COVER SHEET
Transcription
COVER SHEET
April 15, 2004 COVER SHEET 1 8 0 3 S.E.C. Registration Numer A B S - C B N BROADCA S T I NG C O R P O R A T I ON (Company's Full Name) A B S - C B N BROADCA S T I NG S G T . E S G U ERRA CEN T ER A V E . QUE ZON C I T Y (Business Address: No. Street City / Town / Province) RANDOLPH T. ESTRELLADO 924-1610 Contact Person Company Telephone Number 1 7 - A Day Month Fiscal Year Day Month Annual Meeting FORM TYPE Secondary License Type, If Applicable Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings Total No. of Stockholders Domestic To be accomplished by SEC Personnel concerned File Number LCU Document I.D. Cashier STAMPS Foreign 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, 2003 2. SEC Identification Number 1803 3. BIR Tax Identification No. 301-000406-761V 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 Centre Complex, 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 Bank loans Long-term debt Number of Shares of Common Stock Outstanding and Amount of Debt Outstanding 779,583,312 Php 220.577 mln Php5,569.874 mln 11. Are any or all of these securities listed on a Stock Exchange. Yes [ x ] No [ ] If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange Class A 12. Check whether the issuer: (a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports); Yes [ x ] No [ ] (b) has been subject to such filing requirements for the past ninety (90) days. Yes [ x ] No [ ] 13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. Php8,283,796,325 (as of February 29, 2004) 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 an 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 – EXHIBITS AND SCHEDULES Exhibit 1 – Reports on SEC Form 17-C Exhibit 2 -- 2003 Annual Report to Security Holders SIGNATURES 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, the 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. • Subsidiaries and Affiliates Company Subsidiaries ABS-CBN Center for Communication Arts, Inc. ABS-CBN Middle East FCLLZ (Dubai) ABS-CBN Film Productions, Inc. (ABS-CBN Films) ABS-CBN Global Ltd. ABS-CBN Interactive, Inc. ABS-CBN International, Inc. ABS-CBN Publishing, Inc. Creative Creatures, Inc. Creative Programs, Inc. E-Money Plus, Inc. Professional Services for Television & Radio, Inc. Sarimanok News Network, Inc. (SNN) Sky Films, Inc. Star Recording, Inc. Principal Activities Ownership Interest 100.0 100.0(a) 100.0 100.0 100.0 80.0(a) 100.0 100.0 100.0 100.0(a) 100.0 100.0 100.0 Studio 23, Inc. TV Food Chefs, Inc. Roadrunner Network, Inc. Services Cable and satellite operations Movie production Holding company Services Cable and satellite operations Consumer products -- publishing Services Cable operation Services Services Cable operation Services – movie films Consumer products -- audio production Broadcasting Restaurant & catering services Services -- post production Discontinuing Operations ABS-CBN Consumer Products, Inc. (b) Consumer products 100.0 100.0 100.0 100.0 98.9 ABS-CBN Europe Societa Per Azioni (b) ABS-CBN Hong Kong, Ltd. (b) Cinemagica, Inc. (b) Shopping Network, Inc. (c) Services Services Services Consumer products Associates AMCARA Broadcasting Network, Inc. Star Cinema Productions, Inc. Sky Vision Corporation Services Movie production Cable operation 100.0 100.0 100.0 100.0 49.0 45.0 10.2 indirectly owned through ABS-CBN Global ceased commercial operations on December 31, 2002 (c) ceased commercial operations on December 31, 2001 (a) (b) • Competition There are currently 12 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 seven on very high frequency (VHF) and five on ultra high frequency (UHF). The major VHF broadcasting networks in the country and their corresponding Mega Manila channels are as follows: ABS-CBN Broadcasting Corp. -Channel 2 National Broadcasting Network -Channel 4 Associated Broadcasting Corp. -Channel 5 GMA Network, Inc. -Channel 7 Radio Philippine Network -Channel 9 ZOE TV -Channel 11 Intercontinental Broadcasting Corp. -Channel 13 Channels 4, 9 and 13 are currently owned by the Philippine government, although the privatization of Channel 9 and 13 has been proposed. The principal UHF networks operating in the Philippines and their corresponding Mega Manila channels are as follows: Studio 23 -Channel 23, operated by the Company Southern Broadcasting Network -SBN 21 RJ Broadcasting -RJTV 29 National Broadcasting Corp. (MTV Phils) Channel 41 Eagle Broadcasting -Net 25 For the year 2003, ABS-CBN remained the dominant leader in the industry with a rating of 15.9 per cent and a 40.0 per cent audience share in Mega Manila. OVERALL CHANNEL RATINGS AND RANKINGS IN MEGA MANILA 01January – 31December 2003 6:00am-12:00mn Audience Rank Channel Rating (%) Share (%) 1 ABS-CBN 15.9 43.3 2 GMA 13.7 33.5 3 ABC 0.6 1.4 4 5 6 7 Other VHF Studio 23 Other UHF Total Cable Total Channel 2.6 1.5 0.7 4.8 39.8 6.6 3.9 1.8 12.1 100.0 Based on AGB Philippines Mega Manila Households Data • Employees The number of employees and talents of the Company was 4,018 and 3,734 as of December 31, 2003 and 2002, respectively. The number of employees and talents of the Company and its subsidiaries was 6,305, 6,059 and 5,804 as of December 31, 2003, 2002, and 2001, respectively. • 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. As a result, the Company’s business may be affected by the general condition of the economy of the Philippines. • Transactions with and/or dependence on related parties See Note 13 Related Party Disclosures of the Notes to the 2003 Financial Statement attached hereto as Exhibit “1”. • 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 one for the rank and file employees. The collective bargaining agreement (CBA) for the supervisory union will expire on 31 July 2005 while the CBA with the non-supervisory union expires on 10 December 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, pay, 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 two (3) to three (3) years. Such programs comprise approximately twenty percent (20%) of the programming of ABS-CBN's Manila VHF Channel 2 and approximately thirty (30%) percent of the content of its Manila UHF Channel 23. ABSCBN and its wholly-owned subsidiary, Sky Films, Inc., 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 ten (10) to fifteen (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. The government departments and agencies that administer the laws governing the broadcasting industry are the National Telecommunications Commission (NTC), the Department of Transportation and Communication (DOTC), the Movie and Television Review and Classification Board (MTRCB), the Videogram Regulatory Board (VRB), 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 business 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 VRB 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. Item 2. Properties The properties of the Company consist of production broadcasting, transmission and office facilities, almost all 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 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 three television soundstages, three 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. On 02 September 2002, the Company constituted a first mortgage on some of its properties to secure the performance of its obligations under the Exchangeable Notes Facility Agreement dated 02 September 2002 (“ENFA”). Under the ENFA, the Company obtained long-term financing in an aggregate amount up to P3.6 Billion for the purpose of raising permanent working capital and/or refinancing of its shortterm debts or to be used to upgrade its existing plant and network facilities to improve the quality of its service. • 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, 2003: VHF TV STATIONS CH STATION STATION TYPE Location 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Manila Cebu Bacolod Cagayan De Oro Davao General Santos Zamboanga Naga Tacloban Dumaguete Isabela Tuguegarao Cotabato Baguio Iligan Butuan Ilocos Norte Legaspi Olongapo Batangas 2 3 4 2 4 3 3 11 2 12 2 3 5 3 4 11 7 4 12 10 Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Mo. Ignacia St., Diliman, QC Mt. Busay, Cebu City Mt. Kanlandog, Murcia, Negros Occ. Mt. Kitanglad, Bukidnon Shrine Hill, 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 Mt. Banoy, Batangas 21 22 23 24 Bohol Mt. Province Zambales Albay 13 11 13 6 Relay Relay Relay Relay Jagna, Bohol Mt. Amuyao, Mt. Province Mt. Bucao, Botolan, Zambales Malilipot,, Albay 25 26 Masbate Comm. Bctg. Co. MIT-RTVN 10 7 Affiliate Affiliate Masbate, Masbate Ozamis City 27 28 29 30 31 32 33 MIT-RTVN St. Jude Thaddeus Inst. of Tech Sulu Tawi-Tawi Broadcasting Corporation Our Lady’s Foundation Calbayog Comm. Bctg. Corp. Palawan Bctg. Corp. Sumuroy Bctg. Corp. UHF TV STATIONS NO. STATION 1 2 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 34 35 9 12 10 Affiliate Affiliate Affiliate Mt. Palpalan, Pagadian City Surigao City Jolo, Sulu 9 10 7 7 Affiliate Affiliate Affiliate Affiliate Sorsogon, Sorsogon Calbayog City, Western Samar Puerto Princesa, Palawan Catbalogan City, Northern Samar CH Manila** Cebu Davao Dagupan Naga Batangas Baguio** Ilocos Norte Bacolod Iloilo** Zamboanga Gen. Santos Tacloban*** Cagayan De Oro Dumaguete Zambales Isabela Bohol*** Cotabato Rizal*** Legaspi*** Olongapo Iligan Butuan*** Cotabato*** Pagadian*** Palawan Surigao*** Roxas City Quezon Camarines Norte Kalibo Dipolog Lucena City Lipa City 23 23 21 30 24 36 32 23 22 38 23 36 24 23 24 23 23 40 24 40 23 24 26 22 23 24 23 23 21 22 23 23 42 24 38 STATION TYPE Originating Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate Affiliate STATION LOCATION Metro Manila Mt. Busay, Cebu City* Matina Hills, Davao City* Dagupan City* Naga City* Mt. Banoy, Batangas* Mt. Sto. Tomas (Baguio)* San Nicolas, Laoag* Bacolod City* La Paz, Iloilo City* Zamboanga City* General Santos City* Tacloban City Cagayan de Oro City* Dumaguete City* Mt. Bucao, Botolan, Zambales* Santiago City* Jagna, Bohol Marbel, S. Cotabato Antipolo, Rizal Legaspi City Olongapo City* Iligan City* Butuan City N. Cotabato Pagadian City P. Princesa, Palawan Surigao City Roxas City Baler, Aurora Daet, Camarines Norte Aklan Dipolog City Lucena City, Lucena Lipa City, Batangas * co-located with VHF TV Stations ; **owned by ABS-CBN;*** with pending application with the NTC FM STATIONS STATION 1 2 3 4 5 6 7 8 9 10 11 Manila Cebu Bacolod Davao Baguio Legaspi Naga Laoag Dagupan Iloilo Tacloban FREQ. MHz 101.9 97.1 101.5 101.1 103.1 93.9 93.5 95.5 94.3 91.1 94.3 CALL SIGN STATION TYPE DWRR DYLS DYOO DXRR DZRR DWRD DWAC DWEL DWEC DYMC DYTC Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating Originating 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 12 13 14 15 16 17 18 19 20 Cagayan De Oro Cotabato Gen. Santos Zamboanga Masbate Comm. Bctg. Co. Palawan Bctg. Corp. Tagbilaran Bctg. Corp. Times Bctg. Corp. Times Bctg. Corp. 91.9 95.1 92.7 98.7 95.9 99.9 91.1 95.9 99.9 DXEC DXPS DXBS DXFH DYME DYPR DYTR DXAQ DXWO Originating Originating Originating Originating Affiliate Affiliate Affiliate Affiliate Affiliate CALL SIGN STATION TYPE Bulua, Cagayan de Oro City Cotabato City Lagao, Gen. Santos City Zamboanga City Masbate, Masbate Puerto Princesa, Palawan Tagbilaran City Dipolog City Pagadian City AM STATIONS FREQ. KHz STATION LOCATION 1 Manila 630 DZMM Originating Obando, Bulacan 2 3 4 5 6 7 8 9 Cebu Davao Catbalogan Fairwaves Bctg. Network Tagbilaran Bctg. Corp. First United Bctg. Corp. Times Bctg. Corp. Bicol Bctg. System 1512 1296 1188 837 1116 1080 1242 603 DYAB DXAB DYRV DZXE DYTR DXRH DXSY DWLV Originating Originating Originating Affiliate Affiliate Affiliate Affiliate Affiliate Pardo, Cebu City Matina, Davao City Catbalogan, Samar Mira Hills, Vigan, Ilocos Sur Dampas, Tagbilaran City Zamboanga City Mariano Marcos, Ozamis City Naga City Item 3. Legal Proceedings For the past five 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 ten per cent (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 were listed in 1999. Common shares may be exchanged for Philippine Deposit Receipts, and vice-versa. The Company is the only broadcasting network listed on the PSE. The common shares (ABS) closed at Php19.00 while the Philippine Deposit Receipts (ABSP) closed at Php18.75 on March 30, 2004. • Dividends The declaration and payment of dividends are subject to certain conditions under existing long-term loan agreements of the Company. These long-term loan agreements require that the declaration and payment of dividends shall be made for as long as payments due on said loans and premiums on insurance of assets are current and updated, and only when such payment will not result in the violation of the required financial ratios under the relevant long-term loan agreements, an event of default as provided in the agreements shall not exist or occur as a result of such payment, and the amount of the cash dividends does not exceed the Company’s net income after taxes for the fiscal year preceding the declaration. Further, the ENFA requires that (i) no dividend declaration or payment shall be made before the end of the third quarter of year 2002; (ii) dividend declaration or payment may be made before the end of the year 2003 provided: (a) the financial ratios required thereunder and all terms and conditions in the relevant documents are complied with; (b) no Event of Default shall have occurred or be continuing to occur as a result of such payment; (c) the amount of cash dividends does not exceed the Company’s net income after taxes for the preceding fiscal year; and (d) it shall have a minimum of P6.1 Billion in funding facilities less regular principal payment for long term debts; and (iii) dividends may be declared after the end of year 2003, while any of the obligations under the ENFA remain outstanding, provided that the conditions referred to under (ii) (a), (b) and (c) are complied with. Cash Dividends per Share: Stock Dividends: Stock Prices: -NIL- in 2003 & 2002, P 0.60 in 2001, and P 0.50 in 2000 -NIL- in 2003, 2002, 2001, and 2000 2003 First Quarter Second Quarter Third Quarter Fourth Quarter ABS Low High 16.50 10.50 20.75 10.75 26.50 18.75 29.50 24.25 2002 First Quarter Second Quarter Third Quarter Fourth Quarter High 35.50 38.00 24.75 22.00 Low 24.00 22.00 21.25 14.00 ABSP High Low 16.00 10.50 21.00 10.50 27.00 19.00 29.50 24.25 High 36.00 38.00 25.00 22.00 Low 23.75 22.00 21.50 15.00 The number of shareholders of record as of December 31, 2003 was 8,583. Common shares outstanding as of December 31, 2003 were 779,583,312. • Top 20 Stockholders as of December 31, 2003 As of December 31, 2003, the Top 20 stockholders of ABS-CBN own an aggregate of 747,818,264 or 95.93% of common shares outstanding. Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Shareholder Lopez, Inc. PCD Nominee Corporation Ching Tiong Keng ABS-CBN Foundation, Inc. Carlos Salinas, Sr. Eugenio Lopez III Leticia T. Dee Pua Yok Bing Philippine Communication Satellite Corp. FG Holdings David Pua Meralco Foundation, Inc. Edan Corporation Charlotte C. Cheng Cynthia D. Ching Citizenship Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino Filipino No. of Shares % Ownership 446,231,607 57.24% 294,161,432 37.73% 1,111,500 0.14% 780,995 0.10% 736,200 0.09% 578,190 0.07% 439,590 0.06% 407,100 0.05% 392,500 0.05% 386,270 0.05% 377,800 0.05% 352,600 0.05% 343,000 0.04% 340,000 0.04% 337,500 0.04% 16 17 18 19 20 • Century Securities Corporation Carmela Tiangco Cualoping Securities Corporation Franmar Corporation Gonzalo Roque Jr. &/Or Eric Roque Filipino Filipino Filipino Filipino Filipino 320,000 301,395 281,500 271,377 237,150 0.04% 0.04% 0.04% 0.03% 0.03% 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 attached hereto as Exhibit “1” 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 Exhibit “1”. The Audited Financial Statements as of 31 December 2002 prepared in accordance with SRC Rule 68, as amended and Rule 68.1 is attached hereto as Exhibit “1”. 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 (2004-2005): Eugenio L. Lopez III Augusto Almeda Lopez Oscar M. Lopez Manuel M. Lopez Presentacion L. Psinakis Manuel L. Lopez, Jr. Federico R. Lopez Peter D. Garrucho Luis F. Alejandro Roberto F. De Ocampo (Independent Director) Cesar B. Bautista (Independent Director) All of the above nominees are incumbent directors except for Mr. Luis F. Alejandro whose appointment as President and Chief Operating Officer of ABS-CBN will be effective on May 1, 2004. All the directors were nominated by Lopez, Inc. All of the directors have a term of office of one year. Below is a summary of the nominees’ qualifications: Eugenio L. Lopez III, Filipino, age 52 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. He joined ABS-CBN 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. Mr. Lopez served as Director of the Company from 1986 to 1997 and as Chairman and CEO since 1997. Augusto Almeda-Lopez, Filipino, age 76 Vice-Chairman Mr. Augusto Almeda- Lopez joined the Company in 1962 and has served as Director since 1991. He is a graduate of the University of the Philippines College of Law class 1952 and finished an Advanced Management Program course at Harvard University in 1969. Mr. Almeda-Lopez is the Vice-Chairman of the Company and First Philippine Holdings Corporation, a Trustee of the Meralco Foundation Institute, and a Director of various companies in the telecommunications, manufacturing and service industries. Oscar M. Lopez, Filipino, age 74 Board Member Mr. Oscar M. Lopez joined the Company in 1970 has served as Director since 1966. He is Chairman & CEO of Benpres Holdings Corporation and First Philippine Holdings Corporation. He studied at Harvard College and graduated cum laude with a Bachelor of Arts degree. He obtained his Masters degree in Public Administration at the Littauer School of Public Administration at the Harvard University. Mr. Lopez was chosen Management Man of the Year 2000 by Management Association of the Philippines. Manuel M. Lopez, Filipino, age 62 Board Member Mr. Manuel M. Lopez has served as a Director of the Company since 1970. He also holds the following positions: Chairman & CEO of Manila Electric Company; Chairman of Philippine Commercial Capital Incorporated; Chairman of Rockwell Land Corporation; Director of Benpres Holdings Corporation, First Philippine Holdings Corporation, First Private Power Corporation as well as First Philippine Infrastructure Development Corporation. Presentacion L. Psinakis, Filipino, age 68 Board Member Ms. Psinakis has served as a Director of the Company since 1988. Ms. Psinakis is president of 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. Manuel L. Lopez, Jr., Filipino, age 36 Board Member Mr. Manuel Lopez, Jr. has served as a Director of the Company since 2000. He was Assistant Vice President for Affiliate Marketing for ABS-CBN International North America from 1993-1996. He then joined SkyCable and became a Director. He later became Regional Director for Pilipino Cable Corporation from 1999 up to the present. He is currently 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. Federico R. Lopez, Filipino, age 43 Board Member Mr. Federico R. Lopez has served as a Director of the Company since 1999. He is the President and COO of First Generation Holdings Corporation and all of the holding company's First Gas subsidiaries since 2002. He also holds the position of Vice President at First Philippine Holdings Corporation. He oversees the development, financing and implementation of its energy-related projects. Over the past eight years, Mr. Lopez has been involved in the financing and development of the Sta. Rita 1000 MW project (now in commercial operations) as well as the 500 MW San Lorenzo Project. Mr. Lopez also sits as director of the Board of Bauang Private Power Corporation, First Philippine Energy Corporation, President of First Philippine Conservation, Inc. and Emphasis Salon Systems, Inc. Mr. Lopez is also a trustee of the Hands On Manila Foundation. Peter D. Garrucho, Jr., Filipino, age 60 Board Member Mr. Garrucho has served as a Director of the Company since 1996. He is the Managing Director for Energy of First Philippine Holdings Corporation, and the Vice-Chairman and CEO of First Generation Holdings Corporation. He also serves as the CEO for a number of power generation companies. On March 2000, he was given by Her Majesty, Queen Elizabeth, the award of an Honorary Officer of the Order of the British Empire. Mr. Garrucho has served in various Cabinet positions in the Philippine Government. He holds a Bachelor of Arts & a Bachelor of Science in Business Administration degree from De La Salle University and a Master of Business Administration degree from the Stanford University. Roberto F. De Ocampo, Filipino, age 58 Board Member, Independent Director Dr. de Ocampo has served as a Director of the Company since 2000. Dr. de Ocampo is the current president of the Asian Institute of Management. During the presidency of Fidel V. Ramos, he was the Secretary of Finance (1994-1998) and he was concurrently a member of the Board of Governors of the World Bank, the Asian Development Bank and an Alternate Governor of the International Monetary Fund. He also served as Chairman and CEO of the Development Bank of the Philippines from 1989 to 1994 and Chairman of the APEC Finance Ministers in 1997. In 1995, he was named "Finance Minister of the Year" by Euromoney magazine -- the first Filipino and first ASEAN finance minister to be so recognized. In 1996 and 1997, he was named "Asian Finance Minister of the Year" by the Euromoney and Asiamoney magazines, respectively. He received his MBA from the University of Michigan, a postgraduate diploma from the London School of Economics and has been conferred three Doctorates (Honoris Causa). Cesar B. Bautista, Filipino, age 66 Board Member, Independent Director Mr. Bautista was elected Director of the Company to fill the vacancy created by the resignation of Mr. Vicente Jayme. Mr. Bautista recently returned from his posting as Ambassador to the Court of St. James and Special Envoy of the President to Europe. He was the Secretary of Trade and Industry during the presidency of Fidel V. Ramos (1996-1998) and was concurrently a member of the Monetary Board, and was the Chairman of the APEC Economic Minister Meetings, National Development Co., Board of Investments and the Committee on National Museum Development. He was with Unilever (Philippine Refining Co.) for 33 years (1960-1993) where he became Chairman and CEO during the last 7 years. In 1998, he received the “Distinguished Alumnus Award” of the University of the Philippines and the Distinguished Alumnus Award of the Ohio State University. He is currently a director of a number of private corporations. Luis F. Alejandro, Filipino, age 52 President and COO (effective May 1, 2004) Mr. Alejandro has 24 years combined experience in brand/marketing operations and general management. He started his career at Procter & Gamble where he built a solid 15-year marketing track record which culminated as Category Manager/Marketing Director of the Beauty Care Category. He assumed a U.S. posting and Asia marketing responsibilities towards the latter part of his stint in the consumer goods market leader. In 1995, Alejandro joined Kraft Foods Philippines, Inc. as President and General Manager. During his term with Kraft, revenues grew at double digit levels while market shares across categories were at leadership or strong number two positions. He is the Chief Operating Officer of Heinz UFC Philippines, Inc. and concurrent President and Chief Operating Officer of Southeast Asia Food, Inc. until April 30, 2004. Mr. Alejandro graduated with an economics degree from Ateneo de Manila University and earned a Masters Degree in Business Management from the Asian Institute of Management. Independent Directors of the Board The Company’s Independent Directors, Mr. Roberto F. de Ocampo and Mr. Cesar B. Bautista, have one (1) share of the stock of the Company in their respective names, are both 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, Messrs. De Ocampo and Bautista: (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 five (5) 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 five (5) years, either personally or through their firms; and (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 or insignificant. Mr. De Ocampo and Mr. Bautista 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. The Company has adopted SEC Circular No. 16, Series of 2002 (Guidelines on Nomination and Election of Independent Directors) and compliance therewith has been made. Family Relationships Mr. Oscar M. Lopez is the brother of Mr. Manuel M. Lopez and Mrs. Presentacion L. Psinakis. He is the uncle of Mr. Eugenio L. Lopez III and Mr. Manuel L. Lopez Jr., and the father of Federico R. Lopez. Executive / Corporate Officers Maria Rosario N. Santos-Concio, Filipino, age 49 Executive Vice President As the Entertainment Group Head, Ms. Santos-Concio is in-charge of the content in all of the Company and its subsidiaries’ entertainment programming. She is currently the host of the longest running drama anthology “Maalaala Mo Kaya”. She started her career in the Company as a Television Production Consultant in 1987. Prior to joining the Company, Ms. Santos-Concio was a line producer for the following companies: BanCom, Audiovision, Vanguard Films, Regal Films, and Vision Exponents. She also worked as a Film Production Manager for Experimental Cinema of the Philippines (ECP). She is a winner of the Asia’s Best Actress Award, Baron Travel Girl, and the recipient of various other Philippine cinema and broadcasting industry awards. Ms. Santos-Concio graduated Cum Laude in A.B. Communications Arts at St. Paul’s College in Manila. Rene L. Encarnacion, Filipino, age 50 Senior Vice President Mr. Encarnacion was appointed Senior Vice-President for Strategic Planning on February 1, 2004. Prior to this, he was the Senior Vice-President for the ABS-CBN International Group since 2001. He joined Bayan Telecommunications Inc. in May 1998 as Vice-President for Treasury and became the Senior VicePresident for Finance in January 2000. Mr. Encarnacion has more than 20 years of experience in corporate finance. He holds a Bachelor of Science degree in Business Economics from the University of the Philippines and a Master of Business Administration degree from Harvard University. Nicanor C. Gabunada, Jr., Filipino, age 45 Senior Vice President Mr. Gabunada has been Senior Vice-President for Integrated Sales & Marketing Division since September 2000. Mr. Gabunada, a valedictorian of the Ateneo de Davao University, with a Bachelor of Science degree in Management Engineering, earned his Masters Degree in Industrial Economics from the Center for Research and Communication (now the University of Asia & the Pacific). His various posts prior to his position in the Integrated Sales division include Vice-President for Research and Business Analysis of the Company, Program/PR Director for the Drug Association of the Philippines, Economist/Consultant to the University of Asia and the Pacific and various companies, and General Manager for the Pulse Research Group. Ruben R. Jimenez, Filipino, age 52 Senior Vice President Mr. Jimenez was appointed Senior Vice-President of the Engineering Division in October 2000. He joined the ABS-CBN group of companies as Managing Director of Video Post in 1987. As the group grew to include Audio-Post, Pre-Post, Cinevideo and Star Film Laboratories, he played a key role in forging the merger of these companies into RoadRunner Network Inc. and became its Chief Operating Officer from 1995 to the present. Mr. Jimenez graduated with a Bachelor of Arts degree in Sociology from the University of the Philippines. He has earned units in Master of Business Administration from the Ateneo de Manila University School of Business. Juan L. Manahan, Filipino, age 57 Senior Vice President Mr. Manahan is currently the Senior Vice-President for the Talent Development and Management Center. For more than a decade he has spearheaded the highly successful artist search, development, and management engine of the Company. He was tapped by Mr. Federico Garcia in 1986 to help re-launch ABS-CBN Entertainment and has been instrumental in developing all types of shows for the network. Mr. Manahan graduated from the University of California at Berkeley in 1969 with an Art History Degree and has been a freelance television director for 20 years. His artistic eye and vision for the phenomenal has given rise to the biggest and brightest stars in the entertainment industry. He is also the network’s most respected director having been in the forefront of the Company’s top-rating shows and TV specials. Jose Ramon D. Olives, Filipino, age 41 Senior Vice President Mr. Olives is Senior Vice-President for Business Development and Special Projects. Prior to his transfer to Business Development, he held the position of Senior Vice-President for the International Division, overseeing the operations of The Filipino Channel, the premier cable channel of the Company, in North America, Middle East, Japan and Australia. He is concurrently the Chief of Staff for the Office of the Chairman and the Office of the President. 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. Ricardo V. Puno, Filipino, age 58 Senior Vice President Atty. Puno became the Senior Vice-President for Integrated News and Current Affairs effective March 2003. He returned to the Company after three years of government service and work in the private sector. He headed the Company’s News and Current Affairs department for almost six years before he left to assume the post of Press Secretary and Presidential Spokesman in 2000. He is a multi-awarded broadcast journalist and TOYM awardee. He currently hosts the multi-awarded Current Affairs Program “Dong Puno Live.” His other television credits include “Dong Puno Tonight” on the ABS-CBN News Channel, co-anchoring the daily News Program “Pulso! Aksyon Balita!”, and hosting Studio 23’s “Points of View.” Atty. Puno is a Harvard Law School Master of Laws graduate and is also a Senior Partner in the Puno & Puno Law Office. Ma. Socorro V. Vidanes, Filipino, age 42 Senior Vice President Ms. Vidanes is the Senior Vice-President for Television and Over-all in-charge of TV Production & Programming. Ms. Vidanes has been with the Company since 1986, starting as an Associate Producer. She has been involved in the production of all types of programs - talk shows, variety, comedy and drama. Ms. Vidanes obtained her degree of Bachelor of Arts in Communication Arts from the Ateneo de Manila University. Randolph T. Estrellado, Filipino, age 39 Vice President and Chief Financial Officer Mr. Estrellado has been with the Lopez Group of Companies since 1996, starting as Assistant VicePresident for Treasury of International Communications Corporation, and later as Assistant VicePresident for Finance of its holding company, Benpres Holdings Corporation. He joined the Company as Assistant Vice-President for Finance in 1998 and was promoted to his current position in 2000. Mr. Estrellado obtained his Masters Degree in Business Administration from Harvard Business School in 1991. He obtained his degree of Bachelor of Science in Business Management, Honors Program, from Ateneo de Manila, graduating cum laude in 1986. Other members of the Company’s senior management team as of 31 January 2004 are as follows: Vice President, Gov’t & Corporate Affairs & PR Vice President, Special Projects Vice President, TV Production - Talk, Variety, & Game Vice President, TV Production – Acquisitions Vice President, TV Production – Comedy & RNG Programming Vice-President, Creative Communications Management Vice President, Talent Development & Management Center Vice President, Creative Entertainment & Synergy Vice President, Engineering Division Vice President, Current Affairs Vice-President, News Production Vice President, News Operations Assistant Vice President & Managing Director, ABS-CBN News Channel Vice President, Manila Radio Division &ABS-CBN Sports Vice President, Sales Vice President, Channel Sales & Marketing Officers Vice President, Sales & Marketing Planning Vice President, Research & Business Learning Vice President, Regional Network Group Vice President, Logistics Vice President, Human Resources Vice President, Information Technology & Chief Information Officer Vice President, Chief Legal Counsel Vice President, Legal Counsel Vice President, Internal Audit - Communications Group Vice President, Human Resources - Communications Group Managing Director , ABS-CBN Film Productions, Inc. Vice President & Creative Head, ABS-CBN Film Productions, Inc. Managing Director , ABS-CBN Interactive, Inc. Senior Vice President, ABS-CBN Global, Ltd. Vice President & Managing Director, ABS-CBN International, N.A. Vice President & Managing Director, ABS-CBN Telecom Assistant Vice President & Managing Director, ABS-CBN Middle East FZ-LLC Managing Director, ABS-CBN Europe, Ltd. Managing Director, E-Moneyplus, Inc. (ABS-CBN Global Money) President , ABS-CBN Publishing, Inc. Managing Director, Creative Programs, Inc. General Manager, Prostar, Inc. Managing Director, Roadrunner Network, Inc. - Film Managing Director, Roadrunner Network, Inc. - Star Film Lab. Managing Director, Roadrunner Network, Inc. – Radio-Television Managing Director, Sky Films, Inc. MA. LOURDES LILIA K. ESPINOSA MANALASTAS CARMENCITA A. GUERRERO ROLDEO ENDRINAL EVELYN D. RAYMUNDO JOANNA G. SANTOS MA. CARMINDA M. DE LEON MA. YOLANDA R. ALBERTO JOAQUIN ENRICO C. SANTOS RODRIGO V. CARANDANG FATIMA ARLENE S. DE CASTRO JESUS J. MADERAZO LUCHI CRUZ-VALDES JOSE F. MAGSAYSAY, JR. PETER A. MUSNGI ORLANDO G. GALANG DAVID R. DOMINGUEZ ALDEN M. CASTAÑEDA VIVIAN Y. TIN ROLANDO P. VALDUEZA MERCEDES L. VARGAS PHILIP LAMBERTO L. BERBA JOHNNY C. SY ANDREFANIO D. SANTOS DANILO V. MORALES ALFREDO P. BERNARDO MARIO CARLO P. NEPOMUCENO MARIA LOURDES N. SANTOS OLIVIA M. LAMASAN CARLO L. KATIGBAK RENE L. ENCARNACION RAFAEL L. LOPEZ ZENON D. CARLOS RAFAEL A. JISON JOSE C. NOLAN CANDIDO Q. SANTICO, JR. ERNESTO L. LOPEZ OLIVIA FININA G. DE JESUS GEORGE ANGELO G. PADOLINA ALEJANDRO R. ESCANO, JR. ERIC JOHN HAWTHORNE ARNEDO C. LUCAS LEONARDO P. KATIGBAK Vice President & Managing Director, Star Recording, Inc. (Concurrent) Vice President, Sales & Distribution, Star Recording, Inc. Managing Director, Studio 23 (Concurrent) Assistant Vice President, Managing Director, TV Food Chefs, Inc. Managing Director, ABS-CBN Foundation, Inc. ENRICO C. SANTOS VILMA B. SELGA LEONARDO P. KATIGBAK MYRNA D. SEGISMUNDO REGINA PAZ L. LOPEZ Significant Employees The Company values its human resources. It expects each employee to do his share in achieving the Company’s set goals. Involvement of Directors and Officers in Certain Legal Proceedings For the past five 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 of which any of their property is subject. For the past five 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 five 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 five 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 two fiscal years and to be paid in the ensuing fiscal year to the Company’s chief and five other most highly compensated executive officers follow: SUMMARY COMPENSATION TABLE Annual Compensation Name Chief executive and most highly compensated executive officers: Federico M. Garcia Olivia M. Lamasan Year Salary (P) Bonus (P) Other Annual Compensation 2004E 2003 2002 61,788,748 58,291,271 68,169,464* 0 16,613,645 0 0 0 Joaquin Enrico C. Santos Ma. Lourdes N. Santos Ma. Rosario N. Santos-Concio All managers and up As a group unnamed 2004E 2003 2002 442,602,757 417,549,771 465,351,136* 0 106,287,196 0 0 0 *Compensation figures for 2002 is combined salary and bonus The directors receive per diems for their attendance at board meetings. There are no other arrangements for compensation either by way of payments for committee participation or consulting contracts. There are currently no existing employment contracts with executive officers. There are no arrangements for compensation or payment to be received from the Company in the event of a resignation, retirement or termination of the executive officer’s employment or a change in control of the Company. There are no outstanding warrants or stock options held by the Company’s executives. Item 11. Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Records and Beneficial Owners as of January 31, 2004: Title Of class Name and Address of Beneficial Owner Lopez, Inc. 5/F Benpres Bldg, Exchange Road cor Meralco Ave., Pasig City Common ABS-CBN Holdings Corp. 4/F Benpres Bldg, Exchange Road cor Meralco Ave., Pasig City Citizenship Record / No. of Beneficial Shares Held Per cent Held Common Filipino Filipino Record 446,231,607 57.24% Beneficial 270,554,800 34.71% 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 Corp. are to be voted. ABS-CBN Holdings Corporation is owned 50% by Lopez, Inc. and 50% by Oscar M. Lopez, Manuel M. Lopez, Presentacion L. Psinakis, Eugenio Lopez III and Rommel S. Duran. 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 Corp. are to be voted. Security Ownership of Management as of February 29, 2004: As of February 29, 2004, the Company’s directors and senior officers owned an aggregate of 1,641,943 shares of the Company, equivalent to 0.2106% of the Company’s total issued and outstanding capital stock. Stockholder Name Position Citizenship Record / Beneficial No. Shares Held Percent Held Eugenio Lopez III Augusto Almeda-Lopez Oscar M. Lopez Chairman and CEO Vice-Chairman Director Filipino Filipino Filipino Record Record Record 578,190 191,009 61,620 0.0742% 0.0245% 0.0079% Manuel M. Lopez Presentacion L. Psinakis Federico R. Lopez Manuel L. Lopez, Jr. Peter D. Garrucho, Jr. Roberto F. De Ocampo Cesar B. Bautista Director Director Director Director Director Director Director Filipino Filipino Filipino Filipino Filipino Filipino Filipino Record Record Record Record Record Record Record 144,201 3 1 1 150 1 1 0.0185% 0.0000% 0.0000% 0.0000% 0.0000% 0.0000% 0.0000% Ma. Rosario N. Santos-Concio Executive Vice President Filipino Record 173,212 0.0222% Nicanor C. Gabunada, Jr. Jose Ramon D. Olives Ruben R. Jimenez Rene L. Encarnacion Senior Vice President Senior Vice President Senior Vice President Senior Vice President Filipino Filipino Filipino Filipino Record Record Record Record 55,053 47,109 17,500 578 0.0071% 0.0060% 0.0022% 0.0001% Leonardo P. Katigbak Evelyn D. Raymundo Joaquin Enrico C. Santos Rodrigo V. Carandang Vice President Vice President Vice President Vice President Filipino Filipino Filipino Filipino Record Record Record Record 58,204 41,076 40,000 30,000 0.0075% 0.0053% 0.0051% 0.0038% Randolph T. Estrellado Danilo V. Morales Eduardo D. Flores Johnny C. Sy Vice President & CFO Vice President Vice President Vice President & CIO Filipino Filipino Filipino Filipino Record Record Record Record 20,450 20,000 19,167 17,987 0.0026% 0.0026% 0.0025% 0.0023% Ma. Carminda M. De Leon Rolando P. Valdueza Mercedes L. Vargas Joanna G. Santos Vice President Vice President Vice President Vice President Vice President, ABS-CBN Film Prod’n Managing Director, ABS-CBN Foundation President, ABS-CBN Publishing General Manager, ABS-CBN Publishing Filipino Filipino Filipino Filipino Record Record Record Record 17,850 11,800 10,000 5,000 0.0023% 0.0015% 0.0013% 0.0006% Filipino Record 25,060 0.0032% Filipino Record 22,905 0.0029% Filipino Record 21,653 0.0028% Filipino Record 12,162 0.0016% 1,641,943 0.2106% Olivia M. Lamasan Regina Paz L. Lopez Ernesto L. Lopez Thelma S. San Juan Security Ownership of all Directors and Officers 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. Item 12. Certain Relationships and Related Transactions Relationships and Related Transactions There had been no material transactions during the past two 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. Parent Company Lopez, Inc. is the registered owner of 57.24% of the voting stock of the Company as of February 29, 2004. 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 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 the Company because of a disagreement with the Company on matters relating to the Company’s operations, policies and practices. SIGNATURES Pursuant to the requirements of Section 17 of the Code and Section 141 of the Corporation Code, this report is signed on behalf of the issuer by the undersigned, thereunto duly authorized, in the City of ________________________on__________, 2004. By: <original signed> JOSE RAMON D. OLIVES* Senior Vice President <original signed> RANDOLPH T. ESTRELLADO Vice President & CFO/Comptroller <original signed> MANUEL L.M. TORRES Corporate Secretary SUBSCRIBED AND SWORN to before me this _____ day of _________ 2004 affiant(s) exhibiting to me his/their Residence Certificates, as follows: NAME JOSE RAMON D. OLIVES RANDOLPH T. ESTRELLADO MANUEL L.M. TORRES RES.CERT.NO. DATE OF ISSUE PLACE OF ISSUE 15241424 09766583 22266676 February 26, 2004 January 23, 2004 January 20, 2004 Makati City Quezon City Pasig City <original notarized> NOTARY PUBLIC * Officer-in-charge from March 30, 2004 until April 27, 2004 while Mr. Eugenio Lopez III is on vacation leave EXHIBIT 1: Reports on SEC Form 17-C For the past six months, the Company has filed the following SEC Form 17-C reports and financial statements: Subject of 17-C ! Inclusion of BNP Paribas in ENFA Date Filed July 29, 2003 Financial Statements ! 1Q2003_17Q Amended ! 2Q2003_17Q ! 2Q2003_17Q Amended ! 1Q2003_17Q Amended ! 3Q2003_17Q Date Filed July 24, 2003 August 13, 2003 August 14, 2003 October 13, 2003 November 13, 2003 ABS-CBN BROADCASTING CORPORATION INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES FORM 17-A, Item 7 December 31, 2003 For the Year Ended December 31, 2002 Page No. Consolidated Financial Statements Consolidated Statement of Management’s Responsibility for Financial Statements Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 2003 and 2002 Consolidated Statements of Income and Retained Earnings for the years ended December 31, 2003, 2002 and 2001 Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements Supplementary Schedules Report of Independent Public Accountants on Supplementary Schedules A. B. C. D. E. F. G. H. I. * Marketable Securities - (Current Marketable Equity Securities and Other Shortterm Cash Investments) Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Affiliates) Non-current Marketable Equity Securities, Other Long-term Investments, and Other Investments Indebtedness to Unconsolidated Subsidiaries and Affiliates Intangible Assets - Other Assets Long-term Debt Indebtedness to Affiliates and Related Parties (Long-term Loans from Related Companies) Guarantees of Securities of Other Issuers Capital Stock * * * * * * F * * I These schedules, which are required by RSA Rule 68.1, have been omitted because they are either not required, not applicable or the information required to be presented is included in the Company's consolidated financial statements or the notes to consoli Schedule F. Long Term Debt (Amounts in Thousands Php) Title of Issue and type of obligation Amount authorized by indenture Amount shown under caption "Current portion of long-term debt" in related balance sheet Amount shown under caption "Long-Term Debt" in related balance sheet Exchangeable Notes Facility Agreement 3,637,850 855,965 2,353,903 Syndicated Loans under JEXIM 4 2,000,000 760,000 1,100,000 Banco Santander 1,000,013 500,007 0 TOTAL 6,637,863 2,115,971 3,453,903 I Title of Issue Capital Stock 779,583,312 779,583,312 1,500,000,000 Number of Shares Issued and Outstanding 1,500,000,000 Number of Shares Authorized (a) Lopez, Inc. (b) Under PCD Nominee Corporation owned by ABS-CBN Holdings Corporation Common stock at P1 par value Schedule - - Number of Shares reserved for options, warrants conversions and other rights 716,786,407 446,231,607 270,554,800 Number of Shares Held by Related Parties (a) (b) 1,641,942 1,641,942 Directors, Officers and Employees Others - - STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of ABS-CBN Broadcasting Corporation is responsible for all information and representations contained in the parent company and consolidated balance sheets as of December 31, 2003 and 2002 and the related parent company and consolidated statements of income and retained earnings and cash flows for each of the three years in the period ended December 31, 2003, 2002, and 2001. The financial statements have been prepared in conformity with generally accepted accounting principles in the Philippines and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate consideration to materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the company’s audit committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the internal controls; and (iii) any fraud that involves management or other employees who exercise significant roles in internal controls. The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the company. Sycip, Gorres, Velayo & Co., the independent auditors appointed by the stockholders, have audited the parent and consolidated financial statements of the Company in accordance with generally accepted auditing standards in the Philippines and have expressed their opinion on the fairness of presentation upon completion of such audit, in their report to stockholders and the Board of Directors. Signed under oath by the following: <original signed> JOSE RAMON D. OLIVES Senior Vice President* <original signed> RANDOLPH T. ESTRELLADO Vice President and Chief Financial Officer * Officer-in-charge from March 30, 2004 until April 27, 2004 while Mr. Eugenio Lopez III is on vacation leave ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES Parent Company Financial Statements December 31, 2003 and 2002 Consolidated Financial Statements December 31, 2003 and 2002 and Years Ended December 31, 2003, 2002 and 2001 and Report of Independent Auditors 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) Randolph T. Estrellado 415-2272 (Contact Person) 1 2 3 1 Month Day (Company Telephone Number) A A F S (Form Type) Month (Fiscal Year) Day (Annual Meeting) (Secondary License Type, If Applicable) Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings 8,057 Total No. of Stockholders Domestic Foreign To be accomplished by SEC Personnel concerned File Number LCU Document ID Cashier STAMPS Remarks: Please use BLACK ink for scanning purposes. # ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES BALANCE SHEETS (Amounts in Thousands) Parent Company Consolidated December 31 2002 2002 2003 2003 ASSETS Current Assets Cash and cash equivalents (Note 5) Receivables - net (Notes 6, 8 and 13) Current portion of program rights (Note 10) Other current assets - net (Notes 7 and 22) Total Current Assets Noncurrent Assets Due from related parties (Notes 8 and 13) Investments and advances (Notes 8, 10 and 13) Property and equipment at cost - net (Notes 9, 13, 14 and 27) Program rights - net of current portion (Note 10) Assets of discontinuing operations (Note 4) Other noncurrent assets - net (Notes 8,10, 13, 14 and 22) Total Noncurrent Assets P =803,202 2,336,666 566,992 237,427 3,944,287 =465,441 P 2,190,725 546,889 229,303 3,432,358 P = 1,580,355 3,787,808 880,975 562,678 6,811,816 =715,588 P 3,425,668 751,055 414,825 5,307,136 150,894 3,417,545 10,513,881 863,633 466 2,107,264 17,053,683 160,444 3,257,116 10,887,556 1,023,876 2,719 2,198,972 17,530,683 273,303 342,111 10,843,512 936,212 17,118 2,978,649 15,390,905 264,799 612,901 11,266,453 1,152,624 39,512 3,094,372 16,430,661 =20,963,041 P =21,737,797 =22,202,721 P P = 20,997,970 P LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Bank loans (Notes 11 and 14) Accounts payable and other current liabilities (Notes 12, 13 and 23) Income tax payable Current portion of: Long-term debt (Notes 9, 10, 11 and 14) Obligations for program rights (Note 10) Total Current Liabilities Noncurrent Liabilities Long-term debt - net of current portion (Notes 9, 10, 11 and 14) Due to related parties (Note 13) Deferred tax liabilities - net (Note 22) Obligations for program rights - net of current portion (Note 10) Liabilities of discontinuing operations (Note 4) Total Noncurrent Liabilities Minority Interest Stockholders’ Equity (Note 15) Capital stock Capital paid in excess of par value Equity adjustments from translation of subsidiaries (Note 8) Retained earnings Philippine deposit receipts convertible to common shares Total Stockholders’ Equity P =220,577 =425,587 P P =220,577 =425,587 P 1,419,299 101,634 1,738,996 192,972 2,442,234 124,357 2,440,447 205,663 2,115,971 149,855 4,007,336 484,438 87,203 2,929,196 2,115,971 256,183 5,159,322 484,438 141,462 3,697,597 3,453,903 201,303 224,569 2,777 – 3,882,552 5,393,294 291,665 239,803 17,935 – 5,942,697 3,453,903 75,473 224,870 13,370 16,652 3,784,268 5,393,294 113,073 239,803 47,461 36,793 5,830,424 – – 151,049 118,628 779,583 706,047 130,251 11,692,201 (200,000) 13,108,082 779,583 706,047 109,201 10,696,317 (200,000) 12,091,148 779,583 706,047 130,251 11,692,201 (200,000) 13,108,082 779,583 706,047 109,201 10,696,317 (200,000) 12,091,148 =20,963,041 P =21,737,797 P = 20,997,970 P =22,202,721 P See accompanying Notes to Financial Statements. ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES STATEMENTS OF INCOME (Amounts in Thousands, Except Per Share Amounts) Parent Company Consolidated Years Ended December 31 2002 2002 2003 2003 AIRTIME AND OTHER BROADCASTING RELATED REVENUES (Note 13) Less agency commission, marketing expenses and co-producers’ share (Note 16) NET SALES AND SERVICES (Note 13) COST AND OPERATING EXPENSES Production costs (Notes 13, 17, 23 and 24) Cost of sales and services (Notes 13, 18, 23 and 24) General and administrative (Notes 13, 19, 23 and 24) Depreciation (Note 9) Amortization of program rights (Note 10) INCOME FROM OPERATIONS OTHER INCOME (EXPENSES) Interest and other financial charges - net (Notes 11, 14 and 20) Equity in net losses of investees (Note 8) Miscellaneous - net (Notes 13 and 21) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX P =10,092,171 2001 =9,003,346 P P =11,064,409 =9,914,146 P =9,922,504 P 1,861,144 8,231,027 1,710,685 7,292,661 1,980,743 9,083,666 1,830,221 8,083,925 1,636,559 8,285,945 – 8,231,027 – 7,292,661 3,631,692 12,715,358 2,824,930 10,908,855 2,055,743 10,341,688 3,361,497 2,959,727 3,500,521 3,083,396 2,664,260 – – 1,816,706 1,481,371 1,100,598 1,407,650 1,048,481 486,148 6,303,776 1,151,705 1,100,650 420,440 5,632,522 3,046,473 1,218,101 819,230 10,401,031 2,608,405 1,393,756 709,497 9,276,425 2,324,338 945,710 511,228 7,546,134 1,927,251 1,660,139 2,314,327 1,632,430 2,795,554 (596,547) (219,623) 471,763 (344,407) (673,335) (416,843) 266,940 (823,238) (585,710) (115,367) 59,023 (642,054) (668,989) (139,028) 45,105 (762,912) (629,588) (39,888) 54,505 (614,971) 1,582,844 836,901 1,672,273 869,518 2,180,583 PROVISION FOR INCOME TAX (Note 22) 571,417 398,807 660,846 431,424 794,031 INCOME FROM CONTINUING OPERATIONS AFTER INCOME TAX 1,011,427 438,094 1,011,427 438,094 1,386,552 LOSS FROM DISCONTINUING OPERATIONS AFTER INCOME TAX (Notes 4 and 8) NET INCOME (Note 25) (2,253) (272,314) (2,253) (272,314) (8,219) P =1,009,174 =165,780 P P =1,009,174 =165,780 P =1,378,333 P Basic EPS Income from continuing operations after income tax Loss from discontinuing operations after income tax P =1.314 =0.569 P P =1.314 =0.569 P =1.802 P (.003) P = 1.311 (0.354) P0.215 = (.003) P =1.311 (0.354) P0.215 = (0.011) P1.791 = Diluted EPS P = 1.311 =0.215 P P =1.311 =0.215 P =1.791 P EARNINGS PER SHARE (EPS) (Note 25) See accompanying Notes to Financial Statements. # ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Amounts in Thousands, Except Number of Shares and Per Share Amounts) 2003 CAPITAL STOCK - P =1 par value (Note 15) Authorized - 1,500,000,000 shares Issued and outstanding - 779,583,312 shares Years Ended December 31 2002 2001 P =779,583 =779,583 P =779,583 P CAPITAL PAID IN EXCESS OF PAR VALUE 706,047 706,047 706,047 EQUITY ADJUSTMENTS FROM TRANSLATION OF SUBSIDIARIES (Note 8) Balance at beginning of year Translation adjustments during the year Balance at end of year 109,201 21,050 130,251 98,150 11,051 109,201 (73,293) 171,443 98,150 8,300,000 – 8,300,000 8,300,000 – 8,300,000 6,000,000 2,300,000 8,300,000 2,396,317 1,009,174 2,230,537 165,780 3,633,889 1,378,333 (13,290) – 3,392,201 11,692,201 – – 2,396,317 10,696,317 (481,685) (2,300,000) 2,230,537 10,530,537 (200,000) (200,000) (200,000) RETAINED EARNINGS Appropriated: Balance at beginning of year Appropriation for expansion projects (Note 15) Balance at end of year Unappropriated: Balance at beginning of year Net income Cash and scrip dividends - P =0.017 per share in 2003 and P =0.60 per share in 2001 (Note 28) Appropriation for expansion projects (Note 15) Balance at end of year PHILIPPINE DEPOSIT RECEIPTS CONVERTIBLE TO COMMON SHARES (Note 15) P =13,108,082 =12,091,148 P =11,914,317 P See accompanying Notes to Financial Statements. # ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (Amounts in Thousands) Parent Company Consolidated Years Ended December 31 2002 2002 2003 2003 2001 CASH FLOWS FROM OPERATING ACTIVITIES Income from continuing operations before income tax Adjustments for: Depreciation Interest expense and other financial charges Amortization of: Program rights Deferred charges Production and distribution business Equity in net losses of investees Provisions for: Doubtful accounts Retirement expense Decline in values of marketable securities and club shares Inventory obsolescence Gain on sale of property and equipment Interest income Unrealized foreign exchange (gains) losses Dividend income Minority interest Loss on sale of employee stock option plan (ESOP) Operating income before working capital changes Decrease (increase) in: Receivables Program rights Other current assets Increase (decrease) in: Accounts payable and other current liabilities Obligations for program rights Cash generated from operations Income tax paid Net cash provided by operating activities of continuing operations Net cash provided by (used in) operating activities of discontinuing operations Net cash provided by operating activities P =1,582,844 =836,901 P P =1,672,273 =869,518 P =2,180,583 P 1,048,481 636,415 1,100,650 687,567 1,218,101 637,780 1,393,756 692,113 945,710 652,976 486,148 23,368 – 219,623 420,440 5,775 – 416,843 819,230 23,368 42,588 115,367 709,497 5,775 49,392 139,028 511,228 – 28,748 39,888 73,508 82,675 37,620 55,675 179,430 87,566 153,477 58,975 139,430 19,700 48,286 – (63,572) (39,868) (5,168) (79) – – – – (14,232) 10,813 (280) – 48,286 4,753 (47,656) (52,070) (5,168) (94) 27,393 – 2,661 – (23,124) 10,813 (292) (3,167) – 950 – (23,388) 9,477 (7,289) 3,100 – 4,092,661 – 3,557,772 – 4,771,147 – 4,058,422 47,489 4,548,602 (217,959) (346,008) (4,217) 245,801 (351,520) (63,963) (523,423) (732,738) (154,642) (358,422) (765,907) (74,676) (800,208) (503,194) 240,166 (408,002) 47,494 3,163,969 (681,896) 171,056 (37,540) 3,521,606 (625,038) (92,309) 80,630 3,348,665 (754,037) 575,960 (84,610) 3,350,767 (645,247) (232,736) 191,413 3,444,043 (881,875) 2,482,073 2,896,568 2,594,628 2,705,520 2,562,168 – 2,482,073 – 2,896,568 2,520 2,597,148 (104,589) 2,600,931 (165,597) 2,396,571 (Forward) # -2Parent Company Consolidated Years Ended December 31 2002 2002 2003 2003 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment Decrease (increase) in: Amounts due from related parties Investments and advances Other non-current assets Interest received Dividends received Proceeds from sale of property and equipment Proceeds from sale of ESOP Net cash used in investing activities of continuing operations Net cash provided by investing activities of discontinuing operations Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Interest and other financial charges paid Payments of: Long-term debt Bank loans Cash and scrip dividends Proceeds from bank loans Increase (decrease) in amounts due to related parties Net cash used in financing activities of continuing operations Net cash provided by (used in) financing activities of discontinuing operations Net cash used in financing activities EFFECT OF TRANSLATION ADJUSTMENTS TO CASH AND CASH EQUIVALENTS (P = 697,791) (P =702,760) 9,550 (353,721) 28,941 38,378 79 77,137 – 8,774 (683,905) (120,102) 14,232 280 – – (897,427) (1,483,481) – (897,427) (P =817,670) 164 151,284 10,923 50,580 94 77,537 – 2001 (P =896,930) (P =2,405,755) 228,043 (234,613) (277,944) 23,124 292 – – (51,166) 350,797 (571,443) 23,388 7,289 – 111,877 (527,088) (1,158,028) (2,535,013) – (1,483,481) 4,457 (522,631) 38,693 (1,119,335) 48,743 (2,486,270) (636,105) (704,178) (637,470) (708,723) (779,134) (506,898) (14,102) (13,290) – (560,007) (388,455) – 376,057 (506,898) (14,102) (13,290) – (560,007) (388,455) – 376,057 (320,000) (1,579,545) (465,422) 3,134,437 (90,362) 202,422 (46,982) 145,057 (184,998) (1,260,757) (1,074,161) (1,218,742) (1,136,071) (194,662) – (1,260,757) – (1,074,161) (21,095) (1,239,837) 64,725 (1,071,346) 140,388 (54,274) 13,872 – 15,969 337,761 338,926 864,767 411,107 (163,448) – 337,761 – 338,926 (14,118) 850,649 (1,171) 409,936 23,534 (139,914) 465,441 126,515 715,588 304,481 467,929 – 465,441 – 126,515 27,309 742,897 28,480 332,961 4,946 472,875 803,202 – 465,441 – 1,580,355 13,191 715,588 27,309 304,481 28,480 P =803,202 =465,441 P P =1,593,546 =742,897 P =332,961 P (314) 4,059 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Net increase (decrease) in cash and cash equivalents of continuing operations Net increase (decrease) in cash of discontinuing operations CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR Cash and cash equivalents at beginning of year of continuing operations Cash at beginning of year of discontinuing operations CASH AND CASH EQUIVALENTS AT END OF YEAR Cash and cash equivalents at end of year of continuing operations Cash at end of year of discontinuing operations See accompanying Notes to Financial Statements. # ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO 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: video/audio post production, movie production, audio recording and distribution, film distribution, cable and directto-home television distribution and telecommunication services overseas. Other activities of the subsidiaries include merchandising and licensing, internet services and publishing. As fully discussed in Note 4, the Parent Company has discontinued the operations of several subsidiaries in 2002. The number of employees and talents of the Parent Company was 4,018 and 3,734 as of December 31, 2003 and 2002, respectively. The number of employees and talents of the Parent Company and its subsidiaries (collectively referred to as the “Company”) was 6,305, 6,059 and 5,804 as of December 31, 2003, 2002 and 2001, respectively. The Parent Company is 57% owned by Lopez, Inc. (Lopez) (see Note 15). The registered office address of the Company is Mother Ignacia Street corner Sgt. Esguerra Avenue, Quezon City. The accompanying financial statements for the year ended December 31, 2003 and 2002 were authorized for issue by the Board of Directors (BOD) on March 10, 2004. 2. Summary of Significant Accounting Policies The principal accounting policies adopted in preparing the accompanying financial statements are as follows: Basis of Preparation The accompanying financial statements have been prepared in accordance with generally accepted accounting principles in the Philippines under the historical cost convention. Changes in Accounting Policies On January 1, 2003, the Company adopted the following Statements of Financial Accounting Standards (SFAS)/International Accounting Standards (IAS): SFAS 22/IAS 22, “Business Combinations,” requires that an acquisition where an acquirer can be identified should be accounted for by the purchase method. Any goodwill arising from the acquisition should be amortized generally over 20 years. Adoption of this standard has not resulted in any adjustment as goodwill arising from acquisition is being amortized over 10 to 20 years. # -2 SFAS 37/IAS 37, “ Provisions, Contingent Liabilities and Contingent Assets,” provides the criteria for the recognition and bases for measurement of provisions, contingent liabilities and contingent assets. Additional disclosures required by the standard were included in the financial statements. SFAS 10/IAS 10, “ Events After the Balance Sheet Date,” prescribes the accounting and disclosures related to adjusting and non-adjusting subsequent events. Additional disclosures required by the standard were included in the financial statements, principally the date of authorization for release of the financial statements. New Accounting Standards Effective Subsequent to 2003 The Accounting Standards Council has approved the following accounting standards which will be effective subsequent to 2003: SFAS 21/IAS 21, “ Changes in Foreign Exchange Rates,” provides restrictive conditions for the capitalization of foreign exchange losses. The Company will adopt SFAS 21/IAS 21 in 2005. This standard will not have an impact on the Company as the Company does not capitalize foreign exchange losses. SFAS 12/IAS 12, “ Income Taxes,” prescribes the accounting treatment for current and deferred income taxes. The standard requires the use of a balance sheet liability method in accounting for deferred income taxes. It requires the recognition of a deferred tax liability and, subject to certain conditions, deferred tax asset for all temporary differences with certain exceptions. The standard provides for the recognition of a deferred tax asset when it is probable that taxable income will be available against which the deferred tax asset can be used. It also provides for the recognition of a deferred tax liability with respect to asset revaluations. The Company will adopt SFAS 12/IAS 12 in 2004. The Company has not yet determined the financial impact of the adoption of the standard. SFAS 17/IAS 17, “ Leases,” prescribes the accounting policies and disclosures to apply to finance and operating leases. Finance leases are those that transfer substantially all risks and rewards of ownership to the lessee. A lessee is required to capitalize finance leases as assets and recognize the related liabilities at the lower of the fair value of the assets or the present value of the minimum lease payments. The lessee should also depreciate the leased asset. On the other hand, lessees should expense operating lease payments. A lessor is required to record finance leases as receivables at an amount equal to the net investment in the lease. Lease income should be recognized on the basis of a constant periodic rate of return on the lessor’s outstanding net investment. On the other hand, a lessor should present as an asset and depreciate accordingly assets that are subject to operating leases. Due to the significant number of leases that the Company is a party to and the assessment that need to be made as to whether these would qualify as finance leases, the Company has not yet determined the financial statement impact of the adoption of SFAS 17/IAS 17 in 2004. # -3Basis of Consolidation and Investments The consolidated financial statements of the Company include the Parent Company and its subsidiaries as of December 31 of each year (see Note 8). Subsidiaries are consolidated from the date on which control is transferred to the Company and cease to be consolidated from the date on which control is transferred out of the Company. The purchase method of accounting is used for acquired businesses. Companies acquired or disposed of during the year are included in the consolidated financial statements from the date of acquisition to the date of disposal. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. Intercompany balances and transactions, including intercompany profits and unrealized profits and losses are eliminated. The net income attributable to minority shareholders’ interests are shown as part of “ Miscellaneous - net” account in the statements of income. The Company’s investments in its associates are accounted for under the equity method of accounting. An associate is an entity in which the Company has significant influence and which is not a subsidiary. The investments in associates are carried in the balance sheets at cost plus postacquisition changes in the Company’s share in the net assets of the associates, less any impairment in value. The statements of income reflect the Company’s share in the results of operations of the associates. Unrealized gains arising from transactions with its associates are eliminated to the extent of the Company’s interest in the associates, against the investments in the associates. Unrealized losses are eliminated similarly but only to the extent that there is no evidence of impairment of the asset transferred. The Company’s investments in its subsidiaries and associates include goodwill (net of accumulated amortization) on acquisition, which is treated in accordance with the accounting policy for goodwill stated below. In the parent company financial statements, investments in subsidiaries and associates are accounted for under the equity method of accounting. Other Investments Other investments held on a long-term basis are valued at cost less any permanent decline in value and are included in the “ Other noncurrent assets” account in the balance sheets. Foreign Currency Transactions and Translation Transactions in foreign currencies are recorded using the exchange rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are restated using the closing exchange rate at balance sheet date. All differences are taken to the statements of income. Financial statements of foreign subsidiaries that are not integral to the operations of the Parent Company are translated at year-end exchange rates with respect to the balance sheet, and at the average exchange rates for the year with respect to the statement of income. Resulting translation differences are included in equity. Upon disposal of a foreign entity, accumulated exchange differences are recognized in the statements of income as a component of the gain or loss on disposal. # -4Cash 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. Receivables Trade receivables are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. Other receivables are stated at face value, after allowance for doubtful accounts. An estimate for doubtful accounts is made when collection of the full amount is no longer probable. The Company maintains an allowance for doubtful accounts at a level considered adequate to provide for potentially uncollectible receivables. The level of allowance is evaluated by management based on collection experience and other factors that may affect collectibility. A review of the age and status of receivables, designed to identify potential charges to the allowance, is performed on a continuous basis. The allowance is established by charges to income in the form of provision for doubtful accounts. Program Rights Rights to programs available for broadcast are initially capitalized at the amounts of total license fees under the covering license agreements and are charged to income on the basis of program usage. To the extent that a given future expected benefit period is shorter than the initial Company estimates, the Company writes off the purchase price or the license fee sooner than anticipated. The Company classifies its program rights into current and non-current amounts based on estimated year of usage. Inventories Inventories included under “ Other current assets - net” account in the balance sheets are valued at the lower of cost or net realizable value. 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. Cost is determined on the first-in, first-out method. Unrealizable inventories are written off. Property and Equipment Property and equipment are carried at cost (including capitalized interest), less accumulated depreciation and any impairment in value. The initial cost of property and equipment comprises its purchase price, including import duties, taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance, are normally charged to income as incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment. # -5Depreciation is computed on a straight-line basis over the following estimated useful lives: Land improvements Building and improvements Television, radio, movie and auxiliary equipment Other equipment 10 years 20 to 40 years 10 to 15 years 3 to 10 years The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property and equipment. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation and impairment loss are removed from the accounts and any resulting gain or loss is credited or charged to current operations. 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 put into operational use. Impairment of Assets Starting January 1, 2002, an assessment is made at each balance sheet date whenever there is any indication of impairment of any asset. If any such indication exists, the asset’ s recoverable amount is estimated. An asset’ s recoverable amount is calculated as the higher of the asset’ s value in use or its net selling price. An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. An impairment loss is charged to operations in the period in which it arises. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount of an asset, however, not to an amount higher than the carrying amount that would have been determined (net of any depreciation), had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is credited to current operations. Deferred Charges Costs such as participation fees, legal fees and other direct costs incurred in connection with securing a long-term debt are deferred and amortized on a straight-line basis over the term of the loan. These are presented as part of “ Other noncurrent assets” account in the balance sheets. Goodwill Goodwill, which is stated at cost less accumulated amortization and any impairment in value, represents the excess of the cost of the acquisition over the Company’ s share in the fair value of identifiable net assets of a subsidiary and associate at the date of acquisition. The investments in subsidiaries and associates in the parent company financial statements and the investments in associates in the consolidated financial statements included goodwill (net of accumulated amortization). Goodwill is amortized on a straight-line basis over the estimated useful life of 10 to 20 years. # -6Tax Credits Tax credits from government airtime sales availed under Presidential Decree No. 1362 are recognized in the books upon actual airing of government commercials and advertisements. This is included under “ Other noncurrent assets” account in the balance sheets. Production and Distribution Business Production and distribution business, included under “ Other noncurrent assets - net” account in the consolidated balance sheets, is recorded at acquisition cost. This is amortized on a straight-line basis over a period of 10 to 20 years. Income Tax Deferred income tax is provided using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting bases of assets and liabilities and their related tax bases; net operating loss carryover (NOLCO); and the carry forward benefit of the excess of the minimum corporate income tax (MCIT) over the regular corporate income tax. Deferred tax assets and liabilities are measured using the tax rate applicable to taxable income in the years in which those temporary differences are expected to be recovered or settled and NOLCO and MCIT are expected to be applied. A valuation allowance is provided for deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized in the future. 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. Other broadcasting related revenue are short-messaging-system/text-based revenues, sale of news materials and Company-produced programs which are recognized upon billing and delivery. Net sales and services of subsidiaries include: a. Subscription fees and channel lease revenue, which are recognized under the accrual basis in accordance with the terms of the agreements. b. Telecommunications revenue, which are 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. c. Sales of inventories, which are recognized, net of discounts, when delivery has taken place and transfer of risks and rewards has been completed. d. Revenue from services, which are recognized when services are rendered. # -7Rental income is recognized as income based on the lease agreement. 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. Operating Lease Lease payments under an operating lease are recognized as an expense based on the terms of the lease agreement. Provisions Starting in 2003, 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. In prior years, provisions for loss contingencies are accrued when it is probable that a liability has been incurred at balance sheet date and the amount can be reasonably estimated. Otherwise, the loss contingency is disclosed. Borrowing Costs 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. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds. For financial reporting purposes, interest on loans used to finance the construction of a multistorey building project is capitalized as part of cost of the building during the construction period. For income tax reporting purposes, such interest is treated as a deductible expense during the period the interest was incurred. Pension Plan Pension expense is determined using the projected unit credit method. This method reflects services rendered by employees to the date of valuation and incorporates assumptions concerning employees’ projected salaries. Pension expense includes current service cost plus amortization of past service cost, experience adjustments and changes in actuarial assumptions over the expected average remaining working lives of the covered employees. # -8Earnings Per Share (EPS) 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. Diluted earnings per share are computed as if the stock options were exercised at the beginning of the year and as if the funds obtained from exercise were used to purchase shares at the average market price during the year. 3. 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. Other businesses include movie production, consumer products and services. Geographical segments: although the Company is organized into three business activities, they operate in three major geographical areas. In the Philippines, its home country, the Company is involved in broadcasting, cable operations and other businesses. In the United States and other locations (which includes Middle East and Milan), the Company operates its cable and satellite operations to bring television programming outside the Philippines. Inter-segment transactions: segment revenue, segment expenses and segment results include transfers among business segments and among geographical segments. Such transfers are accounted for at competitive market prices charged to unaffiliated customers for similar services. Those transfers are eliminated in consolidation. # -9Business Segment Data The following tables present revenue and income information and certain asset and liability information regarding business segments for the years ended December 31, 2003, 2002 and 2001. 2003 Broadcasting 2002 2001 Revenue External sales Inter-segment sales Total revenue P =8,632,432 73,070 P =8,705,502 =7,725,348 P – =7,725,348 P =8,102,374 P – =8,102,374 P Results Segment result Interest and other financial charges - net Equity in net earnings (losses) of associates Others Pre-acquisition loss Minority interest Income tax Loss from discontinuing operations after tax Net income (loss) P =1,927,027 (596,054) (221,902) 472,287 – – (571,338) (2,253) P =1,007,767 =1,565,210 P (673,254) (416,843) 277,136 – – (398,807) (272,314) =81,128 P =2,883,983 P (626,003) (188,315) 111,251 – – (786,605) (8,219) =1,386,092 P Assets and liabilities Segment assets Investments in associates - at equity Consolidated total assets Segment liabilities Other segment information Depreciation and amortization of program rights Noncash expenses other than depreciation and amortization of program rights Cable and satellite 2002 2003 P =2,956,024 120,455 P =3,076,479 (P =29,111) 7,798 2,279 12,715 – (27,195) (44,422) – (P =77,936) =2,359,011 P 85,810 =2,444,821 P 2001 2003 =1,702,979 P 80,392 =1,783,371 P P =1,126,902 53,981 P =1,180,883 Other Businesses 2002 Eliminations 2002 2003 2001 =824,496 P 91,188 =915,684 P =536,335 P 68,168 =604,503 P P =– (247,506) (P =247,506) =– P (176,998) (P =176,998) P =342,283 – 104,256 (432,098) – (198) – – P =14,243 =324,960 P (1,004) 277,815 (273,608) 6,380 (151) – – =334,392 P (P =66,625) 2,136 – 18,225 (6,380) 3,318 (22,141) – (P =71,467) (P =92,222) (6,906) – 45,334 – – (2,436) – (P =56,230) P =74,128 2,546 – 33,512 – – (45,086) – P =65,100 (P =191,115) 3,133 – 20,185 – – (10,476) – (P =178,273) (P =68,232) 3,321 – 11,919 – – (4,990) – (P =57,982) 2003 Consolidated 2002 2001 =– P P =12,715,358 (148,560) – (P =148,560) P =12,715,358 =10,908,855 P – =10,908,855 P =10,341,688 P – =10,341,688 P P =2,314,327 (585,710) (115,367) 86,416 – (27,393) (660,846) (2,253) P =1,009,174 =1,632,430 P (668,989) (139,028) 41,938 – 3,167 (431,424) (272,314) =165,780 P =2,795,554 P (629,588) (39,888) 57,605 – (3,100) (794,031) (8,219) =1,378,333 P 2001 =72,025 P – 148,427 (110,899) – (3,100) – – =106,453 P P =18,966,735 2,536,156 P =21,502,891 P =8,141,574 =18,418,753 P 2,370,716 =20,789,469 P =8,478,769 P =19,071,712 P 2,568,504 =21,640,216 P =9,497,791 P P =2,863,943 3,722 P =2,867,665 P =1,331,504 =1,910,588 P – =1,910,588 P =570,401 P =2,034,277 P – =2,034,277 P =466,153 P P =1,167,642 – P =1,167,642 P =489,140 =883,594 P – =883,594 P =329,466 P =1,208,274 P – =1,208,274 P =887,825 P P =1,741,220 =1,721,764 P =1,243,962 P P =142,152 =134,719 P =130,463 P P =183,647 =246,770 P =82,513 P (P =29,688) =– P =– P 242,369 127,405 90,065 111,969 92,625 69,050 31,653 50,250 29,713 – – – =61,404 (P P =1,059,150) P (P =1,140,653) =21,857,667 (1,969,353) (1,983,252) (2,253,871) 286,007 =1,907,949) (P =3,042,402) P (P =3,394,524) (P =22,143,674 (P =90,418) (P =1,140,230) P (P =1,243,498) =8,718,720 =21,274,339 P 401,363 =21,675,702 P =9,288,218 P =21,255,113 P 585,252 =21,840,365 P =9,711,539 P P =2,037,331 =2,103,253 P =1,456,938 P 385,991 270,280 188,828 Geographical Segment Data The following tables present revenue and expenditure and certain asset information regarding geographical segments for the years ended December 31, 2003, 2002 and 2001. 2003 Revenue External sales Inter-segment sales Total revenue Other segment information Segment assets Capital expenditures Property and equipment Intangible assets P =10,348,840 247,506 P =10,596,346 Philippines 2002 2001 2001 2003 =1,506,497 P – =1,506,497 P P =190,333 – P =190,333 =23,830,388 P P =1,211,504 =821,615 P =1,052,379 P P =2,154,989 2,319,299 503,194 33,274 – 25,745 – 86,456 – 14,178 – =8,835,191 P 148,560 =8,983,751 P =21,907,556 P =21,171,704 P 849,440 765,907 United States 2002 =1,749,326 P =2,176,185 P – – =1,749,326 P =2,176,185 P =8,921,334 P 176,998 =9,098,332 P 770,218 732,738 2003 Others 2002 =238,195 P – =238,195 P 2003 P =– (247,506) (P =247,506) Eliminations 2002 =– P (176,998) (P =176,998) 2001 2003 Consolidated 2002 2001 =– P P =10,341,688 =10,908,855 P =12,715,358 P (148,560) – – – (P =148,560) P =10,908,855 10,341,688 =12,715,358 P =854,480 (P P =1,907,949) (P =3,042,402) P =21,840,365 =21,675,702 P =3,394,523) (P =22,143,674 P 21,745 212,359 – – – – – – 817,670 732,738 896,930 978,266 2,405,755 503,194 # - 10 4. Discontinuing Operations In 2002, following the rigid review of the operations of the various subsidiaries, the Parent Company’ s BOD approved the discontinuance of operations of ABS-CBN Consumer Products, Inc., ABS-CBN Europe Societa Per Azioni, Cinemagica, Inc., ABS-CBN Hongkong, Ltd. and Shopping Network, Inc., which have been incurring losses. These subsidiaries were engaged in varied businesses including operating retail stores and direct sales service centers, cable shopping network, concert production, remittances and telecom retail, and local and foreign film productions, which were deemed not aligned with the Parent Company’ s core businesses. ABS-CBN Consumer Products, Inc. ceased operations in the fourth quarter of 2002 and closed 21 retail stores and direct sales service centers nationwide, resulting in a loss of P =113.4 million. Shopping Network, Inc. shut down its cable shopping network and two retail outlets in 2002, representing P =20.7 million of the total loss. ABS-CBN Hongkong, Ltd., the one-stop-shop for Filipinos in Hong Kong, ceased its activities in concert production, remittance, and telecom retail sales in October 2002 and resulted in a loss of P =57.8 million. In parallel, the investment in ABSCBN Europe Societa Per Azioni amounting to P =28.8 million was charged to expense in 2002 as operations of the Company’ s remittance offices in Torrino, Padova and Milan are winding up in January 2003. Ventures in local and foreign film production and related operations comprise the balance of the loss from discontinuing operations for 2002. The results of operations of the above-mentioned subsidiaries for the period until discontinuance have been presented in the statements of income as “ Loss from Discontinuing Operations After Income Tax.” Total assets and liabilities of the discontinued subsidiaries are presented in the consolidated balance sheets separately as “ Assets of discontinuing operations” and “ Liabilities of discontinuing operations” . In the parent company financial statements, “ Assets of discontinuing operations” represent the remaining advances of the parent company to the above subsidiaries. The Parent Company’ s investment in discontinued subsidiaries has been reduced to zero in 2002. Assets and liabilities of discontinuing operations are as follows: Assets: Cash Receivables - net Other current assets Due from related parties Property and equipment at cost - net Other noncurrent assets Liabilities: Accounts payable and other current liabilities Due to related parties 2003 2002 P =13,191 1,023 653 67 167 2,017 P =17,118 =27,309 P 4,063 793 1,454 4,527 1,366 =39,512 P P =12,645 4,007 P =16,652 =11,691 P 25,102 =36,793 P # - 11 The results of discontinuing operations are as follows: Net sales and services Costs and expenses: Cost of sales and services General and administrative Income (loss) from discontinuing operations Other income (expenses) - net: Interest and other financial charges Miscellaneous Income (loss) from discontinuing operations before income tax Provision for income tax Loss from discontinuing operations after income tax 2003 P =4,129 2002 =47,197 P 2001 =196,209 P 246 6,098 6,344 (2,215) 37,858 290,538 328,396 (281,199) 50,494 128,370 178,864 17,345 (306) 268 (38) 1,004 8,900 9,904 220 (4,113) (3,893) (2,253) – (271,295) 1,019 13,452 21,671 (P =2,253) (P =272,314) (P =8,219) 5. Cash and Cash Equivalents Cash on hand and in banks Short-term investments Parent Company 2002 2003 =193,198 P P =128,967 272,243 674,235 =465,441 P P =803,202 Consolidated 2002 2003 =426,482 P P =800,806 289,106 779,549 =715,588 P P =1,580,355 Cash in banks earn interest at the respective bank deposit rates. Short-term investments are made for varying periods of up to three months depending on the immediate cash requirements of the Company, and earn interest at the respective short-term investment rates. 6. Receivables Trade receivables (see Notes 8 and 13) Advances to suppliers Other receivables Less allowance for doubtful accounts Parent Company 2002 2003 =2,073,854 P P =2,155,399 18,162 70,033 181,542 222,257 2,273,558 2,447,689 82,833 111,023 =2,190,725 P P =2,336,666 Consolidated 2002 2003 =3,368,267 P P =3,554,687 18,162 70,033 293,432 397,294 3,679,861 4,022,014 254,193 234,206 =3,425,668 P P =3,787,808 Other receivables include receivables from employees arising from the Employee Stock Option Plan (ESOP) amounting to P =23.5 million as of December 31, 2002. The receivable was subsequently collected in 2003. # - 12 7. Other Current Assets Parent Company 2002 2003 =107,706 P P =122,683 45,253 49,160 8,722 9,799 67,622 55,785 =229,303 P P =237,427 Prepaid taxes Deferred tax assets - net (see Note 22) Inventories at net realizable value Prepaid expenses and others Consolidated 2002 2003 =180,290 P P =233,200 62,095 59,047 68,660 148,890 103,780 121,541 =414,825 P P =562,678 Inventories consist mainly of materials and supplies of the Parent Company and records and other consumer products held for sale by subsidiaries. 8. Investments and Advances Investments in subsidiaries and associates at equity Advances to subsidiaries and associates (see Note 13) Parent Company 2002 2003 Consolidated 2002 2003 P =2,536,156 =2,370,716 P P =286,007 =401,363 P 881,389 P =3,417,545 886,400 =3,257,116 P 56,104 P =342,111 211,538 =612,901 P Investments in subsidiaries and associates follow: Company Place of Incorporation Subsidiaries Continuing Operations ABS-CBN Center for Communication Arts, Inc. ABS-CBN FCLLZ Dubai Philippines Dubai, KSA ABS-CBN Film Productions, Inc. (ABS-CBN Films) ABS-CBN Global Ltd. (ABS-CBN Global) ABS-CBN Interactive, Inc. ABS-CBN International, Inc. (ABS-CBN International) ABS-CBN Publishing, Inc. Philippines Creative Creatures, Inc. (CCI) Creative Programs, Inc. (CPI) E-Money Plus, Inc. Professional Services for Television & Radio, Inc. Sarimanok News Network, Inc. (SNN) Sky Films, Inc. (Sky Films) Star Recording, Inc. Philippines Philippines Philippines Philippines Philippines Philippines Philippines Studio 23, Inc. (Studio 23) TV Food Chefs Inc. Philippines Philippines Roadrunner Network, Inc. (Roadrunner) Philippines Cayman Islands Philippines California, USA Philippines Principal Activities Services Cable and satellite operations Movie production Holding company Services Cable and satellite operations Consumer products publishing Services Cable operation Services Services Cable operation Services - movie films Consumer products audio production Broadcasting Restaurant and catering services Services - post production Ownership Interest 2003 2002 100.0 100.0 100.0(a) 100.0(a) 100.0 100.0 100.0 100.0 100.0 80.0(a) 80.0(a) 100.0 100.0 100.0 100.0(a) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 98.9 98.9 # - 13 - Company Place of Incorporation Principal Activities Discontinuing Operations ABS-CBN Consumer Products, Inc. (b) ABS-CBN Europe Societa Per Azioni (b) ABS-CBN Hongkong, Ltd. (b) Cinemagica, Inc. (b) Shopping Network, Inc. (c) Philippines Italy Hong Kong Philippines Philippines Consumer products Services Services Services Consumer products Associates AMCARA Broadcasting Network, Inc. (Amcara) Star Cinema Productions, Inc. (Star Cinema) Sky Vision Corporation (Sky Vision) Philippines Philippines Philippines Services Movie production Cable operation Ownership Interest 2003 2002 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 49.0 45.0 10.2 49.0 45.0 10.2 Consolidated 2002 =541,281 P 2001 =586,142 P (a) indirectly-owned through ABS-CBN Global ceased commercial operations on December 31, 2002 (c) ceased commercial operations on December 31, 2001 (b) Acquisition costs Accumulated equity in net earnings (losses): Balance at beginning of year Equity in net losses for the year from continuing operations Loss from discontinuing operations after income tax Balance at end of year Equity adjustments from translation of subsidiaries: Balance at beginning of year Translation adjustments during the year Balance at end of year Parent Company 2002 2003 =3,915,567 P =4,279,580 P 2003 P =541,292 (1,654,052) (964,895) (139,918) (890) (219,623) (416,843) (115,367) (139,028) (39,888) – (1,873,675) (272,314) (1,654,052) – (255,285) – (139,918) – (890) 38,998 109,201 98,150 – – – 21,050 130,251 P =2,536,156 11,051 109,201 =2,370,716 P – – P =286,007 – – =401,363 P – – =585,252 P Equity in net losses from continuing operations includes goodwill amortization of P =43,576 in 2003 and P =27,507 in 2002 in the parent company statements of income and P =20,152 in 2003, P =13,192 in both 2002 and 2001 in the consolidated statements of income (see Note 10). The detailed carrying values of investments which are carried under the equity method follow: CPI ABS-CBN Global Roadrunner Sky Vision SNN Studio 23 ABS-CBN Films Amcara CCI Others Parent Company 2002 2003 =939,566 P P =997,603 392,387 378,739 262,071 276,242 357,024 240,334 64,731 204,308 77,644 77,826 – 58,668 44,339 45,673 44,473 19,029 188,481 237,734 =2,370,716 P P =2,536,156 Consolidated 2002 2003 P =– =– P – – – – 357,024 240,334 – – – – – – 44,339 45,673 – – – – =401,363 P P =286,007 # - 14 The carrying value of the investments exceeded the Company’ s equity in net assets of the subsidiaries and associates by P =418,114 and P =461,690 as of December 31, 2003 and 2002, respectively, in the parent company financial statements, and P =302,276 and P =322,428 as of December 31, 2003 and 2002, respectively in the consolidated financial statements. Condensed financial information of the associates follows: Current assets Noncurrent assets Current liabilities Noncurrent liabilities Revenue Cost and expenses Operating income (loss) Net loss 2003 P =4,659 1,042,677 450,928 601,244 125,821 108,056 64,942 (780,684) 2002 =238,523 P 2,266,026 358,804 1,149,006 487,177 550,290 (63,113) (862,583) 2001 =336,293 P 2,923,147 291,979 1,024,916 182,520 189,009 (6,489) (884,174) Sky Vision and CPI On July 18, 2001, the Parent Company, along with Lopez, Inc. and Benpres Holdings Corporation (collectively, the Benpres Group), signed a Master Consolidation Agreement (MCA) whereby it agreed with the Philippine Long Distance Telephone Company and Mediaquest Holdings, Inc. (collectively, the PLDT Group) to consolidate their respective ownership or otherwise their rights and interests in Sky Vision and Unilink Communications Corporation (Unilink) under a holding company to be established for that purpose. Beyond Cable Holdings, Inc. (Beyond) was incorporated on December 7, 2001 as the holding company. Sky Vision owns Central CATV, Inc. (Central) and Pilipino Cable Corporation (PCC), which in turn operate cable television systems in Metro Manila and key provincial areas under the tradenames “ Sky Cable” and “ Sun Cable.” Unilink owns The Philippine Home Cable Holdings, Inc. (Home), which operates cable television systems in Metro Manila and key provincial areas under the tradename “ Home Cable.” Pursuant to the MCA, the Benpres Group and the PLDT Group shall, respectively, own 66.5% and 33.5% of Beyond upon the transfer of their respective ownership and rights and interests in Sky Vision and Unilink into Beyond. Although the original agreement envisions the transfers to be completed within six months from signing date, or by January 18, 2002, the Benpres Group and the PLDT Group agreed to extend this Closing date. On December 3, 2003, the Benpres and PLDT Groups, together with the PLDT Beneficial Trust Fund, executed an Amendment Agreement to the MCA whereby additional closing conditions were incorporated into the MCA and wherein the Closing Date was extended until such time the parties shall have completed all conditions precedent under the MCA and the Amendment Agreement, including the share transfers described above. In relation to the consolidation discussed above, a competitor company filed a case before National Telecommunications Commission (NTC) asking for NTC to declare as null and void the consolidation of the cable operating companies. It is the opinion of the Company’ s legal counsels that the case filed by the competitor company is without legal basis. # - 15 In December 2001, the cable companies declared a suspension of payments of principal and interest due on their loans and thereafter proposed to the creditors a comprehensive restructuring plan (Plan). As of March 10, 2004, the required majority of Sky Vision and Central’ s creditors and a substantial majority of Home’ s creditors have signed the memorandum of agreement (MOA) covering the restructuring plan. The MOA provided the framework under which Sky Vision, Central and Home and the creditors mutually agree to restructure the outstanding debt obligations which shall become the basis for the Debt Restructuring Agreement, and consent to the proposed consolidation and merger of Sky Vision, Central and Home. The restructuring terms include, among others, a stipulation that any or all other amounts accrued but unpaid by Sky Vision and its major cable operating subsidiaries in respect of interest (including default interest and penalties), fees (including guarantee fees) and commissions under the terms of existing principal obligations be forgiven on the restructuring date. The MOA shall be effective for a period of 120 days or until such date that a Debt Restructuring Agreement is entered into and signed, whichever comes first. The MOA for the restructuring of the outstanding debt obligation of Sky Vision and Home expired on February 15, 2004 and has been extended to April 30, 2004. PCC has also been in discussion with its creditors on the planned restructuring of its loans. As of March 10, 2004, PCC has signed its debt restructuring agreement with its creditors. The Plan submitted to the creditors involves the merger of Sky Vision and Home Cable into one entity and the infusion of new equity to fund the purchase of set-top boxes. The installation of settop boxes is crucial to the entity’ s new business case where piracy of its service will be drastically reduced if not eliminated. The Parent Company has a firm commitment for debt financing to fund the said equity infusion in Sky Vision. This loan for Sky Vision will be fully secured and requires the full consent of all creditors of the Parent Company. As of March 10, 2004, the Parent Company has secured 51% consent of its creditors. The Parent Company does not foresee any reason for its creditors to withhold consent. The Debt Restructuring Agreement of Sky Vision, Central and Home Cable will be signed upon receipt of the equity infusion of the Parent Company in Sky Vision. CPI acquired the production and distribution business of three cable channels of Central and has a cable lease agreement with Central and its cable affiliates for the airing of these channels to their franchise areas. As of December 31, 2003, total amount of the Company’ s related investments in Sky Vision is as follows: Carrying value of investment in Sky Vision Receivable of CPI from Sky Vision Portion of the production and distribution business related to Central and its cable affiliates =240,334 P 368,296 175,938 =784,568 P # - 16 9. Property and Equipment at Cost Parent Company Cost: At January 1 Additions Disposals Reclassifications Transfers from (to) subsidiaries At December 31 Accumulated depreciation: At January 1 Depreciation charge for the year Disposals Reclassifications Transfers from (to) subsidiaries At December 31 Net book value Land and Land Improvements (see Note 27) Building and Improvements (see Note 27) Television, Radio, Movie and Auxiliary Equipment =304,569 P – (11,793) – – 292,776 =9,086,200 P – (1,772) 249,839 – 9,334,267 =4,139,679 P 35,841 – 57,361 (84,253) 4,148,628 =1,840,995 P 142,174 (1,606) 69,286 (56,030) 1,994,819 P28,268 = 519,776 – (376,486) (341) 171,217 P =15,399,711 697,791 (15,171) – (140,624) 15,941,707 =14,670,556 P 702,760 (158,811) 104,268 80,938 15,399,711 – – – – – – =292,776 P 460,216 352,715 – – – 812,931 =8,521,336 P 2,810,007 396,808 – (11,574) (83,383) 3,111,858 =1,036,770 P 1,241,932 298,958 (1,606) 11,574 (47,821) 1,503,037 =491,782 P – – – – – – =171,217 P 4,512,155 1,048,481 (1,606) – (131,204) 5,427,826 P =10,513,881 3,534,889 1,100,650 (158,811) – 35,427 4,512,155 =10,887,556 P Other Equipment Construction in Progress Total December 31, 2003 December 31, 2002 Consolidated Land and Land Improvements Cost: At January 1 Additions Disposals Reclassifications At December 31 Accumulated depreciation: At January 1 Depreciation charge for the year Disposals Reclassifications At December 31 Net book value Building and Improvements Television, Radio, Movie and Auxiliary Equipment Other Equipment Construction in Progress Total December 31, 2003 December 31, 2002 =304,569 P – (11,793) – 292,776 =9,165,837 P 7,954 (1,772) 228,541 9,400,560 =4,826,142 P 100,525 (2,633) 6,435 4,930,469 =2,166,492 P 197,127 (50,146) 141,510 2,454,983 P28,268 = 519,435 – (376,486) 171,217 P =16,491,308 825,041 (66,344) – 17,250,005 =15,667,215 P 902,690 (199,520) 120,923 16,491,308 – – – – – =292,776 P 518,281 357,989 – (8,783) 867,487 =8,533,073 P 3,240,344 483,161 (2,286) (22,722) 3,698,497 =1,231,972 P 1,466,230 376,951 (34,177) 31,505 1,840,509 =614,474 P – – – – – =171,217 P 5,224,855 1,218,101 (36,463) – 6,406,493 P =10,843,512 4,030,619 1,393,756 (199,520) – 5,224,855 =11,266,453 P # - 17 Property and equipment of the Parent Company with a carrying amount of P =9,219 million as of December 31, 2003 was pledged as collateral to secure the Parent Company’ s long-term debt (see Note 14). Unamortized borrowing costs capitalized as part of property and equipment amounted to P1,088,964 and P = =1,127,760 as of December 31, 2003 and 2002, respectively. Borrowing costs capitalized for the year ended December 31, 2001 amounted to P =132,268. No borrowing cost was capitalized beginning 2002. The gross carrying value of fully depreciated assets that are still in use amounted to P =3,504,321 in 2003 and P =2,977,564 in 2002 in the parent company balance sheets and P =3,924,146 in 2003 and P =3,357,040 in 2002 in the consolidated balance sheets. 10. Other Noncurrent Assets Parent Company 2002 2003 Tax credits: With tax credit certificates (TCCs) P =1,745,968 Pending issuance of TCCs but supported by telecast orders 166,763 Deferred charges (net of accumulated amortization of = P29,143 in 2003 and P =5,775 in 2002) 93,249 Production and distribution business - net (see Notes 8 and 13) – Others - net (see Note 22) 101,284 P =2,107,264 Consolidated 2002 2003 =1,378,522 P P =1,745,968 =1,378,522 P 580,653 166,763 582,181 109,719 93,249 109,719 – 130,078 =2,198,972 P 666,591 306,078 P =2,978,649 709,179 314,771 =3,094,372 P Tax credits represent claims on the government arising from airing of government commercials and advertisements. Pursuant to Presidential Decree No. 1362, these will be collected in the form of TCCs which the Parent Company can use in paying for import duties and taxes on its broadcasting equipment. The Parent Company expects to utilize these tax credits within the next 10 years. Investment in club shares (included in “ Others - net” ) with a carrying value of P =17,232 as of December 31, 2003 was pledged as part of collateral to secure the Parent Company’ s long-term debt (see Note 14). Production and distribution business consists of the production and distribution business of CPI as discussed in Note 13, and the distribution business in Middle East which represents the unamortized portion of the goodwill that arose from the sponsorship between Arab Digital Distribution (ADD) and ABS-CBN FCLLZ Dubai. This agreement grants the Company the right to operate in the Middle East with ADD as Saudi sponsor. The goodwill is amortized over a period of 10 years. # - 18 Movement of program rights (shown separately in the balance sheets), goodwill (included in investments and advances account) and production and distribution business follows: Program Rights Balance at January 1, 2003 Additions Amortization during the period Balance at December 31, 2003 Less current portion Noncurrent portion Parent Company =1,570,765 P 346,008 (486,148) 1,430,625 566,992 =863,633 P Goodwill Parent Company Consolidated and Consolidated =1,903,679 P =461,690 P 732,738 – (819,230) (43,576) 1,817,187 418,114 880,975 – =936,212 P =418,114 P Production and Distribution Business Consolidated =709,179 P – (42,588) 666,591 – =666,591 P In accordance with international accounting standards, the Company adopted a policy of classifying program rights into current and non-current based on estimated year of usage. Accordingly, the related obligations for program rights which was previously presented as “ Accounts payable and other current liabilities” in the balance sheets, was shown separately in the parent company and consolidated financial statements and was also classified into current and noncurrent based on expected year of payments. In the consolidated financial statements, goodwill amounting to P =302,276 (P =322,428 in 2002) which represents goodwill in associates, is presented under “ Investments and advances” account in the balance sheets, while goodwill amounting to P =115,838 (P =139,262 in 2002) which represents goodwill from subsidiaries are presented as part of “ Other noncurrent assets” account in the balance sheets. The amortizations of production and distribution business were presented under the “ General and administrative” expense account in the consolidated statements of income. 11. Bank Loans Unsecured peso-denominated Unsecured dollar-denominated Parent Company and Consolidated 2002 2003 =234,679 P P =220,577 190,908 – =425,587 P P =220,577 Peso-denominated loans bear average annual interest rates of 9.92% in 2003 and 11.42% in 2002. Dollar-denominated loans bear average annual interest rate of 5.0% in 2002. On September 2, 2002, the Parent Company received a notice of default dated August 30, 2002 from Standard Chartered Bank and BNP Paribas for its outstanding loan balance amounting to =100,000 and P P =190,908 (US$3,600), respectively. In August 2003, BNP Paribas has agreed to participate in the Exchangeable Notes Facility Agreement (ENFA) and accordingly, the loans have been classified as long-term (see Note 14). As of March 10, 2004, the Parent Company is still negotiating with other banks for possible refinancing of the Standard Chartered Bank loan. # - 19 12. Accounts Payable and Other Current Liabilities Trade Accrued production cost and other expenses (see Note 13 and 23) Accrued taxes Accrued interest and other current liabilities Parent Company 2002 2003 =473,431 P P =333,851 Consolidated 2002 2003 =693,904 P P =696,121 685,054 305,655 685,559 407,023 980,566 417,649 1,038,635 456,487 94,739 P =1,419,299 172,983 =1,738,996 P 347,898 P =2,442,234 251,421 =2,440,447 P 13. Related Party Disclosures In the parent company financial statements, significant transactions of the Parent Company with its subsidiaries, associates and a related party follow: Expenses and charges paid by the Parent Company which are reimbursed by the subsidiaries and associates Technical facilities order charges for the use of the Parent Company’ s facilities Airtime revenue from Sky Films, ABS-CBN Films, Star Cinema and Bayan Telecommunications Holdings, Inc. (Bayantel), a subsidiary of Lopez, Inc. Rental charges of the Parent Company for the use of office space Blocktime fees charged to Studio 23 for the use of the Parent Company’ s equipment 2003 2002 P =434,036 =482,028 P 169,452 126,715 71,092 80,022 38,809 35,770 16,423 18,960 Other transactions with subsidiaries and associates include cash advances for working capital requirements. The amounts and balances resulting from the above transactions are reflected in the parent company balance sheets in the following accounts: Due from related parties Advances (see Note 8) Accounts payable and other current liabilities (see Note 12) Due to related parties 2003 P =150,894 881,389 2002 =160,444 P 886,400 40,854 201,303 13,219 291,665 # - 20 In the consolidated financial statements, transactions of the Company with its associates and related parties follow: Termination cost charges of Bayantel to ABS-CBN Global License fees charged by CPI to Central (a), PCC and Home Cable Blocktime fees paid by Studio 23 to Amcara (b) Expenses and charges paid for by the Parent Company which are reimbursed by the concerned related parties Airtime revenue from Star Cinema and Bayantel Rental charges of the Parent Company for the use of office space 2003 2002 2001 P =99,846 =147,120 P =103,852 P 135,788 136,300 103,827 82,675 105,063 114,500 22,152 92,347 50,005 14,031 62,571 45,131 9,214 7,299 – Other transactions with associates include cash advances for working capital requirements. On a consolidated basis, the amounts and balances resulting from the above transactions are reflected in the consolidated balance sheets in the following accounts: Receivables (see Note 6) Due from related parties Advances (see Note 8) Due to related parties 2003 P =279,902 273,303 56,104 75,473 2002 =178,561 P 264,799 211,538 113,073 a. License Fees Charged by CPI to Central On December 29, 2000, the Parent Company and CPI entered into a Sale Agreement with Central for the acquisition of production and distribution business and the related program rights and property and equipment of three cable channels, namely, Lifestyle Channel, Pinoy Blockbuster Channel and Video-ok Channel for P =671,141. Pinoy Blockbuster Channel and Video-ok Channel have been renamed as Cinema One and Myx, respectively, in 2003. CPI entered into a cable lease agreement (Agreement) with Central for the airing of these channels to the franchise areas of Central and its cable affiliates. The Agreement with Central is for a period of five years effective January 1, 2001, renewable upon mutual agreement. Under the terms of the Agreement, CPI will receive license fees from Central computed based on agreed rates and on the number of subscribers of Central. As the owner of the said cable channels, CPI will develop and produce its own shows and acquire program rights from various foreign and local suppliers. b. Blocktime Fees Paid by Studio 23 to Amcara Studio 23, Inc. owns the program rights being aired in UHF Channel 23 of Amcara. On July 1, 2000, it entered into a blocktime agreement with Amcara for its provincial operations. # - 21 14. Long-term Debt Exchangeable notes (see Note 11) Syndicated loans payable to local banks Loan payable to a local bank Less current portion Parent Company and Consolidated 2002 2003 =3,437,726 P P =3,209,868 1,940,000 1,860,000 500,006 500,006 5,877,732 5,569,874 484,438 2,115,971 =5,393,294 P P =3,453,903 Exchangeable Notes On September 2, 2002, the Parent Company entered into an Exchangeable Notes Facility Agreement (ENFA) with a local bank and certain financial institutions (Facility Lenders) for a term loan facility with an aggregate amount of P =3,437,726 for the purpose of raising permanent working capital and/or refinancing of its short-term loans used or to be used to upgrade its existing plant and network facilities. The term loan facility is classified as Floating Rate Notes and Fixed Rate Notes both with a term of 5 years and which are exchangeable into bonds subject to the bond issuance requirements as provided for in the ENFA. The ENFA is covered by a Mortgage Trust Indenture (MTI) entered into by the Parent Company and facility lenders over the Company’ s property and equipment with a net book value of P =9,219 million and investment in club shares with a carrying value of P =17,232 as of December 31, 2003. On September 16, 2002, short-term loans amounting to P =3,437,726 were converted to P =2,838,236 floating rate notes and P =599,490 fixed rate notes with an interest rate of 8.0808% and 13.1313%, respectively. Interest payments are due every quarter starting December 16, 2002 while principal payments will be due every quarter starting September 16, 2003 until September 16, 2007. The ENFA contains provisions regarding, among others, change in character of the business, change in controlling ownership, availment of any indebtedness, merger and consolidation, declaration of dividends, purchase of its own capital stock, maintenance of certain financial ratios and granting of guarantees. As of December 31, 2003, the Parent Company is in compliance with the covenants of the ENFA. In August 2003, BNP Paribas participated in the ENFA and accordingly, the loans have been classified as long-term (see Note 11). Syndicated Loans Payable to Local Banks Syndicated loans payable to local banks consist of long-term loans under JEXIM 4 program of a local development bank amounting to P =2,000,000. The loan was used to finance the construction of the multi-storey building and acquisition of equipment. The loan is payable in 15 unequal quarterly payments commencing in May 2002 with interest payable quarterly in arrears at 10.93% per annum. Loan Payable to a Local Bank The Parent Company has a Loan Agreement with a local bank for US$37,908 payable in two equal installments, without need of notice or demand, on March 19, 2002 and 2004. Interest is payable quarterly at three-fourths percent (3/4%) above 3-month LIBOR. # - 22 The Parent Company has a forward foreign exchange agreement (forward contract) with the same bank which is co-terminus with the term of the loan. Under the terms of the forward contract, the Parent Company shall pay the local bank, on each due date of the loan, the equivalent Philippine peso amount of the dollar loan based on its original spot exchange rate of P =26.38. The Philippine peso amount of the loan shown in the balance sheets is based on its original spot exchange rate of =26.38. P Under the terms of the above loans, the Parent Company shall use the proceeds of the loans exclusively for the purpose of financing the construction of its multi-storey building and acquisition of equipment. The loan covenant requires the Parent Company to, among others, maintain certain financial ratios; not allow any of its assets to be subject to any lien, except to the extent allowed in the loan; and, contract another loan with a maturity of more than one year, if such obligation will result in a violation of the prescribed financial ratios. With the conversion of majority of ABS-CBN’ s short-term loans in September 2002 to long-term secured loans in relation to the ENFA, the existing syndicated loans payable to a local bank amounting to P =1,860,000 and the long-term loan payable to a local bank amounting to P =500,006 as of December 31, 2003 were secured, by including them in the MTI discussed above. The payment schedules of the syndicated loan and the loan payable to a local bank remained the same. Repayments of long-term debt are scheduled as follows: 2004 2005 2006 2007 =2,115,971 P 1,955,965 855,965 641,973 =5,569,874 P 15. Stockholders’ Equity a. On April 24, 1998, Benpres Holdings Corporation, Inc. (BHC), then major stockholder of ABS-CBN, transferred all of its investments in ABS-CBN to Lopez, BHC’ s parent company, in exchange for convertible and nonconvertible notes (Notes). The convertible notes can be exchanged by BHC for the ABS-CBN shares transferred. The Notes shall terminate on any earlier date if the convertible notes have been converted or when Lopez has satisfied its obligations with respect to all such convertible notes that have been properly converted. After the transfer, Lopez had all the voting rights associated with the shares. On December 28, 1998, BHC sold a portion of the Notes to ABS-CBN for P =800,000, the equivalent market value of the underlying 40 million ABS-CBN shares. On September 29, 1999, ABS-CBN Holdings Corporation (50% owned by Lopez), offered 132 million Philippine Deposit Receipts (PDRs) relating to 132 million ABS-CBN shares. Each PDR grants the holder, 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 # - 23 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 towards payment of operating expenses and any amounts remaining shall be distributed pro-rata among outstanding PDR holders. The PDRs were listed in the Philippine Stock Exchange on October 7, 1999. The Notes held by ABS-CBN were amended to allow for conversion into shares or into PDRs. ABS-CBN converted P =200,000 of the Notes into PDRs underlying 10 million ABS-CBN shares and these are shown as “ Philippine deposit receipts convertible to common shares” in the Stockholders’ Equity section of the balance sheets. The remaining P =600,000 of the Notes underlying 30 million ABS-CBN shares were converted into 30 million PDRs and these PDRs were included in the PDR offering described above. b. On March 29, 2000, the BOD approved an ESOP covering 6,080,306 shares. In 2002, all the shares acquired by the Parent Company covering this ESOP, were exercised by the employees. As of December 31, 2003 and 2002, there are no more outstanding ESOP. c. On March 28, 2001, the BOD approved the additional appropriation on retained earnings amounting to P =2.3 billion for expansion projects. d. Unappropriated retained earnings available for dividend distribution is adjusted to exclude the Company’ s accumulated equity in net losses of subsidiaries and associates amounting to =1,873,675, P P =1,654,052 and P =964,895 as of December 31, 2003, 2002 and 2001, respectively. 16. Agency Commission, Marketing Expenses and Co-producers’ Share Agency commission Marketing expenses and co-producers’ share Parent Company 2002 2003 =1,312,650 P =1,427,440 P 2003 P =1,542,477 Consolidated 2002 2001 =1,418,258 P P =1,380,707 433,704 P =1,861,144 438,266 P =1,980,743 411,963 =1,830,221 P 398,035 =1,710,685 P 255,852 =1,636,559 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. Marketing expenses are commissions paid to the Company’ s account executives who promote the Company’ s entertainment programs and news and current affairs programs to advertising agencies. 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 show. The co-producer shoulders all other costs of production. The revenue earned on these shows is shared between ABS-CBN and the co-producer. # - 24 17. Production Costs Personnel expenses and talent fees (see Note 23) Facilities related expenses (see Notes 13 and 24) Other program expenses (see Note 13) Parent Company 2002 2003 2003 Consolidated 2002 2001 P =2,021,474 =1,708,544 P P =2,093,655 =1,784,635 P =1,588,917 P 626,193 626,111 651,983 627,836 545,717 713,830 P =3,361,497 625,072 =2,959,727 P 754,883 P =3,500,521 670,925 =3,083,396 P 529,626 =2,664,260 P 18. Cost of Sales and Services Inventory cost Termination costs (see Note 13) Facilities related expenses (see Notes 13 and 24) Personnel expenses (see Note 23) Other expenses (see Note 13) 2003 P =483,281 393,898 Consolidated 2002 =429,436 P 249,418 2001 =356,185 P 220,564 312,266 152,292 474,969 P =1,816,706 311,852 129,053 361,612 =1,481,371 P 148,972 125,302 249,575 =1,100,598 P 19. General and Administrative Expenses Personnel expenses (see Note 23) Facilities related expenses (see Notes 13 and 24) Contracted services Entertainment, amusement and recreation Provision for doubtful accounts Other expenses (see Note 13) Parent Company 2002 2003 =458,015 P P =578,494 2003 P =1,374,699 Consolidated 2002 2001 =1,107,850 P =842,406 P 241,046 141,689 203,642 84,965 426,945 342,040 363,893 180,723 276,065 153,250 99,201 73,508 273,712 P =1,407,650 86,574 37,620 280,889 =1,151,705 P 111,462 179,430 611,897 P =3,046,473 101,485 153,477 700,977 =2,608,405 P 92,375 139,430 820,812 =2,324,338 P Parent Company 2002 2003 2003 20. Interest and Other Financial Charges Interest expense and other financial charges Interest income (P =636,415) 39,868 (P =596,547) (P =687,567) 14,232 (P =673,335) (P =637,780) 52,070 (P =585,710) Consolidated 2002 (P =692,113) 23,124 (P =668,989) 2001 (P =652,976) 23,388 (P =629,588) # - 25 21. Miscellaneous Intercompany revenue (see Note 13) Foreign exchange losses Dividend income Minority interest Others Parent Company 2002 2003 =220,645 P P =303,188 (13,558) (10,705) 280 79 – – 59,573 179,201 =266,940 P P =471,763 2003 P =21,249 (8,182) 94 (27,393) 73,255 P =59,023 Consolidated 2002 =24,544 P (7,410) 292 3,167 24,512 =45,105 P 2001 P2,023 = (17,387) 7,289 (3,100) 65,680 =54,505 P 22. Income Tax Significant components of deferred tax assets and liabilities are as follows: Deferred tax assets: Current (shown as part of “ Other current assets - net” ) (see Note 7) Allowance for doubtful accounts Unrealized foreign exchange loss Allowance for inventory obsolescence Less valuation allowance Noncurrent (shown as part of “ Other noncurrent assets - net” ) (see Note 10) NOLCO Accrued retirement expense MCIT Preoperating expenses written off Less valuation allowance Deferred tax liabilities noncurrent - net Capitalized interest, duties and taxes (net of accumulated depreciation) Project development costs written off Accrued retirement expense and others Parent Company 2002 2003 P =35,527 13,633 Consolidated 2002 2003 49,160 – P =49,160 =26,506 P 18,747 – 45,253 – =45,253 P P =74,946 13,633 2,900 91,479 32,432 P =59,047 =81,342 P 18,747 2,150 102,239 40,144 =62,095 P P =– – – – – – P =– =– P – – – – – =– P P =212,712 60,778 7,856 – 281,346 281,346 P =– =79,119 P 5,525 6,394 167,925 258,963 258,963 =– P P =355,107 (68,226) (62,312) P =224,569 =379,176 P (90,968) (48,405) =239,803 P P =355,107 (68,226) (62,011) P =224,870 =379,176 P (90,968) (48,405) =239,803 P 2003 P =672,731 (11,885) P =660,846 Consolidated 2002 2001 =444,267 P P854,537 = (12,843) (60,506) =431,424 P =794,031 P The provision for (benefit from) income tax is as follows: Current Deferred Parent Company 2002 2003 =415,494 P P =590,558 (16,687) (19,141) =398,807 P P =571,417 # - 26 MCIT of the subsidiaries amounting to P =7,856 can be claimed as tax credit against future regular corporate income tax as follows: Year Incurred 2001 2002 2003 Expiry Dates December 31, 2004 December 31, 2005 December 31, 2006 Amount =2,585 P 2,172 3,099 =7,856 P NOLCO of the subsidiaries amounting to P =664,727 can be claimed as deductions from regular corporate income tax as follows: Year Incurred 2001 2002 2003 Expiry Dates December 31, 2004 December 31, 2005 December 31, 2006 Amount =108,346 P 120,800 435,581 =664,727 P The reconciliation of income from continuing operations before income tax computed at the statutory tax rate to provision for income tax as shown in the statements of income is as follows: Statutory tax rate Additions to (reduction in) income taxes resulting from the tax effects of: Equity in net losses of investees Interest income subject to final tax Change in valuation allowance Nondeductible interest and others Effective tax rate Parent Company 2002 2003 32% 32% 2003 32% Consolidated 2002 32% 2001 32% 4 16 2 5 1 (1) – (1) – (1) 1 (1) 6 – 1 1 36% 1 48% 6 40% 8 50% 2 36% 23. Pension Plan The Company has a funded, noncontributory and actuarially computed pension plan covering substantially all of its employees. The benefits are based on years of service and compensation during the last year of employment. As of January 1, 2003, the latest actuarial valuation of the Parent Company, the actuarial present value of pension benefits amounted to P =360.9 million. The fair value of the plan assets amounted to P =60.9 million. The unfunded present value of pension benefits amounted to P =300.0 million. On a consolidated basis, as of January 1, 2003, the latest actuarial valuation of the Company, the actuarial present value of pension benefits amounted to P =373.7 million. The fair value of the plan assets amounted to P =60.9 million. The unfunded present value of pension benefits amounted to =312.8 million. P # - 27 The principal actuarial assumptions used to determine pension benefits were a discount rate of 12%, a salary increase of 9% and a return on plan assets of 12%. Actuarial valuations are made at least once every three years. The Company’ s annual contribution to the pension plan consists of payment covering the current service cost for the year plus payment towards funding the actuarial accrued liability. Total pension expense of the Company amounted to P =87.6 million in 2003 and P =59.0 million in 2002 and P =19.7 million in 2001 (P =82.7 million in 2003 and P =55.7 million in 2002 for the parent company). 24. Commitments and Contingencies a. The Parent Company and subsidiaries lease office facilities, space and satellite equipment. Future annual minimum lease payments are as follows: Period January 1, 2004 - December 31, 2004 January 1, 2005 - December 31, 2005 January 1, 2006 - December 31, 2006 January 1, 2007 - December 31, 2007 January 1, 2008 - December 31, 2008 Thereafter Amount =279,269 P 177,445 144,367 134,787 117,144 35,419 b. The Company has contingent liabilities with respect to claims and lawsuits filed by third parties. Management, after consultations with outside legal counsels, is of the opinion that the eventual liability from these claims cannot be presently determined, if any, and an adverse judgment in any one case will not materially affect its financial position and results of operations. c. As a customer of the Manila Electric Company ("Meralco"), an associate of Lopez, the Company could expect to receive a refund for some of its previous billings. On April 30, 2003, the Third Division of the Supreme Court (SC) denied the Urgent Motion for Consideration filed by Meralco, rendering the SC decision dated November 15, 2002 final and executory. The decision mandates that Meralco refund its customers P0.167 per kilowatt-hour starting with the billing cycles from February 1998 until May 2003, or credit the refund in favor of the customers against their future power consumption. Meralco had reached an agreement with the Energy Regulatory Commission (ERC) on the manner and timing of the refund. The refund to the smaller, mostly residential, customers (Refund Phases I to III) will first be satisfied and is presently ongoing. Refunds to commercial and industrial customers (Refund Phase IV) are proposed to be paid over a period of approximately five years starting May 2005. Details of Refund Phase IV will require further ERC approval. The Company is covered by Refund Phase IV. It will recognize the Meralco refund when it is virtually certain of collection, both as to amount and timing of receipt. # - 28 25. 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. For the purpose of calculating diluted EPS, the net income attributable to common shareholders and the weighted average number of shares outstanding are adjusted for the effects of all dilutive potential common shares from exercise of share options. The number of common shares is the weighted average number of common shares plus the weighted average number of common shares which would be issued on the exercise of share options. Share options are deemed to have been converted into common shares on the date when the options were granted. The following table presents information necessary to calculate EPS: (a) Income from continuing operations after income tax (b) Loss from discontinuing operations after income tax (c) Net income (d) Weighted average shares outstanding Number of shares under option Weighted number of shares that would have been issued at fair value (e) Adjusted weighted average common shares - diluted Parent Company 2002 2003 2003 Consolidated 2002 2001 P = 1,011,427 =438,094 P P =1,011,427 =438,094 P =1,386,552 P (2,253) P =1,009,174 (272,314) P165,780 = (2,253) P =1,009,174 (272,314) P165,780 = (8,219) =1,378,333 P 769,583,312 – 769,583,312 – 769,583,312 – 769,583,312 – – – – – 769,583,312 769,583,312 769,583,312 769,583,312 769,456,218 769,583,312 825,306 (952,400) Basic EPS: Income from continuing operations after income tax (a/d) Loss from discontinuing operations after income tax (b/d) Basic EPS (c/d) P =1.314 =0.569 P P =1.314 =0.569 P =1.802 P (.003) P = 1.311 (0.354) P0.215 = (.003) P =1.311 (0.354) P0.215 = (0.011) P1.791 = Diluted EPS (c/e) P = 1.311 =0.215 P P =1.311 =0.215 P =1.791 P Outstanding stock options will have a dilutive effect under the treasury stock method only when the average market price of the underlying common shares during the period exceeds the exercise price of the option. In 2001, where the effect on EPS of the assumed conversion of stock options would be antidilutive, basic and diluted EPS are stated at the same amount. As of December 31, 2003 and 2002, there are no more outstanding ESOP (see Note 15). # - 29 26. Note to Statements of Cash Flow Noncash investing and financing activities: Conversion of short-term loans to long-term debt Transfer of TCC from a subsidiary and an associate Transfer of property and equipment from subsidiaries Sale of ESOP on account Parent Company 2002 2003 2003 Consolidated 2002 2001 P =190,908 =3,437,726 P P =190,908 =3,437,726 P =– P – 232,997 – 201,305 – – – 45,511 – – – – – – 82,558 27. Registration with Philippine Economic Zone Authority On February 13, 2003, the Philippine Economic Zone Authority (PEZA) under Resolution No. 03-038 of its Board of Directors, approved the Parent Company’ s application for the declaration of the 10,000 square meter lot located along Mother Ignacia Avenue corner Sgt. Esguerra Street, Diliman Quezon City, as an Information Technology (IT) Zone to be known as Eugenio Lopez Jr. Communication Center (ELJCC) and registration of the Company as Developer/Operator of the said IT zone. Pursuant to Republic Act 7916 (as amended), its Implementing Rules and Regulation, and PEZA Board Resolution No. 03-038 on June 25, 2003, the President of the Philippines issued Proclamation No. 410 creating and designating the 10,000 square meters of land where ELJCC is located, as an Information Technology (IT) Zone. Accordingly the Parent Company became a PEZA registered Developer/Operator of ELJCC subject to the terms and condition of the Registration Agreement. The Parent Company, however, is not entitled to PEZA incentives under Republic Act No. 7916 (as amended). 28. Other Matter In 1972, the Parent Company discontinued its operations when the government took possession of its property and equipment. In the succeeding years, the properties 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 properties 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 =305,400 plus legal interest compounded quarterly and exemplary damages of P =100,000. # - 30 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 =13,290 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 =29,914 (net of the government’ s counterclaim against the Parent Company of =67,586) by way of tax credits or other forms of noncash settlement as full and final settlement of P the rentals from 1986 to 1992. The TCCs were issued in 1998. #