Visayas Energy Inc., First Gen Prime
Energy Corp., FGHC, FGPC, FGP, AlliedGen, Unified Holdings Corp., FNPC, FGLand, and FGPipeline.
He is also President of First Philippine Conservation, Inc. Mr. Lopez is a graduate of the University of
Pennsylvania with a Bachelor of Arts degree in Economics and International Relations, cum laude (1983).
Manuel L. Lopez, Jr., Filipino, age 41
Board Member
Mr. Lopez, Jr. has served as a Director of the Company from 2000 to 2006 and in 2008. He was Assistant
Vice President for Affiliate Marketing for ABS-CBN International North America from 1993 to 1996. He
then joined SkyCable and became a Director and later became Regional Director for Pilipino Cable
Corporation from 1999 up to the present. He is currently the Chairman of the Board of Pacifichub
Corporation and the Executive Vice-President of Benpres Insurance Agency, Inc. He graduated with a
Bachelor of Science degree in Business Administration from the De La Salle University.
Angel S. Ong, Filipino, age 58
Board Member
Mr. Ong is the President and Chief Operating Officer of Benpres Holdings Corporation since 2004. He
was EVP-Chief Financial Officer of Benpres from 2001 to 2004 and Vice President for Finance from 19982000. He is a member of the Board of First Philippine Infrastructure Development Corporation, Bayan
Telecommunications, Inc. and Bayan Telecommunications Holdings Corporation. Mr. Ong received his
Bachelor of Science in Commerce degree from the Philippine College of Commerce and a Masters degree
in Business Administration from the University of the Philippines.
Federico M. Garcia, Filipino, age 65
Board Member
Mr. Garcia was president of ABS-CBN from 1998 to 2003. Prior to his appointment as President, Mr.
Garcia was Executive Vice President and General Manager. He also worked as a TV Sales Executive with
ABS-CBN in 1966 until Martial Law. Before rejoining the Company in 1987, he was Executive Vice
President of GMA-7, managing its marketing and programming activities. He attended the College of
Business Administration at the University of the Philippines. Mr. Garcia is a recipient of various
Philippine broadcasting industry awards.
Justice Jose C. Vitug, Filipino, age 74
Board Member
Justice Vitug was Associate Justice of the Supreme Court from 1993 to 2004. He has been a Consultant of
the Committee on Revision of the Rules of the Court, Supreme Court of the Philippines since 2004. He is
the Chairman of the Philippine Stock Exchange and the SCCP Securities Clearing Corporation of the
Philippines, a post held since 2005 and Angeles University Foundation Medical Center since 2007. He has
been an Independent Director of Aboitiz Equity Ventures, Inc. since 2005 and Clark Electric Distribution
Corporation since 2007. He is the Chairman Emeritus of the Commercial Law Department and Senior
Professor of the Philippine Judicial Academy, Supreme Court of the Philippines and a Trustee of Mission
Communications Foundation, Inc., since 2006
22
Pedro N. Dy-liacco, Filipino, age 61
Board Member
Mr. Dy-liacco started his professional career with Procter & Gamble in 1968. He joined Johnson Wax in
1970 and Ace-Compton Advertising in 1971 before joining Nestlé Philippines, Inc. in 1977 as an
Advertising Manager. He became the Regional Sales Manager of South Minadanao in 1980, worked in
Vevey, Switzerland from 1981 to 1982 in the Coffee & Beverages Marketing Group, and became Group
Product Manager of Coffee & Beverages Marketing Group, in 1982. Mr. Dy-liacco was made Sales
Director of Nestlé Philippines in 1988, Marketing Manager of Nestlé Indonesia (1990) and Singapore
(1994). He returned to Nestlé Philippines as Director of Communications in 1997, and in 2005, he became
Director of Communications & Marketing Services.
He has extensive industry experience, having held the following positions: Vice-Chairman, Advertising
Foundation of the Philippines (1999-2000), Chairman, Advertising Foundation of the Philippines (20002002), and Chairman of the 17th Philippine Advertising Congress (2001). He is currently a member of the
International Chamber of Commerce’s Commission on Marketing & Advertising, and is concurrently a
Management Consultant. Mr. Dy-liacco graduated with a Bachelor of Arts degree from the University of
the Philippines in 1968.
Independent Directors of the Board
The Company’s Independent Directors, Mr. Federico M. Garcia, Justice Jose C. Vitug and Mr. Pedro N.
Dy-liacco have at least one (1) share of the stock of the Company in their respective names, are college
graduates and possess integrity, probity and assiduousness. They are persons who, apart from their fees
as directors of the Company, are independent of management and free from any business or other
relationship which could, or could reasonably be perceived to, materially interfere with their exercise of
independent judgment in carrying out their responsibilities as directors of the Company. Specifically,
Mr. Garcia, Justice Vitug and Mr. Dy-liacco: (i) are not directors or officers or substantial stockholders of
the Company or its related companies or any of its substantial shareholders (other than as independent
directors of any of the foregoing); (ii) are not relatives of any director, officer or substantial shareholder of
the Company, or any of its related companies or any of its substantial shareholders; (iii) are not acting as
nominees or representatives of a substantial shareholder of the Company, or any of its related companies
or any of its substantial shareholders; (iv) have not been employed in any executive capacity by the
Company, or any of its related companies or by any of its substantial shareholders within the last two (2)
years; (v) are not retained as professional advisers by the Company, any of its related companies or any
of its substantial shareholders within the last two (2) years, either personally or through their firms; (vi)
have not engaged and do not engage in any transaction with the Company or with any of its related
companies or with any of its substantial shareholders, whether by themselves or with other persons or
through a firm of which they are partners or companies of which they are directors or substantial
shareholders, other than transactions which are conducted at arms length and are immaterial; and (vii) do
not own more than two percent of the shares of the Company and/or its related companies or any of its
substantial shareholders. Mr. Garcia, Justice Vitug, and Mr. Dy-liacco do not possess any of the
disqualifications enumerated under Section II (5) of the Code of Corporate Governance and Section II (D)
of SEC Memorandum Circular No. 16, Series of 2002.
Executive / Corporate Officers
Maria A. Ressa, Filipino, age 46
Managing Director, News & Current Affairs Division and concurrent Managing Director, ANC
Ms. Ressa heads ABS-CBN’s News & Current Affairs (NCA) division. She is responsible for the overall
strategic direction as well as the day-to-day operations of the NCA group. She is also concurrently the
Managing Director for ABS-CBN News Channel (ANC), the country’s first and only 24-hour news cable
channel.
23
Maria graduated cum laude from Princeton University in the United States with a degree in Bachelor of
Arts in English Literature, minor in Molecular Biology. She was a scholar for Fulbright Fellowship in the
United States. She had an illustrious 17-year stint at Cable News Network (CNN), with her last
assignment being the Bureau Chief for Southeast Asia. She was CNN’s Manila Bureau Chief in 1988 and
CNN’s Jakarta Bureau Chief in 1995. Ressa was a recipient of the Asian Television Award in 1999; SAISNovartis International Journalism Award in 2000; Ferris Professorship of Journalism in 2001, National
Headliner Award for Investigative Journalism and the TOYM (Philippines) in 2002; Outstanding
Investigative Journalism from the Emmy Awards in 2003 and Judges’ Citation from the US Overseas
Press Club in 2004. She is the author of “Seeds of Terror: An Eyewitness Account of Al-Qaeda's Newest
Center of Operations in Southeast Asia”, published by Simon & Schuster in 2003.
Ma. Socorro V. Vidanes, Filipino, age 47
Managing Director, ABS-CBN TV Production*
Ms. Vidanes held the position of Managing Director for ABS-CBN TV Production from 2001 to 2008. She
was responsible for the conceptualization, production and management of all TV Entertainment
programs on ABS-CBN Channel 2. She has been with ABS-CBN since 1986, starting as an Associate
Producer and has since then been involved in the production of all types of programs – talk shows,
variety, reality, game, comedy and drama. Vidanes obtained her degree of Bachelor of Arts in
Communication Arts from the Ateneo de Manila University.
*Appointed Head of Channel 2 Mega Manila Management effective March 18, 2009
Jose Agustin C. Benitez, Jr., Filipino, age 49
Head, Channel 2 Sales
Mr. Benitez joined the Company in April 2006 as the Company’s Head of Channel 2 Sales. He is tasked
with establishing strategic long-term partnerships with agencies and advertiser clients by helping them
build their businesses and, at the same time, bring in revenues to the Company. He provides sales
solutions to clients from a broad range of traditional and non-traditional media products.
He was formerly Sales Head of ABC Channel 5 and of GMA Channel 7, and was instrumental in
developing the Sales Units of both Companies. He was one of the first Sales Heads who was able to use
his media/advertising background to successfully blend “science” with the selling skills of both teams.
Before becoming involved in Broadcast Sales, Mr. Benitez was formerly Media Director and Vice
President of Ace Saatchi and Saatchi, where he provided leadership to a media department that handled
diverse clients such as San Miguel Corporation, Procter & Gamble Distributing Philippines Inc., Nestle
Philippines Inc., Johnson & Johnson Philippines Inc., and Jollibee Foods Corporation. Here he won for the
agency the first-ever Agency of Record (AOR) assignment of P&G. He was also formerly President and
CEO of Zenith Optimedia, Nestle’s independent media agency, and President and CEO of Optimum
Media, where he was mainly responsible for winning the Smart AOR business. This Smart win triggered
a streak of 14 consecutive new business wins, helping the agency become a formidable force in the
industry in a span of 3 months.
Antonio S. Ventosa, Filipino, age 47
Head, Corporate Marketing and Concurrent Officer-in-Charge, Studio 23*
Mr. Ventosa joined the company in April 2006 as head of marketing. He brings with him several years of
experience in marketing, having spent more than two decades honing his skills in understanding and
driving strategic marketing communications considerations that build leadership brands. He was an
account director at Dentsu Young and Rubicam Malaysia for Colgate Palmolive Singapore and Malaysia,
and regional account director at Leo Burnett in Singapore for McDonald’s Asia before returning to the
Philippines in 1994. He was, at one time, the chairman and the president of the Association of Accredited
24
Advertising Agencies of the Philippines or 4A’s, and a board director of AdBoard. He is the founding
chairman of the Araw Values Awards, and was the director-in-charge of the first 4A’s Advertising
Summit in 2002.
Prior to joining the Company, he was managing director of Leo Burnett Manila, where he has worked
extensively to expand the agency’s capability as a holistic communications organization that provide
clients with the most effective communication and brand building programs. He was also responsible for
directing the total marketing communications programs for clients whose brands are now leaders in their
category. He was also concurrent President of Arc Worldwide Philippines, the newly established
marketing services company aligned with Leo Burnett. Mr. Ventosa graduated with a marketing degree
from De La Salle University.
*Appointed as Managing Director, Cable Channel & Print Media Group effective April 1, 2009
Jose Ramon D. Olives, Filipino, age 46
Managing Director, Cable Channels & Print Media Group*
Mr. Olives was appointed Head of Cable Channels & Print Media Group in 2007, spearheading a
monumental first in any local broadcasting company to join the print and cable businesses in the synergy
of the ABS-CBN Publishing, Inc. and Creative Programs, Inc. This new entity is tasked to consolidate and
develop cross platform opportunities in new emerging business - niche programming and print. As such,
Mr. Olives will be tasked to create new programming and marketing opportunities that were only
available to the free to air television distribution media of the network.
In his twenty years at the network, he held numerous positions to include Senior Vice President for
Business Development since 2001. He is also credited with the development of The Filipino Channel
during his nine year stint as Senior Vice-President for the International Division beginning in 1991,
overseeing the operations of The Filipino Channel, the premier cable channel of the Company, in North
America, Middle East, Japan and Australia. Mr. Olives joined the Company in 1987 as an assistant to the
Administrative Director. He has a Bachelor of Arts degree in Communication Research, magna cum laude,
from the University of the Philippines.
*Until April 1, 2009
Rafael L. Lopez, Filipino, age 52
Chief Operating Officer, ABS-CBN Global Limited
Mr. Lopez assumed the position of Senior Vice President and Chief Operating Officer of
ABS-CBN Global Limited in July 2004. He concurrently serves as the Managing Director of ABS-CBN
International in North America and has held this position since July 1998. He started as the Information
Technology Head of ABS-CBN International in North America in 1994. Prior to this, he spent 12 years
working as a systems analyst for Bell Atlantic. He graduated from the San Francisco State University with
a Bachelor of Arts degree in Music. He also obtained a degree in computer programming from Control
Data Institute and completed the Stanford Business Executive Program for Executives in August 2002.
Ma. Lourdes N. Santos, Filipino, age 52
Managing Director, ABS-CBN Film Productions Inc. and Star Records, Inc.
Ms. Santos holds more than two decades of experience in the local film industry having started as a
production assistant for Vanguard Films in 1982. She went on to become head of the movie division of
Gryk Ortaleza, Inc., an entertainment company, then a line producer for Regal Films in 1986 and the
general manager of Vision Films in 1989. She joined the company as executive producer for its drama
programs. In 1995, she became the Managing Director of Star Cinema Productions, Inc. Concurrent with
her current position as ABS-CBN Film Production, Inc.’s Managing Director, Ms. Santos was appointed
Senior Vice-President of the Television Drama Division for the Company’s Entertainment Group in 2003.
25
In 2006, she was likewise assigned to handle Star Records, Inc. Ms. Santos graduated cum laude in BS
Hotel and Restaurant Management at the University of Santo Tomas.
Rolando P. Valdueza, Filipino, age 49
Chief Finance Officer
Mr. Valdueza was appointed Chief Finance Officer on April 2, 2008. Prior to his appointment as CFO, he
was Head of the Regional Network Group (RNG). As Head of RNG, he made a mark by managing RNG
to help establish focus on ratings and revenues. He also institutionalized specific strategies to further
strengthen local programming and ABS-CBN affinity with the local communities and improved
operating efficiencies. Before joining the Company in 1988 as Budge Officer, he was an auditor with SGV
& Company and then worked as Finance Manager at National Marine Corporation. He also served as Sky
Cable Regional Director for Visayas and Mindanao and later became Managing Director of Pilipino Cable
Company. Mr. Valdueza took up BS Accounting at University of the East and graduated magna cum laude
in 1981.
Other members of the Company’s senior management team as of 31 March 2009 are as follows:
Mario Carlo P. Nepomuceno
Vivian Y. Tin
Atty. Maximilian T. Uy
Ramon R. Osorio
Evelyn L. Javier
Esperanza M. Bulaong
Robert G. Labayen
Raul Pedro G. Bulaong
Charles A. Gamo
Leonardo P. Katigbak
Peter A. Musngi
Louis Benedict O. Bennett
Nelson Edison Aguiflor
Carlo Katigbak
Consuelo Nolasco-Lopez
Luis Paolo M. Pineda
Ma. Juanita A. dela Cruz
Johnny C. Sy
Chief Human Resources and Organizational Development
and Learning Officer
Chief Research & Business Analysis Officer
Chief Legal Counsel
Chief Government, Corporate Affairs and PR Officer
Chief Information Officer
Head, Customer Relationship Management
Head, Creative Communication Management
Managing Director, Technical Production Operations
Head, Investor Relations and Corporate Planning
Head, Special Projects and Licensing
Managing Director, Manila Radio and Sports
Officer-in-Charge, Regional Network Group
Head, ABS-CBN Global Manila Operations
Managing Director, SkyCable
Managing Director, ABS-CBN Interactive
Head, Business Development
Head, Project Digital Terrestrial Television
Head, Digital Consumer Devices
Family Relationships
Mr. Oscar M. Lopez is the brother of Mrs. Presentacion L. Psinakis. He is the uncle of Mr. Eugenio L.
Lopez III and Mr. Manuel L. Lopez, Jr., and the father of Mr. Federico R. Lopez. Mr. Manuel L. Lopez, Jr.,
Mr. Eugenio L. Lopez III and Mr. Federico R. Lopez are first cousins. Ms. Consuelo Nolasco-Lopez is the
sister-in-law of Mr. Manuel Lopez, Jr.
Significant Employees
The Company considers its entire work force as significant employees. Everyone is expected to work
together as a team to achieve the Company’s goals and objectives.
26
Involvement of Directors and Officers in Certain Legal Proceedings
For the past 5 years, the Company is not aware of any bankruptcy proceedings filed by or against any
business of which a director, person nominated to become a director, executive officer, or control person
of the Company is a party or of which any of their property is subject.
For the past 5 years, the Company is not aware of any conviction by final judgment in a criminal
proceeding, domestic or foreign, or being subject to a pending criminal proceeding, domestic or foreign,
of any of its director, person nominated to become a director, executive officer, or control person.
For the past 5 years, the Company is not aware of any order, judgment, or decree not subsequently
reversed, superseded, or vacated, by any court of competent jurisdiction, domestic or foreign,
permanently or temporarily enjoining, barring, suspending, or otherwise limiting the involvement of a
director, person nominated to become a director, executive officer, or control person of the Company in
any type of business, securities, commodities, or banking activities.
For the past 5 years, the Company is not aware of any findings by a domestic or foreign court of
competent jurisdiction (in a civil action), the Commission or comparable foreign body, or a domestic or
foreign exchange or electronic marketplace or self regulatory organization, that any of its director, person
nominated to become a director, executive officer, or control person has violated a securities or
commodities law.
Item 10. Executive Compensation
Information as to the aggregate compensation paid or accrued during the last 2 fiscal years and to be paid
in the ensuing fiscal year to the Company’s chief and 5 other most highly compensated executive officers
follow:
SUMMARY COMPENSATION TABLE
Annual Compensation
Name
Chief executive and
most highly compensated
executive officers:
Year
Salary (P)
Bonus (P)
Other Annual
Compensation
2009E
2008
2007
64,439,134
60,791,636
55,934,340
41,180,491
27,389,517
0
0
2009E
2008
2007
505,569,298
476,952,168
592,374,040
198,052,134
241,948,131
0
0
Ma. Rosario N. Santos-Concio
Ma. Lourdes N. Santos
Olivia M. Lamasan
Vivian Y. Tin
Jose Agustin C. Benitez, Jr.
All managers and up
as a group unnamed
27
The directors each receive per diems amounting to P5,000.00 for their attendance to board meetings.
There are no other arrangements for compensation either by way of payments for committee
participation or consulting contracts.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Records and Beneficial Owners as of March 31, 2009:
Title
Of class
Name and Address of
Record Owner
Common Lopez, Inc.
5/F Benpres Bldg,
Exchange Road cor
Meralco Ave., Pasig City
Name of
Citizenship No. of Shares Per cent
Held
Owned
Beneficial Owner
and Relationship
with Record
Owner
Lopez, Inc.
(Oscar M. Lopez,
Filipino
446,231,607
57.24%
Chairman, is
authorized to vote on
behalf of Lopez, Inc.)
Common PCD Nominee Corporation
ABS-CBN
G/F Makati Stock Exchange Bldg., Holdings Corp.
(Oscar M. Lopez,
Ayala Ave.,
Chairman, is
Makati City
authorized
to vote on
(PCD Nominee Corporation is not
behalf of ABS-CBN
related to the Company)
Holdings Corp.)
Filipino
307,075,400
39.3%
Lopez, Inc. is the holding company of the Lopez family. It is owned by the respective holding companies
of the families of Eugenio Lopez, Jr., Oscar M. Lopez, Presentacion L. Psinakis and Manuel M. Lopez. It
has issued convertible notes covering the shares in the Company registered and beneficially owned by it
in favor of Benpres Holdings Corporation.
The Board of Directors of Lopez, Inc. has the power to decide how Lopez Inc.’s shares in ABS-CBN
Broadcasting Corporation are to be voted.
ABS-CBN Holdings Corporation is a participant of PCD. The 270,042,200 shares beneficially owned by
ABS-CBN Holdings Corporation form part of the 307,075,400 shares registered in the name of PCD. ABSCBN Holdings Corporation is owned 50% by Lopez, Inc. and 50% by Oscar M. Lopez, Manuel M. Lopez,
Presentacion L. Psinakis, and Eugenio Lopez III. The shares in the Company registered and beneficially
owned by it are covered by Philippine Deposit Receipts (PDR) which gives the holder thereof the right to
delivery or sale of the underlying share. The PDRs are listed with the Philippine Stock Exchange.
The Board of Directors of ABS-CBN Holdings Corporation has the power to decide how ABS-CBN
Holdings Corporation’s shares in ABS-CBN Broadcasting Corporation are to be voted.
28
Security Ownership of Management as of March 31, 2009:
As of March 31, 2009, the Company’s directors and senior officers owned an aggregate of 1,452,338 shares
of the Company, equivalent to 0.1863% of the Company’s total issued and outstanding capital stock.
Title of
Class
Stockholder Name
Position
Nature of
Beneficial
Ownership
Citizenship
No. of Co.
Shares
Held
Percent
Held
Chairman and CEO
Direct
Filipino
651,191
0.0835%
0.0320%
Common
Eugenio L. Lopez III
Common
Augusto Almeda-Lopez
Vice-Chairman
Direct
Filipino
249,833
Common
Oscar M. Lopez
Director
Direct
Filipino
61,620
0.0079%
Common
Presentacion L. Psinakis
Director
Direct
Filipino
3
0.0000%
Common
Federico R. Lopez
Common
Ma. Rosario N. Santos-Concio
Common
Manuel L. Lopez Jr.
Common
Angel S. Ong
Common
Federico M. Garcia
Common
Jose C. Vitug
Director
Direct
Filipino
1
0.0000%
Director, President and
COO
Director
Direct
Filipino
1
0.0000%
Direct
Filipino
1
0.0000%
Director
Direct
Filipino
29,413
0.0038%
Independent Director
Direct
Filipino
226,207
0.0290%
Independent Director
Direct
Filipino
1
0.0000%
Common
Pedro N. Dy-liacco
Independent Director
Direct
Filipino
1
0.0000%
Common
Rolando P. Valdueza
Chief Finance Officer
Direct
Filipino
11,800
0.0015%
Common
Ma. Socorro V. Vidanes
Direct
Filipino
10,000
0.0013%
Common
Antonio S. Ventosa
Direct
Filipino
13,000
0.0017%
Common
Mario Carlo P. Nepomuceno
Direct
Filipino
35,351
0.0045%
Common
Vivian Y. Tin
Managing Director, ABSCBN TV Production*
Head, Corporate
Marketing and Concurrent
Officer-in-Charge, Studio
23**
Chief Human Resources
and Organization and
Development Learning
Officer
Chief Research and
Business Analysis Officer
Chief Information Officer
Direct
Filipino
30,000
0.0038%
Common
Evelyn L. Javier
Common
Raul Pedro G. Bulaong
Common
Leonardo P. Katigbak
Common
Louis Benedict O. Bennett
Common
Jose Ramon D. Olives
Common
Johnny C. Sy
Direct
Filipino
10,000
0.0013%
Managing Director, ABSCBN Technical Production
Operations
Head, Special Projects
Direct
Filipino
15
0.0000%
Direct
Filipino
58,204
0.0075%
Officer-in-Charge,
Regional Network Group
Managing Director, Cable
Channel and Print Media
Group***
Chief Information Officer
Direct
Filipino
600
0.0001%
Direct
Filipino
47,109
0.0060%
Direct
Filipino
Security Ownership of all Directors and Officers
17,987
0.0023%
1,452,338
0.1863%
*Appointed Head of Channel 2 Mega Manila Management effective March 18, 2009
**Appointed Managing Director of Cable Channel and Print Media Group effective April 1, 2009
***Until April 1, 2009
Changes in Control
There have not been any arrangements that have resulted in a change in control of the Company during
the period covered by this report. The Company is not aware of the existence of any voting trust
arrangement among the shareholders.
29
Item 12. Certain Relationships and Related Transactions
Relationships and Related Transactions
There had been no material transactions during the past 2 years, nor is any material transaction presently
proposed, to which the Company was or is to be a party in which any director, executive officer of the
Company, or security holder of more than 10% of the Company’s voting securities, any relative or spouse
of any such director or executive officer or owner of more than 10% of the Company’s voting securities
had or is to have direct or indirect material interest.
Furthermore, there had been no material transactions during the past 2 years, nor is any material
transaction presently proposed, between the Company and parties that fall outside the definition of
“related parties” under PAS No. 24, but with whom the registrants or its related parties have a
relationship (e.g., former senior management of the Company or other parties who have some other
former or current relationship with the Company) that enables the parties to negotiate terms of material
transactions that may not be availed from other, more clearly independent parties on an arm's length
basis.
Parent Company
Lopez, Inc. is the registered owner of 57.24% of the voting stock of the Company as of December 31, 2008.
Lopez, Inc. is the holding company of the Lopez family. It is owned by the respective holding companies
of the families of Eugenio Lopez, Jr., Oscar M. Lopez, Presentacion L. Psinakis and Manuel M. Lopez. It
has issued convertible notes covering the shares in the Company registered and beneficially owned by it
in favor of Benpres Holdings Corporation.
Resignation of Directors Because of Disagreement with Policies
No director has resigned or declined to stand for re-election to the Board of Directors since the date of the
last annual meeting of security holders of the Company because of a disagreement with the Company on
matters relating to the Company’s operations, policies and practices.
PART IV – CORPORATE GOVERNANCE
Item 13. Corporate Governance
The evaluation system established by the company to measure or determine the level of compliance of
the Board of Directors and top-level management can be found in Section 2 (Duties and Responsibilities
of the Board), Section 3 (Nominations and Qualifications of the Board), and Section 13 (Monitoring and
Assessment) of its Manual of Corporate Governance (the Manual) filed with the Commission on
September 2, 2002.
The company’s efforts to fully comply with the adopted leading practices on good corporate governance
are as follows: (1) it has formed its Audit Committee and has elected its compliance officer, Mr. Alfredo P.
Bernardo, whose duties and responsibilities ensure continuous improvement towards full compliance; (2)
it has created additional Board committees such as a Programming Committee, Compensation
Committee, Succession Planning Committee and the Committee for the Compensation of the Chief
Executive Officer and; (3) it has also created policies regarding Penalties for Non-Compliance with the
Manual.
Based on the certification of compliance with the Company’s Manual filed with the Commission on
January 31, 2009, there have been no deviations from the Company’s Manual in the past year.
30
Furthermore, the Company’s Manual calls for the continuous assessment and evaluation of the
Company’s corporate governance policies and procedures.
ABS-CBN’s commitment to adhere to best corporate governance practices was recognized last April 22,
2009 by the Institute of Corporate Directors (“ICD”) in their Chairpersons’ Circle event by naming the
Company as one of the top 15 highest-scoring companies and the only publicly-listed media organization
to garner a score of 90% or higher in the 2008 Corporate Governance Scorecard, a survey of corporate
governance practices among 172 publicly-listed companies in the country. ICD further cited that the top
15 companies were at par with corporate governance practices of companies in more advanced
economies.
The ICD conducted the survey in partnership with the Philippine Stock Exchange (“PSE”), the SEC, and
the Ateneo School of Law. They judged publicly-listed companies based on a questionnaire that
measured corporate governance practices which include shareholder rights, treatment of shareholders,
the role of stakeholders, disclosure policies and transparency, and board responsibility. The SEC
mandated the participation of publicly-listed companies in the survey.
31
PART V – EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C
For the past nine months, the Company has filed the following SEC Form 17-C reports and financial
statements:
Subject of 17-C
Date Filed
Item 9: Other Events – ABS-CBN net income rose 9% to Php1.39 billion
April 15, 2009
Item 9: Other Events – Full-Year 2008 Investors’ and Analysts’
Briefing Presentation Materials
April 15, 2009
Item 9: Other Events – ABS-CBN Broadcasting Corporation’s
Full-Year 2008 Investors’ and Analysts’ briefing schedule
March 31, 2009
Item 9: Other Events – Approval of FY2008 financial statements of
ABS-CBN; cash dividend declaration of Php0.90 per share; Fixed
April 15, 2009 as the record date for stockholders entitled to notice
and vote at the annual stockholders’ meeting; Approval of
amendment of the by-laws to fix the annual stockholders’
meeting every third Thursday of June of each year
March 26, 2009
Item 9: Other Events – Annual stockholders’ meeting set on June 18
March 26, 2009
Item 9: Other Events – Appointment of new officers
March 23, 2009
Item 9: Other Events – Appointment of new officers
March 18, 2009
Item 9: Other Events – Nine-Month 2008 Investors’ and Analysts’
Briefing Presentation Materials
November 18, 2008
Item 9: Other Events – ABS-CBN Nine-Month 2008 Net Income Hits
Php1.2 billion, nearly matching Full-Year 2007 Net Income
November 17, 2008
Item 9: Other Events – ABS-CBN acquires minority interest in
US-based social networking giant Multiply
November 17, 2008
Item 9: Other Events – ABS-CBN Broadcasting Corporation’s
Nine-Month 2008 Investors’ and Analysts’ briefing schedule
November 6, 2008
Item 9: Other Events – ABS-CBN completes Php3.0 Billion
Term Loan Facility
September 30, 2008
Item 9: Other Events – ABS-CBN receives Php1.0 Billion Credit
Facility
August 21, 2008
Item 9: Other Events – First Half 2008 Investors’ and Analysts’
Briefing Presentation Materials
August 21, 2008
Financial Statements
Date Filed
Revised 3Q2008 17-Q
January 13, 2009
3Q2008 17-Q
November 14, 2008
2Q2008 17-Q
August 14, 2008
32
ANNEX A
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR 2008
The consolidated net income of ABS-CBN Broadcasting Corporation, the country’s largest multimedia
conglomerate, grew 9% in 2008 to P1.39 billion, generated from consolidated revenues of P22.3 billion.
Revenues
ABS-CBN Broadcasting Corporation’s (‘ABS-CBN” or the ‘Company”) consolidated revenues from
airtime and direct sales rose to P22.3 billion with an increase of P2.37 billion or 12% year-on-year,
inclusive of gross revenue contribution from Skycable of P2.6 billion for three quarters beginning April
2008.
Net of the non-recurring license fees of P548 million in 2007, our overall core business revenue growth for
2008 is 15%.
Over the past five years, our direct sales businesses have increasingly complemented our airtime
revenues, in 2008 reaching 39% of total with the consolidation of Skycable and continued growth in the
subscription businesses of ABS-CBN Global.
Amounts in million Pesos
Airtime revenue
Sale of Services
Sale of Goods
Core Business
License fees
Consolidated revenues before SkyCable
Add: SkyCable revenues
Consolidated revenues
2008
13,419
5,784
513
19,716
19,716
2,591
22,307
Consolidated
Variance
2007
Amount
%
13,605
(186)
(1)
5,298
486
9
489
24
5
19,392
324
2
548
(548)
(100)
19,940
(224)
(1)
2,591
100
19,940
2,366
12
Consolidated airtime revenues for the year totaled P13.5 billion.
In the first semester of 2008, consumer spending was constrained by an acute rise in prices of basic food
items and fuel, and transportation fares, prompting major advertisers across many consumer goods
categories to hold back on advertising and promotions spending. Towards the later part of 2008, as
inflation eased and prices reverted towards their previous levels, consumer confidence started to
cautiously return and advertisers began to entice their customers back.
Our core airtime businesses registered a slight contraction in revenues for the year to P13.4 billion or 1%,
despite a 56% growth in cable TV airtime sales. The consolidation of Skycable brought in an additional
P92 million of airtime revenues between April and December 2008 to raise consolidated airtime revenues
to P13.5 billion.
Airtime revenue from parent company’s free TV and radio operations contracted by P277 million or 2%
to P12.5 billion. Airtime revenue growth of P92 million or 11% in other platforms was driven mostly by
cable channels.
34
Our core airtime sales registered a 2% growth, however, after netting out P298 million in non-recurring
political adspend in 2007.
Amounts in million Pesos
Parent airtime revenue
Other platforms
Gross airtime revenues
Add: SkyCable airtime revenues
Consolidated Gross airtime revenues
2008
12,466
954
13,419
92
13,511
Consolidated
Variance
2007
Amount
12,743
(277)
862
92
13,605
(186)
92
13,605
(94)
%
(2)
11
(1)
100
(1)
Direct sales from core businesses rose by P510 million to P6.3 billion, a 9% gain over 2007’s P5.8 billion.
ABS-CBN Global accounted for about 80% of total direct sales before the consolidation of Skycable.
ABS-CBN Global’s subscription revenues grew 28% year-on-year in US dollar terms. With continued
subscriber growth in the Middle East, Canada and Japan, total viewer count reached an estimated 2
million worldwide.
The sale of consumer products such as magazines, and audio and video CDs and DVDs grew 5% in 2008
to P512 million.
Of ABS-CBN Film Productions, Inc.’s eight film releases in 2008, four films were top-grossers — Sakal
Sakali Saklolo; Caregiver; A Very Special Love; and For the First Time. Each of these films surpassed the P100
million mark in box-office receipts and pulled in a combined P562 million.
Skycable’s contribution of P2.6 billion in subscription and other service revenues boosted total direct sales
to P8.8 billion, and brought direct sales growth to 52% in 2008.
Expenses
ABS-CBN’s continuing efforts to institutionalize financial discipline and spending restraint ensured that
expenses in core businesses were kept in check. Consequently, the Company realized savings of P237
million in total expenses from core businesses to bring it down to P17.45 billion, for a slight reduction of
1% from the previous year.
Cash expenses of core businesses went down by P429 million or 3% to P14.9 billion for the full year,
mostly from savings in production costs and general and administrative expenses.
Non-cash expenses of core businesses totaled P2.5 billion, P193 million or 8% higher than in 2007.
35
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
2008
6,291
5,089
3,396
2,656
15
17,447
2,438
19,885
Consolidated
Variance
2007
Amount
%
6,493
(202)
(3)
5,360
(272)
(5)
3,003
394
13
2,701
127
17,683
17,683
(45)
(112)
(237)
2,438
2,202
(2)
88
(1)
100
12
Incorporating the expenses of Skycable, total expenses reached P19.9 billion, P2.2 billion or 12% higher
than in 2007. Skycable’s cash expenses of P1.9 billion increased consolidated total cash expenses to P16.8
billion, while its non-cash expenses of P561 million brings the consolidated total non-cash expense
increase to 32% over last year.
Total production costs in 2008 of P6.3 billion is 3% lower than last year, with a net savings of P202
million.
Personnel expenses and talent fees decreased by P115 million or 4% for the year to P2.7 billion, from P2.82
billion the previous year, while P244 million in savings were derived from production process
improvements, tighter control of production crew and equipment deployment, and less equipment
rentals. Conscious efforts were made by the production and engineering groups to reduce the number of
taping days per program to an optimally cost-effective number without sacrificing production quality.
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
2008
2,708
1,092
955
4,755
1,536
6,291
Consolidated
Variance
2007
Amount
2,823
(115)
972
120
1,199
(244)
4,994
(239)
1,499
37
6,493
(202)
%
(4)
12
(20)
(5)
2
(3)
The total cost of sales and services from core businesses grew by only 13% or P393 million to P3.4 billion.
ABS-CBN Global’s cost of sales rose by only 10% or P178 million. The main cost drivers for ABS-CBN
Global were higher satellite costs in North America, Europe, and Australia, as well as bandwidth and settop box costs in Canada and Japan for IPTV services.
The 18% or P216 million increase in total cost of sales and services of other subsidiaries are largely
attributable to higher cable channels program amortization and facilities-related expenses. Investments
made to build the brand equity and viewer following of the cable channels Maxxx, Balls and Velvet,
drove the cost of program acquisitions higher.
36
Amounts in million Pesos
ABS-CBN Global
Other subsidiaries
Total cost of sales and services
Add: SkyCable cost of sales and services
Total Cost of Sales and Services
2008
1,980
1,416
3,396
829
4,225
Consolidated
Variance
2007
Amount
%
1,802
178
10
1,200
216
18
3,003
393
13
829
100
3,003
1,222
41
Total cost of sales and services amounted to P4.2 billion with Skycable’s P829 million cost of sales
included, an increase of P1.22 billion or 41% year-on-year.
Operating expenses—or General and Administrative Expenses (GAEX)— of core businesses in 2008
registered a 5% decline to P5.1 billion, as net savings of P271 million were generated mainly by the parent
company and ABS-CBN Global.
Cash GAEX for the full year of P4.46 billion is P324 million or 7% lower than last year, while non-cash
GAEX is slightly up by P53 million, or 9%.
The largest contributions to the decline in GAEX came from savings in personnel expenses due to lower
employee headcount from natural attrition, limited additional hiring, and incomplete replacement of
employees who resigned during the year, as well as from lower advertising and promotions and utilities
expenses arising from cost-containment measures.
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
2008
2,385
121
474
540
188
100
654
4,462
627
5,089
1,840
6,929
Consolidated
Variance
2007
Amount
2,597
(211)
151
(30)
534
(60)
443
97
177
11
100
0
785
(131)
4,786
(324)
574
53
5,360
(271)
1,840
5,360
1,569
%
(8)
(20)
(11)
22
6
0
(17)
(7)
9
(5)
100
29
Skycable’s incremental contribution to total GAEX for full year amounted to P1.84 billion, of which P1.28
billion are cash GAEX, while P561 million are non-cash GAEX.
With Skycable’s additional operating expenses, consolidated GAEX amounts to P6.93 billion, P1.57 billion
or 29% more than last year.
37
Amounts in million Pesos
Depreciation
Amortization
Non-cash expenses of core businesses
Add: Depreciation and Amortization from SkyCable
Non-cash expenses
2008
622
5
627
562
1,189
Consolidated
Variance
2007
Amount
549
73
25
(20)
574
53
562
574
615
%
13
(78)
9
100
107
Net Income and EBITDA
Net income attributable to shareholders for 2008 is P1.38 billion, a P116.7 million or 9% improvement
over last year’s net income attributable to shareholders of P1.267 billion that includes P329 million of net
income from non-recurring DirecTV license fees.
The net income of P1.38 billion includes P77 million from a one-time accounting adjustment to comply
with Philippine Financial Reporting Standard 3 that pertains to the recognition of gains from the
consolidation of Skycable.
Net of the accounting adjustment, core net income for 2008 of P1.307 billion, is 39% higher than the 2007
core net income of P938 million, after removing the non-recurring income from DirecTV license fees
recorded in 2007.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for 2008 reached P6.1 billion,
P1.1 billion or 21% higher over last year’s P5 billion, and yielding an EBITDA margin of 27.4% for 2008
versus 25.4% a year ago.
Core EBITDA—net of the corresponding P309 million PFRS 3-related accounting adjustment—is P5.8
billion, a 28% increase over 2007’s core EBITDA of P4.55 billion, after removing P509 million of EBITDA
contribution from DirecTV license fees in 2007.
Balance Sheet Accounts
As at December 31, 2008, total consolidated assets stood at P32.8 billion, P6.7 billion or 26% higher than
year-end 2007 total assets of P26.1 billion. Cash and cash equivalents of P2.52 billion is 18% higher than
the year-end 2007 balance. Consolidated trade receivables stood at P4.59 billion, P520 million or 13%
higher than as at the end of 2007. Days sales outstanding is at 75 days, the same level as it was as at
December 31, 2007.
Total interest-bearing loans increased by about P3.2 billion or 58% to P8.71 billion versus P5.5 billion a
year ago. The Company signed loan facility agreements in the 3rd quarter of 2008 for P3 billion in new
loans of which P2.0 billion was drawn. The loan facility was obtained to fund current and future capital
investment, including production and broadcast equipment, transmission network expansion and
upgrades. The remaining increase in indebtedness is primarily attributable to the consolidation of
Skycable’s debt into ABS-CBN Broadcasting Corporation’s balance sheet
Shareholders’ equity stood at P15.1 billion, a P776 million or 5% increase over the P14.3 billion at the end
of 2007. The Company’s net debt-to-equity ratio increased to 0.41x versus 0.23x at the end of 2007. The
Company’s debt and coverage ratios remain well within the limits prescribed under its loan covenants.
38
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR 2007
Net income soared to Php1.27 billion in 2007 by Php528 million or 71% year-on-year. Despite another
year of a downturn in the TV advertising industry manifested in lower TV advertising minutes, airtime
revenue increased Php2.94 billion or 28% from 2006. Such growth helped consolidated revenues grow
17% or Php2.87 billion year-on-year. Availability of nationwide ratings and political ads served as a
catalyst for airtime revenue growth. The year 2007 marked the end of license fee recognition from the
DirecTV purchase of ABS-CBN Global subscribers in exchange for migration and retention income. Total
expense growth was Php2.02 billion or 13% year-on-year.
Revenues
Consolidated revenues in 2007 rose 17% or Php2.87 billion from Php17.02 billion in 2006.
Amounts in million pesos
Consolidated
2006
2007
Airtime revenue
Sale of services
Sale of goods
License fees
Consolidated revenues
13,605
5,299
439
548
19,891
10,663
4,712
529
1,117
17,020
Variance
%
Amount
2,942
28
587
12
(90) (17)
(569) (51)
2,870
17
Gross airtime revenue averaged an unprecedented Php1.1 billion per month in 2007 compared to Php889
million per month in 2006. Due to declines in license fees and sale of goods, the percentage share of
airtime revenue to consolidated revenues increased nearly six percentage points to 68% in 2007. Parent
airtime revenue, which is derived from Channel 2, AM and FM radio, and the regional network,
increased its percentage share to gross airtime revenue from 90% in 2006 to almost 94% in 2007. A 33%
growth in parent airtime or Php3.1 billion was registered in 2007 compared to 2006. In contrast, airtime
revenue of other platforms dropped 19% or Php199 million.
Amounts in million pesos
Parent airtime revenue
Other platforms
Gross airtime revenue
2007
12,743
862
13,605
Consolidated
2006
Variance
%
Amount
9,602
3,140
33
1,060
(199)
(19)
10,663
2,942
28
License fees in 2007, which represent income from migration of TFC Direct subscribers to DirecTV’s
platform as well as from retention of migrated subscribers, dropped 51% or Php569 million from 2006.
The year 2007 marked the end of license fee recognition from the DirecTV agreement. The Company
raked in a cumulative total of Php3.3 billion in license fees from 2005 to 2007. These licenses fees were
generated from subscribers who migrated to the DirecTV platform and continued to remain subscribed
for a given period of time.
Sale of services posted a 12% expansion or Php587 million in 2007 compared to 2006. These services refer
to cable and satellite programming services, film production and distribution, interactive media, content
development and programming services, post production, text messaging, etc.
39
Accounting for over 70% of total sale of services, ABS-CBN Global registered a 13% increase or Php430
million. In dollar terms, revenue growth was 18% on the back of a subscriber growth of 22%. The lower
peso revenue growth was due to a strong peso.
Amounts in million pesos
ABS-CBN Global
Other subsidiaries
Total sale of services
2007
2006
3,814
1,485
5,299
3,384
1,328
4,712
Variance
Amount
430
157
587
%
13
12
12
Other subsidiaries’ sale of services posted a higher growth rate of 12% or Php157 million year-on-year.
Meanwhile, 2007 marked another banner year for ABS-CBN Films as four movies hit the Php150 million
mark: Kasal, Kasali, Kasalo; A Love Story; Ang Cute ng Ina Mo; and One More Chance. The overwhelming
success of these movies delineated a milestone in the Philippine movie industry and enabled ABS-CBN
Films to dominate the local market. ABS-CBN Films’ sales in 2007 increased almost 14% or Php63 million
compared to 2006. Average gross receipts in 2007 amounted to Php115 million per movie, 42% higher
than in 2006 (Php81M).
Sale of goods (consumer products such as magazines, audio, video products and phone cards) continued
to decline last year, posting a 17% drop or Php90 million, largely on account of the decline in
merchandising revenues of ABS-CBN Global. Dollar revenue from ABS-CBN Global’s sale of goods fell
32%, which in peso terms appears as a 39% decline due to a stronger peso.
Amounts in million pesos
ABS-CBN Global
Other subsidiaries
Total sale of goods
2007
2006
148
291
439
244
285
529
Variance
%
Amount
(96)
(39)
6
2
(90)
(17)
Expenses
Total expenses rose 13% or Php2.02 billion in 2007 compared to 2006.
Amounts in million pesos
Production cost
General and administrative
Cost of sales and services
Agency commission, incentives, & co-prod share
Other expenses
Total expenses
Less: non-recurring expense
Total recurring expenses
2007
6,493
5,527
2,786
2,701
127
17,634
33
17,600
Consolidated
2006
Variance
%
Amount
5,714
778
14
5,135
393
8
2,225
561
25
2,284
417
18
252
(125)
(50)
15,610
2,023
13
454
(421)
(93)
15,156
2,444
16
The big-ticket expense items are production cost and general and administrative expenses (GAEX).
Production cost in 2007 was up 14% or Php778 million versus the earlier year due to a higher number of
in-house produced shows. Excluding non-cash charges such as depreciation and amortization of program
rights, cash production cost increased 15% or Php650 million in 2007 from the earlier year.
40
Amounts in million pesos
2007
Personnel expenses and talent fees
Facilities related expenses
Other program expenses
Sub-total -cash production cost
Non-cash production cost
Total production cost
2,662
972
1,360
4,994
1,498
6,493
Consolidated
2006
Variance
Amount
2,412
250
833
139
1,098
262
4,344
650
1,370
128
5,714
778
%
10
17
24
15
9
14
Consolidated GAEX in 2007 rose 8% or Php393 million compared to 2006 due to higher personnel and
research expenses. Excluding non-cash charges such as depreciation and amortization, consolidated cash
GAEX likewise rose 7%. Minus non-recurring charges, total recurring GAEX growth was 17% or Php814
million higher than 2006. Apart from personnel expense growth, the increase in GAEX (ex non-recurring
charges) can also be partly attributed to the expansion in Canada and Japan.
Amounts in million pesos
2007
Personnel expenses
Advertising and promotions
Facilities related expenses
Contracted services
Taxes and licenses
Entertainment, amusement and recreation
Other expenses
Sub-total -cash GAEX
Non-cash GAEX
Total GAEX
Less: non-recurring expense
Total recurring GAEX
2,597
173
549
461
183
100
892
4,953
574
5,527
33
5,494
Consolidated
2006
Variance
%
Amount
2,078
519
25
520
(347)
(67)
537
12
2
448
13
3
151
32
21
139
(39)
(28)
757
135
18
4,630
323
7
505
69
14
5,135
393
8
454
(421)
(93)
4,680
814
17
Cost of sales and services went up 25% or Php561 million last year compared to 2006. ABS-CBN Global,
which accounted for nearly 59% of cost of sales and services, registered a 35% increase in cost of sales.
This was due to higher marketing expenses and subsidies of set-top boxes (STB) in Canada and Japan.
Amount in million pesos
ABS-CBN Global
Other subsidiaries
Total cost of sales and services
2007
1,635
1,151
2,786
2006
1,215
1,011
2,225
Variance
%
Amount
421
35
140
14
561
25
Non-cash operating expenses, composed primarily of depreciation and amortization, rose 12% or Php257
million in 2007 versus 2006. For the most part, the rise in amortization (up 24%) resulted in the overall
increase in non-cash expenses. This can be attributed to the launch of three new cable channels.
41
Amount in million pesos
Depreciation
Amortization
Non-cash expenses
2007
1,210
1,122
2,332
2006
1,170
904
2,075
Variance
Amount
40
217
257
%
3
24
12
Depreciation expense had a modest increase of 3%, with its share to total non-cash expenses dropping to
52% last year versus 56% in 2006.
Operating and Pre-tax Income
With consolidated revenues rising faster than total expenses, both operating and pre-tax income had high
double-digit growth rates. For instance, pre-tax income in 2007 increased 60% year-on-year or Php847
million to Php2.26 billion. Consequently, pre-tax margin rose to 11% from 8%. The 50% drop in other net
expenses last year also helped the Company boost pre-tax income and ultimately net income. Lower
finance costs coupled with positive contribution from Sky Cable helped lower other net expenses.
Net Income
The Company raked in earnings of Php1.27 billion in 2007, up 71% year-on-year. Earnings before
interest, taxes, depreciation, and amortization (EBITDA) was at a record high of Php5.06 billion in 2007,
up P640 million or 21% year-on-year. The Company’s highest EBITDA prior to 2007 was in 2003, Php4.42
billion.
Profitability Margins
Gross profit margin for the airtime business improved seven percentage points to 32% last year from 25%
in 2006. This was due to the 28% growth in airtime sales that outstripped the slower blended growth rate
of 15% in production costs and revenue deductions (agency commission, incentives, and co-producers’
share). In absolute terms, gross profit soared 66% or Php1.75 billion year-on-year. While the gross profit
margin for direct sales dropped six percentage points, it remained above 50%. Also, the resulting blended
gross profit margin for airtime and direct sales still managed to show a two-percentage point
improvement. EBITDA margin remained healthy at 25% while net income margin rose to 6% from 4%.
Balance Sheet Accounts
Total consolidated assets reached Php26.17 billion, 9% higher versus end-2006 level. Cash and cash
equivalents reached Php2.15 billion, up 29% versus 2006. Consolidated trade and other receivables
increased 12% to Php4.92 billion, with trade receivables accounting for 77% of total. Trade receivables
dropped 1% to Php4 billion, translating to days sales outstanding (DSO) of 75 days versus 86 days in
2006. Other current assets dropped 20% to Php805 million due to lower pre-production expenses.
Total interest-bearing loans and borrowings increased 21% to Php5.52 billion from Php4.57 billion since
the Company assumed a portion of Sky Cable’s obligations to its creditors. As a result, net debt to equity
ratio increased from 0.21x in 2006 to 0.24x as of end-2007.
42
Causes for any material changes in the Balance Sheet (increase or decrease of 5% or more in the
financial statements & other material movements / changes)
• Cash and cash equivalents increased by 29% to P2,146 million following loans obtained in 2007 and a
stronger operating income versus 2006.
• Trade and other receivables increased by 12% to P4,919 million primarily due to higher non-trade
receivables.
• Derivative assets down 100% as the Company refinanced its USD-denominated debt in 2007.
• Other current assets decreased by 20% YoY to P805 million due primarily to smaller prepaid expenses.
• Long-term receivables from related parties increased 61% to P3,893 million following Parent
Company’s purchase of debt from an affiliate.
• Non-current program rights and other intangible assets increased to P1,664 million or 15% YoY due to
the opening of three new channels by a subsidiary in 2007.
• Deferred tax assets decreased 39% to P184 million due to lower tax differences.
• Trade and other payables increased 11% YoY to P5,053 million as the Company obtained favorable
payment schemes from its suppliers.
• Income tax payable increased 86% to P54 million due to higher operating income in 2007.
• Derivative liabilities decreased 100% as the Company refinanced its USD-denominated debt in 2007.
• Current portion of obligation for program rights increased 114% because of shorter payment terms.
• Current portion of interest-bearing loans and borrowings decreased 72% to P588 million as the
Company was able to restructure its debt obligations.
• Non-current portion of interest-bearing loans and borrowings increased 102% to P4,928 million
following the purchase of debt from a related party.
• Accrued pension obligation increased 43% to P401 million due to additional provision resulting from
the latest actuarial valuation.
• Asset retirement obligation decreased 13% to almost P15 million following fewer asset retirements in
the Company’s subsidiaries.
43
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR 2006 (not restated)
ABS-CBN Broadcasting Corp.’s (ABS-CBN) net income in 2006 more than doubled to P741 million from
P252 million in 2005. Despite an industry wide slowdown in ad spending particularly in 2H06, airtime
revenues grew by 3% P10,663 million in 2006. In addition, revenues were boosted by license fees from the
migration of DTH (direct to home) subscribers in North America to DirecTV’s platform. Expense growth,
on the other hand, remained controlled due to more prudent production cost spending coupled with
lower employee cost.
Revenues
Gross revenues, which consist of gross airtime revenues, sale of services, license fees, and sale of goods
rose by 2% year on year (YoY) to P17,386 million for 2006.
Amounts in million pesos
Consolidated
2005
2006
Airtime revenues
Sale of services
License fees
Sale of goods
Gross revenues
10,663
5,077
1,117
529
17,386
10,334
4,248
1,619
846
17,047
Variance
Amount
%
329
3
829
20
(502) (31)
(317) (37)
339
2
Consolidated gross airtime revenues improved by 3% to P10,663 million. Parent airtime revenues, which
consist of revenues from Channel 2, AM and FM radio, and the regional network, likewise went up by 3%
to P9,602 million. This can be primarily attributed to higher revenue contribution from non-traditional
advertisements or creative buys such as product intrusions and product placements. Airtime revenues of
other platforms, on the other hand, grew by 9% YoY to P1,060 million on the back of higher airtime
revenues of ABS-CBN Global.
Amounts in million pesos
2006
Parent airtime revenues
Other platforms
Gross airtime revenues
9,602
1,060
10,663
Consolidated
2005
Variance
Amount
%
9,362
240
3
971
89
9
10,334
329
3
License fees, which represent revenues from the migration of existing US DTH subscribers to DirecTV’s
platform as well as take up of new subscribers, declined by 31% to P1,117 million in 2006 from P1,619
million in 2005 as the migration period for both new and existing US DTH subscribers to DirecTV’s
platform ended last August.
Sale of services, which refer to revenues derived from cable and satellite programming services, film
production and distribution, interactive media, content development and programming services, post
production, text messaging, etc., increased by 20% to P5,077 million in 2006.
Accounting for 74% of total, ABS-CBN Global registered a 20% growth in sale of services to P3,749
million from P3,131 million in 2005. Although DTH subscription revenues in North America were
reduced by half following the deal with DirecTV, these were offset by higher subscription revenues on
the back of robust subscriber take-up.
44
As of end-December, total subscriber base of ABS-CBN Global grew by 21% YoY, equivalent to 1.6
million viewers worldwide.
Amounts in million pesos
ABS-CBN Global
Other subsidiaries
Total sale of services
2006
3,749
1,328
5,077
2005
3,131
1,117
4,248
Variance
Amount
%
618
20
211
19
829
20
Other subsidiaries’ sale of services, on the other hand, went up by 19% to P1,328 million due primarily to
a 26% increase in ABS-CBN Films’ revenues.
ABS-CBN Films released nine movies in 2006 compared to five movies the prior year. Moreover, out of
the nine movies released, ticket sales of four movies namely Don’t Give up on Us, Close to You, Sukob, and
You are the One surpassed the P100 million blockbuster mark. In particular, the horror movie, Sukob,
grossed more than P200 million at the box office, making it the highest grossing local movie in Philippine
history.
Meanwhile, sale of goods which refer to revenues arising from the sale of consumer products such as
magazines, audio, video products and phonecards, dropped by 37% to P529 million in 2006.
ABS-CBN Global’s sale of goods, which contributed 46% of total, dropped by 51% to P244 million after it
stopped selling prepaid phonecards in the United States to concentrate on its core business of content
distribution. Sale of goods of other subsidiaries, on the other hand, declined by 17% due mainly to lower
sales of audio products by Star Records as there were fewer hit music records in 2006.
Amounts in million pesos
ABS-CBN Global
Other subsidiaries
Total sale of goods
2006
244
285
529
2005
501
344
846
Variance
Amount
%
(258)
(51)
(59)
(17)
(317)
(37)
Expenses
Total expenses went down by 4% to P15,976 million in 2006. However, excluding non-recurring charges
of P467 million in 2006 related to DirecTV marketing expenses as well as P1,420 million DirecTV
marketing expenses and Special Separation Program (SSP) expenses booked in 2005, total recurring
expenses went up by 2% to P15,508 million.
45
Amounts in million pesos
2006
Production cost
General and administrative
Cost of sales and services
Agency commission, incentives, & co-prod share
Other expenses
Total expenses
Less: non-recurring expense
Total recurring expenses
5,714
5,135
2,417
2,458
252
15,976
467
15,508
Consolidated
2005
Variance
Amount
%
5,691
24
0
5,847
(712)
(12)
2,374
44
2
2,085
373
18
623
(372)
(60)
16,620
(644)
(4)
1,420
(952)
(67)
15,200
308
2
Operating expenses, which consist of production cost, general and administrative expenses, cost of sales
and services, and agency commission declined by 2% to P15,724 million in 2006. Cash operating expenses
were flat while non-cash operating expenses declined by 14% YoY. If we strip-out the non-recurring
charges, total opex went up by 5% to P15,257 million.
Production cost was almost flat YoY at P5,714 million. Excluding non-cash charges such as depreciation
and amortization of program rights, cash production cost increased slightly to P4,344 million. Talent fees,
which account for 42% of total production cost, declined by 4% to P2,412 million as a result of a more
efficient production planning which led to lesser number of taping days. Other program expenses, on the
other hand, went up by 16% to P1,098 million due to expenses related to the Pacquiao fights coupled with
increased marketing activities in the provinces to enhance the Company’s leadership nationwide.
Amounts in million pesos
Personnel expenses and talent fees
Facilities related expenses
Other program expenses
Sub-total -cash production cost
Non-cash production cost
Total production cost
2006
2,412
833
1,098
4,344
1,370
5,714
Consolidated
2005
Variance
Amount
%
2,513
(101)
(4)
840
(7)
(1)
946
152
16
4,300
44
1
1,391
(20)
(1)
5,691
24
0
Consolidated general and administrative expenses (GAEX) dropped by 12% YoY to P5,135 million from
P5,847 million the previous year. Excluding non-cash charges such as depreciation and amortization,
consolidated cash GAEX likewise declined by 7% to P4,630 million. However, without the non-recurring
charges, total recurring GAEX is up by 5% or in line with inflation rate.
46
Amounts in million pesos
2006
Personnel expenses
Advertising and promotions
Facilities related expenses
Contracted services
Taxes and licenses
Entertainment, amusement and recreation
Other expenses
Sub-total -cash GAEX
Non-cash GAEX
Total GAEX
Less: non-recurring expense
Total recurring GAEX
2,078
520
537
448
151
139
757
4,630
505
5,135
467
4,667
Consolidated
2005
Variance
Amount
%
2,505
(427)
(17)
503
16
3
496
41
8
404
43
11
151
0
0
119
20
17
816
(58)
(7)
4,995
(365)
(7)
852
(347)
(41)
5,847
(712)
(12)
1,420
(952)
(67)
4,427
240
5
Cost of sales and services, which is the cost related to sale of services and sale of goods, went up by 2% to
P2,417 million in 2006. This compares against a 10% growth in combined sale of services and sale of
goods hence reflecting margin improvement of the subsidiaries. ABS-CBN Global, which accounted for
58% of cost of sales and services, registered a 3% decline in cost of sales.
Amount in million pesos
ABS-CBN Global
Other subsidiaries
Total cost of sales and services
2006
1,406
1,011
2,417
2005
1,454
920
2,374
Variance
Amount
%
47
(3)
91
10
44
2
Non-cash operating expenses, composed primarily of depreciation and amortization, went down by 14%
to P2,075 million in 2006 from P2,407 million in the same period last year. Bulk of the decline can be
attributed to lower amortization costs which dropped by 23% to P904 million as the Company already
completed the amortization of deferred subsidies on the decoder boxes of existing US DTH subscribers in
2005. Amortization of program rights, on the other hand, increased by 7% to P887 million as the
Company accelerated the amortization of movies based on their commercial viability.
Amount in million pesos
Depreciation
Amortization
Non-cash expenses
2006
1,170
904
2,075
2005
1,235
1,172
2,407
Variance
Amount
%
(64)
(5)
(268)
(23)
(332)
(14)
Depreciation expense, on the other hand, decreased by 5% to P1,170 million given controlled capital
spending.
Operating Income
With revenues growing faster than operating expenses, operating income improved by 58% from P1,051
million to P1,661 million as of December. Consequently, operating margin went up to 10% as against 6%
in the same period last year.
47
Net Income
Other expenses declined by 60% to P252 million in 2006 from P623 million in 2005. Net finance costs
decreased by 10% to P648 million on the back of lower outstanding debt as of December. Other income,
on the other hand, increased by 56% to P449 million from P287 million due to gate receipts from the
Pacquiao-Larios boxing bout organized by the Company in July. Meanwhile, equity losses reached P52
million as against P194 million the prior year, reflecting the continued improvement in Skycable’s
operations.
As a result of the improvement in operating income and lower other expenses, the Company reported a
net income of P742 million in 2006, 187% higher YoY. Net of minority interest, net income attributable to
equity holders reached P741 million in 2006, up 194% YoY from P252 million in 2005. Similarly, earnings
before interest, taxes, depreciation, and amortization (EBITDA) went up by 19% to P4,188 million,
translating to an EBITDA margin of 24%.
Balance Sheet Accounts
Total consolidated assets reached P23,902 million, 4% lower vs end-2005. Cash and cash equivalents
declined by 5% to P1,662 million. Consolidated trade and other receivables dropped by 6% to P4,382
million with trade receivables accounting for 81% of total. Trade receivables increased by 3% to P4,010
million, translating to trade days sales outstanding (DSO) of 84 days or flat vs 2005.
Other current assets increased by 28% to P1,011 million due mainly to production expenses of yet to be
aired episodes of the Company’s programs particularly soap operas as well as upcoming movies of ABSCBN Films. Since 2005, the Company begun the canning or advanced taping of some shows in order to
cut location rentals and maximize efficiencies from production planning.
Total interest-bearing loans and borrowings declined by 27% to P4,574 million from P6,276 million in
end-2005 following the payment of P1,798 million in loans in 2006. As a result, net debt to equity ratio
declined to 0.21x from 0.34x in 2005. Meanwhile, total capital expenditure including program rights
acquisition reached P891 million in 2006, 25% lower vs last year as the Company controlled capital
spending to prioritize its loans payments during the year.
48
COVER SHEET
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)
M o t h e r
I g n a c i a
E s g u e r r a
S t r e e t
A v e n u e ,
c o r n e r
Q u e z o n
S g t .
C i t y
(Business Address: No. Street City/Town/Province)
Rolando P. Valdueza
415-2272
(Contact Person)
(Company Telephone Number)
1 2
3 1
A A C F S
0 4
2 7
Month
Day
(Form Type)
Month
Day
(Fiscal Year)
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
6,881
Total No. of Stockholders
P
=8.4 billion
$6.0 million
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
*SGVMC211620*
SyCip Gorres Velayo & C o.
6760 Ayala Av enue
1226 Makati City
Philippines
Phone: (632) 891 0307
Fax:
(632) 819 0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001
SEC Accreditation No. 0012-FR-1
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
ABS-CBN Broadcasting Corporation
Mother Ignacia Street corner Sgt. Esguerra Avenue
Quezon City
We have audited the accompanying financial statements of ABS-CBN Broadcasting Corporation and
Subsidiaries, which comprise the consolidated balance sheets as at December 31, 2008 and 2007, and
the consolidated statements of income, consolidated statements of changes in equity and consolidated
statements of cash flows for each of the three years in the period ended December 31, 2008, and a
summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Philippine Financial Reporting Standards. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting estimates that are reasonable in
the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with Philippine Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
*SGVMC211620*
A member firm of Ernst & Young Global Limited
-2Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of ABS-CBN Broadcasting Corporation and Subsidiaries as of December 31, 2008
and 2007, and their financial performance and their cash flows for each of the three years in the period
ended December 31, 2008 in accordance with Philippine Financial Reporting Standards.
SYCIP GORRES VELAYO & CO.
Haydee M. Reyes
Partner
CPA Certificate No. 83522
SEC Accreditation No. 0663-A
Tax Identification No. 102-095-265
PTR No. 1566461, January 5, 2009, Makati City
March 25, 2009
*SGVMC211620*
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
December 31
2007
2008
ASSETS
Current Assets
Cash and cash equivalents (Note 6)
Trade and other receivables - net (Notes 7 and 20)
Program rights and other intangible assets - current
(Notes 4, 12 and 14)
Other current assets - net (Notes 8 and 30)
Total Current Assets
Noncurrent Assets
Long-term receivables from related parties - net
(Notes 4, 9 and 16)
Property and equipment - net (Notes 10, 16 and 28)
Goodwill (Notes 2, 4, 11 and 14)
Program rights and other intangible assets - noncurrent
(Notes 4, 12 and 14)
Deferred tax assets - net (Note 26)
Other noncurrent assets - net (Notes 13 and 16)
Total Noncurrent Assets
P
=2,524,254
5,040,139
=2,145,778
P
4,918,718
1,439,876
1,115,970
10,120,239
1,007,394
804,516
8,876,406
–
14,735,554
1,906,211
3,893,236
9,467,115
20,061
2,170,856
603,191
3,299,621
22,715,433
1,664,140
184,352
2,023,505
17,252,409
P
=32,835,672
=26,128,815
P
P
=5,642,073
489,963
=4,999,042
P
53,646
1,131,783
1,063,365
8,327,184
587,806
790,992
6,431,486
7,582,621
151,994
791,936
632,600
201,935
9,361,086
17,688,270
4,927,998
3,808
400,648
–
14,924
5,347,378
11,778,864
LIABILITIES AND EQUITY
Current Liabilities
Trade and other payables (Notes 15 and 20)
Income tax payable
Interest-bearing loans and borrowings - current portion
(Notes 9, 10, 13 and 16)
Obligations for program rights - current portion (Note 17)
Total Current Liabilities
Noncurrent Liabilities
Interest-bearing loans and borrowings - net of current portion
(Notes 9, 10, 13, and 16)
Obligations for program rights - net of current portion (Note 17)
Accrued pension obligation (Note 27)
Deferred tax liability (Note 26)
Other noncurrent liabilities (Note 18)
Total Noncurrent Liabilities
(Forward)
*SGVMC211620*
-2-
2008
Equity Attributable to Equity Holders of the Parent
Company
Capital stock (Note 19)
Additional paid-in capital
Cumulative translation adjustments (Note 30)
Unrealized gain on available-for-sale investments (Note 13)
Retained earnings (Note 19)
Philippine depository receipts convertible to common shares
(Note 19)
Minority Interests (Notes 4 and 11)
Total Equity
December 31
2007
P
=779,583
725,276
(193,351)
23,838
14,121,334
=779,583
P
725,276
(293,460)
35,599
13,381,026
(376,324)
15,080,356
67,046
15,147,402
(323,967)
14,304,057
45,894
14,349,951
P
=32,835,672
=26,128,815
P
See accompanying Notes to Consolidated Financial Statements.
*SGVMC211620*
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Amounts)
Years Ended December 31
2007
2006
2008
REVENUE
Airtime (Note 20)
Sale of services (Notes 20 and 28)
Sale of goods
License fees (Note 28)
P
=13,510,986
8,283,372
512,501
–
22,306,859
=13,604,591
P
5,298,481
489,159
548,213
19,940,444
=10,662,767
P
4,711,550
529,108
1,116,978
17,020,403
6,928,390
6,290,973
5,360,298
6,492,806
5,134,682
5,714,518
4,225,024
3,002,596
2,225,407
2,656,359
722,117
(90,120)
26,133
2,700,857
581,859
(111,866)
(197,553)
2,284,314
866,972
(161,905)
(171,681)
(5,064)
(868,729)
19,885,083
(11,994)
(133,794)
17,683,209
51,853
(333,733)
15,610,427
INCOME BEFORE INCOME TAX
2,421,776
2,257,235
1,409,976
PROVISION FOR INCOME TAX (Note 26)
1,032,075
986,470
667,432
P
=1,389,701
=1,270,765
P
=742,544
P
P
=1,383,464
6,237
P
=1,389,701
=1,266,744
P
4,021
=1,270,765
P
=740,552
P
1,992
=742,544
P
P
=1.803
=1.648
P
=0.962
P
EXPENSES (INCOME)
General and administrative expenses
(Notes 10, 12, 13, 20, 21, 27 and 28)
Production costs (Notes 10, 12, 20, 22, 27 and 28)
Cost of sales and services
(Notes 10, 12, 20, 23, 27 and 28)
Agency commissions, incentives and co-producers’
share (Note 24)
Finance costs (Notes 16, 25 and 30)
Interest income (Notes 4, 6, 9, 20 and 25)
Foreign exchange loss (gain) - net
Equity in net losses (earnings) of associates
(Notes 9 and 13)
Other income - net (Notes 9, 16, 20, 25, 28 and 30)
NET INCOME
Attributable to:
Equity holders of the Parent Company (Note 31)
Minority interests
Basic/Diluted Earnings per Share attributable
to Equity Holders of the Parent Company
(Note 31)
See accompanying Notes to Consolidated Financial Statements.
*SGVMC211620*
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2008
(Amounts in Thousands)
At January 1, 2008
Translation adjustments during
the year
Unrealized fair value loss on AFS
investments (Note 13)
Total income and expense
for the year recognized
directly in equity
Net income for the year
Total income and expense
for the year
Increase in minority interests
(Note 4)
Cash dividends declared (Note 19)
Acquisitions of PDRs (Note 19)
At December 31, 2008
At January 1, 2007
Cash flow hedges (Note 30)
Translation adjustments during
the year
Amortization of initial CTA (Note
30)
Unrealized fair value gain on AFS
investments (Note 13)
Total income and expense
for the year recognized
directly in equity
Net income for the year
Total income and expense
for the year
Decrease in minority interests
(Note 11)
Cash dividends declared (Note 19)
Acquisitions of PDRs (Note 19)
Issuances of PDRs (Note 19)
At December 31, 2007
Capital Stock
(Note 19)
P
=779,583
Additional
Paid-in
Capital
P
=725,276
Attributed to Equity Holders of the Parent Company
Cumulative Unrealized Gain
Philippine
Translation
on AvailableReceipts (PDRs)
Adjustments
for-Sale (AFS)
Retained Earnings
Convertible to
(CTA)
Investments
Unappropriated Common Shares
(Note 13)
(Note 19)
(Note 30)
(Note
19)
Appropriated
P
=35,599
P
=8,300,000
P
=5,081,026
(P
=323,967)
(P
=293,460)
–
Minority Interests
(Notes 4 and 11)
Total Equity
Total
P
=14,304,057
P
=45,894
P
=14,349,951
–
–
100,109
–
–
–
100,109
–
100,109
–
–
–
(11,761)
–
–
–
(11,761)
–
(11,761)
–
–
–
–
–
–
100,109
–
(11,761)
–
–
–
–
–
1,383,464
–
–
–
100,109
(11,761)
1,383,464
88,348
1,383,464
–
6,237
88,348
1,389,701
1,471,812
6,237
1,478,049
–
–
–
P
=779,583
–
–
–
P
=725,276
–
–
–
(P
=193,351)
–
–
–
P
=23,838
–
–
–
P
=8,300,000
–
(643,156)
–
P
=5,821,334
–
–
(52,357)
(P
=376,324)
–
(643,156)
(52,357)
P
=15,080,356
14,915
–
–
P
=67,046
14,915
(643,156)
(52,357)
P
=15,147,402
=779,583
P
–
=706,047
P
–
(P
=179,328)
214,883
=21,105
P
–
=8,300,000
P
–
=4,165,094
P
–
(P
=177,621)
–
=13,614,880
P
214,883
=63,007
P
–
=13,677,887
P
214,883
–
–
(275,118)
–
–
–
–
(275,118)
–
(275,118)
–
–
(53,897)
–
–
–
–
(53,897)
–
(53,897)
–
–
14,494
–
–
–
14,494
–
14,494
–
–
–
–
(114,132)
–
14,494
–
–
–
–
1,266,744
–
–
(99,638)
1,266,744
–
4,021
(99,638)
1,270,765
–
–
(114,132)
14,494
–
1,266,744
–
1,167,106
4,021
1,171,127
–
–
–
–
=779,583
P
–
–
–
19,229
=725,276
P
–
–
–
–
(P
=293,460)
–
–
–
–
=35,599
P
–
–
–
–
=8,300,000
P
–
–
(350,812)
–
–
=5,081,026
P
–
–
(182,258)
35,912
(P
=323,967)
–
(350,812)
(182,258)
55,141
=14,304,057
P
(21,134)
–
–
–
=45,894
P
(21,134)
(350,812)
(182,258)
55,141
=14,349,951
P
*SGVMC211620*
-2-
Cash flow hedges (Note 30)
Translation adjustments during
the year
Amortization of initial CTA
(Note 30)
Unrealized fair value gain on AFS
investments (Note 13)
Total income and expense
for the year recognized
directly in equity
Net income for the year
Total income and expense
for the year
Issuance of PDRs (Note 19)
At December 31, 2006
Capital Stock
(Note 19)
–
Additional
Paid-in
Capital
–
Attributed to Equity Holders of the Parent Company
Cumulative Unrealized Gain
Philippine
Translation
on AvailableReceipts (PDRs)
Adjustments
for-Sale (AFS)
Retained Earnings
Convertible to
(CTA)
Investments
Unappropriated Common Shares
(Note 30)
(Note 13)
(Note 19)
(Note 19)
Appropriated
(162,281)
–
–
–
–
–
–
(138,913)
–
–
(31,328)
–
–
–
–
–
–
–
–
=779,583
P
–
–
=706,047
P
Minority Interests
(Notes 4 and 11)
Total Equity
Total
(162,281)
–
(162,281)
–
–
–
–
(138,913)
–
(138,913)
–
–
–
–
(31,328)
–
(31,328)
21,105
–
–
–
21,105
–
21,105
(332,522)
–
21,105
–
–
–
–
740,552
–
(311,417)
740,552
(332,522)
–
(P
=179,328)
21,105
–
=21,105
P
–
–
=8,300,000
P
740,552
–
=4,165,094
P
–
–
1,992
(311,417)
742,544
–
22,379
(P
=177,621)
429,135
22,379
=13,614,880
P
1,992
–
=63,007
P
431,127
22,379
=13,677,887
P
See accompanying Notes to Consolidated Financial Statements.
*SGVMC211620*
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
Years Ended December 31
2007
2006
2008
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Note 10)
Amortization of:
Program rights and other intangibles
(Note 12)
Deferred charges (Note 13)
Debt issue costs (Note 25)
Interest expense (Note 25)
Interest income (Note 25)
Gain on derecognition of debt (Note 25)
Equity in net losses (earnings) of associates
Net unrealized foreign exchange loss (gain)
Gain on sale of property and equipment
Loss on acquisition and exchange of debt
(Notes 25)
Mark-to-market loss - net (Note 25)
Operating income before working capital changes
Provisions for:
Pension expense (Note 27)
Doubtful accounts (Note 21)
Other employee benefits
Decline in value of inventory
Decrease (increase) in:
Trade and other receivables
Other current assets
Decrease in:
Trade and other payables
Obligations for program rights
Payments of accrued pension obligation (Note 27)
Net cash generated from operations
Income tax paid
Net cash provided by operating activities
P
=2,421,776
=2,257,235
P
=1,409,976
P
1,841,737
1,210,190
1,170,365
1,409,964
30,074
23,687
672,558
(90,120)
–
(5,064)
4,653
(3,498)
1,270,487
40,267
102,101
405,108
(111,866)
16,221
(11,994)
(108,672)
–
1,094,167
26,683
83,860
631,816
(161,905)
–
51,853
(199,659)
–
(309,107)
216
5,996,876
(205,663)
348,887
5,212,301
–
114,974
4,222,130
261,986
194,541
44,188
21,591
195,282
102,401
44,653
14,830
75,437
94,060
43,750
1,200
(592,310)
146,302
(177,806)
242,455
284,508
(471,590)
(388,291)
(385,194)
(98,030)
5,201,659
(1,000,391)
4,201,268
(694,371)
(284,268)
(38,218)
4,617,259
(921,480)
3,695,779
(202,298)
(400,220)
(34,156)
3,612,821
(257,417)
3,355,404
(Forward)
*SGVMC211620*
-2Years Ended December 31
2007
2006
2008
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to:
Property and equipment (Notes 10 and 32)
Program rights and other intangible assets
(Notes 12 and 32)
Cash acquired from business combination (Note 4)
Acquisition of minority interests (Note 4)
Decrease (increase) in:
Other noncurrent assets
Long-term receivables from related parties
Proceeds from sale of property and equipment
Interest received
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Long-term debt
Bank loans
Payments of:
Dividends
Interest
Bank loans
Long-term debt
Capital lease
Decrease in minority interests
Acquisition of Philippine depository receipts (Note 19)
Payments for the termination of cross currency swaps
and interest rate swaps (Note 30)
Net cash used in financing activities
(P
=2,129,404)
(P
=707,699)
(P
=491,566)
(954,060)
836,657
(1,354,227)
(1,073,186)
–
(35,904)
(591,196)
–
–
(864,184)
–
75,796
70,838
(4,318,584)
267,320
(1,251,712)
33,325
111,882
(2,655,974)
(33,079)
–
2,662
46,483
(1,066,696)
2,049,896
706,250
2,895,498
400,000
–
473,979
(347,327)
(452,656)
(277,859)
(2,280,487)
(152,520)
(5,290)
(182,258)
–
(598,900)
(355,398)
(1,798,223)
(114,597)
–
–
–
785,281
(393,480)
(796,379)
–
(2,393,139)
(289,489)
240,520
14,533
378,476
483,946
(89,898)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR
2,145,778
1,661,832
1,751,730
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 6)
P
=2,524,254
=2,145,778
P
=1,661,832
P
EFFECTS OF EXCHANGE RATE CHANGES
AND TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
(627,497)
(580,486)
(387,500)
(307,869)
(203,161)
188,005
(52,357)
See accompanying Notes to Consolidated Financial Statements.
*SGVMC211620*
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands Unless Otherwise Specified)
1. Corporate Information
ABS-CBN Broadcasting Corporation (“ABS-CBN” or “Parent Company”) is incorporated in the
Philippines. The Parent Company’s core business is television and radio broadcasting. Its
subsidiaries and associates are involved in the following related businesses: cable and direct-tohome (DTH) television distribution and telecommunications services overseas, movie production,
audio recording and distribution, video/audio post production, and film distribution. Other
activities of the subsidiaries include merchandising, internet and mobile services and publishing.
The Parent Company is 58%-owned by Lopez, Inc., a Philippine entity, the ultimate parent
company.
The common shares of ABS-CBN were listed beginning July 8, 1992 and have since been traded
in the Philippine Stock Exchange (PSE).
The registered office address of the Parent Company is Mother Ignacia Street corner Sgt. Esguerra
Avenue, Quezon City.
The accompanying consolidated financial statements were approved and authorized for issue by
the Board of Directors (BOD) on March 25, 2009, as reviewed and recommended for approval by
the Audit Committee on the same date.
2. 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.
*SGVMC211620*
-2Changes 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 heldto-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 changed resulted in the increase and
decrease in the “Goodwill” and “Excess of acquisition cost over the carrying value of minority
*SGVMC211620*
-3interests”, a separate component of equity, respectively, by P
=20 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 as of December 31 each year. 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 December 31,
2008, 2007 and 2006:
Company
ABS-CBN Global Ltd.
(ABS-CBN Global) (a) (l)
ABS-CBN International (b) (l)
Place of
Incorporation
Cayman Islands
California, USA
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)
E-Money Plus, Inc. (b)
Victoria, Australia
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)
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
2007
2006
2008
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
–
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
Philippine Peso
100.0
100.0
100.0
Philippines
Services - money
remittance
Educational/training
Philippine Peso
100.0
100.0
100.0
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
75.0
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.
Philippines
Content development and
programming services
Services - film
distribution
Audio and video
production and
distribution
Music publishing
Philippine Peso
100.0
100.0
100.0
Japan
Dubai, UAE
Dubai, UAE
Philippines
Philippines
Philippines
*SGVMC211620*
-4-
Company
Studio 23, Inc. (Studio 23)
Place of
Incorporation
Philippines
TV Food Chefs, Inc.
Philippines
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)
Pacific CATV, Inc. (Pacific) (j)
Cebu Cable Television, Inc. (j)
Davao Cableworld Network,
Inc. (j)
Philippines
Principal Activities
Content development and
programming services
Services - restaurant and
food
Services - post production
Functional
Currency
Philippine Peso
Ownership Interest
2007
2006
2008
100.0 100.0 100.0
Philippine Peso
100.0
100.0
100.0
Philippine Peso
98.9
98.9
98.9
Philippines
Cable television services
Philippine Peso
65.3
–
–
Philippines
Cable television services
Philippine Peso
65.3
–
–
Philippines
Philippines
Cable television services
Cable television services
Philippine Peso
Philippine Peso
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Philippines
Cable television services
Philippine Peso
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
–
–
–
–
–
–
–
–
–
–
Philippines
Cable television services
Philippine Peso
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
–
–
–
–
–
–
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
59.4
59.4
59.4
41.8
39.2
–
–
–
–
–
–
–
–
–
–
(a)
With a branch in the Philippines
Through ABS-CBN Global
(c)
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
(b)
The financial statements of the subsidiaries are prepared for the same reporting year 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.
*SGVMC211620*
-5Subsidiaries 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 4).
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.
*SGVMC211620*
-6Where 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 year. 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.
*SGVMC211620*
-7Initial 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;
*SGVMC211620*
-8§
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 (see Note 30).
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 (see Note 6), trade and other
receivables (see Note 7), and long-term receivables from related parties (see Note 9).
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 December 31, 2008 and 2007.
*SGVMC211620*
-9AFS 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
(see Note 13).
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 (see Note 15), interestbearing loans and borrowings (see Note 16), obligations for program rights (see Note 17) and
customers’ deposits (see Note 18).
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.
*SGVMC211620*
- 10 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 (see Note 30). There
are no outstanding cash flow hedges as of December 31, 2008.
The Company has no derivatives that are designated or accounted for as fair value hedges as of
December 31, 2008 and 2007.
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.
*SGVMC211620*
- 11 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 write-off
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.
*SGVMC211620*
- 12 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 ‘pass-through’
arrangement; or
§
the Company has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control of the
asset.
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.
*SGVMC211620*
- 13 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.
*SGVMC211620*
- 14 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 yearend. 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:
Intangible Asset
Useful Lives
Program Rights
Finite (license term
or economic life,
whichever is
shorter)
Amortization
Method Used
Impairment
Testing/
Recoverable
Amount Testing
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,
If the remaining
expected benefit
period is shorter
than the
Company’s initial
estimates, the
Company
accelerates
amortization of the
Current and
Noncurrent
Portion
Based on the
estimated year of
usage except CPI,
which is based on
license term.
*SGVMC211620*
- 15 -
Intangible Asset
Useful Lives
Amortization
Method Used
Impairment
Testing/
Recoverable
Amount Testing
whichever is
shorter.
purchase price or
license fee.
Current and
Noncurrent
Portion
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.
Production and
Distribution
Business - Middle
East
Finite - 25 years
Amortized on a
straight-line basis
over the period of
25 years.
If the remaining
expected benefit
period is shorter
than the
Company’s initial
estimates, the
Company
accelerates
amortization of the
cost.
Noncurrent.
*SGVMC211620*
- 16 Customer relationships acquired in a business combination (see Note 4) is amortized on a straightline basis over the estimated customer service life ranging from three to 15 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 owner-occupation 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.
*SGVMC211620*
- 17 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:
Goodwil 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.
*SGVMC211620*
- 18 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 as discussed in Note 28.
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.
*SGVMC211620*
- 19 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.
License fees earned from DirecTV is recognized upon migration of the DTH subscribers of
ABS-CBN International to DirecTV. The additional license fees for each migrated subscriber that
will remain for 14 consecutive months from the date of activation will be recognized on the 14th
month (see Note 28).
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.
*SGVMC211620*
- 20 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.
*SGVMC211620*
- 21 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.
*SGVMC211620*
- 22 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 carryforward 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 carryforward 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.
*SGVMC211620*
- 23 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.
*SGVMC211620*
- 24 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 5, 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.
*SGVMC211620*
- 25 §
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 post-acquisition
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.
*SGVMC211620*
- 26 §
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.
*SGVMC211620*
- 27 §
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.
*SGVMC211620*
- 28 §
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.
*SGVMC211620*
- 29 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.
3. Management’s Use of Judgments and Estimates
The Company’s consolidated financial statements prepared under PFRS require management to
make judgments and estimates that affect amounts reported in the consolidated financial
statements and related notes. Future events may occur which will cause the judgments and
assumptions used in arriving at the estimates to change. The effects of any change in judgments
and estimates are reflected in the consolidated financial statements as they become reasonably
determinable.
*SGVMC211620*
- 30 Judgments and estimates are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Judgments
In the process of applying the Company’s accounting policies, management has made the following
judgments, apart from those involving estimations, which have the most significant effect on the
amounts recognized in the consolidated financial statements:
Determination of Functional Currency. The Parent Company and all other subsidiaries and
associates, except for foreign subsidiaries, have determined that their functional currency is the
Philippine Peso. The Philippine Peso is the currency of the primary economic environment in which
the Parent Company and all other subsidiaries and associates, except for foreign subsidiaries, operate.
The Philippine Peso is also the currency that mainly influences the sale of goods and services as well
as the costs of selling such goods and providing such services.
The foreign subsidiaries have determined the USD, AUD, CAD, GBP or JPY to be their functional
currency. Thus, the accounts of foreign subsidiaries were translated to Philippine Peso for purposes
of consolidation to the ABS-CBN Group’s accounts.
Leases. The evaluation whether an arrangement contains a lease is based on its substance. An
arrangement is, or contains a lease when the fulfillment of the arrangement depends on a specific
asset or assets and the arrangement conveys the right to use the asset.
The Company has entered into operating lease arrangements as a lessor and as a lessee. The
Company, as a lessee, has determined that the lessor retains substantial risks and benefits of
ownership of these properties, while as a lessor, the Company retains substantially all the risks and
benefits of ownership of the assets adjudged due to the following circumstances:
§
the lease term is only for a limited number of years;
§
lease is renewable but there is no purchase option at a significant discount as of date; and
§
the lease payments represents solely compensation for use of asset rather than for purchase of the
assets.
The Company has also entered into finance lease agreements covering certain property and
equipment. The Company has determined that it bears substantially all the risks and benefits
incidental to ownership of said properties adjusted due to:
§
the lease term represents substantially the full economic life in years of the asset under lease;
§
lease is renewable and there is currently a purchase option at a significant discount which the
Company is likely to exercise; and
§
the lease payments represents amortization for purchase of the assets.
*SGVMC211620*
- 31 The carrying amount of property and equipment under finance lease amounted to P
=220 million and
=310 million as of December 31, 2008 and 2007, respectively (see Note 10).
P
Financial Assets not Quoted in an Active Market. The Company classifies financial assets by
evaluating, among others, whether the asset is quoted or not in an active market. Included in the
evaluation on whether a financial asset is quoted in an active market is the determination on whether
quoted prices are readily and regularly available, and whether those prices represent actual and
regularly occurring market transactions on an arm’s-length basis.
Estimates
The key assumptions concerning future and other key sources of estimation at the balance sheet date,
that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
Revenue Recognition. The Company’s telecommunications revenue recognition policies require the
use of estimates and assumptions that may affect the reported amounts of revenue and receivables.
Revenue is stated net of the share of the other telecommunications carriers, but the definite amounts
of the net share are determined subsequent to the reporting date. Thus, the Company initially
estimates the amounts based on history of sharing.
The difference between the amount initially recognized and actual settlement or actual billing is
recognized in the next period. However, there is no assurance that such use of estimates will not
result in material adjustments in future periods.
Fair Value of Financial Instruments. PFRS requires that certain financial assets and liabilities
(including derivative instruments) be carried at fair value, which requires the use of accounting
estimates. The fair values of financial instruments of short-term nature and those that are subjected to
monthly repricing are estimated to approximate their carrying amounts. For certain financial
instruments which are not quoted in an active market, fair values are assessed to be the present value
of estimated future cash flows discounted at risk-free rates applicable to the financial instrument.
The fair values of financial assets and liabilities are set out in Note 30.
Allowance for Doubtful Accounts. The Company reviews its loans and receivables at each reporting
date to assess whether an allowance for impairment should be recorded in the consolidated statement
of income. In particular, judgment by management is required in the estimation of the amount and
timing of future cash flows when determining the level of allowance required. Such estimates are
based on assumptions about a number of factors and actual results may differ, resulting in future
changes in the allowance.
The Company evaluates specific balances where management has information that certain amounts
may not be collectible. In these cases, the Company uses judgment, based on available facts and
circumstances, and a review of the factors that affect the collectibility of the accounts including, but
not limited to, the age and status of the receivables, collection experience and past loss experience.
The review is made by management on a continuing basis to identify accounts to be provided with
allowance. These specific reserves are re-evaluated and adjusted as additional information received
affects the amount estimated. In addition to specific allowance against individually significant
receivables, the Company also makes a collective impairment allowance against exposures which,
although not specifically identified as requiring a specific allowance, have a greater risk of default
*SGVMC211620*
- 32 than when originally granted. This collective allowance is based on historical default experience,
current economic trends, changes in customer payment terms and other factors that may affect the
Company’s ability to collect payments. The amount and timing of recorded expenses for any period
would differ if the Company made different judgments or utilized different methodologies. An
increase in allowance for doubtful accounts would increase the recorded operating expenses and
decrease current and noncurrent assets.
The allowance is established by charges to income in the form of provision for doubtful accounts.
Provision for doubtful accounts amounted to P
=195 million in 2008, P
=102 million in 2007 and
=94 million in 2006 (see Note 21). Trade and other receivables, net of allowance for doubtful
P
accounts, amounted to P
=5,040 million and P
=4,919 million as of December 31, 2008 and 2007,
respectively (see Note 7). Allowance for doubtful accounts as of December 31, 2008 and 2007
amounted to P
=440 million and =
P319 million, respectively (see Note 7). Long-term receivables
from related parties amounted to P
=3,893 million as of December 31, 2007 (see Note 9).
Net Realizable Value of Inventories. Inventories are carried at net realizable value whenever net
realizable value of inventories becomes lower than cost due to damage, physical deterioration,
obsolescence, changes in price levels or other causes. The allowance account is reviewed on a
regular basis to reflect the accurate valuation in the financial records. Inventory items identified to
be obsolete and unusable are written off and charged as expense in the year such losses are
identified.
Provision for decline in value of inventory amounted to P
=22 million in 2008, P
=15 million in 2007
and P
=1 million in 2006. Inventories at net realizable value amounted to P
=226 million and
=170 million as of December 31, 2008 and 2007, respectively (see Note 8).
P
Estimated Useful Lives of Property and Equipment and Intangible Assets. The useful life of each
item of the Company’s property and equipment and intangible assets with finite life is estimated
based on the period over which the asset is expected to be available for use. Estimation for property
and equipment is based on a collective assessment of industry practice, internal technical evaluation
and experience with similar assets while for intangible assets with finite life, estimated life is based on
the life of agreement covering such intangibles. The estimated useful life of each asset is reviewed
periodically and updated if expectations differ from previous estimates due to physical wear and tear,
technical or commercial obsolescence and legal or other limits on the use of these assets. However, it
is possible that future results of operations could be materially affected by changes in the estimates
brought about by changes in the aforementioned factors. The amounts and timing of recording the
depreciation and amortization for any year, with regard to the property and equipment and intangible
assets would be affected by changes in these factors and circumstances. A reduction in the estimated
useful life of any property and equipment or intangible assets would increase the recorded expenses
and decrease noncurrent assets.
*SGVMC211620*
- 33 There is no change in the estimated useful lives of property and equipment and intangible assets
during the year. The carrying values of property and equipment and intangible assets with finite life
are as follows (see Notes 10 and 12):
Property and equipment
Program rights
Customer relationships
Production and distribution business - Middle East
Movie in-process
Story, music and publication rights
Video rights and record master
2008
P
=14,735,554
2,408,864
538,413
108,964
86,962
5,462
2,099
2007
=9,467,115
P
2,024,563
–
99,750
73,648
5,236
8,369
Impairment of AFS Investments. The Company treats AFS investments as impaired when there has
been a significant or prolonged decline in the fair value below its cost or where there is objective
evidence that impairment exists. The determination of what is “significant” or “prolonged” requires
judgment. The Company treats ‘significant’ generally as 20% or more of the original cost of
investment, and “prolonged” as greater than 12 months. In addition, the Company evaluates other
factors, including normal volatility in share price for quoted equities and the future cash flows and
discount factors for unquoted equities.
As of December 31, 2008 and 2007, the carrying value of AFS investments amounted to =
P371 million
and =
P77 million, respectively (see Note 13).
Asset Retirement Obligation. Determining asset retirement obligation requires estimation of the costs
of dismantling installations and restoring leased properties to their original condition. While it is
believed that the assumptions used in the estimation of such costs are reasonable, significant changes
in these assumptions may materially affect the recorded expense or obligation in future periods.
Asset retirement obligation amounted to P
=18 million and P
=15 million as of December 31, 2008 and
2007, respectively (see Note 18).
Recognition of Deferred Tax Assets. The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit
will be available to allow all or part of the deferred tax assets to be utilized. However, there is no
assurance that sufficient taxable profit will be generated to allow certain deferred tax assets to be
utilized.
Net recognized deferred tax assets as of December 31, 2008 and 2007 amounted to P
=603 million
and P
=184 million, respectively (see Note 26). Unrecognized deferred tax assets of subsidiaries as
of December 31, 2008 and 2007 amounted to P
=838 million and P
=203 million, respectively.
Present Value of Pension Obligation. The cost of defined benefit obligation is determined using
actuarial valuations. The actuarial valuation involves making assumptions about discount rates,
expected rates of return on plan assets, and future salary increases. Due to the long-term nature of
these plans, such estimates are subject to uncertainty.
*SGVMC211620*
- 34 The expected rate of return on plan assets was based on average historical premium on plan assets.
The assumed discount rates were determined using the market yields on Philippine bonds with
terms consistent with the expected employee benefit payout as of balance sheet date (see Note 27).
As of December 31, 2008 and 2007, the present value of the pension obligation of the Company
amounted to P
=569 million and =
P860 million, respectively (see Note 27). Unrecognized net
actuarial gain amounted to P
=579 million as of December 31, 2008 and unrecognized net actuarial
loss amounted to P
=195 million as of December 31, 2007 (see Note 27).
Impairment of Nonfinancial Assets. The Company assesses impairment on assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The
factors that the Company considers important which could trigger an impairment review include the
following:
§
significant underperformance relative to expected historical or projected future operating results;
§
significant changes in the manner of use of the acquired assets or the strategy for overall business;
and
§
significant negative industry or economic trends.
The Company recognizes an impairment loss whenever the carrying amount of an asset exceeds its
recoverable amount. The recoverable amount is computed using the value in use approach.
Recoverable amounts are estimated for individual assets or, if it is not possible, for the
cash-generating unit to which the asset belongs.
The carrying values of noncurrent assets that are subjected to impairment testing when impairment
indicators are present are as follows (see Notes 10, 12 and 13):
Property and equipment - net
Tax credits
Program rights
Customer relationships
Production and distribution business - Middle East
Investments in associates
2008
P
=14,735,554
2,681,185
1,055,011
538,413
108,964
43,301
2007
=9,467,115
P
1,706,733
1,095,271
–
99,750
43,759
In 2008, Sky Cable provided an impairment loss for tax credits amounting to =
P99.7 million
(see Note 13). No impairment loss for noncurrent assets was recognized in 2007 and 2006.
Impairment of Goodwill and Cable Channels. The Company performs impairment review on
goodwill and cable channels annually or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired. This requires an estimation of the value in use of
the cash-generating units to which goodwill is allocated. Estimating the value in use requires the
Company to make an estimate of the expected future cash flows from the cash-generating units and to
make use of a suitable discount rate to calculate the present value of those future cash flows.
*SGVMC211620*
- 35 The impairment on the goodwill and cable channels is determined by comparing: (a) the carrying
amount of the cash-generating unit; and (b) the present value of the annual projected cash flows for
five years and the present value of the terminal value computed under the discounted cash flow
method. The key assumptions used in the impairment test of goodwill and cable channels are
discussed in Note 14 to the consolidated financial statements.
The carrying amount of goodwill amounted to =
P1,906 million and P
=20 million (as adjusted) as of
December 31, 2008 and 2007, respectively (see Note 11). The carrying amount of the cable channels
amounted to P
=460 million as of December 31, 2008 and 2007 (see Note 12).
Provision for impairment loss of goodwill amounted to =
P23 million in 2007. No impairment loss was
recognized in 2008 and 2006.
Contingencies. The Company is currently involved in various legal proceedings. The Company’s
estimate of the probable costs for the resolution of these claims has been developed in consultation
with outside counsel handling defense in these matters and is based upon an analysis of potential
results. The Company currently does not believe these proceedings will have a material adverse
effect on its consolidated financial position and results of operations. It is possible, however, that
future results of operations could be materially affected by changes in the estimates or in the
effectiveness of strategies relating to these proceedings (see Note 34).
4. 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 P
=459 million and accrued interest receivable of P
=459 million. As
December 31, 2007, the Note, including advances and interest, amounted to P
=2,499 million
(see Note 9).
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 P
=115 million in 2006.
*SGVMC211620*
- 36 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 P
=2,499 million, including
advances and interest of P
=918 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 March 25, 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.
*SGVMC211620*
- 37 The conversion of Note is considered as a business combination and accounted for using
purchase method. Accordingly, the consideration of P
=2,499 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
Carrying Value
=836,657
P
=836,657
P
393,921
393,921
603,186
603,186
4,959,816
3,547,717
607,166
–
1,378,030
1,469,630
(2,562,550)
(2,562,550)
(2,919,270)
(2,919,270)
(674,582)
(674,582)
(614,965)
–
(213,451)
(213,451)
1,793,958
=481,258
P
65.3%
1,171,275
1,327,696
=2,498,971
P
There is no cash outflow on the acquisition.
From the date of conversion of Note, Sky Cable has contributed P
=29 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
=25,868 million.
P
On February 19, 2009, the BOD of ABS-CBN approved the conversion of P
=1,798 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
=1,798 million loan to Sky Vision. As a consideration for the assignment, Sky Vision agreed
P
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.
*SGVMC211620*
- 38 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 P
=1,248 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 P
=558 million, is
recognized as goodwill (see Note 11).
5. 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 4), 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, it operates 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 in other locations
(which include Middle East, Europe, Australia, Canada and Japan), 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. The transfers are accounted for at competitive
market prices charged to unrelated customers for similar services. Such transfers are eliminated
upon consolidation.
*SGVMC211620*
- 39 Business Segment Data
The following tables present revenue and income information and certain asset and liability information regarding business segments for each of the three years in the period ended December 31, 2008:
2008
Revenue
External sales
Inter-segment sales
Total revenue
Results
Segment results
Finance costs
Foreign exchange gain (loss)
Interest income
Equity in net earnings (losses) of
associates
Other income - net
Income tax
Net income
P
= 12,672,124
45,589
P
= 12,717,713
Broadcasting
2007
=13,536,874
P
74,842
=13,611,716
P
2006
2008
=11,168,763
P
217,032
=11,385,795
P
P
= 8,053,504
204,587
P
= 8,258,091
Cable and Satellite
2007
=4,736,012
P
128,082
=4,864,094
P
2006
2008
=4,455,323
P
103,371
=4,558,694
P
P
= 1,581,231
112,643
P
= 1,693,874
Other Businesses
2007
=1,667,558
P
168,611
=1,836,169
P
2006
=1,396,317
P
236,122
=1,632,439
P
2008
Eliminations
2007
2006
P
=–
(362,819)
(P
=362,819)
=–
P
(371,535)
(P
=371,535)
=–
P
(556,525)
(P
=556,525)
2008
P
= 22,306,859
–
P
= 22,306,859
Consolidated
2007
=19,940,444
P
–
=19,940,444
P
2006
=17,020,403
P
–
=17,020,403
P
P
= 1,398,536
(617,827)
(78,122)
192,013
=1,512,804
P
(589,141)
174,659
71,318
P815,000
=
(826,957)
119,151
152,141
P
= 140,729
(209,627)
(61,712)
33,433
=191,326
P
(24,665)
(3,853)
71,504
P53,128
=
(52,400)
35,305
5,159
P
= 116,313
(2,170)
113,701
3,026
=194,545
P
(2,655)
26,747
3,645
=96,560
P
(177)
17,225
4,605
P
= 550,535
107,507
–
(138,352)
=485,212
P
34,601
–
(34,601)
=696,794
P
157,536
–
–
P
= 2,206,113
(722,117)
(26,133)
90,120
=2,383,887
P
(581,859)
197,553
111,866
=1,661,482
P
(866,972)
171,681
161,905
–
694,405
(627,627)
P
= 961,378
–
503,321
(596,303)
=1,076,658
P
–
527,662
(375,273)
=411,724
P
5,064
301,722
(184,038)
P
= 25,571
11,994
63,314
(245,001)
=64,619
P
(51,853)
340,660
(191,643)
=138,356
P
–
100,427
(138,473)
P
= 192,824
–
89,328
(120,299)
=191,311
P
–
53,748
(75,365)
=96,596
P
–
(227,825)
(81,937)
P
= 209,928
–
(522,169)
(24,867)
(P
=61,824)
–
(733,311)
(25,151)
=95,868
P
5,064
868,729
(1,032,075)
P
= 1,389,701
11,994
133,794
(986,470)
=1,270,765
P
(51,853)
333,733
(667,432)
=742,544
P
Assets and Liabilities
Investments in associates - at
equity
Segment assets
P
= 6,689,619
20,816,075
P3,556,588
=
20,259,428
P3,580,822
=
18,543,208
P
=–
13,054,997
=–
P
4,703,501
=–
P
4,417,299
P
=–
2,199,622
=–
P
2,715,106
=–
P
4,631,595
(P
=6,646,318)
(3,881,514)
(P
=3,512,829)
(1,777,331)
(P
=3,536,589)
(4,036,600)
P
= 43,301
32,189,180
=43,759
P
25,900,704
=44,233
P
23,555,502
Segment liabilities
P
= 4,787,999
=4,294,474
P
=4,176,947
P
5,403,789
=2,068,630
P
=1,623,141
P
P
= 806,743
=1,680,151
P
=3,908,614
P
(P
=2,657,265)
(P
=1,780,195)
(P
=4,059,165)
P
= 8,341,266
=6,263,060
P
=5,649,537
P
Other Segment Information
Capital expenditures:
Property and equipment
Intangible assets
Depreciation and amortization
Noncash expenses other than
depreciation and amortization
P
= 1,380,196
1,183,485
1,909,392
=709,836
P
906,657
1,849,684
=442,914
P
646,632
1,705,722
P
= 775,181
370,069
1,125,754
= 259,621
P
667,484
354,925
=119,913
P
124,171
269,825
P
= 70,519
173,739
216,732
P65,247
=
169,210
276,068
P47,241
=
214,129
288,985
P
=–
–
(177)
217,850
333,364
196,649
295,033
122,945
83,590
18,818
33,856
11,539
–
=–
P
–
–
=–
P
–
–
P
= 2,225,896
1,727,293
3,251,701
=1,034,704
P
1,743,351
2,480,677
=610,068
P
984,932
2,264,532
–
–
531,701
490,165
291,778
Geographical Segment Data
The following tables present revenue and expenditure and certain asset information regarding geographical segments for each of the three years in the period ended December 31, 2008:
2008
Revenue
External sales
Inter-segment sales
Total revenue
Other Segment Information
Segment assets
Capital expenditures:
Property and equipment
Intangible assets
Philippines
2007
2006
2008
United States
2007
2006
2008
Others
2007
2006
=1,397,133
P
–
=1,397,133
P
=1,120,521
P
–
=1,120,521
P
P
=–
(362,819)
(P
=362,819)
=–
P
(371,535)
(P
=371,535)
=–
P
(556,525)
(P
=556,525)
P
= 22,306,859
–
P
= 22,306,859
=19,940,444
P
–
=19,940,444
P
=17,020,403
P
–
=17,020,403
P
(P
= 3,881,514)
(P
=5,290,159)
(P
=7,573,189)
P
= 32,189,180
=25,900,704
P
=23,555,502
P
2,225,896
1,727,293
1,034,704
1,743,351
610,068
984,932
P
= 17,785,396
362,819
P
= 18,148,215
=15,939,870
P
371,535
=16,311,405
P
=13,084,108
P
556,525
=13,640,633
P
P
= 2,613,171
–
P
= 2,613,171
=2,603,441
P
–
=2,603,441
P
=2,815,774
P
–
=2,815,774
P
P
= 1,908,292
–
P
= 1,908,292
P
= 31,990,281
=28,677,136
P
=28,108,774
P
P
= 3,154,630
=2,350,836
P
=2,659,344
P
P
= 925,783
=162,891
P
=360,573
P
2,035,862
1,727,293
825,825
1,743,351
560,225
984,932
73,380
–
132,357
–
29,728
–
116,654
–
76,522
–
20,115
–
2008
–
–
Eliminations
2007
–
–
2006
–
–
2008
Consolidated
2007
2006
*SGVMC211620*
- 40 -
6. Cash and Cash Equivalents
This account consists of the following:
Cash on hand and in banks
Cash equivalents
2008
P
=1,396,794
1,127,460
P
=2,524,254
2007
=1,552,986
P
592,792
=2,145,778
P
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are short-term
placements, which are made for varying periods of up to three months depending on the
immediate cash requirements of the Company, and earn interest at the respective short-term
placement rates.
Interest earned from cash and cash equivalents amounted to P
=60 million, P
=77 million and
=46 million in 2008, 2007 and 2006, respectively (see Note 25).
P
7. Trade and Other Receivables
This account consists of the following:
Trade:
Airtime
Subscriptions
Others
Advances to suppliers
Advances to employees and talents
Due from related parties (see Note 20)
Others
Less allowance for doubtful accounts
2008
2007
P
=2,537,684
992,103
1,060,765
273,832
178,092
123,903
313,866
5,480,245
440,106
P
=5,040,139
=2,293,259
P
895,013
881,482
511,282
214,481
153,409
288,622
5,237,548
318,830
=4,918,718
P
Trade receivables are noninterest-bearing and are generally on 60–90 days’ terms. Advances to
supplier, employees, talents and other receivables are usually settled within one year. For terms
and conditions relating to due from related parties, refer to Note 20.
*SGVMC211620*
- 41 Movements in the allowance for doubtful accounts are as follows:
Balance at January 1, 2008
Provisions (see Note 21)
Effect of business combination
(see Note 4)
Write-offs and others
Balance at December 31, 2008
Balance at January 1, 2007
Provisions (see Note 21)
Write-offs and others
Balance at December 31, 2007
Airtime
P
=204,678
55,274
Trade
Subscriptions
P
=61,048
117,645
Others
P
=21,319
18,352
Nontrade
P
=31,785
3,270
Total
P
=318,830
194,541
34,528
(13,394)
P
=281,086
1,478,893
(1,563,778)
P
=93,808
148,101
(161,743)
P
=26,029
28,942
(24,814)
P
=39,183
1,690,464
(1,763,729)
P
=440,106
=440,832
P
47,757
(283,911)
=204,678
P
=58,187
P
9,452
(6,591)
=61,048
P
=22,720
P
19,739
(21,140)
=21,319
P
=29,430
P
25,453
(23,098)
=31,785
P
=551,169
P
102,401
(334,740)
=318,830
P
8. Other Current Assets
This account consists of the following:
Preproduction expenses
Creditable withholding and prepaid taxes
Inventories - at net realizable value
Derivative assets (see Note 30)
Prepaid expenses and others
2008
P
=374,348
287,328
225,660
16,223
212,411
P
=1,115,970
2007
=153,486
P
313,087
169,565
–
168,378
=804,516
P
Inventories consist mainly of materials and supplies of the Parent Company, cable, construction
and installation supplies of Sky Cable and records and other consumer products held for sale by
other subsidiaries. The cost of inventories carried at net realizable value amounted to
=440 million and P
P
=216 million as of December 31, 2008 and 2007, respectively.
Prepaid expenses include prepayments for rentals, transponder services and other various projects.
9. 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
=2,498,971
P
1,434,314
3,933,285
40,049
=3,893,236
P
*SGVMC211620*
- 42 On September 20, 2007, related to the acquisition by the Parent Company of about 66% of Sky
Cable Debt from third party creditors as discussed in Note 16, Sky Cable issued two Promissory
Notes to the Parent Company in the aggregate amount of P
=1,798 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 (see Note 16). The Promissory Notes are
further governed by the terms and conditions of the Facility Agreement dated July 2, 2004.
Interest income amounted to P
=13 million and P
=25 million in 2008 and 2007 (see Note 25).
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 P
=400 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
P
=1,434 million. Unamortized receivable discount amounted to P
=364 million as of December 31,
2007. Accretion of receivable, included as part of interest income, amounted to P
=9 million and
P
=10 million in 2008 and 2007, respectively (see Note 25).
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 P
=188 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 P
=1,537 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 (see Note 25).
10. Property and Equipment
Details and movements of this account are as follows:
2008
Cost
Balance at beginning of year
Additions
Effect of business combination
(see Note 4)
Disposals/retirements
Reclassifications
Translation adjustments
Balance at end of year
Accumulated Depreciation
and Amortization
Balance at beginning of year
Depreciation and amortization
Disposals/retirements
Reclassifications
Translation adjustments
Balance at end of year
Net book value
Land and Land
Improvements
Buildings and
Improvements
Television,
Radio, Movie,
and Auxiliary
Equipment
P
=299,257
53,490
P
=9,902,141
71,245
P
=6,179,553
912,081
77,884
–
63,510
–
494,141
101,758
(44,283)
56,421
18,933
10,106,215
4,217,493
(109,725)
211,693
47,121
11,458,216
501,271
(117,978)
14,758
27,657
4,937,305
3,709
156
–
582
–
4,447
P
=489,694
2,616,469
480,915
(225)
(437)
7,065
3,103,787
P
=7,002,428
5,178,012
902,359
(98,989)
(3,226)
21,064
5,999,220
P
=5,458,996
3,041,246
458,307
(101,770)
3,081
(13,175)
3,387,689
P
=1,549,616
Other
Equipment
Construction
in Progress
Equipment
in Transit
Total
P
=3,835,220
676,377
P
=90,380
512,703
P
=–
–
P
=20,306,551
2,225,896
15,410
(1,296)
(367,528)
(81,995)
167,674
–
–
–
–
–
–
P
=167,674
46,000
–
21,146
–
67,146
4,959,816
(273,282)
–
11,716
27,230,697
–
–
–
–
–
–
P
=67,146
10,839,436
1,841,737
(200,984)
–
14,954
12,495,143
P
=14,735,554
*SGVMC211620*
- 43 -
Land and
Land
Improvements
Cost
Balance at beginning of year
Additions
Disposals/retirements
Reclassifications
Translation adjustments
Balance at end of year
Accumulated Depreciation
and Amortization
Balance at beginning of year
Depreciation and amortization
Disposals/retirements
Reclassifications
Translation adjustments
Balance at end of year
Net book value
Buildings
and
Improvements
2007
Television,
Radio, Movie,
and Auxiliary
Equipment
Other
Equipment
Construction
in Progress
Total
=298,983
P
274
–
–
–
299,257
=9,825,584
P
1,072
(2,735)
104,601
(26,381)
9,902,141
=5,765,479
P
342,649
(1,929)
113,613
(40,259)
6,179,553
=3,477,171
P
404,747
(80,065)
57,569
(24,202)
3,835,220
=115,614
P
285,962
(7)
(275,783)
(35,406)
90,380
=19,482,831
P
1,034,704
(84,736)
–
(126,248)
20,306,551
2,292
1,417
–
–
–
3,709
=295,548
P
2,134,813
493,354
(1,721)
(13)
(9,964)
2,616,469
=7,285,672
P
4,809,214
407,028
(984)
(3,340)
(33,906)
5,178,012
=1,001,541
P
2,811,873
308,391
(48,706)
3,353
(33,665)
3,041,246
=793,974
P
–
–
–
–
–
–
=90,380
P
9,758,192
1,210,190
(51,411)
–
(77,535)
10,839,436
=9,467,115
P
The useful lives of the Company’s property and equipment are estimated as follows:
Land improvements
Buildings and improvements
Television, radio, movie and auxiliary equipment
Other equipment
5 to 10 years
10 to 40 years
10 to 15 years
3 to 10 years
The Company determined depreciation and amortization for each significant part of an item of
property and equipment.
Property and equipment of the Parent Company with a carrying amount of P
=8,852 million and
=8,367 million as of December 31, 2008 and 2007, respectively, were pledged as collateral to
P
secure the Parent Company’s long-term debt (see Note 16).
Certain property and equipment of Sky Cable and PCC with a carrying value of P
=1,993 million as
of December 31, 2008 were pledged as collateral to secure the long-term debt of Sky Cable and
PCC (see Note 16).
Unamortized borrowing costs capitalized as part of property and equipment amounted to
=907 million and P
P
=934 million as of December 31, 2008 and 2007, respectively. No borrowing
cost was capitalized since 2002.
Property and equipment includes the following amounts where the Company is a lessee under a
finance lease (see Note 28):
Cost - capitalized finance lease
Accumulated depreciation
Net book value
2008
P
=723,791
(503,475)
P
=220,316
2007
P699,195
=
(389,598)
=309,597
P
*SGVMC211620*
- 44 The land in San Juan, Metro Manila transferred by Home Cable Holdings, Inc. (Home Cable) to
Sky Cable, with a carrying value of P
=74 million, is subject to an ongoing litigation wherein the
original sale of the land to Home Cable is being contested. It is the opinion of Sky Cable’s legal
counsel that it is possible, but not probable that the claim will be settled against Sky Cable.
Accordingly, no provision for any liability has been made in the consolidated financial statements.
As of March 25, 2009, negotiations are still on-going.
11. Goodwill
This account consists of the following:
2008
Cost:
Balance at beginning of year
As previously reported
Effect of change in accounting for
acquisition of minority interest
(see Note 2)
As restated
Effect of business combination (see Note 4)
Excess of acquisition cost over the carrying
value of minority interest (see Note 4)
Balance at end of year
Accumulated impairment loss Balance at beginning and end of year
2007
(As restated see Note 2)
P
=42,626
=22,565
P
–
42,626
1,327,696
20,061
42,626
–
558,454
1,928,776
–
42,626
(22,565)
P
=1,906,211
(22,565)
P20,061
=
On January 29, 2007, ABS-CBN Interactive acquired the remaining 25% interest in ABS-CBN
Multimedia from the latter’s individual shareholders for P
=11 million. The carrying value of the
interest acquired amounted to P
=4 million as of the acquisition date. The excess of cash paid over
the carrying value of interest acquired amounting to P
=7 million was recognized as goodwill (as
adjusted, see Note 2) in the 2007 consolidated balance sheet.
On December 20, 2000, ABS-CBN Interactive established an equity-settled, share-based
compensation plan available to its officers and employees. In 2007, the Parent Company paid
=25 million to the officers and employees in exchange for the 11,259,447 shares allocated for the
P
option with a total value of P
=12 million as of the date of exchange. The purchase was accounted
for as an acquisition of minority interest. The excess of cash paid over the value of the shares
amounting to P
=13 million was recognized as goodwill (as adjusted, see Note 2) in the 2007
consolidated balance sheet.
*SGVMC211620*
- 45 -
12. Program Rights and Other Intangible Assets
Movements of this account are as follows:
2008
Balance at beginning
of year
Additions
Effect of business
combination
(see Note 4)
Amortization and
write-off
Translation
adjustments
Balance at end of year
Less current portion
Noncurrent portion
Cable
Channels CPI
Production
and
Distribution
Business Middle East
Total
P
=–
–
P
=459,968
–
P
=99,750
–
P
=2,671,534
1,727,293
607,166
–
(68,753)
–
Program
Rights
Story, Music
and
Publication
Rights
Movie
In-Process
Video Rights
and Record
Master
Customer
Relationships
P
=2,024,563
1,554,774
P
=5,236
7,049
P
=73,648
161,011
P
=8,369
4,459
–
–
–
–
(1,170,473)
(6,823)
–
2,408,864
1,353,853
P
=1,055,011
–
5,462
64
P
=5,398
(147,697)
(10,729)
–
86,962
83,860
P
=3,102
–
2,099
2,099
P
=–
–
538,413
–
P
=538,413
–
459,968
–
P
=459,968
607,166
(5,489)
14,703
108,964
–
P
=108,964
(1,409,964)
14,703
3,610,732
1,439,876
P
=2,170,856
2007
Balance at beginning of year
Additions
Amortization and write-off
during the year
Translation adjustments
Balance at end of year
Less current portion
Noncurrent portion
Program Rights
=1,536,958
P
1,584,303
(1,096,698)
–
2,024,563
929,292
=1,095,271
P
Story, Music
and
Publication
Rights
=4,787
P
449
–
–
5,236
61
=5,175
P
Movie
In-Process
=83,561
P
137,113
(147,026)
–
73,648
69,672
=3,976
P
Video Rights
and Record
Master
=7,800
P
21,486
(20,917)
–
8,369
8,369
=–
P
Cable
Channels CPI
=459,968
P
–
–
–
459,968
–
=459,968
P
Production
and
Distribution
Business Middle East
=124,684
P
–
(5,846)
(19,088)
99,750
–
=99,750
P
Total
=2,217,758
P
1,743,351
(1,270,487)
(19,088)
2,671,534
1,007,394
=1,664,140
P
The customer relationships acquired in a business combination relate to the core subscribers of
Sky Cable postpaid, prepaid and platinum, broadband and other Sky Cable’s subsidiaries at
conversion date who have sustained their relationship with Sky Cable and subsidiaries for more
than a year (see Note 4).
The cable channels include Lifestyle Channel, Cinema One, and Myx Channel acquired by CPI
from Sky Vision. Based on the Company’s analysis of all the relevant factors, there is no
foreseeable limit to the period over which this business is expected to generate net cash inflows for
the Company and therefore, assessed to have an indefinite life. As such, yearly amortization has
been discontinued. The carrying amount is net of previously recognized amortization amounting
to P
=115 million. As of December 31, 2008 and 2007, cable channels were tested for impairment
(see Note 14).
Production and distribution business for Middle East operations represents payments arising from
the sponsorship agreement between Arab Digital Distribution (ADD) and ABS-CBN Middle East.
This agreement grants the Company the right to operate in the Middle East with ADD as sponsor
for a period of 25 years.
*SGVMC211620*
- 46 -
13. Other Noncurrent Assets
This account consists of the following:
Tax credits with tax credit certificates (TCCs)
AFS investments
Investment property
Investments in associates
Deferred charges and others - net
2008
P
=2,681,185
371,414
66,528
43,301
137,193
P
=3,299,621
2007
=1,706,733
P
77,242
–
43,759
195,771
=2,023,505
P
Tax Credits
Tax credits represent claims on the government arising from airing of government commercials,
advertisements and cablecast services for various government commercials. Pursuant to PD
No. 1362, these will be collected in the form of tax credits which the Company can use in paying
for import duties and taxes on its broadcasting and cable equipment. The tax credits cannot be
used to pay for any other tax obligation to the government. The Company expects to utilize these
tax credits within the next 10 years until 2018.
In 2008, Sky Cable recognized a provision for impairment of tax credits amounting to
=99.7 million included in the “General and administrative expenses” account in the consolidated
P
statement of income.
AFS Investments
AFS investments consist mainly of investments in quoted and unquoted ordinary shares. AFS
investments with a carrying value of P
=15 million as of December 31, 2008 and 2007 were pledged
as part of the collateral to secure the Parent Company’s long-term debt (see Note 16).
The fair value adjustments on AFS investments amounting to P
=12 million loss in 2008 and
=14 million and P
P
=21 million gain in 2007 and 2006, respectively, were directly charged to equity.
On November 12, 2008, ABS-CBN Global, a subsidiary, purchased a total of 2,524,488 shares of
Series P common stock of Multiply, Inc. (Multiply), a Delaware, US corporation engaged in
independent social networking site, equivalent to 5% equity interest. ABS-CBN Global Cayman
purchased the investment at US$1.98 per share for an aggregate purchase price of US$5 million.
The Stock Purchase Agreement provides that during the two-year period immediately following
the Initial Closing date, Multiply may issue additional 1,964,051 shares of Series P common stock
at a the same price per share as the original purchase for an aggregate purchase price of up to
US$3.9 million, in exchange for in-kind contributions of marketing and advertising supplied by
ABS-CBN Global, intended to be used to acquire new users of Multiply’s services.
*SGVMC211620*
- 47 Investment Properties
This account pertains to parcel of land purchased by ABS-CBN International, with a two-storey
house constructed thereon, located in Redwood City, California, USA. The real property which
was acquired in July 2008 at a purchase price of US$1.4 million (P
=67 million) was intended to be
held by ABS-CBN International as investment property. To fund the acquisition, ABS-CBN
International availed loan from Citibank North America amounting to US$1.05 million
(P
=50 million) (see Note 16).
Investments in Associates
The following are the associates of the Company as of December 31, 2008, 2007 and 2006:
Company
Amcara Broadcasting Network, Incorporated
(Amcara)
Star Cinema Productions, Inc. (Star Cinema)
Sky Vision
Principal
Activities
Percentage
of Ownership
Services
Movie production
Investment holding
49.0
45.0
10.2
Details of the account are as follows:
Acquisition costs
Accumulated equity in net losses:
Balance at beginning of year
Equity in net losses during the year
Balance at end of year
2008
P
=541,292
2007
=541,292
P
(497,533)
(458)
(497,991)
P
=43,301
(497,059)
(474)
(497,533)
=43,759
P
All the associates are incorporated in the Philippines.
As of December 31, 2008 and 2007, the remaining carrying value of investments in associates
pertains to Amcara. Investments in Star Cinema and Sky Vision have been reduced to zero due to
accumulated equity in net losses.
Condensed financial information of the associates follows:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net equity
P
=170,784
2007
=1,737,793
P
5,339,165
(6,215,023)
(464,063)
=397,872
P
Revenue
Cost and expenses
Net income (loss)
P
=37,945
(68,299)
(P
=30,354)
P3,575,877
=
(2,918,731)
=657,146
P
2008
P
=68,380
322,216
(219,812)
–
*SGVMC211620*
- 48 Deferred Charges
Deferred charges as of December 31, 2008 and 2007 amounting to P
=107 million and P
=164 million,
respectively, mainly pertain to excess of cost over revenue from sale and installation of decoders
and set-top boxes. Amortization of deferred charges amounted to P
=30 million, P
=40 million and
=27 million in 2008, 2007 and 2006, respectively.
P
14. Impairment Testing of Goodwill and Cable Channels
The Company performs impairment testing annually or more frequently when there are indications
of impairment for goodwill and intangible assets with infinite lives. The Company has identified
that cable channels of CPI have an infinite life. The Company performed impairment testing of
these assets as of December 31.
Cable channels of CPI amounted to P
=460 million as of December 31, 2008 and 2007
(see Note 12).
Goodwill pertaining to an investment in a subsidiary amounting to P
=23 million was fully provided
with an allowance for impairment loss in 2007. There were no other impairment losses recognized
in 2008 and 2006.
For the impairment test of goodwill and cable channels, the recoverable amount and the carrying
amount of the cash-generating unit was compared. The recoverable amount of the cash-generating
has been determined based on a value in use calculation using cash flow projections which were
based on financial budgets approved by senior management of the subsidiaries covering a fiveyear period. Due to a low interest rate environment, the discount rate applied to the cash flow
projections was 10.38% in 2008, a slight change from 10.54% in 2007. A 0-5% perpetuity growth
rate was assumed at the end of the five-year forecast period.
Key Assumptions
Following are the key assumptions on which management has based its cash flow projections to
undertake impairment testing of goodwill and cable channels:
Gross Revenue. On the average, gross revenue of the subsidiaries over the next five years were
projected to grow in line with the economy or with nominal Gross Domestic Product. This
assumes that the market share of the subsidiaries in their respective industries will be flat on the
assumption that the industries also grow at par with the economy. Historically, advertising
spending growth had a direct correlation with economic growth.
Operating Expenses. On the average, operating expenses were projected to increase at a singledigit growth rate and at a slower pace than revenue.
Gross Margins. Increased efficiencies over the next five years are expected to result in margin
improvements.
Discount Rate. The discount rate used to arrive at the present value of future cash flows was the
Company’s Weighted Average Cost of Capital (WACC). WACC was based on the appropriate
weights of debt and equity, which were multiplied with the assumed costs of debt and equity.
*SGVMC211620*
- 49 -
15. Trade and Other Payables
This account consists of the following:
Trade
Accrued expenses:
Salaries and other employee benefits
Taxes
Interest
Production costs and other expenses
Due to related parties (see Note 20)
Deferred revenue
Other current liabilities
2008
P
=1,534,930
2007
=1,737,716
P
526,928
335,574
260,379
1,366,754
797,975
467,544
351,989
P
=5,642,073
773,723
595,343
13,306
1,091,421
242,358
324,026
221,149
=4,999,042
P
Trade payables are noninterest-bearing and are normally settled on 30 to 90-day term. For terms
and conditions relating to due to related parties, refer to Note 20.
Accrued interest includes PCC’s overdue and accrued interest amounting to P
=133 million as of
December 31, 2008 which were restructured as a Yield Recapture Obligation (YRO) and bears an
interest of 5.50% per annum. The YRO shall be paid out of the excess cash of PCC at any time
during the term of the loan. If there is no excess cash or the same is not sufficient to cover the
YRO, PCC shall pay the YRO on November 21, 2009, the maturity date (see Note 16).
Deferred revenue pertains to subscription fees billed or received in advance. Other current
liabilities include statutory liabilities.
16. Interest-bearing Loans and Borrowings
The details of this account are as follows:
Parent Company
Sky Cable
PCC
ABS-CBN International
Current
Portion
P
= 902,125
–
212,307
17,351
P
= 1,131,783
2008
Long-term
Portion
P
=6,828,044
691,413
–
63,164
P
=7,582,621
Total
P
=7,730,169
691,413
212,307
80,515
P
=8,714,404
Current
Portion
=574,895
P
–
–
12,911
=587,806
P
2007
Long-term
Portion
=4,900,511
P
–
–
27,487
=4,927,998
P
Total
=5,475,406
P
–
–
40,398
=5,515,804
P
*SGVMC211620*
- 50 Parent Company
The details of interest-bearing loans and borrowings of the Parent Company are as follows:
Bank loans
Term loans:
SCA:
Tranche B
Tranche C
Banco de Oro
Universal Bank
(BDO)
Syndicated loans
Security Bank
Corporation
(Security Bank)
Bank of the
Philippine Islands
(BPI)
Obligations under
capital lease
(see Note 28)
Total
P
=737,600
Current
Portion
=400,000
P
2007
Long-term
Portion
=–
P
Total
=400,000
P
1,794,357
403,200
1,794,357
403,200
–
–
1,780,543
403,200
1,780,543
403,200
40,327
–
1,286,330
1,216,917
1,326,657
1,216,917
10,100
–
1,323,373
1,177,469
1,333,473
1,177,469
–
989,233
989,233
–
–
–
–
978,597
978,597
–
–
–
124,198
P
= 902,125
159,410
P
=6,828,044
283,608
P
=7,730,169
164,795
=574,895
P
215,926
=4,900,511
P
380,721
=5,475,406
P
Current
Portion
P
= 737,600
2008
Long-term
Portion
P
=–
–
–
Bank Loans
This represents peso-denominated and dollar-denominated loans obtained from local banks which
bear average annual interest rates of 8.85% in 2008 and 7.40% in 2007.
Term Loans under the SCA
On June 18, 2004, the Parent Company entered into an SCA with several foreign and local banks
(Original Lenders) for a US$120 million dual currency syndicated term loan facility for the
purpose of refinancing existing indebtedness incurred for the construction of the Eugenio
Lopez, Jr. Communications Center, additional investment in the cable television business and
funding capital expenditures and working capital requirements of ABS-CBN. The SCA is
classified into three groups namely:
§
§
§
Tranche A, a floating rate facility (3.5% + LIBOR) amounting to US$62 million
Tranche B, a floating rate facility (3.5% + MART1 T-bill) amounting to P
=2,688 million
Tranche C, a fixed rate facility (3.5% + FXTN) amounting to P
=560 million
The term loans have all been availed of in March 2005. The Parent Company’s obligations under
the SCA are secured and covered by a Mortgage Trust Indenture (MTI) which consists of
substantially all of the Parent Company’s real property and movable assets used in connection with
its business and insurance proceeds related thereto (see Notes 10 and 13). Further, the Parent
Company’s obligations under the SCA are jointly and severally guaranteed by its principal
subsidiaries.
*SGVMC211620*
- 51 The SCA contains provision regarding the maintenance of certain financial ratios and limiting,
among others, the incurrence of additional debt, the payment of dividends, making investments,
the issuing or selling of the Parent Company’s capital stock or some of its subsidiaries, the selling
or exchanging of assets, creation of liens and effecting mergers. As of December 31, 2008, the
Parent Company is in compliance with the provisions of the SCA.
To manage its exposures to foreign currency exchange and interest rate risks relating to the facility
drawdowns, the Parent Company entered into interest rate and cross currency swap contracts with
counterparty banks. These contracts were all terminated in 2007 as a result of the prepayment of
the underlying Tranche A of the SCA facility (see Note 30).
On January 11, 2007, the Parent Company signed a commitment letter with the Mandated Lead
Arrangers to arrange and underwrite on a firm commitment basis the refinancing/restructuring of
the existing term loans. 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. Additional amount available for drawdown amounting to US$5 million. The additional
amount for drawdown was consequently drawn on March 29, 2007.
b. Bullet repayment schemes for Tranche B and Tranche C 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 on a quarterly basis.
All outstanding US dollar-denominated loans under Tranche A amounting to US$27 million
(P
=1,132 million), were fully paid on December 18, 2007 from the proceeds of the
=1,350 million term loan from BDO.
P
c. Reduction from 3.50% to an average of about 2.20% of the applicable margins added to the
benchmark interest rates.
d. All other assets, except for the Quezon City Broadcast Complex and certain broadcast
machinery and equipment contained therein, are removed from the MTI and no longer form
part of the security package.
e. Certain mandatory prepayment provisions are removed.
f.
No financial ratio requirement on the parent company financial statements while maintaining
a financial ratio requirement on a consolidated basis but at more relaxed thresholds.
g. The Company is allowed to make interest-bearing advances and guarantees to Sky Vision of
up to =
P400 million.
h. The Company is allowed to convert into equity outstanding advances amounting to
US$30 million including interest and P
=437 million, respectively, made to Sky Vision by the
Parent Company and CPI (see Note 4).
*SGVMC211620*
- 52 On September 14, 2007, the relevant parties to the SCA facility executed the First Amendment
Agreement. The amendments centered mainly on the following provisions:
a. Allow the Company to incur additional unsecured financial indebtedness;
b. Increase the amount of support that the Company can extend to Sky Vision and/or Sky Cable
from P
=400 million to P
=2,740 million; 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 P
=16 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 pro-rata requirement in cases
of prepayment.
Term Loan Facility with BDO
On December 13, 2007, the Company together with BDO, signed a P
=1,350 million secured facility
to refinance the entire Tranche A of the SCA facility equivalent to US$31 million. The
refinancing effectively extended the maturity from June 2009 to December 2012 with an interest
rate of 3mPDSTF plus 2.15%.
The BDO facility contains provision regarding the maintenance of certain financial ratios and
limiting, among others, the incurrence of additional debt, the payment of dividends, making
investments, the issuing or selling of the Parent Company’s capital stock or some of its
subsidiaries, the selling or exchanging of assets, creation of liens and effecting mergers. As of
December 31, 2008, the Parent Company is in compliance with the provisions of the BDO facility.
The Parent Company’s obligation under the BDO facility is jointly and severally guaranteed by its
principal subsidiaries.
Syndicated Loans for Sky Cable Debt. In the invitation dated July 27, 2007, ABS-CBN invited
holders of outstanding loan obligations of Sky Cable evidenced by promissory notes issued under
the Facility Agreement dated July 2, 2004 among Sky Vision, Sky Cable, Philippine Home Cable
Holdings, Inc., (“Home Cable”) and certain institutions and Equitable PCI Bank - Trust Banking
(“Sky Cable Debt”) to offer to:
i. sell their Sky Cable Debt to ABS-CBN for up to 70% of the principal amount of the Sky Cable
Debt (“Cash Offer”); or
ii. exchange their Sky Cable Debt for notes at up to 100% of the principal amount of the Sky
Cable Debt to be exchanged (“Exchange Offer”).
*SGVMC211620*
- 53 Holders of P
=944 million Sky Cable Debt opted for the Cash Offer while holders of P
=854 million
opted for the Exchange Offer. The total loans acquired by ABS-CBN amounted to P
=1,798 million
or 66% of Sky Cable total outstanding debt of P
=2,800 million. Thus, ABS-CBN became Sky
Cable’s creditor.
Cash Offer. On September 20, 2007, ABS-CBN settled the P
=944 million Sky Cable loans in the
amount of P
=662 million. To finance the settlement of the loans, ABS-CBN signed a syndicated
loan for P
=800 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 loan is unsecured
and unsubordinated with interest rate of 3mPHIBOR plus 2.75% per annum with final maturity on
September 20, 2012. The total amount of money withdrawn is P
=662 million.
Exchange Offer. On September 18, 2007, ABS-CBN successfully signed a syndicated loan for
=854 million with the previous lenders of Sky Cable, namely, United Coconut Planters Bank,
P
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 final
maturity on September 18, 2014.
The Parent Company’s obligations under these facilities are jointly and severally guaranteed by its
principal subsidiaries.
Both loan facilities contain provisions regarding the maintenance of certain financial ratios and
limiting, among others, the incurrence of additional debt, the payment of dividends, making
investments, the issuing or selling of the Parent Company’s capital stock or some of its
subsidiaries, the selling or exchanging of assets, creation of liens and effecting mergers. As of
December 31, 2008, the Parent Company is in compliance with the provisions of the two facilities.
Debt discount which represents the difference between the nominal value and fair value of the
debt issued related to the Exchange Offer amounted to P
=298 million.
ABS-CBN recognized “Day 1” profit of P
=206 million (P
=144 million, net of tax) in 2007, which
represents the difference between the fair value of Sky Cable Debt acquired and the fair value of
the consideration given (i.e., ABS-CBN debt and cash). This was included as part of “Other
income” account in the 2007 consolidated statement of income (see Note 25).
On February 21, 2008, ABS-CBN and the remaining third party creditors of Sky Cable approved
the 2nd amendment of the Sky Cable Debt under a Facility Agreement. The amendment included
the rescheduling of the principal amortization to commence in December 2011 with final maturity
in September 2016.
Term Loan Facility with Security Bank. On August 15, 2008, the Company successfully signed a
P1,000 million loan facility with Security Bank jointly arranged by BPI Capital Corp and SB
=
Capital Investment Corp. This was fully drawn on August 27, 2008. The funds are used for
capital expenditures and general corporate purposes. The loan is unsecured, unsubordinated and
guaranteed by certain of the Company’s subsidiaries. The interest rate on the loan is 3mPDSTF
plus 2.15% per annum with final maturity of August 27, 2013.
*SGVMC211620*
- 54 Term Loan Facility with BPI. On September 30, 2008, the Company successfully signed a P
=2,000
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 are used for capital expenditures 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 P
=1,000 million from the Fixed Loan Lenders with
fixed loan interest rate of 7yrPDSTF plus 1.5% per annum and 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.
The debt issue cost on the combined facility which represents documentary stamp taxes, arranger,
underwriting and other legal fees amounted to P
=33 million.
Schedule of Maturities and Repayments
Repayments of long-term debt based on nominal values are scheduled as follows:
2009
2010
2011
2012
2013–2015
SCA
Tranche B
Tranche C BDO Facility
=–
P
=–
P
=43,875
P
108,000
–
–
378,000
–
–
1,850,000
403,200
810,000
–
–
–
=1,850,000
P
=403,200
P
=1,339,875
P
Syndicated
Loans
=–
P
–
–
662,172
854,208
=1,516,380
P
Security
Bank/BPI
Facilities
=–
P
–
–
–
2,000,000
=2,000,000
P
Total
P43,875
=
108,000
378,000
3,725,372
2,854,208
=7,109,455
P
*SGVMC211620*
- 55 Details of unamortized debt issue cost, presented as a deduction from the Company’s long-term
debt as of December 31 are as follows:
2008
P
=256,500
143,994
P
=400,494
Debt discount
Transaction costs
2007
=289,502
P
135,393
=424,895
P
Debt issue costs are amortized over the term of the loans using the effective interest rate method as
follows:
2009
2010
2011
2012
2013–2015
Tranche B
=15,310
P
16,858
18,562
4,913
–
=55,643
P
Transactions Costs
Syndicated
Loans
BDO Facility
=3,548
P
=7,000
P
3,672
8,186
3,623
9,360
2,375
9,023
–
9,394
=13,218
P
=42,963
P
Security
Bank/BPI
= 3,506
P
4,490
5,010
5,606
13,558
=32,170
P
Debt
Discount
=36,067
P
39,182
42,913
47,010
91,328
=256,500
P
Total
=65,431
P
72,388
79,468
68,927
114,280
=400,494
P
Amortization of debt issue costs are as follows (see Note 25):
Debt discount (charged to interest expense)
Transaction costs
2008
P
=33,002
23,687
P
=56,689
2007
P8,699
=
102,101
=110,800
P
2006
=–
P
=83,860
P
=83,860
P
The 2007 amortization includes unamortized transaction costs of US$860,000 (P
=36 million) as of
prepayment date of the Tranche A. This should have been amortized until the final maturity of the
Tranche A in June 2009 had it not been prepaid in December 2007.
Sky Cable
Under the Debt Restructuring Agreement (DRA) dated July 2, 2004, the restructured loans, which
bear interest equal to the 90-day MART1 rate or the 91-day treasury bill rate in the absence of
MART1, plus 1%, is payable in seven years inclusive of a two-year grace period, in 20 unequal
consecutive quarterly amortizations commencing on September 30, 2006.
On February 21, 2008, ABS-CBN and the remaining third party creditors of Sky Cable approved
the 2nd amendment to the Facility Agreement. The amendment includes the rescheduling of the
principal amortizations to commence in December 2011 with final maturity in September 2016.
The agreement provided for certain requirements and restrictions with respect to, among others,
the maintenance of certain financial ratios, capital expenditures and business acquisition outside
the business plan, incurrence of additional debt, declaration of cash dividends, amendments of its
Articles of Incorporation or By-laws, reorganization, undertaking a quasi reorganization, reducing
its capital or change its fiscal year. In 2008, Sky Cable did not comply with one of the financial
ratios required by the creditors in the agreement. On November 3, 2008, Sky Cable received a
waiver of this ratio from the majority of its creditors as required by the agreement.
*SGVMC211620*
- 56 The terms of the collateral trust indenture covering a portion of Sky Vision and Sky Cable’s loans
provide that Sky Cable shall at all times maintain the required collateral value, which consists of
various property and equipment (see Note 10) sufficient to cover at least 200% of the total
outstanding amount of the loan.
The schedule of debt repayment based on the 2nd amendment to the Facility Agreement is as
follows:
Year
2011
2012
2013
2014
2015
2016
Amount
P70,718
=
225,464
55,820
50,838
98,561
190,012
=691,413
P
PCC
On February 27, 2004, PCC, together with its creditors, agreed to restructure PCC’s long-term
debt. The restructured debt, which bears an interest rate equal to MART1 plus a spread ranging
from 2.0% to 4.5% per annum, net of taxes, is payable in 15 quarterly installments commencing
on May 21, 2006.
The debt agreement provided for certain requirements and restrictions with respect to, among
others, the maintenance of certain financial ratios, material purchases or disposals of property and
equipment, incurrence of additional debt, declaration of cash dividends, and significant changes in
the ownership or control of PCC. Starting 2005, PCC did not comply with certain financial ratios
required by the creditors in the debt agreement. As a result of non-compliance with the loan
covenants, the entire unpaid principal amount of the loan became due and demandable.
Accordingly, the loan has been classified as current liability in the 2008 consolidated balance
sheet. PCC, however, continues to service the interest payments at maturity dates based on the
debt agreement and has not received any demand for payment.
As of December 31, 2008, the outstanding principal balance of the debt has been reduced to
=212.3 million and expected to be fully paid by November 2009. The interest-bearing loans are
P
collateralized by the following:
a. Mortgage trust indenture on certain property and equipment of PCC, Sky Cable and other
subsidiaries with a total carrying value of P
=1,346.7 million as of December 31, 2008
(see Note 10). Sound value of the properties amounted to P
=1,543.9 million as of
December 31, 2008. The sound value of the collateral shall at all times be equivalent to at
least 200% of the aggregate amount of the loans.
b. Joint and several suretyship agreement with Sky Vision.
*SGVMC211620*
- 57 ABS-CBN International
The details of interest-bearing loans and borrowings of ABS-CBN International are as follows:
Term loan
Obligations under
capital lease
(see Note 28)
Current
Portion
P
=1,383
2008
Long-term
Portion
P
=48,290
15,968
P
=17,351
14,874
P
=63,164
Total
P
=49,673
Current
Portion
=–
P
2007
Long-term
Portion
=–
P
Total
=–
P
30,842
P
=80,515
12,911
=12,911
P
27,487
=27,487
P
40,398
=40,398
P
On August 19, 2008, ABS-CBN International availed of a loan from Citibank, North America
amounting to US$1.05 million (P
=50 million). The loan has a term of 15 years to be repaid based
on a 20-year amortization. The loan bear interest at a fixed rate per annum equal to 125 basis
points in excess of Citibank’s 15-year Cost of Funds in effect three business days prior to the
funding of the Loan, which Cost of Funds rate is based on the applicable term Libor Swap Rate.
Within five years of the loan agreement, an amount not exceeding 20% of the original amount
may be prepaid in any 12-month period without incurring a prepayment fee.
The schedule of debt repayment is as follows:
Year
2009
2010
2011
2012
2013-2028
Amount
=1,383
P
1,465
1,552
1,643
43,630
=49,673
P
17. Obligations for Program Rights
This account represents liabilities to foreign and local film suppliers for program rights purchased
by the Company. The liabilities are noninterest-bearing and are payable in equal monthly,
quarterly or semiannually installments over a period of one to two years. The amounts presented
in the consolidated balance sheet represent the face amounts of the obligations, net of unamortized
discounts, which represent the difference between the face amounts and the fair values of the
obligations upon initial recognition. Unamortized discounts amounted to P
=16 million and
=23 million as of December 31, 2008 and 2007, respectively.
P
*SGVMC211620*
- 58 -
18. Other Noncurrent Liabilities
This account consists of the following:
Customers’ deposits
Asset retirement obligation
Deferred credits
Others
2008
P
=168,114
17,786
11,740
4,295
P
=201,935
2007
=–
P
14,924
–
–
=14,924
P
Customer deposits relate to Sky Cable’s subscription agreements with customers. Customers’
deposits are initially recognized at fair value. The discount is recognized as deferred credits and
amortized over the estimated remaining term of the deposit as other income. Customers’ deposits
are refunded to the customers upon termination of service.
19. Equity
Capital Stock
Details of authorized and issued capital stock as of December 31, 2008, 2007 and 2006 are as
follows:
Authorized Common shares - P
=1 par value
Issued Common shares
Number
of Shares
Amount
1,500,000,000
=1,500,000
P
779,583,312
=779,583
P
Retained Earnings
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
=1,244 million and P
P
=1,552 million as of December 31, 2008 and 2007, respectively.
On March 25, 2009, the BOD approved the declaration of cash dividend of P
=0.90 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
=0.825 per share or an aggregate amount of P
P
=643 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 P
=0.45 per share or an aggregate amount of P
=351 million to all
stockholders of record as of April 20, 2007 payable on May 15, 2007.
*SGVMC211620*
- 59 PDRs Convertible to Common Shares
2008
Number of
Shares
Amount
2007
Number of
Shares
Amount
2006
Number of
Shares
Amount
(Amounts in Thousands, Except Number of Shares)
Balance at beginning
of year
Acquisitions during
the year
Issuances during the year
Balance at end of year
12,778,120
P
=323,967
8,881,071
2,998,622
–
15,776,742
52,357
–
P
=376,324
5,595,790
(1,698,741)
12,778,120
=177,621
P
10,000,000
–
182,258
(35,912) (1,118,929)
=323,967
P
8,881,071
=200,000
P
–
(22,379)
=177,621
P
This account represents ABS-CBN PDRs held by the Parent Company which are convertible into
ABS-CBN shares. These PDRs were listed in the PSE 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 P
=52 million. In
2007, the Parent Company acquired 5,595,790 PDRs and common shares for P
=182 million.
In 2007 and 2006, the Parent Company issued P
=36 million and P
=22 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 (see Note 20). The PDRs issued were based on quoted
prices at the time of issuance.
20. 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.
*SGVMC211620*
- 60 Transactions with Related Parties
In addition to the related party transactions discussed in Notes 4, 9 and 16, significant transactions
of the Company with its associates and related parties follow:
Associates:
License fees charged by CPI to Sky Cable (a),
PCC and Home Cable
Blocktime fees paid by the Parent Company
to Amcara
Interest on noncurrent receivable from Sky
Cable (a) (see Notes 9 and 25)
Management fees charged to Sky Cable (a)
Blocktime fees paid by Studio 23 to Amcara
Affiliates:
Expenses paid by the Parent Company and
subsidiaries to Manila Electric Company
(Meralco), Bayan Telecommunications
Holding, Inc. (Bayantel) and other related
parties
Termination cost charges of Bayantel, a subsidiary
of Lopez, Inc., to ABS-CBN Global
Airtime revenue from Manila North Tollways
Corp. (b), Bayantel and Meralco, an associate
of Lopez, Inc.
Expenses and charges paid for by the Parent
Company which are reimbursed by the
concerned related parties
(a)
(b)
2008
2007
2006
P
=108,599
=105,198
P
=104,927
P
40,191
–
–
29,683
6,302
–
35,280
21,184
53,960
115,424
–
57,078
540,733
424,825
413,036
266,972
277,094
236,244
55,604
74,025
50,718
15,661
27,859
36,862
Effective March 15, 2008, Sky Cable became a subsidiary of ABS-CBN (see Note 4).
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:
Affiliates
Associates
Due to:
Affiliates
Associates
2008
2007
P
=122,577
1,326
P
=123,903
=110,416
P
42,993
=153,409
P
P
=468,994
328,981
P
=797,975
=173,180
P
69,178
=242,358
P
*SGVMC211620*
- 61 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 (see Note 12) 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 Sky Cable
The Parent Company renders management services to Sky Cable through designated
employees.
c. Blocktime Fees Paid by the Parent Company and Studio 23 to Amcara
The Parent Company and Studio 23 own the program rights being aired in UHF Channel 23 of
Amcara. The Parent Company and Studio 23 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 year-end are unsecured, interest-free and settlement occurs in cash, except for the
long-term receivables from Sky Cable discussed in Note 9. For the years ended
December 31, 2008, 2007 and 2006, 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.
As discussed in Note 16, certain obligations of the Parent Company are jointly and severally
guaranteed by its principal subsidiaries.
Compensation of Key Management Personnel of the Company
Compensation (see Note 19)
Pension benefits (see Note 27)
Vacation leaves and sick leaves
Termination benefits
2008
P
=708,705
45,833
28,818
640
P
=783,996
2007
=492,013
P
43,609
21,628
711
=557,961
P
2006
=413,692
P
47,840
29,484
–
=491,016
P
*SGVMC211620*
- 62 -
21. General and Administrative Expenses
This account consists of the following:
Personnel expenses (see Note 27)
Depreciation and amortization
(see Note 10)
Contracted services
Facilities related expenses
(see Notes 20 and 28)
Taxes and licenses
Provision for doubtful accounts
Advertising and promotions
Entertainment, amusement and
recreation
Amortization of deferred charges
and other intangible assets
(see Notes 12 and 13)
Others (see Note 20)
2008
P
= 2,908,300
2007
=2,596,516
P
2006
=2,078,012
P
1,114,599
777,011
549,000
443,255
488,064
447,521
613,642
228,820
194,541
178,067
534,107
177,496
102,401
150,829
536,905
151,185
94,060
519,539
100,473
99,051
138,948
74,242
738,695
P
=6,928,390
24,934
682,709
=5,360,298
P
17,075
663,373
=5,134,682
P
Others consist mainly of transportation and travel expenses, research and survey costs and
stationery and office supplies.
22. Production Costs
This account consists of the following:
Personnel expenses and talent fees
(see Note 27)
Facilities related expenses
(see Notes 12, 20 and 28)
Amortization of program rights
and other rights (see Note 12)
Depreciation and amortization
(see Note 10)
Other program expenses
(see Notes 12 and 20)
2008
2007
2006
P
=2,708,294
= 2,823,402
P
= 2,486,384
P
1,092,140
972,181
833,439
829,761
853,470
735,425
705,963
645,150
635,035
954,815
P
=6,290,973
1,198,603
=6,492,806
P
1,024,235
=5,714,518
P
Other program expenses consist of production expenses including, but not limited to, set
requirements, prizes, transportation, advertising and other expenses related to the promotional
activities of various projects during the year.
*SGVMC211620*
- 63 -
23. Cost of Sales and Services
This account consists of the following:
Facilities related expenses
(see Notes 20 and 28)
Personnel expenses (see Note 27)
Amortization of program rights
(see Note 12)
Termination costs (see Note 20)
Inventory cost
Depreciation and amortization
(see Note 10)
Others (see Note 20)
2008
2007
2006
P
=1,042,773
358,279
=613,915
P
229,051
=423,554
P
200,592
340,712
228,888
223,689
243,228
285,200
331,612
151,899
374,646
133,272
21,175
2,009,508
P
=4,225,024
16,040
1,283,550
=3,002,596
P
47,266
894,178
=2,225,407
P
Others consist mainly of installation costs, licenses and royalties, service fees and delivery
charges.
24. Agency Commissions, Incentives and Co-producers’ Share
This account consists of the following:
Agency commissions
Incentives and co-producers’ share
2008
P
=1,876,481
779,878
P
=2,656,359
2007
=1,890,270
P
810,587
=2,700,857
P
2006
=1,547,307
P
737,007
=2,284,314
P
Industry rules allow ABS-CBN to sell up to 18 minutes of commercial spots per hour of television
programming. These spots are sold mainly through advertising agencies which act as the buying
agents of advertisers, and to a lesser extent, directly to advertisers. Substantially, all gross airtime
revenue, including airtime sold directly to advertisers, is subject to a standard 15% agency
commission.
Incentives include early payment and early placement discount as well as commissions paid to the
Company’s account executives and cable operators.
The Company has co-produced shows which are programs produced by ABS-CBN together with
independent producers. Under this arrangement, ABS-CBN provides the technical facilities and
airtime, and handles the marketing of the shows. The co-producer shoulders all other costs of
production. The revenue earned on these shows is shared between ABS-CBN and the coproducer.
*SGVMC211620*
- 64 -
25. Other Income and Expenses
Finance Costs
Interest expense (see Note 16)
Bank service charges
Amortization of debt issue costs
(see Note 16)
Hedge cost (see Note 30)
2008
P
=672,558
25,872
2007
=405,108
P
15,527
2006
=631,816
P
13,607
23,687
–
P
=722,117
102,101
59,123
=581,859
P
83,860
137,689
=866,972
P
The following are the sources of the Company’s interest expense (see Note 16):
Long-term debt
Bank loans
Obligations under capital lease
2007
=343,289
P
21,929
39,890
=405,108
P
2006
=563,701
P
33,673
34,442
=631,816
P
2008
P
=60,437
2007
=76,586
P
2006
=46,481
P
29,683
P
=90,120
35,280
=111,866
P
115,424
=161,905
P
2008
2007
2006
P
=309,107
99,266
=205,663
P
109,858
P–
=
102,898
–
23,815
(216)
436,757
P
=868,729
(16,221)
38,607
(348,887)
144,774
=133,794
P
–
25,046
(114,974)
320,763
=333,733
P
2008
P
=577,368
48,973
46,217
P
=672,558
Interest Income
The following are the sources of the Company’s interest income:
Cash and cash equivalents (see Note 6)
Long-term receivables from related parties
(see Notes 4, 9 and 20)
Other Income (Charges)
Gain on acquisition and exchange of debt
(see Notes 9 and 16)
Rental income (see Notes 20 and 28)
Loss on derecognition of debt
(see Note 16)
Royalty income
Mark-to-market loss - net (see Note 30)
Others - net (see Note 20)
Others mainly pertain to income from gate receipts, studio tours, management fees and other
miscellaneous revenue.
*SGVMC211620*
- 65 -
26. Income Tax
The provision for income tax follows:
Current
Deferred
2008
P
=969,296
62,779
P
=1,032,075
2007
=946,310
P
40,160
=986,470
P
2006
=563,651
P
103,781
=667,432
P
The components of consolidated net deferred tax assets and liabilities of the Company are as
follows:
Deferred tax assets - net:
Accrued pension obligation and other
employee benefits
Capitalized interest, duties and taxes
(net of accumulated depreciation)
Allowance for impairment loss on property
and equipment
Allowance for doubtful accounts
Accrued expenses
Gain on acquisition and exchange of debt
(net of accretion)
MCIT
NOLCO
Customers’ deposits
Unearned revenue
Net unrealized foreign exchange loss (gain)
Allowance for inventory obsolescence
Mark-to-market gain
Others
Deferred tax liabilities:
Excess of the fair value over the book value of net
assets of Sky Cable
Gain on acquisition and exchange of debt
2008
2007
P
=322,014
=278,864
P
(272,324)
(282,073)
160,552
111,795
88,839
–
75,037
126,831
(64,704)
56,689
56,338
37,163
36,547
16,184
10,703
(2,377)
45,772
P
=603,191
(61,819)
2,530
6,186
38,771
–
(27,891)
8,182
–
19,734
=184,352
P
P
=550,664
81,936
P
=632,600
=–
P
–
=–
P
*SGVMC211620*
- 66 The details of the unrecognized deductible temporary differences, NOLCO and certain MCIT of
the subsidiaries follow:
Allowance for doubtful accounts
Allowance for decline in value of inventories
NOLCO
Unearned revenue
MCIT
Accrued retirement expense and others
2008
P
=1,509,258
558,830
491,192
62,773
11,207
134,790
P
=2,768,050
2007
=35,362
P
–
520,070
–
5,081
10,220
=570,733
P
Management believes that it is not probable that taxable income will be available against which
the temporary differences, NOLCO and MCIT will be utilized.
MCIT of the subsidiaries amounting to P
=68 million can be claimed as tax credit against future
regular corporate income tax as follows:
Year Incurred
2006
2007
2008
Expiry Dates
December 31, 2009
December 31, 2010
December 31, 2011
Amount
P29,488
=
17,430
20,978
=67,896
P
NOLCO of the subsidiaries amounting to P
=679 million can be claimed as deductions from regular
corporate income tax as follows:
Year Incurred
2006
2007
2008
Expiry Dates
December 31, 2009
December 31, 2010
December 31, 2011
Amount
=480,812
P
163,467
34,706
=678,985
P
As of December 31, 2008 and 2007, deferred income tax liability has not been recognized on
undistributed earnings of ABS-CBN Global, holding company of the Parent Company’s foreign
subsidiaries, amounting to P
=282 million and P
=200 million, respectively, since the Parent Company
is able to control the reversal of the temporary difference. The undistributed earnings are
earmarked for expansion in the Company’s foreign operations.
*SGVMC211620*
- 67 The reconciliation of statutory tax rate to effective tax rates applied to income before income tax is
as follows:
Statutory tax rate
Additions to (reduction in) income taxes
resulting from the tax effects of:
Interest income subject to final tax
Unrecognized deferred tax assets
Nondeductible interest expense
Equity in net losses of investees
Others, mainly income subject to
different tax rates and change
in tax rates - net
Effective tax rates
2008
35%
2007
35%
2006
35%
(4)
1
1
–
(2)
1
1
–
(1)
2
4
1
10
43%
9
44%
6
47%
Republic Act No. 9337 introduced the increase in regular corporate income tax rate from 32% to
35% effective November 1, 2005 and reduced to 30% effective January 1, 2009.
27. Pension Benefits
The Company’s pension plans are composed of funded (Parent Company and Sky Cable) and
unfunded (other subsidiaries), noncontributory and actuarially computed pension plans, except for
ABS-CBN International (contributory) covering substantially all of its employees. The benefits
are based on years of service and compensation during the last year of employment.
The following tables summarize the components of consolidated net benefit expense (income)
recognized in the consolidated statement of income and accrued pension obligation recognized in
the consolidated balance sheet.
Net Pension Expense
Current service cost
Interest cost
Expected return on plan assets
Net actuarial loss (gain)
Curtailment gain
Past service cost
Benefits paid out of the Company’s fund
Net pension expense
2008
P
=137,583
122,273
(22,355)
11,733
(4,587)
(2,546)
19,885
P
=261,986
2007
=118,462
P
71,373
(17,486)
22,933
–
–
–
=195,282
P
2006
=53,038
P
36,480
(14,031)
(50)
–
–
–
=75,437
P
*SGVMC211620*
- 68 Accrued Pension Obligation
Present value of obligation
Fair value of plan assets
Unfunded obligation
Unrecognized net actuarial gain (loss)
Pension obligation
2008
P
=569,414
(356,425)
212,989
578,947
P
=791,936
2007
P860,113
=
(264,458)
595,655
(195,007)
=400,648
P
Consolidated changes in the present value of the defined benefit obligation are as follows:
Defined benefit obligation at beginning of year
Effect of business combination
Actuarial gains on obligation
Current service cost
Interest cost
Benefits paid
Curtailment gain
Defined benefit obligation at end of year
2008
P
=860,113
295,408
(743,346)
137,583
122,273
(98,030)
(4,587)
P
=569,414
2007
=853,765
P
–
(143,545)
118,462
71,373
(38,218)
(1,724)
=860,113
P
Change in the fair value of plan assets of the Parent Company and Sky Cable are as follows:
Fair value of plan assets at beginning of year
Effect of business combination
Expected return on plan assets
Actual contribution
Actuarial gains (losses)
Benefits paid
Fair value of plan assets at end of year
2008
P
=264,458
15,789
22,355
70,146
(15,706)
(617)
P
=356,425
2007
=175,580
P
–
17,486
70,000
1,392
–
=264,458
P
Actual return (loss) on plan assets
(P
=19,828)
=18,878
P
The Parent Company expects to contribute P
=150 million to its defined benefit obligation in 2009.
Sky Cable does not expect to contribute to its pension plan in 2009.
The major categories of plan assets as a percentage of the fair value of total plan assets are as
follows:
2007
2008
(Percentage)
Cash
Investment in FXTN/FRTN
Investment in government securities and bonds
Investment in stocks
Others
23.0
42.2
18.1
14.1
2.6
100.0
–
49.7
17.1
24.5
8.7
100.0
*SGVMC211620*
- 69 The overall expected rate of return on assets is determined based on the market prices prevailing
on that date, applicable to the period over which the obligation is to be settled.
The principal assumptions used as of January 1, 2008, 2007 and 2006 in determining pension
benefit obligations for the Company’s plans are shown below:
2007
2008
2006
(Percentage)
Discount rate
Expected rate of return on plan assets
Future salary rate increases
16.4
8.0
6.5
7.2
9.0
9.0
11.0
10.0
7.0
Amounts for the current and previous three periods are as follows:
Defined benefit obligation
Fair value of plan assets
Deficit
Experience adjustments on defined
benefit obligation
Experience adjustments on
plan assets
2008
(P
=569,414)
330,425
(238,989)
2007
(P
=860,113)
264,458
(595,655)
2006
(P
=853,765)
175,580
(678,185)
2005
(P
=343,887)
138,952
(204,935)
(223,203)
(10)
(119,602)
–
22,597
–
(15,706)
1,392
28. Commitments
Deal Memorandum with DirecTV
On June 1, 2005, the Parent Company and ABS-CBN International entered in to a 25-year Deal
Memorandum (Memorandum) with DirecTV in which the Parent Company granted DirecTV the
exclusive right via satellite, internet protocol technology and satellite master antenna television
system or similar system, to display, exhibit, perform and distribute certain programs of the Parent
Company that are listed in the Memorandum. ABS-CBN International may engage in any
marketing plan mutually agreed by both parties. All costs under any mutually agreed marketing
plans shall be shared equally between DirecTV and ABS-CBN International.
As provided in the Memorandum, all rights, title and interest in and to the content, discrete
programs or channels not granted to DirecTV are expressly reserved by the Parent Company. All
programming decisions with respect to the programs shall be in the Parent Company’s
commercially reasonable discretion, including the substitution or withdrawal of any scheduled
programs, provided that the Parent Company agrees that the programs will consist substantially the
same content and genre provided for in the Memorandum.
The Memorandum also provides for the following license fees to be paid by DirecTV to the Parent
Company:
a. A license fee for each existing DTH subscriber of ABS-CBN International or new subscriber
who becomes an activated subscriber during the migration period (from June 2005 to
February 2006); and
*SGVMC211620*
- 70 b. An additional license fee for each activated subscriber who becomes an activated subscriber
during the migration period and remains a subscriber for 14 consecutive months.
The Memorandum also provides that subscription revenues, computed as the current and stand
alone retail price per month for a subscription to The Filipino Channel multiplied by the average
number of subscribers, shall be divided equally between DirecTV and ABS-CBN International.
Starting July 2005, existing DTH subscribers of ABS-CBN International have been migrating to
DirecTV. License fees earned from DirecTV amounted to P
=548 million in 2007 (representing
additional license fee for each subscriber who became activated during the migration period and
remained a subscriber for 14 months) and P
=1,117 million in 2006. ABS-CBN International’s
share in the subscription revenue earned from subscribers that have migrated to DirecTV
amounted to P
=797 million in 2008, P
=772 million in 2007 and P
=616 million in 2006.
On January 17, 2006, the Parent Company and DirecTV agreed to amend the Memorandum
entered in June 1, 2005 to include, among others, the extension of the migration period from
February 2006 to August 2006. The contract on license fee of ABS-CBN with DirecTV ended in
October 2007.
Operating Lease
As Lessee. The Parent Company and subsidiaries lease office facilities, space and satellite
equipment. Future minimum rental payable under non-cancelable operating leases are as follows:
Within one year
After one year but not more than five years
After five years
2008
P
=217,646
932,605
61,062
P
=1,211,313
2007
=191,648
P
850,989
198,227
=1,240,864
P
As Lessor. The Parent Company has entered into commercial property leases on its building,
consisting of the Parent Company’s surplus office buildings. These non-cancelable leases have
remaining non-cancelable lease terms of 3 to 5 years. All leases include a clause to enable upward
revision of the rental charge on a predetermined rate.
Future minimum rentals receivable under non-cancelable operating leases are as follows:
Within one year
After one year but not more than five years
2008
P
=11,439
38,278
P
=49,717
2007
=26,433
P
82,972
=109,405
P
*SGVMC211620*
- 71 Obligations under Capital Lease
The Company has finance leases over various items of equipment. Future minimum lease
payments under finance leases and hire purchase contracts together with the present value of the
net minimum lease payments are as follows:
Within one year
After one year but not more than five years
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
Less current portion
2008
P
=164,580
190,430
355,010
40,560
314,450
140,166
P
=174,284
2007
=214,300
P
271,377
485,677
64,558
421,119
177,706
=243,413
P
Purchase Commitments
Sky Cable has commitments with various program suppliers for a period of 1 to 5 years. Channel
license fees are based on fixed and variable rates. Estimated fees for the next three years are as
follows:
Year
2009
2010
2011
Amount*
P370,483
=
236,638
11,024
* Includes variable fees based on the number of active subscribers
as of December 31, 2008.
The estimated fees include channel license fees contracted by Sky Cable for its subsidiaries,
amounting to P
=68.9 million, for which Sky Cable will be reimbursed.
29. Financial Risk Management Objectives and Policies
The Company’s principal financial instruments comprise cash and cash equivalents, available-forsale financial assets, and bank loans. The main purpose of these financial instruments is to raise
funds for the Company’s operations. The Company has various other financial assets and
liabilities such as trade receivables and trade payables, which arise directly from its operations.
The Company also enters into derivative transactions, including principally interest rate swaps and
cross currency swaps. The purpose is to manage the interest rate and currency risks arising from
the Company’s sources of finance.
It is, and has been throughout the year under review, the Company’s policy that no trading in
financial instruments shall be undertaken.
*SGVMC211620*
- 72 The main risks arising from the Company’s financial instruments are interest rate risk, foreign
currency risk, credit risk and liquidity risk. The BOD reviews and agrees on the policies for
managing each of these risks and they are summarized below. The Company’s accounting
policies in relation to derivatives are set out in Note 2.
Cash Flow Interest Rate Risk
The Company’s exposure to the risk for changes in market interest rates relates primarily to the
Company’s long-term receivable and debt obligations with floating interest rates.
To manage this mix in a cost-efficient manner, the Company entered into interest rate swaps, in
which the Company agrees to exchange, at specified intervals, the difference between fixed and
variable rate interest amounts calculated by reference to an agreed-upon notional principal
amount. These swaps are designated to hedge underlying debt obligations. Before the
prepayment of all outstanding loan obligations under Tranche A of the SCA facility and after
taking into account the effect of interest rate swaps, approximately 43% of the Company’s
borrowings are at a fixed rate of interest. However, in 2007, the derivative contracts that cover
these swaps have been terminated as a result of the prepayment of the underlying loan obligation.
Without the existence of any swaps, the Company’s loan with fixed rate of interest is at about 26%
of the total loans at the end of 2008 and 25% as at end of 2007.
The following table sets out the carrying amount, by maturity, of the Company’s consolidated
financial instruments that are exposed to interest rate risk:
Two to
Within One to Two
One Year
Years Three Years
2008
Interest-bearings loans
and borrowings:
Fixed rate
Floating rate
2007
Long-term receivables Floating rate
Interest-bearings loans
and borrowings:
Fixed rate
Floating rate
Three
to Four
Years
Four
to Five
Years
More than
Five Years
Transaction
Costs and
Discount
Total
P
= 165,963
993,783
P
= 126,480
108,000
P
= 51,392
448,718
P
= 420,421
3,547,636
P
= 1,740
1,055,820
P
= 1,896,096
339,410
(P
= 340,871)
(100,184)
P
= 2,321,221
6,393,183
=–
P
=–
P
=–
P
=54,629
P
=252,801
P
=1,490,736
P
(P
=363,852)
=1,434,314
P
614,300
10,127
131,375
43,875
84,473
108,000
42,080
378,000
416,648
3,322,172
854,207
–
(378,430)
(111,023)
1,764,653
3,751,151
Interest on financial instruments classified as floating rate is repriced at intervals of less than three
months. Interest on financial instruments classified as fixed rate is fixed until the maturity of the
instrument. The other financial instruments of the Company that are not included in the above
tables are noninterest-bearing and are therefore not subject to interest rate risk.
*SGVMC211620*
- 73 On the average, benchmark interest rates, 3-month PDST-F, increased by 160 basis points since
the end of 2007. Looking at past trends, however, this has not always been the case with several
periods showing some downward adjustments due to several market pressures. Based on these
experiences, the Company provides the following table to demonstrate the sensitivity to a
reasonably possible change in interest rates, with all other variables held constant, of the
Company’s income before income tax (through the impact on floating rate borrowings). There is
no impact on the Company’s equity other than those already affecting the net income.
Effect on Income
Before Income
Tax Increase (Decrease)
2007
2008
Parent Company:
Increase by 2%
Decrease by 2%
Sky Cable:
Increase by 1%
Decrease by 1%
(P
=105,169)
105,169
(9,037)
9,037
(P
=45,621)
45,621
–
–
Foreign Currency Risk
The Company’s primary exposure to the risk in changes in foreign currency relates to the
Company’s long-term debt obligation. Before the prepayment of all outstanding dollar loan
obligations under Tranche A of the SCA facility, approximately 26% of the Company’s
borrowings are denominated in currencies other than the functional currency of the operating unit.
These were all covered by cross currency swaps which have all been terminated as a result of the
prepayment of the underlying loan obligation. As of December 31, 2008, there are no outstanding
derivative contracts and all the Company’s long-term loan obligations are in Philippine currency.
It is the Company’s policy to enter into cross currency swaps to manage foreign currency risk and
eliminate the variability of cash flows due to changes in the fair value of the foreign-currency
denominated debt with maturity of more than one year.
Other than the debt obligations, the Company has transactional currency exposures. Such
exposure arises when the transaction is denominated in currencies other than the functional
currency of the operating unit or the counterparty.
*SGVMC211620*
- 74 The following tables show the Company’s significant foreign currency-denominated financial
assets and liabilities and their Philippine peso equivalents as of December 31, 2008 and 2007:
2008
Original Currency
Financial assets:
Cash and cash equivalents
Trade and other
receivables
Other noncurrent assets
Financial liabilities:
Short term loans
Trade and other payables
Obligations for program
rights
USD
EURO
(EUR)
JPY
CAD
GBP
2,229
1,319
4,079
1,253
–
15,776
8,154
26,159
(1,569)
921
671
(7,082)
9,843
6,840
–
297
1,550
5,000
11,455
–
1,026
–
13,452
8,891
25,346
–
1,026
–
13,452
Net foreign currencydenominated financial
assets (liabilities)
813
(355)
(6,612)
United Arab
Emirates
Dirham
AUD
(AED)
–
Peso
Equivalent
99
189,732
–
(115)
(115)
–
(49)
(49)
4,735
1,325
6,159
763,263
455,773
1,408,768
–
–
–
89
–
38
–
7,557
237,600
521,428
–
–
–
89
–
38
–
7,557
422,502
1,181,530
(204)
(87)
(1,398)
1,550
227,238
2007
Original Currency
Financial assets:
Cash and cash equivalents
Trade and other receivables
Other noncurrent assets
Financial liabilities:
Trade and other payables
Obligations for program rights
Net foreign currency-denominated
financial assets
United Arab
Emirates
Dirham
(AED)
CAD
USD
EURO
(EUR)
JPY
Peso
Equivalent
25,591
24,001
946
50,538
572
1,271
–
1,843
–
7,534
–
7,534
1,083
664
–
1,747
9,978
7,237
–
17,215
1,250,980
1,182,857
39,067
2,472,904
14,551
6,611
21,162
1,555
–
1,555
971
–
971
520
–
520
491
–
491
729,511
278,208
1,007,719
29,376
288
6,563
1,227
16,724
1,465,185
In translating the foreign currency-denominated monetary assets and liabilities into peso amounts,
the Company used the following exchange rates:
Currency
USD
EUR
JPY
CAD
AED
2008
47.52
66.63
0.53
39.17
12.91
2007
41.28
61.25
0.38
42.07
11.43
*SGVMC211620*
- 75 The following table demonstrates the sensitivity to a reasonably possible change in foreign
exchange rates, with all other variables held constant, of the Company’s income before income
tax. There is no impact on the Company’s equity other than those already affecting the net
income.
USD
EUR
JPY
CAD
GBP
AUD
AED
USD
EUR
JPY
CAD
AED
2008
Increase
(Decrease)
in P
= to Foreign
Currency
Exchange Rate
3%
-1%
1%
-1%
1%
-4%
2%
-3%
2%
-2%
4%
-7%
3%
-1%
Effect
on Income
Before
Income Tax
P
=1,244
(345)
(1,203)
2,065
(85)
458
1
(1)
(294)
274
(116)
198
(232)
45
2007
Increase
(Decrease)
in =
P to Foreign
Currency
Exchange Rate
2%
-3%
6%
-4%
14%
-4%
5%
-5%
5%
-4%
Effect
on Income
Before
Income Tax
=9,063
P
(16,110)
1,965
(1,178)
87
(25)
–
–
–
–
The change in currency rate is based on the Company’s best estimate of expected change
considering historical trends and experiences. Positive change in currency rate reflects a weaker
peso against foreign currency.
*SGVMC211620*
- 76 The Company computes for the percentages of changes in exchange rates for the foreign currency
denominated accounts by comparing the year-end closing rates or existing foreign currency
exchange rates with the forward foreign currency exchange rates three months before and after
balance sheet date. The Company assumes the trend for the six months period to be their exposure
on foreign currency fluctuations
Credit Risk
The Company is exposed to credit risk from operational and certain of its financing activities. On
the Company’s credit risk arising from operating activities, the Company only extends credit with
recognized and accredited third parties. The Company implements a pay before broadcast policy
to new customers. To improve collections over the Company’s trade receivables, the Company
grants discounts on early payment. In addition, receivable balances are monitored on an ongoing
basis. Such determination takes into consideration the age of the receivable and the current
solvency of the individual accounts.
With regard to the Company’s financing activities, as a general rule, the Company transacts these
activities with counterparties that have a long credit history in the market and outstanding
relationship with the Company. The policy of the Company is to have the BOD accredit these
banks and/or financial institutions before any of these financing activities take place.
With respect to credit risk arising from the financial assets of the Company, which comprise trade
and other receivables, cash and cash equivalents, available-for-sale financial assets, and
receivables from related parties, the Company’s exposure to credit risk arises from default of the
counterparty, with a maximum exposure equal to the carrying amount of these instruments.
There is no requirement for collateral over trade receivables since the Company trades only with
recognized and accredited counterparties.
The maximum exposure to credit risk is partly represented by the carrying amounts of the
financial assets that are reported in the consolidated balance sheets.
Credit Risk Exposures. The table below shows the gross maximum exposure to on- and offbalance sheet credit risk exposures (including derivatives) of the Company, without considering
the effects of collateral, credit enhancements and other credit risk mitigation techniques as of
December 31:
Cash and cash equivalents (excluding cash on hand)
Trade and other receivables - net (excluding
advances to suppliers)
Derivative assets (included as part of
“Other current assets”)
AFS investments (included as part of “Other
noncurrent assets”)
Long-term receivables from related parties
2008
P
=2,484,957
2007
=2,125,260
P
4,766,307
4,407,436
16,223
–
371,414
–
P
=7,638,901
77,242
3,893,236
=10,503,174
P
*SGVMC211620*
- 77 Credit Quality per Class of Financial Asset. The credit quality of financial assets is being
managed by the Company using internal credit ratings. The following tables below shows the
credit quality by class of financial assets based on the Company’s credit rating system as of
December 31, 2008 and 2007:
2008
Neither Past Due nor Impaired
Past Due but
Low
Moderate
High not Impaired
Cash and cash equivalents:
Cash in banks
Cash equivalents
Trade receivables:
Airtime
Subscriptions
Others
Nontrade receivables
Due from related parties
Derivative assets
AFS investments
Cash and cash equivalents:
Cash in banks
Cash equivalents
Trade receivables:
Airtime
Subscriptions
Others
Nontrade receivables
Due from related parties
AFS investments
Long-term receivables from
related parties
Impaired
Total
P
=–
–
P
=–
–
1,357,497
1,127,460
P
=–
–
P
=–
–
P
=1,357,497
1,127,460
13,533
52,933
57,424
23,310
–
–
–
P
= 147,200
311,642
26,476
245,537
20,386
–
–
–
P
=604,041
1,040,364
407,328
325,840
223,320
–
16,223
371,414
P
=4,869,446
766,503
401,214
367,170
183,568
123,903
–
–
P
=1,842,358
405,642
104,152
64,794
41,374
–
–
–
P
=615,962
2,537,684
992,103
1,060,765
491,958
123,903
16,223
371,414
P
=8,079,007
2007
Neither Past Due nor Impaired
Past Due but
Low
Moderate
High not Impaired
Impaired
Total
=–
P
–
=–
P
–
=1,532,468
P
592,792
=–
P
–
=–
P
–
=1,532,468
P
592,792
31,695
104,921
484
28,995
–
–
330,034
128,366
164,709
7,790
–
–
1,103,219
171,077
124,781
97,431
–
77,242
609,138
429,555
551,653
334,706
153,409
–
219,173
61,094
39,855
34,181
–
–
2,293,259
895,013
881,482
503,103
153,409
77,242
–
=166,095
P
–
=630,899
P
3,893,236
=7,592,246
P
–
=2,078,461
P
–
3,893,236
=354,303 P
P
=10,822,004
The credit quality of the financial assets was determined as follows:
§
Low Credit Quality
For receivables, this covers accounts of slow paying customers and those whose payments are
received upon demand at report date. This also includes claims from Special subscribers.
§
Moderate Credit Quality
For receivables, this covers accounts of standard paying customers, those whose payments are
within the credit term, and new customers for which sufficient credit history has not been
established. This also includes of claims from Superior subscribers, airtime and channel lease
and related parties without offsetting arrangement.
*SGVMC211620*
- 78 §
High Credit Quality
This includes deposits or placements to counterparties with good credit rating or bank
standing. For receivables, this covers, as of report date, accounts of good paying customers,
with good credit standing and with no history of account treatment for a defined period. This
also includes claims from Elite subscribers, advance payers, airtime and channel lease with
advance payment arrangements, related parties with offsetting arrangement and existing
employees.
Trade Receivables
These represent amounts collectible from advertising agencies, advertisers or trade customers
arising from the sale of airtime, subscription, services and/or goods in the ordinary course of
business.
Airtime. This account refers to revenue generated from the sale of time or time block within the
on-air broadcast hours on television and radio.
Subscriptions. This account refers to revenue generated from regular subscriber’s fees for either:
(1) access to programs aired through DTH and cable television systems, or (2) direct sale of
publications to subscribers.
Others. This account refers to other revenue generated from the sale of goods and services.
Nontrade Receivables
These represent claims, arising from sources other than the sale of airtime, subscriptions, services
and goods in the ordinary course of business, that are reasonably expected to be realized in cash.
The following tables below shows the aging analysis of past due but not impaired receivables per
class that the Company held as of December 31, 2008 and 2007. A financial asset is past due
when a counterparty has failed to make a payment when contractually due.
2008
Neither Past Past Due but not Impaired
Due nor
30 Days
Impaired Less than 30
and Over
Trade receivables:
Airtime
Subscriptions
Others
Nontrade receivables
Due from related parties
P
= 1,365,539
486,737
628,801
267,016
–
P
= 2,748,093
P
=137,454
82,793
43,962
24,906
–
P
=289,115
P
=629,049
318,421
323,208
158,662
123,903
P
=1,553,243
Impaired
Allowance
P
=405,642
104,152
64,794
41,374
–
P
=615,962
(P
=281,086)
(93,807)
(26,029)
(39,184)
–
(P
=440,106)
Total
P
=2,256,598
898,296
1,034,736
452,774
123,903
P
=4,766,307
*SGVMC211620*
- 79 2007
Neither Past Past Due but not Impaired
Due nor
30 Days
Impaired Less than 30
and Over
Impaired
Trade receivables:
Airtime
Subscriptions
Others
Nontrade receivables
Due from related parties
=1,464,948
P
404,364
289,974
134,216
–
=2,293,502
P
=231,322
P
18,321
172,819
15,585
–
=438,047
P
=377,816
P
411,234
378,834
319,121
153,409
=1,640,414
P
=219,173
P
61,094
39,855
34,181
–
=354,303
P
Allowance
(P
=204,678)
(61,048)
(21,319)
(31,785)
–
(P
=318,830)
Total
=2,088,581
P
833,965
860,163
471,318
153,409
=4,407,436
P
Based on the cash flow projection, past due receivables are expected to be collected within 2008.
Liquidity Risk
The Company seeks to manage its funds through cash planning on a weekly basis. This
undertaking specifically considers the maturity of both the financial investments and financial
assets and projected operational disbursements. The Company also employs historical figures and
forecasts from its collection and disbursements. As part of its liquidity risk management, the
Company regularly evaluates its projected and actual cash flows. As a general rule, cash balance
should be equal to P
=200 million at any given time to compensate for operation exigencies in the
periodic absence of cash inflow.
It is the Company’s objective to maintain a balance between continuity of funding and flexibility
through the use of bank credit and investment facilities. As such, the Company continuously
assesses conditions in the financial markets for opportunities to pursue fund raising activities. In
2008, the Company closed two fund raising activities with final maturity of up to 2015. Currently
the debt maturity profile of the company ranges from 3.7 years to 7 years. Also, the Company
places funds in the money market only when there are surpluses from the Company’s
requirements. Placements are strictly made based on cash planning assumptions and as much as
possible, covers only a short period of time.
The table below summarizes the maturity profile of the Company’s financial liabilities based on
contractual undiscounted payments.
Trade and other
payables
Obligations for program
rights
Interest-bearing loans
and borrowings
Customers’ deposits
Within
One Year
One to
Two Years
Three to
Four Years
2008
Four to
Five Years
More than
Five Years
Total
P
= 5,243,173
P
=–
P
=–
P
=–
P
=–
P
=5,243,173
1,129,685
63,000
39,375
–
–
1,232,060
1,673,942
–
=8,046,800
P
2,042,639
–
P
=2,105,639
5,702,430
168,114
P
=5,909,919
2,298,980
–
P
=2,298,980
260,154
–
P
=260,154
11,978,145
168,114
P
=18,621,492
*SGVMC211620*
- 80 2007
Trade and other
payables
Obligations for program
rights
Interest-bearing loans
and borrowings
Within
One Year
One to
Two Years
Three to
Four Years
Four to
Five Years
More than
Five Years
Total
=4,403,699
P
=–
P
=–
P
=–
P
=–
P
=4,403,699
P
790,992
3,808
–
–
–
794,800
1,048,586
=6,243,277
P
1,172,319
P1,176,127
=
4,762,840
P4,762,840
=
975,939
P975,939
=
–
P–
=
7,959,684
=13,158,183
P
Capital Management
The Company’s capital structure pertains to the mix of long-term sources of funds. When the
Company expands, it needs capital, and that capital can come from debt or equity.
The primary objective of the Company’s capital management is to ensure that it maintains healthy
capital ratios and strong credit ratings while viably supporting its business to maximize
shareholder value.
The Company’s approach focuses on efficiently allocating internally generated cash for
operational requirements and investments to grow the existing business as well as to deliver on its
commitment of a regular dividend payout at a maximum of 50% of the previous year’s net
income. Shortages if any and acquisitions or investments in new business are funded by the
incurrence of additional debt largely capped by existing loan covenants on financial ratios.
As evidenced by the quarterly financial certificates that the Company issued to its lenders, all
financial ratios are within the required limits all throughout 2008 and 2007 as follows:
Financial Ratios
Debt to earnings before
income tax, depreciation
and amortization
Earnings before income tax
to financing cost
Debt service coverage ratio
Required
2008
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Less than or equal to 2.25
Greater than or equal to
3.00
Greater than or equal
to 1.10
1.10
1.20
1.33
1.49
4.86
4.72
4.96
4.38
2.10
2.31
1.30
1.95
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
0.96
0.87
1.06
1.09
2.94
3.49
4.04
4.50
1.39
1.54
2.18
1.63
2007
Financial Ratios
Debt to earnings before
income tax, depreciation
and amortization
Earnings before income tax
to financing cost
Debt service coverage ratio
Required
Less than or equal to 2.25
Greater than or equal to
2.00 on or before
September 30, 2007
Greater than or equal to
3.00 after
September 30, 2007
Greater than or equal
to 1.10
*SGVMC211620*
- 81 The following table shows the financial ratios that Sky Cable is required to maintain in accordance
with the DRA:
Financial ratios
Current ratio
Total liabilities to equity
Debt service coverage ratio
Required
Greater than or equal to 0.34
Less than or equal to 26.89
Greater than or equal to 1.62
2008
0.87
0.65
0.88
In 2008, Sky Cable did not comply with the debt service coverage ratio as required by the
creditors in the agreement. On November 3, 2008, Sky Cable received a waiver of this ratio from
the majority of its creditors as required by the agreement.
30. 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 December 31, 2008 and 2007. There are no
material unrecognized financial assets and liabilities as of December 31, 2008 and 2007.
2007
2008
Financial Assets
Loans and receivables:
Cash and cash equivalents
Trade and other receivables - net
Long-term receivables from
related parties
Derivative assets not designated as
accounting hedges (included as part
of “Other current assets”)
AFS financial assets (included as part
of “Other noncurrent assets”)
Financial Liabilities
Other financial liabilities at amortized cost:
Trade and other payables
Interest-bearing loans and borrowings
Obligations for program rights
Customers’ deposits (included as part
of “Other noncurrent liabilities”)
Fair Value
Carrying
Amount
Fair Value
P
=2,524,254
4,766,307
P
=2,524,254
4,766,307
=2,145,778
P
4,407,436
=2,145,778
P
4,407,436
–
–
3,893,236
4,256,049
16,223
16,223
–
–
371,414
P
=7,678,198
371,414
P
=7,678,198
77,242
=10,523,692
P
77,242
=10,886,505
P
P
=5,306,499
8,714,404
1,215,359
P
=5,306,499
9,317,169
1,297,221
=4,403,699
P
5,515,804
794,800
=4,403,699
P
5,911,140
796,344
168,114
P
=15,404,376
165,948
P
=16,086,837
–
=10,714,303
P
–
=11,111,183
P
Carrying
Amount
*SGVMC211620*
- 82 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 Other Payables. 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.
AFS 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 any 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:
Term loans
Other variable rate loans
Fair Value Assumptions
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
5.3% to 6.7% for those that are peso-denominated and 4.5%
for those that are dollar-denominated.
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.
*SGVMC211620*
- 83 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 P
=55 million, 3-month PHIREF minus
2.9% on a notional amount of P
=2 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 P
=393 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 (see Note 25).
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 P
=44 million previously recorded
in equity were recognized in the 2007 consolidated statement of income (see Note 25).
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 P
=53 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 P
=32 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 P
=48 million.
The effective net mark-to-market losses that have been deferred in equity for these cash flow
hedges amounted to P
=249 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 P
=277 million
previously recorded in equity were recognized in the 2007 consolidated statement of income
(see Note 25).
*SGVMC211620*
- 84 As part of the transition adjustments as of January 1, 2005, the Company initially recognized an
aggregate amount of P
=117 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 P
=54 million in 2007
and P
=31 million in 2006. This is recorded as a reduction in interest expense (see Note 25).
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 P
=105 million and P
=26 million,
respectively, in 2006. The aggregate total of P
=131 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 P
=16 million.
*SGVMC211620*
- 85 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
31. EPS Computations
Basic EPS amounts 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.
The following table presents information necessary to calculate EPS:
(a) Net income attributable to equity
holders of the Parent Company
(b) Weighted average shares outstanding:
At beginning of year
Acquisitions of PDRs
(see Note 19)
Issuances of PDRs
(see Note 19)
At end of year
Basic/Diluted EPS (a/b)
2008
2007
2006
P
=1,383,464
=1,266,744
P
=740,552
P
768,585,084
769,676,556
769,583,312
(1,217,721)
(2,082,404)
–
–
767,367,363
990,932
768,585,084
93,244
769,676,556
P
=1.803
=1.648
P
=0.962
P
The Company has no dilutive potential common shares outstanding, therefore basic EPS is the
same as diluted EPS.
*SGVMC211620*
- 86 -
32. Note to Consolidated Statements of Cash Flows
Noncash investing and financing activities:
Acquisitions of program rights
on account
Acquisitions of property and
equipment under capital lease
Payment of bonus through the issuance
of PDRs
2008
2007
2006
P
=773,233
=670,165
P
=393,736
P
96,492
280,287
118,004
–
55,141
22,379
33. Other Matters
a. In 1972, the Parent Company discontinued its operations when the government took
possession of its property and equipment. In the succeeding years, the property and
equipment were used without compensation to the Parent Company by Radio Philippines
Network, Inc. (RPN) from 1972 to 1979, and Maharlika Broadcasting System (MBS) from
1980 to 1986. A substantial portion of these property and equipment was also used from 1986
to 1992 without compensation to the Parent Company by People’s Television 4, another
government entity. In 1986, the Parent Company resumed commercial operations and was
granted temporary permits by the government to operate several television and radio stations.
The Parent Company, together with Chronicle Broadcasting System, filed a civil case on
January 14, 1988 against Ferdinand E. Marcos and his family, RPN, MBS, et. al, before the
Sandiganbayan to press collection of the unpaid rentals for the use of its facilities from
September 1972 to February 1986 totaling P
=305 million plus legal interest compounded
quarterly and exemplary damages of P
=100 million.
The BOD resolved on June 27, 1991 to declare as scrip dividends, in favor of all stockholders
of record as of that date, whatever amount that may be recovered from the foregoing pending
claims and the rentals subsequently settled in 1995. The scrip dividends were declared on
March 29, 2000. In 2003, additional scrip dividends of P
=13 million were recognized for the
said stockholders.
On April 28, 1995, the Parent Company and the government entered into a compromise
settlement of rental claims from 1986 to 1992. The compromise agreement includes payment
to the Parent Company of P
=30 million (net of the government’s counterclaim against the
Parent Company of P
=68 million) by way of TCCs or other forms of noncash settlement as full
and final settlement of the rentals from 1986 to 1992. The TCCs were issued in 1998.
*SGVMC211620*
- 87 b. The Company has contingent liabilities with respect to claims and lawsuits filed by third
parties. The events that transpired last February 4, 2006, which resulted in the death of 71
people and injury to about 200 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 March 25, 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.
c. A competitor broadcasting company filed a case before the National Telecommunications
Commission (NTC) asking for the latter to declare as null and void the consolidation of the
cable operating companies, Home, Sky Vision and Unilink. On November 16, 2004, the NTC
denied the motion for cease and desisted order filed by the competitor broadcasting company.
On November 30, 2004, the competitor broadcasting company filed a motion for
reconsideration which was also denied by the NTC on October 13, 2005. This case was then
elevated by the complainant to the Court of Appeals (“CA”). On October 10, 2007, the CA
has rendered its decision dismissing the petition of the complainant. The complainant has
filed a Motion for Reconsideration at the CA. It is the opinion of Sky Vision’s legal counsels
that the case filed by the competitor television broadcasting company is without legal basis.
*SGVMC211620*