COVER SHEET

Transcription

COVER SHEET

COVER SHEET
1 8 0 3
S.E.C. Registration Number
A B S - C B N
B ROA DCA S T I NG
C O R P O R A T I ON
(Company's Full Name)
A B S - C B N
B ROA DCA S T I NG
S GT . E S GU ERRA
CENT ER
A V E . QUE Z ON
CI T Y
(Business Address: No. Street City / Town / Province)
Rolando P. Valdueza
415-2272
Contact Person
1 2
Month
3 1
Day
Company Telephone Number
1 7 - A
0 6
FORM TYPE
Month
0 5
Day
Annual Meeting
Fiscal Year
Secondary License Type, If Applicable
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
6,986
Total No. of Stockholders
Php 5.5 billion
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document I.D.
Cashier
STAMPS
1
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended December 31, 2007
2. SEC Identification Number 1803
3. BIR Tax Identification No. 301-000-406-761V
4. Exact name of issuer as specified in its charter: ABS-CBN BROADCASTING CORP.
5. Philippines
Province, Country or other jurisdiction
of incorporation or organization
6.
(SEC Use Only)
Industry Classification Code:
7. ABS-CBN Broadcasting 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
Number of Shares of Common Stock
Outstanding and Amount of Debt
Outstanding
769,583,312
Short-term & Long-term debt (current & non-current) Php5,516 million
11. Are any or all of these securities listed on a Stock Exchange.
Yes [ x ]
No [ ]
If yes, state the name of such stock exchange and the classes of securities listed therein:
Philippine Stock Exchange
Class A
2
12. Check whether the issuer:
(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17
thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141
of The Corporation Code of the Philippines during the preceding twelve (12) months (or for
such shorter period that the registrant was required to file such reports);
Yes [ x ]
No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes [ x ]
No [ ]
13. State the aggregate market value of the voting stock held by non-affiliates of the registrant.
Php7,451,983,352
(as of March 31, 2008)
3
TABLE OF CONTENTS
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II -- OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters
Item 6. Management’s Discussion and Analysis or Plan of Operation
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
PART III – CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Issuer
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
PART IV – CORPORATE GOVERNANCE
Item 13. Corporate Governance
PART V – EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C
Item 15. 2007 Annual Report to Security Holders
SIGNATURES
4
PART I - BUSINESS AND GENERAL INFORMATION
Item 1. Business
Business Development
ABS-CBN Broadcasting Corporation (“ABS-CBN” or the “Company”) traces its roots from Bolinao
Electronic Corporation (“BEC”) which was established in 1946 as an assembler of radio transmitting
equipment. In 1952, BEC changed its corporate name to Alto Broadcasting Corporation (“ABS”). On
September 24, 1956, 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.
The Company’s Very High Frequency (“VHF”) television network, which consists of its flagship station
in Mega Manila, Channel 2, 23 other owned and operated television stations and ten affiliated stations, is
the leading television network in the Philippines. The Company also operates Studio 23, the leading Ultra
High Frequency (“UHF”) television network with 35 television stations. The two networks reach an
estimated 97% and 50% of all television owning households in the Philippines, respectively. The
Company's VHF network broadcasts a wide variety of entertainment and news programs nationwide to
the mass market, primarily in Filipino. The Company's UHF network has in the past broadcast mostly
English language programs imported from the United States, targeting more affluent viewers, but is now
broadening the target audience for Studio 23 to include the mass market demographic segment. The
Company is also one of the leading radio broadcasting companies, with 19 owned AM and FM radio
stations and ten affiliated radio stations throughout the Philippines. The Company’s anchor radio
stations in Manila, DZMM and DWRR, are the highest-rated stations in Mega Manila in the AM and FM
bands, respectively.
Its subsidiaries and associates are involved in the following related businesses: video/audio post
production, content development and production, film production and distribution, audio recording and
distribution, cable and satellite programming services, and telecommunication services overseas. Other
activities of the subsidiaries include merchandising and licensing, internet services, publishing, money
remittance, property management, and food and restaurant service.
Gross revenues in 2007 amounted to P19,891 million of which 68% or P13,605 million came from airtime
revenues; 29% or P5,738 million from direct sales (sale of services and sale of goods); and 3% or P548
million from license fees. Sale of services refer to revenues derived from cable and satellite programming
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services, film production and distribution, interactive media, content development and programming
services, post production, and mobile communications value added services (VAS), etc.
License fees, on the other hand, represent revenues from the migration of existing US DTH (direct to
home) subscribers to DirecTV’s platform as well as take-up of new subscribers. In 21 July 2005, ABS-CBN
and its subsidiary ABS-CBN International signed an affiliation agreement with DirecTV, one of the
leading DTH system providers in the US. Under the deal, DirecTV will have the exclusive right to air The
Filipino Channel (TFC) package on its DTH platform. In return, DirecTV will pay license fees to ABSCBN based on the number of subscribers, new and existing, who will avail of the service during the
migration period.
Meanwhile, sale of goods refer to revenues arising from the sale of consumer products such as
magazines, audio, video products, and phonecards.
The Company operates in three major geographical areas. In the Philippines, its home country, the
Company is involved in broadcasting, cable operation and other businesses. In the United States and
other locations (which includes Middle East, Europe, Japan, Australia, and Asia Pacific), the Company
operates its cable and satellite operations to bring television programming outside the Philippines.
Subsidiaries and Affiliates
Philippine Subsidiaries and Affiliates (Direct Wholly-Owned)
Company
Date of
Incorporation
Principal Activities
Ownership
Interest
03/09/92
02/02/95
Print publishing
Audio and video production
and distribution
Services
100.00
100.00
Music Publishing
Content development and
programming services
Services - interactive media
Services -restaurant and food
Movie production and
distribution
Real estate
100.00
100.00
ACTIVE / OPERATING
ABS-CBN Publishing, Inc.
Star Recording, Inc. (Star
Records)
Professional Services for
Television & Radio, Inc.
*
09/01/95
Star Songs, Inc.
Sarimanok News Network,
Inc. (SNN)
ABS-CBN Interactive, Inc.
Creative Programs, Inc.
07/08/96
23/06/98
29/01/99
24/10/2000
Studio 23, Inc. (Studio 23)
24/10/2000
TV Food Chefs Inc.
ABS-CBN Film Productions,
Inc. (ABS-CBN Films)*
ABS-CBN Integrated
and Strategic Property
Holdings, Inc.
23/01/01
25/03/03
09/10/03
100.00
100.00
100.00
100.00
100.00
100.00
100.00
Sky Films, Inc., a 100%-owned subsidiary of ABS-CBN engaged in the business of foreign movie
distribution in the Philippines, was merged into ABS-CBN Films on November 2007.
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INACTIVE
Creative Creatures, Inc.
27/09/95
Set design production and
construction
100.00
ABS-CBN Consumer
Products, Inc.
Shopping Network, Inc.
Cinemagica, Inc.
20/10/95
Merchandising and licensing
business
Trading
General theatrical and
amusement business
100.00
ABS-CBN Assets, Inc.
Toyworks, Inc.
The Big Dipper Digital
Content & Design, Inc.
17/09/96
06/11/97
30/06/2000
18/12/95
22/07/96
Holding company
Wholesale trading
Creation, design, development,,
production and distribution of
interactive media content
100.00
100.00
100.00
100.00
100.00
Philippine Subsidiaries and Affiliates (Indirect Wholly-Owned)
Company
Date of
Incorporation
Ownership
Interest
E-Money Plus, Inc.
07/08/2000
Services – money remittance
ABS-CBN Multimedia, Inc.
25/08/04
Digital electronic content
distribution
100.00 thru
ABS-CBN
Global Ltd.
100.00 thru
ABS-CBN
Interactive, Inc.
Cinema Ventures, Inc.
21/10/96
General theatrical and
amusement business
ABS Land, Inc.
03/06/97
Real estate holding and
development
Definition Records, Inc.
22/02/01
Manufacture, production,
purchase, sale, export, import,
lease, license of music records,
digital music files, musical
compositions
ACTIVE / OPERATING
INACTIVE
100.00
thru
Cinemagica,
Inc.
100.00
thru ABS-CBN
Assets, Inc.
100.00
thru ABS-CBN
Interactive, Inc.
and Star
Recording, Inc.
Philippine subsidiaries (Majority-Owned)
7
Company
Date of
Incorporation
Ownership
Interest
23/11/95
Services - post production
98.9
17/05/96
Print publishing
70.0
thru ABS- CBN
Publishing, Inc.
Star Pacific Cinema, Inc.
07/08/96
75.0
Promotional Partners
Philippines, Inc.
ABS-CBN Entertainment, Inc.
27/12/96
Feature length motion picture
production, ownership, sale,
licensing distribution and
exhibition
Product licensing
13/02/98
Film production
90.0
Company
Place and
Date of
Incorporation
Ownership
Interest
ABS-CBN International
California USA
22/03/79
Cable and satellite
ABS-CBN Telecoms North
America, Inc.
California, USA
19/04/95
Cable and satellite
ABS-CBN Global Ltd. (with a
Philippine Branch Office)
Cayman
Islands
03/01/02
Dubai, UAE
29/04/02
Holding company
98.00
thru ABS-CBN
Global, Ltd.
100.00
thru ABS-CBN
International
100.00
ABS-CBN Middle East FZ-LLC
Dubai, UAE
29/04/02
Cable and satellite
ABS-CBN Europe Ltd.
(with an Italian Branch Office)
United
Kingdom
08/05/03
Victoria,
Australia
18/05/04
Japan
22/03/06
Cable and satellite
Alberta Canada
08/03/07
Cable and satellite
ACTIVE/OPERATING
Roadrunner Network, Inc.
(Roadrunner)
Culinary Publications, Inc.
INACTIVE
50.04
International subsidiaries
ABS-CBN Middle East LLC
ABS-CBN Australia Pty. Ltd
ABS-CBN Japan, Inc.
The Filipino Channel Canada
ULC
Trading
Cable and satellite
Cable and satellite
100.00
thru ABS-CBN
Middle East
FZ-LLC
100.00
thru ABS-CBN
Global, Ltd.
100.0
thru ABS-CBN
Global, Ltd.
100.0
thru ABS-CBN
International
100.00
thru ABS-CBN
Global, Ltd.
100.00
thru ABS-CBN
International
Philippine affiliates
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Company
Date of
Incorporation
Ownership
Interest
18/04/91
Investing in ventures related to
cable television, cable
communications, cable systems,
television media and shopping
networks, and film distribution
10.2
12/04/94
Television and radio
broadcasting
Holding company
49.0
13/04/93
Production, manufacturing,
sale, distribution, lease of
motion picture and film
45.0
Company
Date of
Incorporation
ABS-CBN Foundation, Inc.
ABS-CBN Center for
Communication Arts, Inc.
ABS-CBN Bayan Foundation,
Inc.
71 Dreams Foundation, Inc.
05/07/89
10/06/99
Charitable institution
Educational/training
18/01/2000
24/03/06
ACTIVE/OPERATING
Sky Vision Corporation
AMCARA Broadcasting
Network, Inc.
Beyond Cable Holdings, Inc.
INACTIVE
Star Cinema Productions, Inc.
07/12/01
7.0
Non-stock corporations
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 Company's television broadcasting networks compete for advertising revenues, the acquisition of
popular programming and for the services of recognized talent and qualified personnel. The Company's
television stations also compete with other advertising media, such as radio, newspapers, outdoor
advertising and cable television channels, as well as with home video exhibition, the Internet and home
computer usage. The Company principally competes with 12 commercial television stations in Mega
Manila, including the channels of its major competitor, GMA, which owns and operates Channel 7 and
provides programming for Channel 11 in Manila, and which is affiliated with 41 other stations outside of
Manila.
The major VHF broadcasting networks in the country and their corresponding Mega Manila channels are
as follows:
ABS-CBN Broadcasting Corp.
National Broadcasting Network
---
Channel 2
Channel 4
9
Associated Broadcasting Corp.
GMA Network, Inc.
Radio Philippine Network
Zoe Broadcasting Corp. (QTV)
Intercontinental Broadcasting Corp.
------
Channel 5
Channel 7
Channel 9
Channel 11
Channel 13
Channels 4, 9 and 13 are owned by the Philippine government, although the privatization of Channels 9
and 13 is currently in process.
The principal UHF networks operating in the Philippines and their corresponding Mega Manila channels
are as follows:
ABS-CBN Broadcasting Corp. (Studio 23)
-Channel 23
Southern Broadcasting Network
-SBN 21
RJ Broadcasting
-RJTV 29
National Broadcasting Corp. (MTV Phils)
-Channel 41
Eagle Broadcasting
-Net 25
Programming
The Company is a growing supplier of Filipino content for television and cable channels both in the
Philippines and, increasingly, throughout the world. The Company faces competition for distribution of
its programming from other producers of Filipino programming. The Company competes with other
programming providers for channel space and compensation for carriage from cable television operators
and other multi-channel distributors. For such program services, distributors select programming based
on various considerations, including the prices charged for the programming and the quality, quantity
and variety of programming.
International Cable and Satellite Services
The Company is the first media company in the Philippines which provided an international DTH and
cable channel service through The Filipino Channel (TFC). The channel is targeted specifically at overseas
Filipinos including Filipino immigrants and workers. In July 2005, ABS-CBN and its subsidiary ABS-CBN
International signed an affiliation agreement with DirecTV, one of the leading direct to home (DTH)
system providers in the US. Under the deal, DirecTV will have the exclusive right to air the TFC package
on its direct to home platform. In return, DirecTV will pay license fees to ABS-CBN and to ABS-CBN
International.
The Company's DTH satellite subscription service in the U.S. presently competes with other satellite
television and cable systems, national broadcast networks, and regional and local broadcast stations. In
2005, main competitor GMA-7 launched its own international Filipino-based programming service in the
US, Pinoy TV, which is also available via DTH and cable platforms.
Magazine Publishing
Each of the Company's magazine publications competes for readership and advertising revenues with
other magazines of similar format and with other forms of print and non-print media. Competition for
advertising is based on circulation levels, reader demographics and advertising rates.
Movie Production and Distribution
The production and distribution of feature films is a highly competitive business in the Philippines.
ABS-CBN Films competes for the services of recognized creative talents (both artists and production staff)
10
and for film rights to scripts, which are essential to the success of a movie. The Company likewise
competes with other feature film producers, including other Filipino studios, smaller independent
producers and major foreign studios such as Disney, Dreamworks, Fox, MGM, Sony, Universal and
Warner Bros. Success in the Philippine movie business depends on the quality of the film, its distribution
and marketing, and the public’s response to the movie which is difficult to predict. The number of films
released by the Company's competitors in any given period may create an oversupply of product in the
market, which may reduce the Company's share of gross box office admissions and make it more difficult
for its films to succeed. ABS-CBN Films also competes with other forms of entertainment and leisure time
activities such as DVDs, video cassettes and computer games.
Internet and Mobile VAS Services
In connection with the Company's internet services and other new interactive and mobile VAS products
including SMS and MMS, the Company faces competition from internet service providers, and personal
communication and telecommunications companies. Some of these companies are looking to develop
their own mobile-related content and value-added services.
Post-Production Services
The post-production services business is also highly competitive. In addition to other post-production
services companies, including one owned by GMA, television and movie studios themselves can also
perform similar services in-house. These studios could devote substantially greater resources to the
development of post-production services that compete with those provided by the Company. The
Company also actively competes with certain industry participants that are niche players or specialized
businesses.
Cable Television Operations
Sky Vision's cable operations directly compete for viewer attention and subscriptions with other
providers of entertainment, news and information, including other cable television systems, broadcast
television stations and DTH satellite companies. Cable television systems also face strong competition
from all media for advertising revenues. Important competitive factors include fees charged for basic and
premium services, the quantity, quality and variety of the programming offered, signal reception,
customer service, and the effectiveness of marketing efforts.
Transactions with and/or dependence on related parties
In the 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 Company
which are reimbursed by the subsidiaries
and associates (see Notes 17 and 18)
Interest income on convertible note (see Note 7)
Airtime revenue from Sky Films, ABS-CBN Films,
Manila North Tollways Corp. (MNTC) and
Bayan Telecommunications Holdings, Inc.
(Bayantel), a subsidiary of Lopez
Technical facilities order charges for the use of
the Company’s facilities (see Note 19)
Blocktime fees charged to Studio 23 for the use of the
Company’s equipment (see Note 19)
2007
2006
=255,779
P
35,280
=251,323
P
115,424
64,932
91,117
95,234
122,717
8,250
16,500
11
Management and other service fees (see Note 19)
Rental charges of the Company for the use
of office space (see Note 19)
2007
159,728
2006
89,216
37,035
37,081
Other transactions with subsidiaries and associates include cash advances for working capital
requirements.
Outstanding balances from the above transactions are reflected in the parent company balance sheets
under the following accounts:
Trade and other receivables (see Note 5)
Advances to subsidiaries (see Note 7)
Trade and other payables (see Note 12)
2007
=214,052
P
455,879
1,068,835
2006
=192,609
P
355,787
1,173,261
In the consolidated financial statements, transactions of the Company with its associates and related
parties follow:
Associates
Interest on noncurrent receivable from Sky Vision
(see Notes 8 and 21)
License fees charged by CPI to Central, (a) PCC
and Home Cable
Blocktime fees paid by Studio 23 to Amcara (b)
Management fees charged to Sky Cable (see Note 21.3)
Affiliates
Expenses paid by Parent Company & subsidiaries to
Manila Electric Company (Meralco), Bayan
Telecommunications Holding, Inc. (Bayantel)
& other related parties (see Notes 17, 18 and 19)
Termination cost charges of Bayantel, a subsidiary of
Lopez, to ABS-CBN Global (see Note 19)
Airtime revenue from Manila North Tollways Corp.
(MNTC), Bayantel and Meralco, an associate of Lopez
Expenses and charges paid for by the
Parent Company which are reimbursed
by the concerned related parties (see Notes 18, 19 and
20)
2007
2006
=0
P
=115,424
P
105,198
53,960
21,184
104,927
57,078
-
2007
2006
=424,825
P
=413,036
P
277,094
236,244
74,025
50,718
27,859
36,862
The related receivables and payables from related parties are as follows:
Due from associates
Due from affiliates
Total
2007
P42,993
=
110,416
=153,409
P
2006
=180,189
P
108,526
=288,715
P
Due to associates
Due to affiliates
Total
P69,178
=
173,180
=242,358
P
P32,938
=
191,740
=224,678
P
12
Lopez, Inc. (Ultimate Parent)
The Company has no transaction with Lopez, Inc. for the years 2007 and 2006.
a.
License Fees Charged by CPI to Central
CPI entered into a channel carriage agreement (Agreement) with Central for the airing of the
cable channels (see Note 10) 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 receives license fees from Central and
its cable affiliates computed based on agreed rates and on the number of subscribers of Central
and its cable affiliates. As the owner of the said cable channels, CPI develops and produces its
own shows and acquires program rights from various foreign and local suppliers.
b. Blocktime Fees Paid by Studio 23 to Amcara
Studio 23 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.
c.
Management fees Charged to Sky Cable
The Parent Company renders management services to Sky Cable through designated employees.
d. Other transactions with associates include cash advances for working capital requirements.
Terms and Conditions of Transactions with Related Parties
The sales to and purchases from related parties are made at normal market prices. Outstanding
balances as of year-end are unsecured, interest free and settlement occurs in cash, except for the
noncurrent receivables from SkyVision discussed in Note 8. For the years ended December 31, 2007
and 2006, the Company has not made any provision for doubtful accounts relating to amounts owed
by related parties. This assessment is undertaken each financial year through examining the financial
position of the related party and the market in which the related party operates.
As discussed in Note 15, certain obligations of the Parent Company are jointly and severally
guaranteed by its principal subsidiaries.
Compensation of key management personnel of the Company
2007
Compensation
Pension benefit
Vacation leaves and sick leaves
Termination benefits
=447,500
P
43,609
21,628
711
=513,448
P
2006
=413,692
P
47,840
29,484
=491,016
P
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.
13
Agreements of labor contracts, including duration
ABS-CBN Management recognizes two labor unions, one for the supervisory employees and another for
the rank and file employees. The collective bargaining agreement (CBA) for the supervisory union
expired last 31 July 2005 while the CBA for the non-supervisory union expired last 10 December 2005.
Negotiations with both Unions started two years ago which covered the economic and non-economic
provisions for CBA cycle 2005-2010. CBA negotiations were successfully concluded in 2005.
Licenses from foreign and local film and programs aired through the networks
ABS-CBN and its subsidiaries have licenses from foreign and local program and feature film owners to
distribute the same through its networks. The licenses to distribute the foreign programs and foreign and
local feature films grant ABS-CBN and its subsidiaries the right to distribute said programs and films on
free TV, UHF, cable, and satellite TV in the Philippines and in territories wherein The Filipino Channel is
distributed. These licenses for TV rights have an average term of two (2) to three (3) years. Such
programs comprise approximately twenty five percent (25%) 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.
ABS-CBN and its wholly-owned subsidiary, Sky Films, Inc. (which was merged into ABS-CBN Films in
November 2007), also have the license to distribute local and foreign feature films in the Philippines for
theatrical, TV, and video distribution, with limited ancillary rights. The licenses for foreign films have an
average term of 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
and content are the National Telecommunications Commission (NTC), the Department of Transportation
and Communication (DOTC), the Movie and Television Review and Classification Board (MTRCB), the
Optical Media Board (OMB), and the Department of Labor and Employment.
The NTC is the government agency which regulates the broadcasting industry. Among its specific
functions is the granting of provisional authorities and certificates of public conveniences to own and
operate a broadcasting station within the Philippines. The NTC also regulates the bandwidth allocation
used by the different broadcasting companies through the grant of temporary permits and licenses to
operate television and radio stations.
The DOTC formulates general and specific policies on the broadcasting industry. Although the DOTC
exercises supervision and control over the NTC, it does not have the power to review the acts and
resolutions of the NTC. The MTRCB classifies television programs based on their content, including the
14
showing of indecent and excessively violent scenes on television. The OMB issues permits to television
stations or networks engaged in the exhibition and distribution of programs in video format.
In addition to the restrictions imposed by the government agencies, a broadcaster must also follow rules
and industry standards promulgated by the Kapisanan ng mga Brodkaster sa Pilipinas (KBP). The KBP is a
trade organization consisting of television and radio operators. It formulates policies and guidelines for
the operations of its members and enforces programming and advertising rules.
Costs and effect of compliance with environmental laws
Whenever required, the Company applies for and secures proper permits, clearances or exemptions from
the Department of Environment and Natural Resources, Department of Health, Air Transportation Office,
and other regulatory agencies, for the installation and operation of proposed broadcast stations
nationwide.
For the past three years, there were no costs related to the effect of compliance with environmental laws.
Employees
The number of employees and talents of the Parent Company was 4,041, 3,328 and 3,333 as of
December 31, 2007, 2006 and 2005, respectively. The number of employees and talents of the Parent
Company and its subsidiaries (collectively referred to as the “Company”) was 7,406, 5,836, and 5,738 as of
December 31, 2007, 2006 and 2005, respectively.
ABS-CBN Management recognizes two labor unions, one for the supervisory employees and another for
the rank and file employees. The collective bargaining agreement (CBA) for the supervisory union
expired last 31 July 2005 while the CBA for the non-supervisory union expired last 10 December 2005.
Negotiations with both Unions started two years ago which covered the economic and non-economic
provisions for CBA cycle 2005-2008. Negotiations on the economic and non-economic provisions of the
CBA for both unions were successfully concluded in 2005. The Supervisory Union represents
approximately 8% of total Parent Company employees, while 27% of the total ABS-CBN regular
employees belong to the Rank & File Union.
In July 2005, the Company implemented an employee reduction program or SSP (special separation
package) in order to cut employee costs and improve efficiencies. Around 400 regular employees were
covered by the SSP. For 2007, there was no significant increase or decrease in Company headcount.
Risks Relating to the Company
The Company’s results of operations may be negatively affected by adverse economic conditions in the
Philippines since its operations depend largely on its ability to sell airtime for advertising. Historically,
the advertising industry, relative to other industries, has been particularly sensitive to the general
condition of the economy. Consequently, the Company’s business may be affected by the economic
condition of the country.
Item 2. Properties
The properties of the Company consist of production, broadcasting, transmission and office facilities,
majority of which are owned by the Company. Broadcast operations are principally conducted in the
44,000 square meter ABS-CBN complex located at Sgt. Esguerra Avenue, Quezon City. The complex also
houses the Company’s 650-foot transmitter tower and other broadcast facilities and equipment.
15
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.
The Company also owns television broadcast and production facilities and other real estate properties in
various parts of the Philippines, including local television and radio originating stations in Bacolod,
Cebu, Davao, Dagupan, Naga, Legaspi, Zamboanga, General Santos, Cagayan de Oro and Iloilo. Other
principal properties used in connection with the Company's operations include a training center and a
technical operations center. The Company also owns the production and transmission equipment and
facilities of its radio stations located both within and outside of Manila.
With the Company having made substantial investments in upgrading its production, broadcasting and
transmission equipment in recent years, the Company does not anticipate any major capital expenditures
in the near future.
On June 18, 2004, the Parent Company entered into a Senior Credit Agreement (SCA) with several foreign
and local banks (Original Lenders) for a dual currency US$120 million syndicated term loan facility for
the purpose of refinancing existing indebtedness incurred for the construction of the Eugenio Lopez, Jr.
Communications Center, additional investment in the cable TV business and funding capital
expenditures and working capital requirements. The Parent Company’s obligation under the SCA is
secured and covered by a Mortgage Trust Indenture (MTI) which consists of substantially all of the
Parent Company’s real property and moveable assets used in connection with its business and insurance
proceeds related thereto. Further, the Parent Company’s obligation under the SCA is jointly and
severally guaranteed by its principal subsidiaries.
The SCA contains provision regarding the maintenance of certain financial ratios and limiting, among
others, the incurrence of additional debt, the payment of dividends, making investments, the issuing or
selling the Parent Company’s capital stock or some of its subsidiaries, the selling or exchange of assets,
creation of liens and effecting mergers.
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, 2007:
VHF TV STATIONS
CH
STATION
1
2
Manila
Cebu
2
3
STATION
TYPE
Originating
Originating
Location
(Transmitter Site)
Mo. Ignacia St., Diliman, QC
Mt. Busay, Cebu City
16
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
Bacolod
Cagayan de Oro
Davao
General Santos
Zamboanga
Naga
Tacloban
Dumaguete
Isabela
Tuguegarao
Cotabato
Baguio
Iligan
Butuan
Ilocos Norte
Legaspi
Olongapo
Iloilo
Batangas
4
2
4
3
3
11
2
12
2
3
5
3
4
11
7
4
12
10
10
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Relay****
Originating
Relay****
Originating
Originating
Relay****
Originating
Originating
Relay****
Relay****
Originating
Relay****
Mt. Kanlandog, Murcia, Negros Occ.
Mt. Kitanglad, Bukidnon
Shrine Hills, Matina, Davao City
Brgy. Lagao, Gen. Santos City
Zamboanga City
Naga City
Mt. Naga-naga, Tacloban City
Valencia, Negros Or.
Santiago City, Isabela
Tuguegarao, Cagayan
Cotabato City
Mt. Sto. Tomas, Benguet
Iligan City
Butuan City
San Nicolas, Ilocos Norte
Mt. Bariw, Legaspi
Upper Mabayuan, Olongapo City
Jordan, Guimaras
Mt. Banoy, Batangas
22
23
24
25
Bohol
Mt. Province
Zambales
Albay
9
11
13
10
Relay
Relay
Relay
Relay
Jagna, Bohol
Mt. Amuyao, Mt. Province
Botolan, Zambales
Tabaco,, Albay
26
27
28
29
30
Masbate Comm. Bctg. Co.
MIT-RTVN
MIT-RTVN
St. Jude Thaddeus Inst. of Tech
Sulu Tawi-Tawi Broadcasting
Corporation
Our Lady’s Foundation (not
operating)
Calbayog Comm. Bctg. Corp.
Palawan Bctg. Corp.
10
7
9
12
10
Affiliate
Affiliate
Affiliate
Affiliate
Affiliate
Masbate, Masbate
Ozamis City
Mt. Palpalan, Pagadian City
Surigao City
Jolo, Sulu
9
Affiliate
Sorsogon, Sorsogon
10
7
Affiliate
Affiliate
Calbayog City, Western Samar
Puerto Princesa, Palawan
31
32
33
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
Manila**
Cebu
Davao
Dagupan
Naga
Batangas
Baguio**
Laoag
Bacolod
Iloilo**
Zamboanga
Gen. Santos
Tacloban***
Cagayan De Oro
Dumaguete
Botolan
Isabela (not operating)
Bohol***
Marbel
Rizal***
Legaspi***
Olongapo
Iligan
Butuan***
CH
23
23
21
32
24
36
30
23
22
38
23
36
24
23
24
23
23
40
24
40
23
24
26
22
STATION
TYPE
Originating
Relay Station
Relay Station
Originating
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
Relay Station
STATION LOCATION
(Transmitter Site)
Metro Manila
Mt. Busay, Cebu City*
Matina Hills, Davao City*
Sto. Tomas, Benguet*
Naga City*
Mt. Banoy, Batangas*
Mt. Sto. Tomas (Baguio)*
San Nicolas, Laoag*
Bacolod City*
La Paz, Iloilo City*
Zamboanga City*
General Santos City*
Mt. Naga-Naga, Tacloban
Cagayan de Oro City*
Mt. Palimpinon, Valencia, Negros Oriental*
Botolan, Zambales*
Santiago City*
Jagna, Bohol
Marbel, S. Cotabato
Antipolo, Rizal
Legaspi City
Olongapo City*
Iligan City*
Butuan City
17
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
Cotabato***
Pagadian
Palawan
Surigao***
Roxas City
Baler
Camarines Norte
Kalibo
Dipolog
Lucena City
Lipa City (closed as of Feb.
2008)
Tarlac** (closed as of Oct. 28,
2005)
San Miguel**
San Fernando, Pampanga**
San Pablo**
Cabanatuan** (closed as of
Oct. 28, 2005)
23
24
23
23
21
22
23
23
42
24
38
Relay Station
Relay Station
Relay Station
Relay Station
Relay****
Relay Station
Relay****
Relay****
Relay****
Relay****
Relay Station
N. Cotabato
Pagadian City
P. Princesa, Palawan
Surigao City
Roxas City
Baler, Aurora
Daet, Camarines Norte
Aklan
Dipolog City
Lucena City, Quezon
Lipa City, Batangas
34
Relay Station
Tarlac City
34
46
46
30
Relay Station
Relay****
Relay****
Relay Station
San Miguel, Bulacan
San Fernando, Pampanga
San Pablo, Laguna
Cabanatuan, Nueva Ecija
* co-located with VHF TV Stations ; **owned by ABS-CBN;*** with pending application with the NTC,****with commercial insertion capability
FM STATIONS
STATION
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
FREQ.
MHz
Manila
Cebu
Bacolod
Davao
Baguio
Legaspi
Naga
Laoag
Dagupan
Iloilo
Tacloban
Cagayan De Oro
Cotabato
Gen. Santos
Zamboanga
101.9
97.1
101.5
101.1
103.1
93.9
93.5
95.5
94.3
91.1
94.3
91.9
95.1
92.7
98.7
CALL
SIGN
STATION
TYPE
DWRR
DYLS
DYOO
DXRR
DZRR
DWRD
DWAC
DWEL
DWEC
DYMC
DYTC
DXEC
DXPS
DXBC
DXFH
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
Originating
CALL
SIGN
STATION
TYPE
LOCATION
Lopez Center, Antipolo City
Mt. Busay, Cebu City
Mt. Kanlandog, Murcia, Negros Occ.
Shrine Hill, Matina, Davao City
Mt. Sto. Tomas, Benguet
Mt. Bariw, Legaspi
Naga City
San Nicolas, Ilocos Norte
Dagupan City
Iloilo City
Tacloban City
Bulua, Cagayan de Oro City
Cotabato City
Lagao, Gen. Santos City
Zamboanga City
AM STATIONS
FREQ. KHz
STATION
LOCATION
1
Manila
630
DZMM
Originating
Obando, Bulacan
2
3
Cebu
Davao
1512
1296
DYAB
DXAB
Originating
Originating
Pardo, Cebu City
Matina, Davao 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.
18
PART II - OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters
The Company’s common shares have been listed on the Philippine Stock Exchange (PSE) since 1992. Its
Philippine Deposit Receipts (PDRs) were listed in 1999. Common shares may be exchanged for Philippine
Deposit Receipts, and vice-versa. The common shares (ABS) closed at Php25.00 while the Philippine
Deposit Receipts (ABSP) closed at Php26.00 on March 30, 2008.
Dividends
The declaration and payment of dividends are subject to certain conditions under the Company’s existing
Senior Credit Agreement (SCA) with creditor banks. Under the SCA, the Company may declare and pay
dividends provided: (a) all payments (including pre-payments) due on said loan and premiums on
insurance of assets are current and updated; (b) all financial covenants set forth therein are satisfied; (c)
certain financial ratios are met and such payment will not result in the violation of the required financial
ratios under the SCA; (d) no event of default as provided in the SCA shall exist or occur as a result of
such payment; and (e) the total amount of the cash dividends does not exceed fifty percent (50%) of the
Company’s net income after taxes for the fiscal year preceding the declaration.
Percent
Amount (in Pesos)
Php0.60
Php0.00
Php0.00
Php0.64
Php0.45
Php0.825
Stock Dividend (Per Share)
Record Date
Declaration Date
No stock dividend since 1996
Payment Date
Cash Dividend (Per Share)
Declaration Date
Record Date
March 28, 2001
April 25, 2001
----July 21, 2004
July 24, 2004
March 28, 2007
April 20, 2007
March 26, 2008
April 30, 2008
Payment Date
May 25, 2001
--August 10, 2004
May 15, 2007
May 27, 2008
First Quarter
ABS
High Low
33.00 23.00
ABSP
High Low
35.00 25.00
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
26.50
33.50
37.50
34.50
Low
18.75
26.00
29.50
30.00
High
26.00
33.50
39.00
37.00
Low
18.75
26.50
29.50
29.50
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
13.25
17.00
17.25
22.75
Low
10.50
10.50
15.75
16.50
High
13.00
17.75
17.50
23.75
Low
10.25
11.50
15.75
16.50
2008
2007
2006
19
The number of shareholders of record as of December 31, 2007 was 6,986. Common shares outstanding as
of December 31, 2007 were 769,583,312.
Top 20 Stockholders as of March 31, 2008
As of March 31, 2008, the Top 20 stockholders of ABS-CBN own an aggregate of 760,102,169 or 98.77% of
outstanding common shares.
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Stockholder
Lopez, Inc.
PCD Nominee Corporation
Eugenio Lopez III
Ching Tiong Keng
ABS-CBN Foundation, Inc.
Carlos Salinas, Sr.
Crème Investment Corporation
FG Holdings
Charlotte C. Cheng
Cynthia D. Ching
Phil. Communication Satellite Corp.
Century Securities Corp.
Tiong Keng Ching
Federico M. Garcia
Pua Yok Bing
La Suerte Cigar & Cigarette Factory
Carlos C. Salinas
Alberto G. Mendoza &/or Jeanne
Mendoza
Mimi Chua
Josephine Go
Sub-total Top 20 Stockholders
Others
Citizenship
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Record /
Beneficial
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Record
Filipino
Filipino
Filipino
Record
Record
Record
TOTAL STOCKHOLDERS
Number of
Shares Held
446,231,607
306,480,055
1,542,915
859,500
780,995
490,800
415,500
386,270
340,000
337,500
325,500
320,000
252,000
226,207
220,500
205,000
195,000
Percent
57.98%
39.82%
0.20%
0.11%
0.10%
0.06%
0.05%
0.05%
0.04%
0.04%
0.04%
0.04%
0.03%
0.03%
0.03%
0.03%
0.03%
168,250
162,390
162,180
760,102,169
9,481,143
0.02%
0.02%
0.02%
98.77%
1.23%
769,583,312
100.00%
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 ESOP have been fully paid and issued since
1995.
On March 29, 2000, the Board of Directors approved another ESOP covering 6,080,306 shares. In 2002, all
the shares acquired by the Company covering this ESOP, were exercised by the employees. As of
December 31, 2003 and 2002, there are no more outstanding ESOP.
Item 6. Management’s Discussion and Analysis or Plan of Operation
The Management Discussion and Analysis of Financial Condition and the Results of Operation are
attached hereto as Annex A.
20
Information on Independent Accountant and other Related Matters
The principal accountants and external auditors of the Company is the accounting firm of Sycip, Gorres,
Velayo & Company (SGV & Co.). The accounting firm of SGV & Co. has been the Company’s
Independent Public Accountants for the last five (5) years. There was no event in the past five (5) years
where SGV & Co. and the Company had any disagreement with regard to any matter relating to
accounting principles or practices, financial statement disclosure or auditing scope or procedure.
SGV & Co. is being recommended for re-election at the scheduled Annual Stockholders’ Meeting.
Representatives of SGV & Co. for the current year and for the most recently completed fiscal year are
expected to be present at the Annual Stockholders’ Meeting. They will have the opportunity to make a
statement if they desire to do so and are expected to be available to respond to appropriate questions.
Pursuant to Memorandum Circular No. 8, Series of 2003 (Rotation of External Auditors), the Company
has engaged Jose Joel M. Sebastian, partner of SGV & Co., for the audit of the Company's books starting
2007, replacing Maria Vivian G. Cruz-Ruiz who has completed her term of 5 years.
The aggregate fees billed for each of the last two (2) fiscal years for professional services rendered by the
external auditor are as follows:
Audit Fees
Tax Fees
All Other Fees*
*related to IFRS conversion
2007
4,220,000
2006
4,905,000
2,250,620
2,388,019
The audit committee’s approval policies and procedures for the above services from Sycip, Gorres,
Velayo & Co., the external auditors are discussed in Section 7 of the Company’s Manual of Corporate
Governance filed with the Commission on September 2, 2002.
Item 7. Financial Statements
The Statement of Management’s Responsibility for Financial Statements prepared in accordance with
SRC Rule 68, as amended is attached hereto as Annex B.
The Audited Financial Statements as of 31 December 2007 prepared in accordance with SRC Rule 68, as
amended and Rule 68.1 is attached hereto as Annex B.
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
21
Board of Directors
Nominees for Election as Members of the Board of Directors
The following are expected to be nominated as members of the Board of Directors for the ensuing year:
Eugenio L. Lopez III
Augusto Almeda Lopez
Maria Rosario Santos-Concio
Oscar M. Lopez
Presentacion L. Psinakis
Federico R. Lopez
Peter D. Garrucho, Jr.
Angel S. Ong
Federico M. Garcia (Independent Director)
Emily A. Abrera (Independent Director)
Fr. Carmelo A. Caluag II, S.J. (Independent Director)
All of the above nominees are incumbent directors. They were formally nominated by a shareholder of
the Company, Lopez Inc., through its Chairman, Mr. Oscar M. Lopez. The nominees will serve as
directors of the Company for one year from date of election.
The Company has adopted the SRC Rule 38 (Requirements on Nomination and Election of Independent
Directors) and compliance therewith has been made.
Below is a summary of the nominees’ qualifications:
The following directors have held their current positions in their respective companies for more than 5
years unless otherwise indicated.
Eugenio L. Lopez III, Filipino, age 56
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 80
Vice-Chairman
Mr. Augusto Almeda- Lopez joined the Company in 1962. He has served as Vice Chairman since April
26, 1989. He is an alumnus of De La Salle College and Ateneo de Manila, is a graduate of the University of
the Philippines College of Law class 1952 and he finished an Advanced Management Program course at
Harvard University in 1969. Mr. Almeda-Lopez is also the Vice-Chairman of First Philippine Holdings
Corporation. He also serves as the Chairman of ACRIS Corporation and ADTEL, Inc. while he serves as a
Director of various companies in the telecommunications, manufacturing, and service industries, namely
First Philippine Industrial Corporation, First Gen Renewables, Inc., First Electro Dynamics Corporation,
Philippine Electric Corporation, Bayan Telecommunications, Inc., and Sky Vision Corporation.
22
Oscar M. Lopez, Filipino, age 78
Board Member
Mr. Oscar M. Lopez has served as Director since 1966. He is concurrently the Chairman and CEO of
Benpres Holdings Corporation, First Philippine Holdings Corporation, ABS-CBN Holdings, and the
Chairman and President of Inaec Aviation Corporation. Furthermore, he is concurrently the Chairman of
the following companies: Philippine Electric Corporation,, First Philippine Industrial Corporation, First
Balfour, Inc., First Private Power Corporation, Bauang Private Power Corporation, FGP Corporation, First
Gas Pipeline Corporation, First Gas Holdings Corporation, First Gas Power Corporation, First Gen
Corporation, Securities Transfer Services, Inc., First Philippine Industrial Park, Inc., First Sumiden
Circuits, Inc., First Sumiden Realty Inc., First Gen Renewable, Inc., First Electro Dynamics Corporation,
First Philippine Union Fenosa Inc., First Philippine Lending Corporation, First Philippine Infrastructure
Development Corp., Manila North Tollways Corporation, Tollways Management Corporation, Lopez,
Inc., Bayan Telecommunications Inc., Bayan Telecommunications Holdings Corporation, Central CATV,
Inc., Sky Vision Corporation, Griffin Sierra Tours, Inc., Seacrafts Management Services, Inc., and
Knowledge Channel Foundation, Inc.,
He was a recipient of the Management Association of the Philippines Management Man of the Year
Award for the year 2000 and was also one of the finalists for the Asia Business Leaders Award for the
year 2004 given by CNBC and TNT International. On civics, Mr. Lopez is a member of the international
board of Conservation International, and Chairman of both First Philippine Conservation, Inc. and the
Ophthalmological Foundation of the Philippines. He is also a member of the Conference Board. 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 also at Harvard
University.
Presentacion L. Psinakis, Filipino, age 73
Board Member
Ms. Psinakis has served as a Director of the Company since 1988. Ms. Psinakis is the founder and
President of Griffin Sierra Travel, Inc. (formerly Sierra Tours, Inc.) since its inception in 1967. 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.
Federico R. Lopez, Filipino, age 47
Board Member
Mr. Federico R. Lopez has served as a Director of the Company since 1999. He is the President and COO
of First Gen Corporation and all of the holding company's First Gas subsidiaries since 2002. He has also
held the position of Vice President at First Philippine Holdings Corporation since 1994. He oversees the
development, financing and implementation of its energy-related projects. Over the past eleven years,
Mr. Lopez has been involved in the financing and development of the Sta. Rita 1000 MW project as well
as the 500 MW San Lorenzo Project. Mr. Lopez also sits as director of the Board of First Gen Corp., First
Philippine Holdings Corp., Manila North Tollways Corp., Bauang Private Power Corp., First Gen
Renewables, Inc., First Philippine Industrial Corp., ABS-CBN Bayan Foundation, Inc. and President of
First Philippine Conservation, Inc. Mr. Lopez is also a trustee of the Asian Institute of Management and
Hands On Manila Foundation. He graduated Cum Laude with a Bachelor of Arts degree in Economics
and International Relations, from the University of Pennsylvania, USA in 1983.
Peter D. Garrucho, Jr., Filipino, age 64
Board Member
Mr. Garrucho has served as a Director of the Company since 1996. He is the Vice-Chairman and CEO of
First Gen Corporation and Managing Director for Energy of First Philippine Holdings Corporation. He
23
also serves as Vice-Chairman and CEO of a number of First Gen’s power generation subsidiaries. On
March 2000, he was given by Her Majesty, Queen Elizabeth, the award of an Honorary Officer of the
Order of the British Empire (OBE). 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 Stanford
University.
Federico M. Garcia, Filipino, age 64
Board Member, Independent Director
Mr. Garcia was president of ABS-CBN from December 10, 1997 to December 31, 2003. Prior to his
appointment as president, Mr. Garcia was Executive Vice President and General Manager when he
rejoined the Company in 1987. He also worked as a TV Sales Executive with ABS-CBN in 1966 until
Martial Law. He attended the College of Business Administration at the University of the Philippines.
Before rejoining the Company in 1987, he was Executive Vice President of GMA-7, managing its
marketing and programming activities. Mr. Garcia is a recipient of various Philippine broadcasting
industry awards.
Emily A. Abrera, Filipino, age 61
Ms. Abrera replaced Mr. Manuel L. Lopez as director in 2005. Ms. Abrera was the Chairperson of
McCann Erickson Philippines, Inc. from January 1999 to March 2004 when she retired. She was named
McCann’s first Filipino President/Chief Executive Officer in January 1992, after many years as its Chief
Creative Officer. Not only has she occupied key positions in the Advertising Board of the Philippines,
Ms. Abrera received a “Lifetime Achievement Award” from the 4A’s Creative Guild in May 1999. She
currently serves as Chairman of the Cultural Center of the Philippines. She is President of the
Foundation for Communication Initiatives and a trustee of the Museo Pambata, Children’s Hour, Inc.,
Philippine Board on Books for Young People, and the Philippine Eagle Foundation. She is a founding
member of the Women’s Business Council.
Carmelo A. Caluag II., Filipino, age 50
Fr. Caluag has been an independent director since 2005. He is presently the Trustee and Managing
Director of 71 Dreams Foundation, a foundation created by ABS-CBN in Feb 2006 to provide extended
assistance to the families of the deceased in the Ultra stampede. Fr. Caluag was Vice-President for
University Development and Alumni Relations of the Ateneo de Manila University from 2000 to 2005. He
also served as Trustee of the Ateneo de Manila University from 1998 to 2005, as well as trustee in Xavier
School, Ateneo de Naga, Ateneo de Zamboanga, and various social and civic organizations. He also
served as principal of the Ateneo de Manila High School, 1995-1998, headmaster of the Ateneo de Manila
Grade School, 1998-1999, and the first director of the Basic Education Units of the Ateneo de Manila, 19982000.
In 1986, he helped organize the Namfrel Marines and consequently founded Simbahang Lingkod ng
Bayan, a church-based socio-political organization. He has also done consultancies for various schools,
companies, and organizations and remains active in various socio-civic groups, especially in the field of
education particularly teacher formation and youth leadership formation. Fr. Caluag obtained his
undergraduate degree from the Ateneo de Manila University in 1980, having studied there also for his
elementary and secondary education. He earned his masters in school administration from Fordham
University, New York in 1994 and is an M.A. Candidate in Theology at the Loyola School of Theology. He
is finishing a Doctoral Program in Leadership Studies at the Gonzaga University, Spokane, Washington.
He was ordained a priest on April 17, 1993 and incardinated in the Diocese of Imus.
24
Maria Rosario Santos-Concio, Filipino, age 53
Board Member, President and Chief Operating Officer*
Ms. Santos-Concio was ABS-CBN Channel 2 Managing Director prior to her appointment as President
and Chief Operating Officer* where she brought greater synergy between Marketing, Sales, and
Production. She was also was in charge of achieving Profit Margins, Nationwide Ratings, Annual
Programming Strategy and Customer Development targets of the Company. She is also known as an
award-winning Actress and an accomplished Film and TV Producer. Onscreen, Ms. Santos-Concio hosts
the network’s longest-running drama anthology Maalaala Mo Kaya. As President and COO, she leads
the Executive Committee and all subsidiary and division head report to her.
Ms. Santos-Concio began her career in ABS-CBN as a Television Production Consultant in 1987 after
working as a line producer for BanCom, Audiovision, Vanguard Films, Regal Films and Vision
Exponents. She also worked as a Film Production Manager for the Experimental Cinema of the
Philippines. Ms. Santos-Concio was hailed as Best Actress in the 1978 Asian Film Festival in Sydney,
Australia for her work in Itim, and is the recipient of many cinema and broadcast industry-related
awards over the years. Ms. Santos-Concio graduated Cum Laude from St. Paul’s College in Manila with a
Communications Arts degree. In 2007, Ms. Concio also completed the Advanced Management Program
in Harvard Business School.
*as of 01 March 2008
Angel S. Ong, Filipino, age 57
Board Member
Mr. Angel S. Ong is the President and Chief Operating Officer of Benpres Holdings Corporation since
2004. He was EVP-chief financial officer of Benpres from 2001 to 2004 and vice president for finance from
1998-2000. Mr. Ong received his Bachelor of Science in Commerce degree from the Philippine College of
commerce and a Masters degree in Business Administration from the University of the Philippines. Prior
to joining the Company, he was vice president for finance of Bayan Telecommunications, Inc.. He is a
member of the Board of First Philippine Infrastructure Development Corporation, Manila North Tollways
Corporation, Tollways Management Corporation, Bayan Telecommunications, Inc. and Bayan
Telecommunications Holdings Corporation.
Independent Directors of the Board
The Company’s Independent Directors, Ms. Emily A. Abrera, and Fr. Carmelo A. Caluag II, S.J. and Mr.
Federico M. Garcia have at least one (1) share of the stock of the Company in their respective names, are
college graduates and possess integrity, probity and assiduousness. They are persons who, apart from
their fees as directors of the Company, are independent of management and free from any business or
other relationship which could, or could reasonably be perceived to, materially interfere with their
exercise of independent judgment in carrying out their responsibilities as directors of the Company.
Specifically, Ms. Abrera, Fr. Caluag and Mr. Garcia: (i) are not directors or officers or substantial
stockholders of the Company or its related companies or any of its substantial shareholders (other than as
independent directors of any of the foregoing); (ii) are not relatives of any director, officer or substantial
shareholder of the Company, or any of its related companies or any of its substantial shareholders; (iii)
are not acting as nominees or representatives of a substantial shareholder of the Company, or any of its
related companies or any of its substantial shareholders; (iv) have not been employed in any executive
capacity by the Company, or any of its related companies or by any of its substantial shareholders within
the last two (2) years; (v) are not retained as professional advisers by the Company, any of its related
companies or any of its substantial shareholders within the last two (2)) years, either personally or
through their firms; (vi) have not engaged and do not engage in any transaction with the Company or
with any of its related companies or with any of its substantial shareholders, whether by themselves or
with other persons or through a firm of which they are partners or companies of which they are directors
25
or substantial shareholders, other than transactions which are conducted at arms length and are
immaterial; and (vii) do not own more than two percent of the shares of the Company and/or its related
companies or any of its substantial shareholders. Ms. Abrera, Fr. Caluag, and Mr. Garcia do not possess
any of the disqualifications enumerated under Section II (5) of the Code of Corporate Governance and
Section II (D) of SEC Memorandum Circular No. 16, Series of 2002.
Executive / Corporate Officers
Maria A. Ressa, Filipino, age 45
Managing Director, News and Current Affairs Division and concurrent Managing Director, ANC
Before joining ABS-CBN, Ms. Ressa worked for Cable News Network (CNN) for nearly two decades, first
as Manila Bureau Chief in 1988, and as Jakarta Bureau Chief in 1995. She traveled extensively and
reported from her base in Southeast Asia as well as India, Pakistan, China, South Korea, Japan, Australia
and the United States. As CNN's lead investigative reporter in Asia, she specialized in investigating
terrorist networks. Videotapes of her coverage of terrorism were found in what experts believe to be
Osama bin Laden's private videotape collection in Afghanistan. She is the author of Seeds of Terror: An
Eyewitness Account of Al-Qaeda's Newest Center of Operations in Southeast Asia, published by Simon &
Schuster in 2003.
Ms. Ressa graduated from Princeton University. She was awarded a Fulbright Fellowship to the
Philippines in 1986, where she attended graduate school at the University of the Philippines. Among the
awards she has received are the Overseas Press Club Award for Best Documentary, the National
Headliner Award for Investigative Journalism, an Emmy nomination for Outstanding Investigative
Journalism, the Asian Television Awards, the SAIS-Novartis International Journalism Award, and the
TOYM. Ms. Ressa taught broadcasting principles at the University of the Philippines, and at Princeton
University, she designed and taught a course on Politics and the Press in Southeast Asia.
Ma. Socorro V. Vidanes, Filipino, age 46
Managing Director, ABS-CBN TV Production
Ms. Vidanes is the Senior Vice-President for Television and over-all in-charge of TV Production &
Programming and has held this position since May 1, 2001. Prior to her current assignment, Ms. Vidanes
held the position of Vice-President for Television from December 1996 to April 30, 2001. She has been
with the Company since 1986, starting as an Associate Producer and has since then been involved in the
production of all types of programs - talk shows, variety, reality, new genre, comedy and drama. Ms.
Vidanes obtained her degree of Bachelor of Arts in Communication Arts from the Ateneo de Manila
University.
Jose Agustin C. Benitez, Jr., Filipino, age 48
Head, Channel 2 Sales
Mr. Benitez joined ABS-CBN in April 2006 as the Company's Head of Channel 2 Sales. He was formerly
Sales Head of ABC Channel 5 and of GMA Channel 7, and was instrumental in developing the Sales
Units of both Companies. He was one of the first Sales Heads who was able to use his media/advertising
background to successfully blend "science" with the selling skills of both teams. Before becoming
involved in Broadcast Sales, Mr. Benitez was formerly Media Director and Vice-President of Ace Saatchi
and Saatchi, where he provided leadership to a media department that handled such diverse clients as
SMC, P&G, Nestle, J&J, and Jollibee. Here, he won for the agency the first-ever Agency of Record (AOR)
assignment of P&G. He was also formerly President and CEO of ZenithOptimedia, Nestle's media
independent agency, and President and CEO of Optimum Media, where he was mainly responsible for
winning the Smart AOR business. This Smart win triggered a streak of fourteen consecutive new
business wins, helping the agency become a formidable force in the industry in a span of three months.
Antonio S. Ventosa, Filipino, age 46
26
Chief Marketing Officer
Mr. Ventosa joined the company in April 2006 as head of marketing. He brings with him several years of
experience in marketing, having spent more than two decades honing his skills in understanding and
driving strategic marketing communications considerations that build leadership brands. He was an
account director at Dentsu Young and Rubicam Malaysia for Colgate Palmolive Singapore and Malaysia,
and regional account director at Leo Burnett in Singapore for McDonald’s Asia before returning to the
Philippines in 1994. He was, at one time, the chairman and the president of the Association of Accredited
Advertising Agencies of the Philippines or 4A’s, and a board director of AdBoard. He is the founding
chairman of the Araw Values Awards, and was the director-in-charge of the first 4A’s Advertising
Summit in 2002.
Prior to joining the Company, he was managing director of Leo Burnett Manila, where he has worked
extensively to expand the agency’s capability as a holistic communications organization that provide
clients with the most effective communication and brand building programs. He was also responsible for
directing the total marketing communications programs for clients whose brands are now leaders in their
category. He was also concurrent President of Arc Worldwide Philippines, the newly established
marketing services company aligned with Leo Burnett. Mr. Ventosa graduated with a marketing degree
from De La Salle University.
Juan Ledesma Manahan, Filipino, age 61
Senior Vice President
Mr. Manahan is currently the Senior Vice President for Talent Development and Management where for
more than a decade he has spearheaded the highly successful artist search, development and
management engine of the company. He has been the head of the Company’s Talent Development and
Management since 1992, initially as a Director, but was promoted to Vice-President in 1996. He was
appointed to his current position in 2003.
He was tapped by then general manager, Mr. Federico M. Garcia in 1986 to help re-launch the Company
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 had been a freelance
television director working with all networks and producers for 15 years. His feel and vision for
exceptional talent has given rise to some of the biggest and brightest stars in the entertainment industry.
He is also the network’s most respected director having been at the helm of the Company’s top-rating
shows and TV specials.
Jose Ramon D. Olives, Filipino, age 45
Cable Channels and Print Media Group Managing Director
Mr. Olives is Head of Cable Channels, Print Media and Special Projects. This new entity is tasked to
consolidate and develop cross platform opportunities in new emerging business - niche programming
and print. As such, Mr. Olives will be tasked to create new programming and marketing opportunities
that were only available to the free to air television distribution media of the network. In his twenty years
at the network, he held numerous positions to include Senior Vice President for Business Development
since 2001. He is also credited with the development of The Filipino Channel during his nine year stint as
Senior Vice-President for the International Division beginning in 1991, overseeing the operations of The
Filipino Channel, the premier cable channel of the Company, in North America, Middle East, Japan and
Australia. Mr. Olives joined the Company in 1987 as an assistant to the Administrative Director. He is
also a board member of Sky Vision Corporation and sits on the executive committee of Beyond Cable, Inc.
He has a Bachelor of Arts degree in Communication Research, magna cum laude, from the University of
the Philippines.
27
Rafael L. Lopez, Filipino, age 51
Managing Director, ABS-CBN Global Limited
Mr. Lopez assumed the position of Senior Vice President and Chief Operations Officer of
ABS-CBN Global Limited in July 2004. He concurrently serves as the Managing Director of ABS-CBN
International in North America and has held this position since July 1998. He started as the Information
Technology Head of ABS-CBN International in North America in 1994. Prior to this, he spent 12 years
working as a systems analyst for Bell Atlantic. He graduated from the San Francisco State University with
a Bachelor of Arts degree in Music. He also obtained a degree in computer programming from Control
Data Institute and completed the Stanford Business Executive Program for Executives in August 2002.
Ma. Lourdes N. Santos, Filipino, age 51
Managing Director, Star Cinema
Ms. Santos holds more than two decades of experience in the local film industry having started as a
production assistant for Vanguard Films in 1982. She went on to become head of the movie division of
Gryk Ortaleza, Inc., an entertainment company, then a line producer for Regal Films in 1986 and the
general manager of Vision Films in 1989. She joined the company as executive producer for its drama
programs. In 1995, she became the Managing Director of Star Cinema Productions, Inc.. Concurrent with
her current position as ABS-CBN Film Production, Inc.’s Managing director, Ms. Santos was appointed
Senior Vice-President of the Television Drama Division for the Company’s Entertainment Group in 2003.
In 2006, she was likewise assigned to handle Star Records. Ms. Santos graduated cum laude in B.S. Hotel
and Restaurant Management at the University of Santo Tomas.
Rolando P. Valdueza, Filipino, age 48
Chief Finance Officer
Prior to his appointment as CFO, Mr. Valdueza was Vice President of the Regional Network Group
(RNG). As Head of RNG, he made a mark by managing RNG to help establish focus on ratings and
revenues. He also institutionalized specific strategies to further strengthen local programming, built
ABS-CBN affinity with the local communities, and improved operating efficiencies. Before joining the
Company in 1988 as Budget Officer, he was an auditor with SGV & Company and then worked as
Finance Manager at National Marine Corporation. He also served as Sky Cable Regional Director for
Visayas and Mindanao and later became Managing Director of Pilipino Cable Company. Mr. Valdueza, a
Certified Public Accountant, graduated magna cum laude in 1981 from the University of the East.
Other members of the Company’s senior management team as of 31 March 2008 are as follows:
Evelyn D. Raymundo
Joaquin Enrico C. Santos
Johnny C. Sy
Mercedes L. Vargas
Joanna G. Santos
Carmencita A. Guerrero
Olivia M. Lamasan
Ramon R. Osorio
Roldeo Theodore T. Endrinal
Laurenti M. Dyogi
Roberto G. Labayen
Ma. Yolanda R. Alberto
Raul Pedro G. Bulaong
Luchi Cruz-Valdez
Rosario Sofia S. Villa
Head, Program Acquisitions
Head, TV Production Business Unit
Chief Information Officer
Chief Logistics Officer
Vice President Special Projects
Senior Vice President, Creative and TV Drama
Head, Corporate Communications
Head, Creative Communications Management
Vice President, Talent Center
Managing Director, ABS-CBN Technical Production
Operations
Head, Current Affairs
Head, News Gathering
28
Peter S. Musngi
Vivian Y. Tin
Mario Carlo P. Nepomuceno
Philip Lamberto L. Berba
Alfredo P. Bernardo
Maximilian Joseph T. Uy
Leonardo P. Katigbak
Ernesto L. Lopez
Luis Paolo M. Pineda
Wilhelm O. Ick
Edgardo B. Garcia
Rafael A. Jison
Olivia Finina G. de Jesus
Eric John Hawthorne
Annabelle M. Regalado
Myrna D. Segismundo
Regina Paz L. Lopez
Reno R. Rayel
Managing Director, ABS-CBN Manila Radio and Sports
Chief Research and Business Analysis Officer
Chief Organization and Development Learning Officer
Chief Human Resources Officer
Chief Internal Audit Officer
Chief Legal Counsel
Special Projects
Managing Director, ABS-CBN Publishing, Inc.
Managing Director, ABS-CBN Interactive, Inc.
Managing Director, ABS-CBN Australia
Managing Director, ABS-CBN Middle East
Managing Director, ABS-CBN Europe
Managing Director, ABS-CBN North America
Managing Director, Industry Relations,
Managing Director, Star Recording, Inc. & Star Songs, Inc.
Managing Director, TV Food Chefs, Inc.
Managing Director, ABS-CBN Foundation, Inc.
Executive Director, ABS-CBN Bayan Foundation, Inc.
Family Relationships
Mr. Oscar M. Lopez is the brother of Mrs. Presentacion L. Psinakis. He is the uncle of Mr. Eugenio L.
Lopez III and the father of Federico R. Lopez.
Significant Employees
The Company considers its entire work force as significant employees. Everyone is expected to work
together as a team to achieve the Company’s goals and objectives.
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 or 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.
29
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:
Year
Salary (P)
Bonus (P)
Other Annual
Compensation
2008E
2007
2006
59,290,400
55,934,340
52,708,696
27,389517
12,139,702
0
0
2008E
2007
627,916,482
592,374,040
241,948,131
0
0
2006
500,425,521
122,597,718
0
Ma. Rosario N. Santos-Concio
Ma. Lourdes N. Santos
Olivia M. Lamasan
Roldeo Theodore T. Endrinal
Rosario Sofia S. Villa
All managers and up
as a group unnamed
The directors each receive per diems amounting to P5,000.00 for their attendance to board meetings.
There are no other arrangements for compensation either by way of payments for committee
participation or consulting contracts.
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 March 31, 2008:
Title
Of class
Name and Address of
Record Owner
Common Lopez, Inc.
5/F Benpres Bldg,
Exchange Road cor
Meralco Ave., Pasig City
Name of
Citizenship
Beneficial Owner
and Relationship
with Record
Owner
Lopez, Inc.
(Oscar M. Lopez,
Filipino
Chairman, is
authorized to vote
on behalf of Lopez,
Inc.)
No. of Shares
Held
Per cent
Owned
446,231,607
57.98%
30
Common PCD Nominee Corporation
ABS-CBN
G/F Makati Stock Exchange Bldg., Holdings Corp.
(Oscar M. Lopez,
Ayala Ave.,
Chairman, is
Makati City
authorized to vote
(PCD Nominee Corporation is not
on behalf of ABSrelated to the Company)
CBN Holdings
Corp)
Filipino
306,480,055
39.82%
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 the Company
are to be voted.
ABS-CBN Holdings Corp. is a participant of PCD. The 271,941,600 shares beneficially owned by ABSCBN Holdings Corp. form part of the 306,480,055 shares registered in the name of PCD. ABS-CBN
Holdings Corp. is owned 50% by Lopez, Inc. and 50% by Oscar M. Lopez, Manuel M. Lopez,
Presentacion L. Psinakis, and Eugenio Lopez III. The shares in the Company registered and beneficially
owned by it are covered by Philippine Deposit Receipts (PDR) which gives the holder thereof the right to
delivery or sale of the underlying share. The PDRs are listed with the Philippine Stock Exchange.
The Board of Directors of ABS-CBN Holdings Corporation has the power to decide how ABS-CBN
Holdings Corporation’s shares in the Company are to be voted.
Security Ownership of Management as of March 31, 2008
As of March 31, 2008, the Company’s directors and senior officers owned an aggregate of 2,590,394 shares
of the Company, equivalent to 0.3366% of the Company’s total issued and outstanding capital stock.
Stockholder Name
Position
Title of
Class
Common
Eugenio L. Lopez III
Common
Common
Common
Common
Common
Augusto Almeda-Lopez
Oscar M. Lopez
Presentacion L. Psinakis
Federico R. Lopez
Ma. Rosario N. Santos-Concio
Common
Common
Common
Common
Common
Common
Common
Federico M. Garcia
Peter D. Garrucho, Jr.
Emily A. Abrera
Angel S. Ong
Carmelo A. Caluag II, S.J.
Leonardo P. Katigbak
Jose Ramon D. Olives
Chairman and CEO
Vice-Chairman
Director
Director
Director
Director, President, and
COO*
Independent Director
Director
Director
Head, Special Projects
Managing Director,
Cable Channels and
Print Media Group
Nature of
Beneficial
Ownership
Direct
Citizenship
No. of Co.
Shares
Held
Percent
Held
Filipino
1,542,915
0.2005%
Direct
Direct
Direct
Direct
Direct
Filipino
Filipino
Filipino
Filipino
Filipino
191,009
61,620
3
1
1
0.0248%
0.0080%
0.0000%
0.0000%
0.0000%
Direct
Direct
Direct
Direct
Direct
Direct
Direct
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
Filipino
240,105
32,150
1
29,413
1
58,204
47,109
0.0312%
0.0042%
0.0000%
0.0038%
0.0000%
0.0076%
0.0061%
31
Common
Evelyn D. Raymundo
Common
Joaquin Enrico C. Santos
Common
Mario Carlo P.
Nepomuceno
Common
Olivia M. Lamasan
Common
Regina Paz L. Lopez
Common
Ma. Yolanda R. Alberto
Common
Ernesto L. Lopez
Common
Olivia Finina G. De Jesus
Common
Johnny C. Sy
Common
Common
Rolando P. Valdueza
Ma. Socorro V. Vidanes
Common
Mercedes L. Vargas
Common
Eric John Hawthorne
Head, Program
Acquisitions
Head, TV Production
Business Unit
Direct
Filipino
41,076
0.0053%
Direct
Filipino
40,000
0.0052%
Chief Organization
and Development
Learning Officer
Direct
Filipino
35,351
0.0046%
Senior Vice President,
Creative & TV Drama
Managing Director,
ABS-CBN Foundation,
Inc.
Vice President, Talent
Center
Managing Director,
ABS-CBN Publishing,
Inc.
Managing Director,
ABS-CBN North
America
Chief Information
Officer
Chief Finance Officer**
Managing Director,
ABS-CBN TV
Production
Chief Logistics Officer
Direct
Filipino
25,060
0.0033%
Direct
Filipino
22,905
0.0030%
Direct
Filipino
22,686
0.0029%
Direct
Filipino
108,810
0.0141%
Direct
Filipino
20,000
0.0026%
Direct
Filipino
17,987
0.0023%
Direct
Direct
Filipino
Filipino
11,800
10,000
0.0015%
0.0013%
Direct
Filipino
10,000
0.0013%
Direct
Filipino
5,172
0.0007%
Direct
Filipino
4,000
0.0005%
Direct
Filipino
13,015
0.0017%
2,590,394
0.3366%
Managing Director,
Industry Relations,
Roadrunner Network,
Inc
Common
Carmencita A. Guerrero
Vice President, Special
Projects
Common
Raul Pedro G. Bulaong
Managing Director,
ABS-CBN Technical
Production Operations
Security Ownership of all Directors and Officers
*appointed President and COO effective March 1, 2008
**appointed CFO effective April 2, 2008
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.
32
Furthermore, there had been no material transactions during the past two years, nor is any material
transaction presently proposed, between the Company and parties that fall outside the definition of
“related parties” under SFAS/IAS No. 24, but with whom the registrants or its related parties have a
relationship (e.g., former senior management of the Company or other parties who have some other
former or current relationship with the Company) that enables the parties to negotiate terms of material
transactions that may not be availed from other, more clearly independent parties on an arm's length
basis.
Parent Company
Lopez, Inc. is the registered owner of 57.98% of the voting stock of the Company as of December 31, 2007.
Lopez, Inc. is the holding company of the Lopez family. It is owned by the respective holding companies
of the families of Eugenio Lopez, Jr., Oscar M. Lopez, Presentacion L. Psinakis and Manuel M. Lopez. It
has issued convertible notes covering the shares in the Company registered and beneficially owned by it
in favor of Benpres Holdings Corporation.
Resignation of Directors Because of Disagreement with Policies
No director has resigned or declined to stand for re-election to the Board of Directors since the date of the
last annual meeting of security holders of the Company because of a disagreement with the Company on
matters relating to the Company’s operations, policies and practices.
PART IV – CORPORATE GOVERNANCE
Item 13. Corporate Governance
The evaluation system established by the Company to measure or determine the level of compliance of
the Board of Directors and top-level management can be found in Section 2 (Duties and Responsibilities
of the Board), Section 3 (Nominations and Qualifications of the Board), and Section 13 (Monitoring and
Assessment) of its Manual of Corporate Governance (the Manual) filed with the Commission on
September 2, 2002.
The Company’s efforts to fully comply with the adopted leading practices on good corporate governance
are as follows: (1) it has formed its Audit Committee and has elected its compliance officer, Mr. Alfredo P.
Bernardo, whose duties and responsibilities ensure continuous improvement towards full compliance
and; (2) it has also created policies regarding Penalties for Non-Compliance with the Manual. The scope
of these efforts can be found in Section 1 (Compliance Officer), Section 5 (Audit Committee), and Section
14 (Penalties for Non-Compliance with the Manual) of the Company’s Manual.
Based on the certification of compliance with the Company’s Manual filed with the Commission on
January 30, 2008, there have been no deviations from the Company’s Manual in the past year.
Furthermore, the Company’s Manual calls for the continuous assessment and evaluation of the
Company’s corporate governance policies and procedures. Hence, the Company does not see a need for
any further improvement in its corporate governance.
33
PART V – EXHIBITS AND SCHEDULES
Item 14. Exhibits and 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
Date Filed
Item 9: Other Events – Net income grew 71% year-on-year to
Php1.27 billion in 2007;
April 8, 2008
Item 9: Other Events – ABS-CBN declares dividends, BoD confirmation
of appointments, Record date for Stockholders Meeting
March 26, 2008
Item 9: Other Events – Outsourcing of transmitter operations
March 14, 2008
Item 9: Other Events – Appointment of new ABS-CBN President
March 5, 2008
Item 9: Other Events – Sky Cable Corp. executes Second Amendment
To the Facility Agreement with creditors
February 26, 2008
Financial Statements
Date Filed
3Q2007 17-Q
November 14, 2007
2Q2007 17-Q
August 10, 2007
34
ANNEX A
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR 2007
Net income soared to Php1.27 billion in 2007 by Php528 million or 71% year-on-year. Despite another
year of a downturn in the TV advertising industry manifested in lower TV advertising minutes, airtime
revenue increased Php2.94 billion or 28% from 2006. Such growth helped consolidated revenues grow
17% or Php2.87 billion year-on-year. Availability of nationwide ratings and political ads served as a
catalyst for airtime revenue growth. The year 2007 marked the end of license fee recognition from the
DirecTV purchase of ABS-CBN Global subscribers in exchange for migration and retention income. Total
expense growth was Php2.02 billion or 13% year-on-year.
Revenues
Consolidated revenues in 2007 rose 17% or Php2.87 billion from Php17.02 billion in 2006.
Amounts in million pesos
Consolidated
2006
2007
Airtime revenue
Sale of services
Sale of goods
License fees
Consolidated revenues
13,605
5,299
439
548
19,891
10,663
4,712
529
1,117
17,020
Variance
%
Amount
2,942
28
587
12
(90) (17)
(569) (51)
2,870
17
Gross airtime revenue averaged an unprecedented Php1.1 billion per month in 2007 compared to Php889
million per month in 2006. Due to declines in license fees and sale of goods, the percentage share of
airtime revenue to consolidated revenues increased nearly six percentage points to 68% in 2007. Parent
airtime revenue, which is derived from Channel 2, AM and FM radio, and the regional network,
increased its percentage share to gross airtime revenue from 90% in 2006 to almost 94% in 2007. A 33%
growth in parent airtime or Php3.1 billion was registered in 2007 compared to 2006. In contrast, airtime
revenue of other platforms dropped 19% or Php199 million.
Parent airtime revenue
Other platforms
Gross airtime revenue
2007
12,743
862
13,605
Consolidated
2006
Variance
%
Amount
9,602
3,140
33
1,060
(199)
(19)
10,663
2,942
28
License fees in 2007, which represent income from migration of TFC Direct subscribers to DirecTV’s
platform as well as from retention of migrated subscribers, dropped 51% or Php569 million from 2006.
The year 2007 marked the end of license fee recognition from the DirecTV agreement. The Company
raked in a cumulative total of Php3.3 billion in license fees from 2005 to 2007. These licenses fees were
generated from subscribers who migrated to the DirecTV platform and continued to remain subscribed
for a given period of time.
Sale of services posted a 12% expansion or Php587 million in 2007 compared to 2006. These services refer
to cable and satellite programming services, film production and distribution, interactive media, content
development and programming services, post production, text messaging, etc.
36
Accounting for over 70% of total sale of services, ABS-CBN Global registered a 13% increase or Php430
million. In dollar terms, revenue growth was 18% on the back of a subscriber growth of 22%. The lower
peso revenue growth was due to a strong peso.
ABS-CBN Global
Other subsidiaries
Total sale of services
2007
2006
3,814
1,485
5,299
3,384
1,328
4,712
Variance
Amount
430
157
587
%
13
12
12
Other subsidiaries’ sale of services posted a higher growth rate of 12% or Php157 million year-on-year.
Meanwhile, 2007 marked another banner year for ABS-CBN Films as four movies hit the Php150 million
mark: Kasal, Kasali, Kasalo; A Love Story; Ang Cute ng Ina Mo; and One More Chance. The overwhelming
success of these movies delineated a milestone in the Philippine movie industry and enabled ABS-CBN
Films to dominate the local market. ABS-CBN Films’ sales in 2007 increased almost 14% or Php63 million
compared to 2006. Average gross receipts in 2007 amounted to Php115 million per movie, 42% higher
than in 2006 (Php81M).
Sale of goods (consumer products such as magazines, audio, video products and phone cards) continued
to decline last year, posting a 17% drop or Php90 million, largely on account of the decline in
merchandising revenues of ABS-CBN Global. Dollar revenue from ABS-CBN Global’s sale of goods fell
32%, which in peso terms appears as a 39% decline due to a stronger peso.
ABS-CBN Global
Other subsidiaries
Total sale of goods
2007
2006
148
291
439
244
285
529
Variance
%
Amount
(96)
(39)
6
2
(90)
(17)
Expenses
Total expenses rose 13% or Php2.02 billion in 2007 compared to 2006.
Production cost
General and administrative
Cost of sales and services
Agency commission, incentives, & co-prod share
Other expenses
Total expenses
Less: non-recurring expense
Total recurring expenses
2007
6,493
5,527
2,786
2,701
127
17,634
33
17,600
Consolidated
2006
Variance
%
Amount
5,714
778
14
5,135
393
8
2,225
561
25
2,284
417
18
252
(125)
(50)
15,610
2,023
13
454
(421)
(93)
15,156
2,444
16
37
The big-ticket expense items are production cost and general and administrative expenses (GAEX).
Production cost in 2007 was up 14% or Php778 million versus the earlier year due to a higher number of
in-house produced shows. Excluding non-cash charges such as depreciation and amortization of program
rights, cash production cost increased 15% or Php650 million in 2007 from the earlier year.
2007
Personnel expenses and talent fees
Facilities related expenses
Other program expenses
Sub-total -cash production cost
Non-cash production cost
Total production cost
2,662
972
1,360
4,994
1,498
6,493
Consolidated
2006
Variance
Amount
2,412
250
833
139
1,098
262
4,344
650
1,370
128
5,714
778
%
10
17
24
15
9
14
Consolidated GAEX in 2007 rose 8% or Php393 million compared to 2006 due to higher personnel and
research expenses. Excluding non-cash charges such as depreciation and amortization, consolidated cash
GAEX likewise rose 7%. Minus non-recurring charges, total recurring GAEX growth was 17% or Php814
million higher than 2006. Apart from personnel expense growth, the increase in GAEX (ex non-recurring
charges) can also be partly attributed to the expansion in Canada and Japan.
2007
Personnel expenses
Advertising and promotions
Contracted services
Taxes and licenses
Entertainment, amusement and recreation
Other expenses
Sub-total -cash GAEX
Non-cash GAEX
Total GAEX
Total recurring GAEX
2,597
173
549
461
183
100
892
4,953
574
5,527
33
5,494
Consolidated
2006
Variance
%
Amount
2,078
519
25
520
(347)
(67)
537
12
2
448
13
3
151
32
21
139
(39)
(28)
757
135
18
4,630
323
7
505
69
14
5,135
393
8
454
(421)
(93)
4,680
814
17
Cost of sales and services went up 25% or Php561 million last year compared to 2006. ABS-CBN Global,
which accounted for nearly 59% of cost of sales and services, registered a 35% increase in cost of sales.
This was due to higher marketing expenses and subsidies of set-top boxes (STB) in Canada and Japan.
Amount in million pesos
ABS-CBN Global
Other subsidiaries
Total cost of sales and services
2007
1,635
1,151
2,786
2006
1,215
1,011
2,225
Variance
%
Amount
421
35
140
14
561
25
Non-cash operating expenses, composed primarily of depreciation and amortization, rose 12% or Php257
million in 2007 versus 2006. For the most part, the rise in amortization (up 24%) resulted in the overall
increase in non-cash expenses. This can be attributed to the launch of three new cable channels.
38
Depreciation
Amortization
Non-cash expenses
2007
2006
1,210
1,122
2,332
1,170
904
2,075
Variance
Amount
40
217
257
%
3
24
12
Depreciation expense had a modest increase of 3%, with its share to total non-cash expenses dropping to
52% last year versus 56% in 2006.
Operating and Pre-tax Income
With consolidated revenues rising faster than total expenses, both operating and pre-tax income had high
double-digit growth rates. For instance, pre-tax income in 2007 increased 60% year-on-year or Php847
million to Php2.26 billion. Consequently, pre-tax margin rose to 11% from 8%. The 50% drop in other net
expenses last year also helped the Company boost pre-tax income and ultimately net income. Lower
finance costs coupled with positive contribution from Central CATV helped lower other net expenses.
Net Income
The Company raked in earnings of Php1.27 billion in 2007, up 71% year-on-year. Earnings before
interest, taxes, depreciation, and amortization (EBITDA) was at a record high of Php5.06 billion in 2007,
up P640 million or 21% year-on-year. The Company’s highest EBITDA prior to 2007 was in 2003, Php4.42
billion.
Profitability Margins
Gross profit margin for the airtime business improved seven percentage points to 32% last year from 25%
in 2006. This was due to the 28% growth in airtime sales that outstripped the slower blended growth rate
of 15% in production costs and revenue deductions (agency commission, incentives, and co-producers’
share). In absolute terms, gross profit soared 66% or Php1.75 billion year-on-year. While the gross profit
margin for direct sales dropped six percentage points, it remained above 50%. Also, the resulting blended
gross profit margin for airtime and direct sales still managed to show a two-percentage point
improvement. EBITDA margin remained healthy at 25% while net income margin rose to 6% from 4%.
Balance Sheet Accounts
Total consolidated assets reached Php26.17 billion, 9% higher versus end-2006 level. Cash and cash
equivalents reached Php2.15 billion, up 29% versus 2006. Consolidated trade and other receivables
increased 12% to Php4.92 billion, with trade receivables accounting for 77% of total. Trade receivables
dropped 1% to Php4 billion, translating to days sales outstanding (DSO) of 75 days versus 86 days in
2006. Other current assets dropped 20% to Php805 million due to lower pre-production expenses.
Total interest-bearing loans and borrowings increased 21% to Php5.52 billion from Php4.57 billion since
the Company assumed a portion of Central CATV’s obligations to its creditors. As a result, net debt to
equity ratio increased from 0.21x in 2006 to 0.24x as of end-2007.
39
Causes for any material changes in the Balance Sheet (increase or decrease of 5% or more in the
financial statements & other material movements / changes)
• Cash and cash equivalents increased by 29% to P2,146 million following loans obtained in 2007 and a
stronger operating income versus 2006.
• Trade and other receivables increased by 12% to P4,919 million primarily due to higher non-trade
receivables.
• Derivative assets down 100% as the Company refinanced its USD-denominated debt in 2007.
• Other current assets decreased by 20% YoY to P805 million due primarily to smaller prepaid expenses.
• Long-term receivables from related parties increased 61% to P3,893 million following Parent
Company’s purchase of debt from an affiliate.
• Non-current program rights and other intangible assets increased to P1,664 million or 15% YoY due to
the opening of three new channels by a subsidiary in 2007.
• Deferred tax assets decreased 39% to P184 million due to lower tax differences.
• Trade and other payables increased 11% YoY to P5,053 million as the Company obtained favorable
payment schemes from its suppliers.
• Income tax payable increased 86% to P54 million due to higher operating income in 2007.
• Derivative liabilities decreased 100% as the Company refinanced its USD-denominated debt in 2007.
• Current portion of obligation for program rights increased 114% because of shorter payment terms.
• Current portion of interest-bearing loans and borrowings decreased 72% to P588 million as the
Company was able to restructure its debt obligations.
• Non-current portion of interest-bearing loans and borrowings increased 102% to P4,928 million
following the purchase of debt from a related party.
• Accrued pension obligation increased 43% to P401 million due to additional provision resulting from
the latest actuarial valuation.
• Asset retirement obligation decreased 13% to almost P15 million following fewer asset retirements in
the Company’s subsidiaries.
40
OPERATIONS FOR 2006 (not restated)
ABS-CBN Broadcasting Corp.’s (ABS-CBN) net income in 2006 more than doubled to P741 million from
P252 million in 2005. Despite an industry wide slowdown in ad spending particularly in 2H06, airtime
revenues grew by 3% P10,663 million in 2006. In addition, revenues were boosted by license fees from the
migration of DTH (direct to home) subscribers in North America to DirecTV’s platform. Expense growth,
on the other hand, remained controlled due to more prudent production cost spending coupled with
lower employee cost.
Revenues
Gross revenues, which consist of gross airtime revenues, sale of services, license fees, and sale of goods
rose by 2% year on year (YoY) to P17,386 million for 2006.
Consolidated
2005
2006
Airtime revenues
Sale of services
License fees
Sale of goods
Gross revenues
10,663
5,077
1,117
529
17,386
10,334
4,248
1,619
846
17,047
Variance
Amount
%
329
3
829
20
(502) (31)
(317) (37)
339
2
Consolidated gross airtime revenues improved by 3% to P10,663 million. Parent airtime revenues, which
consist of revenues from Channel 2, AM and FM radio, and the regional network, likewise went up by 3%
to P9,602 million. This can be primarily attributed to higher revenue contribution from non-traditional
advertisements or creative buys such as product intrusions and product placements. Airtime revenues of
other platforms, on the other hand, grew by 9% YoY to P1,060 million on the back of higher airtime
revenues of ABS-CBN Global.
2006
Parent airtime revenues
Other platforms
Gross airtime revenues
9,602
1,060
10,663
Consolidated
2005
Variance
Amount
%
9,362
240
3
971
89
9
10,334
329
3
License fees, which represent revenues from the migration of existing US DTH subscribers to DirecTV’s
platform as well as take up of new subscribers, declined by 31% to P1,117 million in 2006 from P1,619
million in 2005 as the migration period for both new and existing US DTH subscribers to DirecTV’s
platform ended last August.
Sale of services, which refer to revenues derived from cable and satellite programming services, film
production and distribution, interactive media, content development and programming services, post
production, text messaging, etc., increased by 20% to P5,077 million in 2006.
Accounting for 74% of total, ABS-CBN Global registered a 20% growth in sale of services to P3,749
million from P3,131 million in 2005. Although DTH subscription revenues in North America were
reduced by half following the deal with DirecTV, these were offset by higher subscription revenues on
the back of robust subscriber take-up.
41
As of end-December, total subscriber base of ABS-CBN Global grew by 21% YoY, equivalent to 1.6
million viewers worldwide.
ABS-CBN Global
Other subsidiaries
2006
2005
3,749
1,328
5,077
3,131
1,117
4,248
Variance
Amount
%
618
20
211
19
829
20
Other subsidiaries’ sale of services, on the other hand, went up by 19% to P1,328 million due primarily to
a 26% increase in ABS-CBN Films’ revenues.
ABS-CBN Films released nine movies in 2006 compared to five movies the prior year. Moreover, out of
the nine movies released, ticket sales of four movies namely Don’t Give up on Us, Close to You, Sukob, and
You are the One surpassed the P100 million blockbuster mark. In particular, the horror movie, Sukob,
grossed more than P200 million at the box office, making it the highest grossing local movie in Philippine
history.
Meanwhile, sale of goods which refer to revenues arising from the sale of consumer products such as
magazines, audio, video products and phonecards, dropped by 37% to P529 million in 2006.
ABS-CBN Global’s sale of goods, which contributed 46% of total, dropped by 51% to P244 million after it
stopped selling prepaid phonecards in the United States to concentrate on its core business of content
distribution. Sale of goods of other subsidiaries, on the other hand, declined by 17% due mainly to lower
sales of audio products by Star Records as there were fewer hit music records in 2006.
ABS-CBN Global
Other subsidiaries
Total sale of goods
2006
2005
244
285
529
501
344
846
Variance
Amount
%
(258)
(51)
(59)
(17)
(317)
(37)
Expenses
Total expenses went down by 4% to P15,976 million in 2006. However, excluding non-recurring charges
of P467 million in 2006 related to DirecTV marketing expenses as well as P1,420 million DirecTV
marketing expenses and Special Separation Program (SSP) expenses booked in 2005, total recurring
expenses went up by 2% to P15,508 million.
Production cost
Other expenses
2006
5,714
5,135
2,417
2,458
252
Consolidated
2005
Variance
Amount
%
5,691
24
0
5,847
(712)
(12)
2,374
44
2
2,085
373
18
623
(372)
(60)
42
Total expenses
Total recurring expenses
15,976
467
15,508
16,620
1,420
15,200
(644)
(952)
308
(4)
(67)
2
Operating expenses, which consist of production cost, general and administrative expenses, cost of sales
and services, and agency commission declined by 2% to P15,724 million in 2006. Cash operating expenses
were flat while non-cash operating expenses declined by 14% YoY. If we strip-out the non-recurring
charges, total opex went up by 5% to P15,257 million.
Production cost was almost flat YoY at P5,714 million. Excluding non-cash charges such as depreciation
and amortization of program rights, cash production cost increased slightly to P4,344 million. Talent fees,
which account for 42% of total production cost, declined by 4% to P2,412 million as a result of a more
efficient production planning which led to lesser number of taping days. Other program expenses, on the
other hand, went up by 16% to P1,098 million due to expenses related to the Pacquiao fights coupled with
increased marketing activities in the provinces to enhance the Company’s leadership nationwide.
2006
2,412
833
1,098
4,344
1,370
5,714
Consolidated
2005
Variance
Amount
%
2,513
(101)
(4)
840
(7)
(1)
946
152
16
4,300
44
1
1,391
(20)
(1)
5,691
24
0
Consolidated general and administrative expenses (GAEX) dropped by 12% YoY to P5,135 million from
P5,847 million the previous year. Excluding non-cash charges such as depreciation and amortization,
consolidated cash GAEX likewise declined by 7% to P4,630 million. However, without the non-recurring
charges, total recurring GAEX is up by 5% or in line with inflation rate.
Personnel expenses
Contracted services
Taxes and licenses
Other expenses
Non-cash GAEX
Total GAEX
Total recurring GAEX
2006
2,078
520
537
448
151
139
757
4,630
505
5,135
467
4,667
Consolidated
2005
Variance
Amount
%
2,505
(427)
(17)
503
16
3
496
41
8
404
43
11
151
0
0
119
20
17
816
(58)
(7)
4,995
(365)
(7)
852
(347)
(41)
5,847
(712)
(12)
1,420
(952)
(67)
4,427
240
5
Cost of sales and services, which is the cost related to sale of services and sale of goods, went up by 2% to
P2,417 million in 2006. This compares against a 10% growth in combined sale of services and sale of
43
goods hence reflecting margin improvement of the subsidiaries. ABS-CBN Global, which accounted for
58% of cost of sales and services, registered a 3% decline in cost of sales.
ABS-CBN Global
Other subsidiaries
2006
1,406
1,011
2,417
2005
1,454
920
2,374
Variance
Amount
%
47
(3)
91
10
44
2
Non-cash operating expenses, composed primarily of depreciation and amortization, went down by 14%
to P2,075 million in 2006 from P2,407 million in the same period last year. Bulk of the decline can be
attributed to lower amortization costs which dropped by 23% to P904 million as the Company already
completed the amortization of deferred subsidies on the decoder boxes of existing US DTH subscribers in
2005. Amortization of program rights, on the other hand, increased by 7% to P887 million as the
Company accelerated the amortization of movies based on their commercial viability.
Depreciation
Amortization
Non-cash expenses
2006
1,170
904
2,075
2005
1,235
1,172
2,407
Variance
Amount
%
(64)
(5)
(268)
(23)
(332)
(14)
Depreciation expense, on the other hand, decreased by 5% to P1,170 million given controlled capital
spending.
Operating Income
With revenues growing faster than operating expenses, operating income improved by 58% from P1,051
million to P1,661 million as of December. Consequently, operating margin went up to 10% as against 6%
in the same period last year.
Net Income
Other expenses declined by 60% to P252 million in 2006 from P623 million in 2005. Net finance costs
decreased by 10% to P648 million on the back of lower outstanding debt as of December. Other income,
on the other hand, increased by 56% to P449 million from P287 million due to gate receipts from the
Pacquiao-Larios boxing bout organized by the Company in July. Meanwhile, equity losses reached P52
million as against P194 million the prior year, reflecting the continued improvement in Skycable’s
operations.
As a result of the improvement in operating income and lower other expenses, the Company reported a
net income of P742 million in 2006, 187% higher YoY. Net of minority interest, net income attributable to
equity holders reached P741 million in 2006, up 194% YoY from P252 million in 2005. Similarly, earnings
before interest, taxes, depreciation, and amortization (EBITDA) went up by 19% to P4,188 million,
translating to an EBITDA margin of 24%.
Total consolidated assets reached P23,902 million, 4% lower vs end-2005. Cash and cash equivalents
declined by 5% to P1,662 million. Consolidated trade and other receivables dropped by 6% to P4,382
44
million with trade receivables accounting for 81% of total. Trade receivables increased by 3% to P4,010
million, translating to trade days sales outstanding (DSO) of 84 days or flat vs 2005.
Other current assets increased by 28% to P1,011 million due mainly to production expenses of yet to be
aired episodes of the Company’s programs particularly soap operas as well as upcoming movies of ABSCBN Films. Since 2005, the Company begun the canning or advanced taping of some shows in order to
cut location rentals and maximize efficiencies from production planning.
Total interest-bearing loans and borrowings declined by 27% to P4,574 million from P6,276 million in
end-2005 following the payment of P1,798 million in loans in 2006. As a result, net debt to equity ratio
declined to 0.21x from 0.34x in 2005. Meanwhile, total capital expenditure including program rights
acquisition reached P891 million in 2006, 25% lower vs last year as the Company controlled capital
spending to prioritize its loans payments during the year.
OPERATIONS FOR 2005
Revenues
ABS-CBN Broadcasting Corp.’s (ABS-CBN) total revenues, consisting of gross airtime revenues, sale of
services, license fees and sale of goods grew by 8% to P17,047 million in 2005, driven primarily by license
fees from DirecTV and continued growth of ABS-CBN Global revenues.
Airtime revenues
Sale of services
License fees
Sale of goods
Gross revenues
2005
10,334
4,248
Consolidated
2004
Variance
Amount
%
11,086
(753)
(7)
3,930
318
8
1,619
846
0
755
1,619
91
na
12
17,047
15,771
1,276
8
Consolidated gross airtime revenues dropped by 7% year on year (YoY) to P10,334 million from P11,086
million in 2004. In particular, parent airtime revenues which is composed of advertising revenues from
TV-VHF (Channel 2), AM and FM radio, and the regional network, declined by 8% to P9,362 million as
Channel 2 ratings in Mega Manila averaged a lower 14% in 2005 compared to 16% in 2004. The decline
was partly offset by other platforms namely the UHF and cable channels which posted a 2% growth in
airtime revenues.
Parent airtime revenues
Other platforms
Gross airtime revenues
2005
9,362
971
10,334
Consolidated
2004
Variance
Amount
%
10,134
(772)
(8)
952
19
2
11,086
(753)
(7)
License fees amounting to P1,619 million were booked in 2005. These represent revenues from the initial
phase of the migration of existing US DTH (direct to home) subscribers to DirecTV’s platform as well as
take-up of new subscribers. In 21 July 2005, ABS-CBN and its subsidiary ABS-CBN International signed
an affiliation agreement with DirecTV, one of the leading DTH system providers in the US. Under the
45
deal, DirecTV will have the exclusive right to air The Filipino Channel (TFC) package on its DTH
platform. In return, DirecTV will pay license fees to ABS-CBN based on the number of subscribers, new
and existing, who will avail of the service during the migration period.
Sale of services, which refer to revenues derived from cable and satellite programming services, film
production and distribution, interactive media, content development and programming services, post
production, text messaging, etc., posted an 8% growth YoY to P4,248 million.
ABS-CBN Global, which accounted for 74% of sale of services, posted a 12% growth to P3,131 million.
Revenue growth was propelled by a 30% YoY increase in subscriber base, translating to 2.0 million
viewers worldwide by end-2005.
2005
2004
ABS-CBN Global
Others
3,131
1,117
2,785
1,145
4,248
3,930
Variance
Amount
%
346
12
(28)
(2)
318
8
Other subsidiaries’ sale of services declined by 2% due to ABS-CBN Films which registered a 15% drop in
revenues. ABS-CBN Films released only five movies in 2005 namely Dreamboy, Can This Be Love?, Nasaan
Ka Man, D’ Anothers, and Dubai as against seven films in 2004. This lower output also affected the
corresponding video sales of Star Records.
Sale of goods, which refer to revenues arising from the sale of consumer products such as magazines,
audio, video, telecom products, etc., grew 12% to P846 million.
2005
2004
ABS-CBN Global
Others
501
344
414
341
Total sale of goods
846
754
Variance
Amount
%
87
21
4
1
91
12
ABS-CBN Global’s sale of goods, which accounted for 59% of total, rose by 21% YoY to P501 million
given higher merchandise sales of audio, video products, and phonecards to Filipinos abroad.
Expenses
Total expenses in 2005 rose by 12% to P16,563 million from P14,735 million a year ago on the back of
higher cash operating expenses. These expenses, however, include non-recurring charges related to the
migration of DTH subscribers in the US, as well as expenses related to the employee reduction program
or SSP (special separation package). Without these non-recurring items, total expenses went up by only
3% YoY to P15,143 million.
2005
Production cost
5,691
5,791
2,374
Consolidated
2004
Variance
Amount
%
5,468
223
4
4,106
1,685
41
2,384
(11)
0
46
Other expenses
Total expenses
2,085
623
2,197
580
(112)
43
(5)
7
16,563
14,735
1,828
12
Operating expenses consisting of production cost, cost of sales and services, general and administrative
expenses, and agency commission rose by 13% to P15,940 million on account of higher cash and non-cash
operating expenses. Cash operating expenses went up by 13% while non-cash operating expenses
primarily depreciation and amortization grew by 11%. If we strip out the non-recurring expenses
mentioned earlier, total opex would have been up by only 3% to P14,520 million.
Total production cost went up by 4% to P5,691 million. Excluding non-cash charges such as depreciation
and film rights amortization, cash production cost rose by only 3% to P4,300 million. In 2005, ABS-CBN
initiated major efforts to control production cost in light of declining revenues. For instance, the
Company reduced local production and replaced certain timeslots with foreign soap operas and cartoons.
Some star-driven shows were also replaced with less expensive concept-driven programs starring new
and lesser known talents.
2005
2,513
840
946
4,300
1,391
5,691
Consolidated
2004
Variance
Amount
%
2,524
(11)
0
716
124
17
920
27
3
4,161
139
3
1,308
83
6
5,468
223
4
Consolidated general and administrative expenses (GAEX) increased 41% YoY to P5,791 million, fueled
primarily by the SSP that was implemented beginning July 2005. Excluding depreciation, amortization
charges and provision for doubtful accounts, consolidated cash GAEX rose by 46% to P4,779 million.
Personnel expenses
Contracted services
Taxes and licenses
Other expenses
Non-cash GAEX
Total GAEX
2005
2,449
496
404
151
119
503
656
4,779
1,012
5,791
Consolidated
2004
Variance
Amount
%
1,680
769
46
408
88
22
338
66
20
169
(17)
(10)
128
(10)
(8)
95
408
427
465
191
41
3,284
1,495
46
822
190
23
4,106
1,685
41
Parent cash GAEX went up by 61% YoY to P2,916 million, inclusive of non-recurring charges of P508
million representing marketing expenses to encourage migration to DirecTV as well as P576 million in
SSP-related expenses. Around 400 employees or approximately 20% of ABS-CBN parent headcount
availed of the SSP. Stripping-out these non-recurring charges, parent cash GAEX would have been flat
47
compared to last year. Cash GAEX of the subsidiaries, on the other hand, increased by 28% driven
primarily by ABS-CBN Global and the full year impact of its Australian operations.
Cost of sales and services, which is the cost related to sale of services and sale of goods, was almost flat at
P2,374 million. This compares to an 8% increase in sale of services and 12% increase in sale of goods.
2005
2004
ABS-CBN Global
Others
1,453
920
1,480
904
2,374
2,384
Variance
Amount
%
(27)
(2)
16
2
(11)
0
Non-cash operating expenses, composed primarily of depreciation and amortization, increased by 11% to
P2,407 million mainly as a result of higher amortization costs. Film rights amortization was relatively
lower, down by 7% to P827 million on the back of lower expiring titles. Total amortization costs,
however, increased by 14% to P1,172 million due to accelerated amortization of deferred subsidies on the
decoder boxes of existing DTH subscribers migrating to DirecTV’s platform. Excluding the one-time
charge, total amortization charges declined by 11% YoY while total non-cash opex was flat.
Depreciation expense, on the other hand, rose by 8% to P1,235 million due to the impact of new
accounting standards specifically the componentization of fixed assets to major components.
Operating Income
As operating expenses rose higher compared to revenues, operating income decreased by 31% to P1,107
million from P1,616 million in 2004. Consequently, operating margin was lower at 6% as against 10% in
2004.
Net Income
Other expenses increased by 7% to P623 million, largely driven by higher equity in net losses of
associates. Equity in net losses went up to P194 million from P47 million due to higher losses of Beyond
Cable (BCI). BCI took an impairment loss on its redundant assets which stemmed from the merger of
SkyCable and HomeCable. On the other hand, net finance costs, declined by 12% to P670 million as the
Company’s average outstanding debt was lower during the year. Meanwhile, other income, which refers
mostly to rental income increased by 7% YoY to P240 million.
With expense growth of 12% outpacing revenue growth of 8%, income before income tax fell by 53% to
P484 million from P1,036 million. After deducting taxes and minority interest, net income reached P288
million, 62% lower compared to last year. On the other hand, Earnings before interest, taxes, depreciation,
and amortization (EBITDA) was down by 10% to P3,589 million with EBITDA margin lower at 21% from
25% the previous year.
ABS-CBN ended 2005 with consolidated assets of P24,796 million, up by 5% from end-2004 levels.
Consolidated trade and other receivables increased by 29% to P4,668 million. In particular, net trade
receivables increased by 24% to P3,773 million, translating to consolidated trade days sales outstanding
(DSO) of 81-days as against 70-days in 2004.
48
Driving the increase in DSO is the accrual of license fees related to the migration of DTH subscribers
which are payable 60 days from installation in the new platform. Excluding the impact of license fees,
consolidated trade DSO would have been 79-days. Other current assets increased by 39% to P826 million
due primarily to production expenses of yet to be aired episodes of the Company’s programs. In 2005, the
Company began the canning or advanced taping of some shows particularly soap operas such as Gulong
ng Palad, Sa Piling Mo, and Panday 2 in order to cut location rentals as well as to maximize efficiencies
from production planning.
Meanwhile, current portion of interest-bearing loans and borrowings increased by 32% or P426 million as
a result of reclassification from long-term to short-term in line with their maturity schedule.
Consequently, non-current interest-bearing loans and borrowings dropped by roughly the same amount.
Given an improvement in cash position, net debt to equity ratio declined to 34% from 41% in 2004.
Consolidated capital expenditure and program rights acquisition amounted to P1,229 million, almost flat
compared to 2004.
49
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)
Esperanza P. Armonia
415-2272
(Contact Person)
(Company Telephone Number)
1 2
3 1
A A C F S
0 4
2 7
Month
Day
(Form Type)
Month
Day
(Fiscal Year)
(Annual Meeting)
(Secondary License Type, If Applicable)
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
6,986
Total No. of Stockholders
P
=5.5 billion
$–
Domestic
Foreign
To be accomplished by SEC Personnel concerned
File Number
LCU
Document ID
Cashier
STAMPS
Remarks: Please use BLACK ink for scanning purposes.
*SGVMC210558*
SGV & CO
SyCip Gorres Velayo & Co.
6760 Ayala Avenue
1226 Makati City
Philippines
Phone: (632) 891-0307
Fax:
(632) 819-0872
www.sgv.com.ph
BOA/PRC Reg. No. 0001
SEC Accreditation No. 0012-FR-1
INDEPENDENT AUDITORS’ REPORT
The Stockholders and the Board of Directors
ABS-CBN Broadcasting Corporation
Mother Ignacia Street corner Sgt. Esguerra Avenue
Quezon City
We have audited the accompanying financial statements of ABS-CBN Broadcasting Corporation and
Subsidiaries, which comprise the consolidated balance sheets as at December 31, 2007 and 2006, and
the consolidated statements of income, consolidated statements of changes in equity and consolidated
statements of cash flows for each of the three years ended December 31, 2007, and a summary of
significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in
accordance with Philippine Financial Reporting Standards. This responsibility includes: designing,
implementing and maintaining internal control relevant to the preparation and fair presentation of
financial statements that are free from material misstatement, whether due to fraud or error; selecting
and applying appropriate accounting policies; and making accounting estimates that are reasonable in
the circumstances.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with Philippine Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.
SGV & Co is a member practice of Ernst & Young Global
*SGVMC210558*
ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
2007
December 31
2006
P
=2,145,778
4,918,718
–
=1,661,832
P
4,382,530
12,438
1,007,394
804,516
8,876,406
773,290
1,011,222
7,841,312
3,892,197
9,467,115
2,423,392
9,724,640
1,664,140
184,352
2,024,544
17,232,348
1,444,468
301,779
2,165,923
16,060,202
P
=26,108,754
=23,901,514
P
P
=4,999,042
53,646
–
790,992
=4,553,915
P
28,816
357,920
347,879
587,806
6,431,486
2,137,139
7,425,669
4,927,998
3,808
400,648
14,924
5,347,378
2,436,951
64,065
279,816
17,126
2,797,958
ASSETS
Current Assets
Cash and cash equivalents (Notes 5 and 26)
Trade and other receivables - net (Notes 6, 14, 24 and 26)
Derivative assets (Note 26)
Program rights and other intangible assets - current
(Notes 10, 12, 17, 18 and 19)
Other current assets - net (Note 7)
Total Current Assets
Noncurrent Assets
Long-term receivables from related parties
(Notes 8, 14, 25 and 26)
Property and equipment - net (Notes 9, 15 and 24)
Program rights and other intangible assets - noncurrent
(Notes 10, 12, 17, 18 and 19)
Deferred tax assets - net (Note 22)
Other noncurrent assets - net (Notes 11, 12 and 26)
Total Noncurrent Assets
LIABILITIES AND EQUITY
Current Liabilities
Trade and other payables (Notes 13, 14 and 26)
Income tax payable
Derivative liabilities (Note 26)
Obligations for program rights - current portion (Note 26)
Interest-bearing loans and borrowings - current portion
(Notes 8, 9, 11, 15, 24, 25 and 26)
Total Current Liabilities
Noncurrent Liabilities
Interest-bearing loans and borrowings - net of current portion
(Notes 8, 9, 11, 15, 24, 25 and 26)
Obligations for program rights - net of current portion (Note 26)
Accrued pension obligation (Note 23)
Asset retirement obligation
Total Noncurrent Liabilities
(Forward)
*SGVMC210558*
-2-
2007
Equity
Capital stock (Note 16)
Capital paid in excess of par value
Cumulative translation adjustments (Note 26)
Unrealized gain on available-for-sale investments (Note 11)
Excess of acquisition cost over the carrying value of minority
interests (Notes 2 and 16)
Retained earnings (Note 16)
Philippine depository receipts convertible to common shares
(Note 16)
Total Equity Attributable
to Equity Holders of the Parent Company
Minority interests
Total Equity
December 31
2006
P
=779,583
725,276
(293,460)
35,599
(20,061)
13,381,026
(323,967)
=779,583
P
706,047
(179,328)
21,105
–
12,465,094
(177,621)
14,283,996
45,894
14,329,890
13,614,880
63,007
13,677,887
P
=26,108,754
=23,901,514
P
See accompanying Notes to Consolidated Financial Statements.
*SGVMC210558*
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Amounts)
Years Ended December 31
2006
2005
2007
REVENUE
Airtime revenues (Note 14)
Sale of services (Notes 14 and 24)
License fees (Note 24)
Sale of goods (Note 14)
EXPENSES (INCOME)
Production costs (Notes 9, 10, 14, 17, 23 and 24)
(Notes 9, 10, 11, 14, 18, 23 and 24)
(Notes 9, 10, 14, 19, 23 and 24)
Agency commission, incentives and co-producers’
share (Note 20)
Finance costs (Notes 15, 21 and 26)
Foreign exchange loss (gain) - net
Interest income (Notes 8, 14 and 21)
Equity in net losses (earnings) of associates
(Notes 8 and 11)
Other income - net (Notes 14, 15, 21 and 24)
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX (Note 22)
NET INCOME
Attributable To
Equity holders of the Parent Company (Note 27)
Minority interests
Basic/Diluted Earnings Per Share (Note 27)
P
=13,604,591
5,298,481
548,213
439,536
19,890,821
=10,662,767
P
4,711,550
1,116,978
529,108
17,020,403
=10,333,677
P
4,248,144
1,619,367
845,888
17,047,076
6,492,806
5,714,518
5,690,784
5,527,356
5,134,682
5,847,218
2,785,915
2,225,407
2,373,606
2,700,857
946,967
(197,553)
(111,866)
2,284,314
981,946
(171,681)
(161,905)
2,084,747
967,162
47,161
(297,435)
(11,994)
(498,902)
17,633,586
51,853
(448,707)
15,610,427
193,651
(287,142)
16,619,752
2,257,235
1,409,976
427,324
986,470
667,432
168,852
P
=1,270,765
=742,544
P
=258,472
P
P
=1,266,744
4,021
P
=1,270,765
=740,552
P
1,992
=742,544
P
=251,731
P
6,741
=258,472
P
P
=1.648
=0.962
P
=0.327
P
*SGVMC210558*
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
At January 1, 2007
Cash flow hedges (Note 26)
Translation adjustments during
the year
Amortization of initial CTA (Note 26)
Unrealized fair value gain on
available-for-sale investments
(Note 11)
Total income and expense for the year
recognized directly in equity
Net income for the year
Decrease in minority interests
(Notes 2 and 16)
Cash dividends declared (Note 16)
Issuance of PDRs (Note 16)
Acquisition of PDRs (Note 16)
At December 31, 2007
Capital
Stock
(Note 16)
P
=779,583
–
Capital Paid
in Excess of
Par Value
P
=706,047
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
P
=779,583
At January 1, 2006
Cash flow hedges (Note 26)
the year
Unrealized fair value gain on
available-for-sale investments
(Note 11)
Issuance of PDRs (Note 16)
At January 1, 2005
Minority interests
Cash flow hedges
the year
Attributed to Equity Holders of the Parent Company
Excess of
Acquisition Cost
Cumulative
Translation Unrealized Gain over the Carrying Unappropriated
Retained
Adjustments on Available-for- Value of Minority
Interests
(CTA) Sale Investments
Earnings
(Note 26)
(Note 11) (Notes 2 and 16)
(Note 16)
(P
=179,328)
P
=21,105
P
=–
P
=4,165,094
214,883
–
–
–
(275,118)
(53,897)
Appropriated
Retained
Earnings
P
=8,300,000
–
Philippine
Depository
Receipts (PDRs)
Convertible to
Common Shares
(Note 16)
(P
=177,621)
–
Total
P
=13,614,880
214,883
Minority
Interests
P
=63,007
–
Total Equity
P
=13,677,887
214,883
–
–
–
–
–
–
–
–
–
–
(275,118)
(53,897)
–
–
(275,118)
(53,897)
14,494
–
–
–
–
14,494
–
14,494
(114,132)
–
(114,132)
14,494
–
14,494
–
–
–
–
1,266,744
1,266,744
–
–
–
–
–
–
–
–
19,229
–
P
=725,276
–
–
–
–
(P
=293,460)
–
–
–
–
P
=35,599
=779,583
P
–
=706,047
P
–
P153,194
=
(162,281)
=–
P
–
–
–
–
–
(138,913)
(31,328)
–
–
–
–
–
–
=779,583
P
–
–
–
–
=706,047
P
=779,583
P
–
–
–
–
–
4,021
4,021
(99,638)
1,270,765
1,171,127
–
(350,812)
–
–
P
=5,081,026
–
–
–
–
P
=8,300,000
–
–
35,912
(182,258)
(P
=323,967)
(20,061)
(350,812)
55,141
(182,258)
P
=14,283,996
(21,134)
–
–
–
P
=45,894
(41,195)
(350,812)
55,141
(182,258)
P
=14,329,890
=–
P
–
=3,424,542
P
–
=8,300,000
P
–
(P
=200,000)
–
=13,163,366
P
(162,281)
=61,015
P
–
=13,224,381
P
(162,281)
–
–
–
–
–
–
–
–
–
–
(138,913)
(31,328)
–
–
(138,913)
(31,328)
21,105
–
–
–
–
21,105
–
21,105
(332,522)
–
(332,522)
–
(P
=179,328)
21,105
–
21,105
–
=21,105
P
–
–
–
–
=–
P
–
740,552
740,552
–
=4,165,094
P
–
–
–
–
=8,300,000
P
–
–
–
22,379
(P
=177,621)
(311,417)
740,552
429,135
22,379
=13,614,880
P
–
1,992
1,992
–
=63,007
P
(311,417)
742,544
431,127
22,379
=13,677,887
P
=706,047
P
–
–
–
=255,405
P
–
(52,603)
(31,845)
=–
P
–
–
–
=–
P
–
–
–
=3,172,811
P
–
–
–
=8,300,000
P
–
–
–
(P
=200,000)
–
–
–
=13,013,846
P
–
(52,603)
(31,845)
=42,248
P
12,026
–
–
=13,056,094
P
12,026
(52,603)
(31,845)
–
–
(17,763)
–
–
–
–
(17,763)
–
(17,763)
–
–
–
=779,583
P
–
–
–
=706,047
P
(102,211)
–
(102,211)
=153,194
P
–
–
–
=–
P
–
–
–
=–
P
–
251,731
251,731
=3,424,542
P
–
–
–
=8,300,000
P
(102,211)
251,731
149,520
=13,163,366
P
12,026
6,741
18,767
=61,015
P
(90,185)
258,472
168,287
=13,224,381
P
–
(20,061)
–
–
–
(P
=20,061)
(99,638)
1,266,744
1,167,106
–
–
–
–
(P
=200,000)
*SGVMC210558*
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2006
2005
2007
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation (Note 9)
Amortization of:
Program rights and other intangibles
(Note 10)
Debt issue costs (Note 21)
Deferred charges (Notes 11, 18 and 19)
Interest expense (Note 21)
Mark-to-market loss (gain) - net (Note 21)
Gain on acquisition and exchange of debt
(Notes 15 and 21)
Interest income (Note 21)
Unrealized foreign exchange gain - net
Loss on derecognition of debt (Notes 15 and 21)
Equity in net losses (earnings) of associates
Curtailment gain (Note 23)
Gain on sale of property and equipment
Operating income before working capital changes
Provisions for:
Retirement expense (Note 23)
Doubtful accounts (Note 18)
Other employee benefits
Decline in value of inventory
Decline in value of marketable securities
Decrease (increase) in:
Trade and other receivables
Program rights and other intangible assets
Other current assets
Increase (decrease) in:
Trade and other payables
Obligations for program rights
Payment of accrued pension obligation (Note 23)
Cash generated from operations
Income tax paid
Net cash provided by operating activities
P
=2,257,235
=1,409,976
P
=427,324
P
1,210,190
1,170,365
1,234,729
1,289,575
102,101
40,267
405,108
348,887
1,094,167
83,860
26,683
631,816
114,975
(205,663)
(111,866)
(108,672)
16,221
(11,994)
–
–
5,231,389
–
(161,905)
(199,659)
–
51,853
–
–
4,222,131
195,282
102,401
44,653
14,830
–
75,437
94,060
43,750
1,200
–
957,212
87,046
348,063
683,465
(34,435)
–
(297,435)
(20,847)
–
193,651
(158,418)
(8,262)
3,412,093
79,758
159,520
136,283
1,200
4,625
(177,806)
(1,073,186)
(320,000)
284,508
(591,196)
(471,591)
(1,198,013)
(662,896)
(261,538)
(1,041,698)
(284,268)
(38,218)
2,653,379
(359,025)
2,294,354
(202,298)
(400,220)
(34,156)
3,021,625
(257,417)
2,764,208
971,196
(243,879)
–
2,398,349
(422,116)
1,976,233
(Forward)
*SGVMC210558*
-2Years Ended December 31
2006
2005
2007
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment
Increase in:
Other noncurrent assets
Interest received
Proceeds from sale of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Long-term debt
Bank loans
Payments of:
Long-term debt
Interest
Bank loans
Capital lease
Payments for the termination of cross currency swaps
and interest rate swaps (Note 26)
Acquisition of:
Philippine depository receipts (Note 16)
Minority interests (Note 16)
Decrease in minority interests
Net cash used in financing activities
(P
=707,699)
(P
=491,566)
(P
=639,040)
(1,250,673)
266,281
111,882
33,325
(1,546,884)
–
(33,079)
46,483
2,662
(475,500)
–
(328,528)
36,129
25,468
(905,971)
2,895,498
400,000
–
473,979
745,749
–
(2,280,487)
(452,656)
(277,859)
(152,520)
(393,480)
(182,258)
(35,904)
(5,290)
(484,956)
(1,798,223)
(598,900)
(355,398)
(114,597)
–
–
–
–
(2,393,139)
(481,381)
(713,921)
(111,545)
(74,819)
–
–
–
–
(635,917)
EFFECTS OF EXCHANGE RATE CHANGES
AND TRANSLATION ADJUSTMENTS ON
CASH AND CASH EQUIVALENTS
221,432
14,533
25,828
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
483,946
(89,898)
460,173
AT BEGINNING OF YEAR
1,661,832
1,751,730
1,291,557
AT END OF YEAR
P
=2,145,778
=1,661,832
P
=1,751,730
P
*SGVMC210558*
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands Unless Otherwise Specified)
1. Corporate Information
ABS-CBN Broadcasting Corporation (“ABS-CBN” or “Parent Company”) is incorporated in the
Philippines. The Parent Company’s core business is television and radio broadcasting. Its
subsidiaries and associates are involved in the following related businesses: cable and direct-tohome (DTH) television distribution and telecommunication services overseas, movie production,
audio recording and distribution, video/audio post production, and film distribution. Other
activities of the subsidiaries include merchandising, internet and mobile services and publishing.
The Parent Company is 57%-owned by Lopez, Inc., a Philippine entity, the ultimate parent
company. The registered office address of the Parent Company is Mother Ignacia Street corner
Sgt. Esguerra Avenue, Quezon City.
The accompanying consolidated financial statements were approved and authorized for issue by
the Board of Directors (BOD) on March 26, 2008.
2. Summary of Significant Accounting Policies
2.1. Basis of Preparation
The consolidated financial statements have been prepared on a historical cost basis, except for
derivative financial instruments and available-for-sale investments, which are measured at fair
value.
The consolidated financial statements are presented in Philippine peso, which is the Parent
Company’s functional and presentation currency under Philippine Financial Reporting Standards
(PFRS) and all values are rounded to the nearest thousand, except when otherwise indicated.
2.2. Statement of Compliance
The consolidated financial statements of ABS-CBN and all its subsidiaries (collectively referred to
as “the Company”) have been prepared in compliance with PFRS issued by the Financial
Reporting Standards Council (FRSC).
2.3. Changes in Accounting Policies
The Company has adopted the following new and amended PFRS and Philippine Interpretations
during the year. The accounting policies adopted are consistent with those of the previous
financial year except for the adoption of the new and amended standards and interpretations
below.
§
§
§
PAS 1, Amendment - Presentation of Financial Statements,
PFRS 7, Financial Instruments: Disclosures,
Philippine Interpretation IFRIC 7, Applying the Restatement Approach under PAS 29,
Financial Reporting in Hyperinflationary Economies,
*SGVMC210558*
-2§
§
§
Philippine Interpretation IFRIC 8, Scope of PFRS 2,
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives, and
Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment.
The principal effects of these changes are as follows:
§
PAS 1, Amendment - Presentation of Financial Statements, requires the Company to make
new disclosures to enable users of the financial statements to evaluate the Company’s
objectives, policies and processes for managing capital. Adoption of this amendment resulted
in additional disclosures on capital management (see Note 25).
§
PFRS 7, Financial Instruments: Disclosures, requires disclosures that enable users to evaluate
the significance of the Company’s financial instruments and the nature and extent of risks
arising from those financial instruments. It requires the disclosure of qualitative and
quantitative information about exposure to risks arising from financial instruments, including
specified minimum disclosures about credit risk, liquidity risk and market risk, as well as
sensitivity analysis to market risk. It replaces PAS 30, Disclosures in the Financial
Statements of Banks and Similar Financial Institutions, and the disclosure requirements in
PAS 32, Financial Instruments: Disclosure and Presentation. It is applicable to all entities
that report under PFRS.
The Company adopted the amendment to the transition provisions of PFRS 7, as approved by
the FRSC, which gives transitory relief with respect to the presentation of comparative
information for the new risk disclosures about the nature and extent of risks arising from
financial instruments. Accordingly, the Company does not need to present comparative
information for the disclosures required by paragraphs 31–42 of PFRS 7, unless the disclosure
was previously required under PAS 32 and PAS 30. Adoption of this standard resulted in
additional disclosures such as rollforward of allowance for doubtful accounts (see Note 6),
credit quality of financial assets that are neither past due nor impaired and aging analysis of
past due but not impaired financial assets (see Note 25), contractual maturity analysis of
financial liabilities (see Note 25), market risk sensitivity analysis as to changes in interest and
foreign exchange rates (see Note 25) and carrying amount per category of financial assets and
liabilities (see Note 26).
§
Philippine Interpretation IFRIC 7, Applying the Restatement Approach under PAS 29,
Financial Reporting in Hyperinflationary Economies, provides guidance on how to apply
PAS 29 when an economy first becomes hyperinflationary, in particular the accounting for
deferred income tax. The interpretation had no impact on the consolidated financial
statements of the Company.
§
Philippine Interpretation IFRIC 8, Scope of PFRS 2, requires PFRS 2, Share-based Payment,
to be applied to any arrangements where equity instruments are issued for consideration which
appears to be less than fair value. This interpretation had no impact on the consolidated
financial statements of the Company.
§
Philippine Interpretation IFRIC 9, Reassessment of Embedded Derivatives, states that the date
to assess the existence of an embedded derivative is the date an entity first becomes a party to
the contract, with reassessment only if there is a change to the contract that significantly
*SGVMC210558*
-3modifies the cash flows. This interpretation had no impact on the consolidated financial
statements of the Company.
§
Philippine Interpretation IFRIC 10, Interim Financial Reporting and Impairment, requires that
an entity must not reverse an impairment loss recognized in a previous interim period in
respect of goodwill or an available-for-sale equity investment. As the Company had no
impairment losses previously reversed, the interpretation had no impact on the financial
position or performance of the Company.
2.4. Future Changes in Accounting Policies
The Company did not early adopt the following new and amended standards and interpretations
that have been approved but are not yet effective:
§
PAS 1, Revised - Presentation of Financial Statements (effective for annual periods beginning
on or after January 1, 2009), requires that statement of changes in equity includes only
transactions with owners and all non-owner changes are presented in equity as a single line
with details included in a separate statement. Owners are defined as “holders of instruments
classified as equity.” The amendment also introduces a new statement of comprehensive
income that combines all items of income and expenses together with “other comprehensive
income.” Entities can choose to present all items in one statement or to present two linked
statements, a separate income statement and a statement of comprehensive income. The
Company will apply this amended standard in 2009.
§
PAS 23, Amendment - Borrowing Costs (effective for annual periods beginning on or after
January 1, 2009), requires capitalization of borrowing costs when such costs relate to a
qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of
time to get ready for its intended use or sale. In accordance with the transitional requirements
of the standard, the Company will adopt this as a prospective change. Accordingly, borrowing
costs will be capitalized on qualifying assets with a commencement date after January 1, 2009.
No changes will be made for borrowing costs incurred to this date that have been expensed.
§
PFRS 8, Operating Segments (effective for annual periods beginning on or after January 1,
2009), adopts a management approach to reporting segment information. The information
reported would be that which management uses internally for evaluating the performance of
operating segments and allocating resources to those segments. Such information may be
different from that reported in the consolidated balance sheet and consolidated statement of
income and companies will need to provide explanations and reconciliations of the
differences. PFRS 8 will replace PAS 14, Segment Reporting. The Company is currently
assessing the impact of the standard on its current manner of reporting segment information.
§
Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions
(effective for annual periods beginning on or after March 1, 2007), requires arrangements
whereby an employee is granted rights to an entity’s equity instruments to be accounted for as
an equity-settled scheme by the entity even if (a) the entity chooses or is required to buy those
equity instruments (e.g., treasury shares) from another party, or (b) the shareholder(s) of the
entity provide the equity instruments needed. It also provides guidance on how subsidiaries,
*SGVMC210558*
-4in their separate financial statements, account for such schemes when their employees receive
rights to the equity instruments of the parent. The Company currently does not have any stock
option plan and therefore, does not expect this interpretation to have a significant impact to its
consolidated financial statements.
§
Philippine Interpretation IFRIC 12, Service Concession Arrangements (effective for annual
periods beginning on or after January 1, 2008), applies to service concession operators and
explains how to account for the obligations undertaken and rights received in service
concession arrangements. The Company has no service concession arrangements and hence
this interpretation will have no impact on the Company.
§
Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (effective for annual
periods beginning on or after July 1, 2008), requires customer loyalty award credits to be
accounted for as a separate component of the sales transaction in which they are granted and
therefore part of the fair value of the consideration received is allocated to the award credits
and deferred over the period that the award credits are fulfilled. The Company expects that
this interpretation will have no significant impact on its consolidated financial statements.
§
Philippine IFRIC 14, PAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding
Requirements and their Interaction (effective for annual periods beginning on or after
January 1, 2008), provides guidance on how to assess the limit on the amount of surplus in a
defined benefit scheme that can be recognized as an asset under PAS 19, Employee Benefits.
The Company expects that this interpretation will have no impact on the financial position or
performance of the Company as all defined benefit schemes are currently not fully funded.
2.5. Basis of Consolidation
The consolidated financial statements include the financial statements of the Parent Company and
its subsidiaries as at December 31 each year. The financial statements of the subsidiaries are
prepared for the same reporting year as the Parent Company, using consistent accounting policies.
All intra-company balances, transactions, income and expenses and profits and losses resulting
from intra-company transactions are eliminated in full.
Subsidiaries are fully consolidated from the date of acquisition or incorporation, being the date on
which the Company obtains control, and continue to be consolidated until the date that such
control ceases.
The subsidiaries are as follows:
Company
ABS-CBN Global Ltd.
(ABS-CBN Global)(a)
Place of
Incorporation
Cayman Islands
ABS-CBN International
California, USA
ABS-CBN Australia Pty.
Ltd. (ABS-CBN
Australia)
ABS-CBN Telecom North
America, Inc.
Victoria,
Australia
California, USA
Holding company
Cable and satellite
programming
services
Cable and satellite
programming
services
Telecommunications
Functional
Currency
United States
dollar (USD
or US$)
USD
2007
Direct Indirect
100.0
–
Ownership Interest
2006
Direct Indirect
100.0
–
2005
Direct Indirect
100.00
–
–
98.0
98.0
–
98.0
–
Australian dollar
–
100.0
–
100.0
–
100.0
USD
–
100.0
–
100.0
–
100.0
*SGVMC210558*
-5-
Company
The Filipino Channel
Canada, ULC
(ABS-CBN Canada)(b)
ABS-CBN Europe Ltd.
(ABS-CBN Europe)(c)
ABS-CBN Japan, Inc.
(ABS-CBN Japan)(d)
ABS-CBN Middle East
FZ-LLC (ABS-CBN
Middle East)
ABS-CBN Middle East
LLC
E-Money Plus, Inc.
ABS-CBN Center for
Communication Arts,
Inc.(e)
ABS-CBN Film
Productions, Inc.
(ABS-CBN Films)
ABS-CBN Interactive, Inc.
(ABS-CBN Interactive)
ABS-CBN Multimedia, Inc.
(ABS-CBN
Multimedia)
ABS-CBN Integrated and
Strategic Property
Holdings, Inc.(f)
ABS-CBN Publishing, Inc.
Culinary Publications, Inc.
Creative Programs, Inc.
(CPI)
Place of
Incorporation
Canada
Cable and satellite
programming
services
United Kingdom Cable and satellite
programming
services
Japan
Cable and satellite
programming
services
Dubai, UAE
Cable and satellite
programming
services
Dubai, UAE
Trading
Functional
Currency
Canadian dollar
(CAD)
2007
Direct Indirect
–
100.0
Ownership Interest
2006
Direct Indirect
–
–
Direct
–
2005
Indirect
–
Great Britain
pound (GBP)
–
100.0
–
100.0
–
100.0
Japanese yen
(JPY)
–
100.0
–
100.0
–
–
USD
–
100.0
–
100.0
–
100.0
USD
–
100.0
–
100.0
–
100.0
Philippine peso
–
100.0
–
100.0
–
100.0
Philippines
Services - money
remittance
Educational/training
Philippine peso
100.0
–
100.0
–
100.00
–
Philippines
Movie production
Philippine peso
100.0
–
100.0
–
100.00
–
Philippines
Services - interactive
Philippine peso
media
Philippine peso
Digital electronic
content distribution
100.0
–
100.0
–
100.0
–
–
100.0
–
75.0
–
75.0
Philippines
Real estate
Philippine peso
100.0
–
100.0
–
100.0
–
Philippines
Philippines
Philippines
Print publishing
Print publishing
Content development
and programming
services
Services - production
Philippine peso
Philippine peso
Philippine peso
100.0
–
100.0
–
70.0
–
100.0
–
100.0
–
70.0
–
100.0
–
100.0
–
70.0
–
Philippine peso
100.0
–
100.0
–
100.0
–
Content development
and programming
services
Services - film
distribution
Audio and video
production and
distribution
Music publishing
Content development
and programming
services
Services - restaurant
and food
Services - post
production
Philippine peso
100.0
–
100.0
–
100.0
–
Philippine peso
–
–
100.0
–
100.0
–
Philippine peso
100.0
–
100.0
–
100.0
–
Philippine peso
Philippine peso
100.0
100.0
–
–
100.0
100.0
–
–
100.0
100.0
–
–
Philippine peso
100.0
–
100.0
–
100.0
–
Philippine peso
98.9
–
98.9
–
98.9
–
Philippines
Philippines
Professional Services for
Philippines
Television & Radio,
Inc.
Sarimanok News Network, Philippines
Inc.
Sky Films, Inc. (Sky Films) Philippines
Star Recording, Inc.
Philippines
Star Songs, Inc.
Studio 23, Inc. (Studio 23)
Philippines
Philippines
TV Food Chefs, Inc.
Philippines
Philippines
(a)
With a branch in the Philippines
Incorporated and started commercial operations in 2007
(c)
With a branch in Italy
(d)
Incorporated in 2006 and started commercial operations in 2007
(e)
Nonstock ownership interest
(f)
Not yet started commercial operations
(b)
ABS-CBN is the ultimate Philippine parent entity and the ultimate parent company of the
Company is Lopez, Inc.
As discussed in Note 16.4, on January 29, 2007, ABS-CBN Interactive acquired the remaining
25% equity in ABS-CBN Multimedia from the latter’s individual shareholders.
*SGVMC210558*
-6On August 7, 2007, ABS-CBN assigned its 100% ownership in Sky Films to ABS-CBN Films.
On November 28, 2007, the Securities and Exchange Commission (SEC) approved the merger of
ABS-CBN Films and Sky Films with ABS-CBN Films as the surviving entity.
Minority Interests
Minority interests represent the portion of profit or loss and net assets not held by the Company
and are presented separately in the consolidated statement of income and within the equity section
of the consolidated balance sheet, separate from parent’s equity.
Acquisition of minority interest is accounted for using the entity concept method, whereby, the
Company considers the acquisition of minority interest as an equity transaction. The difference
between the fair value of the consideration and book value of the share in the net assets acquired is
presented as “Excess of acquisition cost over the carrying value of minority interests” account
within the equity section of the consolidated balance sheet.
Functional and Presentation Currency
The consolidated financial statements are presented in Philippine peso, which is ABS-CBN’s
functional and presentation currency. Each entity determines its own functional currency, which
is the currency that best reflects the economic substance of the underlying events and
circumstances relevant to that entity, and items included in the financial statements of each entity
are measured using that functional currency.
As at the reporting date, the balance sheets of foreign subsidiaries are translated into the
presentation currency of the Company (the Philippine peso) at the rate of exchange ruling at the
balance sheet date and, their statements of income are translated at the weighted average exchange
rates for the year. The exchange differences arising on the translation are taken directly to a
separate component of equity under “Cumulative translation adjustments” account. On disposal of
a foreign entity, the deferred cumulative amount recognized in equity relating to that particular
foreign operation is recognized in the consolidated statement of income.
2.6. Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with original maturities of three
months or less and that are subject to an insignificant risk of change in value.
Financial Instruments
Date of Recognition. Purchases or sales of financial assets that require delivery of assets within
the time frame established by regulation or convention in the marketplace are recognized on the
trade date. Derivatives are recognized on trade date basis (i.e., the date that the Company commits
to purchase or sell the asset).
Initial Recognition of Financial Instruments. All financial instruments are recognized initially at
fair value. Transaction costs are included in the initial measurement of all financial assets and
liabilities, except for financial instruments which are measured at fair value through profit or loss.
*SGVMC210558*
-7Financial instruments are classified as liabilities or equity in accordance with the substance of the
contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or
a component that is a financial liability, are reported as expense or income. Distributions to
holders of financial instruments classified as equity are charged directly to equity, net of any
related income tax benefits.
A financial instrument is classified as debt if it provided for a contractual obligation to:
§
deliver cash or another financial asset to another entity; or
§
exchange financial assets or financial liabilities with another entity under conditions that are
potentially unfavorable to the Company; or
§
satisfy the obligation other than by the exchange of a fixed amount of cash or another financial
asset for a fixed number of the Company’s own shares.
Determination of Fair Value. The fair value of financial instruments traded in organized financial
markets is determined by reference to quoted market bid prices that are active at the close of
business at the balance sheet date. When current bid and asking prices are not available, the price
of the most recent transaction is used since it provides evidence of current fair value as long as
there has not been significant change in economic circumstances since the time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined using
valuation techniques. Such techniques include using reference to similar instruments for which
observable prices exist, discounted cash flows analyses, and other relevant valuation models.
Day 1 Profit. Where the transaction price in a non-active market is different to the fair value from
other observable current market transactions in the same instrument or based on a valuation
technique whose variables include only data from observable market, the Company recognizes the
difference between the transaction price and fair value (a Day 1 profit) in the consolidated
statement of income. In cases where use is made of data which is not observable, the difference
between the transaction price and model value is only recognized in the consolidated statement of
income when the inputs become observable or when the instrument is derecognized. For each
transaction, the Company determines the appropriate method of recognizing the ‘Day 1’ profit
amount.
Categories of Financial Instruments
Financial assets are further classified into the following categories: (a) financial asset at fair value
through profit or loss; (b) loans and receivables; (c) held-to-maturity investments; and
(d) available-for-sale financial assets. Financial liabilities, on the other hand, are categorized as:
(a) financial liabilities at fair value through profit or loss; and (b) other financial liabilities at
amortized cost. The Company determines the category at initial recognition and where allowed
and appropriate, re-evaluates this designation at every reporting date.
a. Financial Assets or Financial Liabilities at Fair Value through Profit or Loss
Financial assets and financial liabilities at fair value through profit or loss include financial
assets and liabilities held for trading purposes, financial assets and financial liabilities
designated upon initial recognition as at fair value through profit or loss, and derivative
instruments, unless they are designated as effective hedges under hedge accounting.
*SGVMC210558*
-8Financial assets and financial liabilities are classified as held for trading if they are acquired
for the purpose of selling and repurchasing in the near term. Included in this classification are
debt and equity securities which have been acquired principally for trading purposes.
Financial assets and financial liabilities may be designated at initial recognition as at fair value
through profit or loss if the following criteria are met:
§
the designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on
them on a different basis;
§
the assets and liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance evaluated on a fair value basis, in accordance
with a documented risk management or investment strategy; or
§
the financial instrument contains an embedded derivative, unless the embedded derivative
does not significantly modify the cash flows or it is clear, with little or no analysis, that it
would not be separately recorded.
Financial assets at fair value through profit or loss are recorded in the consolidated balance
sheet at fair value. Changes in fair value are accounted for in the consolidated statement of
income. Interest earned or incurred is recorded as interest income or expense, respectively.
The Company’s derivative instruments (including embedded derivatives) that are not
accounted for as accounting hedges are classified under this category as of December 31,
2006. As of December 31, 2007, there are no outstanding derivative instruments.
b. Loans and Receivables
Loans and receivables are nonderivative financial assets with fixed or determinable payments
that are not quoted in an active market. They are not entered into with the intention of
immediate or short-term resale and are not classified as financial assets at fair value through
profit or loss or designated as available-for-sale financial assets or held-to-maturity
investments.
After initial measurement, loans and receivables are subsequently measured at amortized cost
using the effective interest rate method less allowance for impairment. Amortized cost is
calculated by taking into account any discount or premium on acquisition and fees and costs
that are an integral part of the effective interest rate. The amortization is included in the
interest income in the consolidated statement of income. Losses arising from impairment are
recognized as provision for doubtful accounts in the consolidated statement of income.
Loans and receivables are included in current assets if maturity is within 12 months from the
balance sheet date otherwise, these are classified as noncurrent assets.
This category includes the Company’s cash and cash equivalents, trade and other receivables,
and long-term receivables from related parties (see Notes 5, 6 and 8).
*SGVMC210558*
-9c. Held-to-Maturity Investments
Quoted nonderivative financial assets with fixed or determinable payments and fixed
maturities are classified as held-to-maturity when the Company has the positive intention and
ability to hold to maturity. Investments intended to be held for an undefined period are not
included in this category. Other long-term investments that are intended to be held-tomaturity, such as bonds, are subsequently measured at amortized cost. This cost is computed
as the amount initially recognized minus principal repayments, plus or minus the cumulative
amortization using the effective interest rate method of any difference between the initially
recognized amount and the maturity amount. This calculation includes all fees and points paid
or received between parties to the contract that are an integral part of the effective interest rate,
transaction costs and all other premiums and discounts. For investments carried at amortized
cost, gains and losses are recognized in the consolidated statement of income when the
investments are derecognized or impaired, as well as through the amortization process.
The Company has no held-to-maturity investments as of December 31, 2007 and 2006.
d. Available-for-Sale Financial Assets
Available-for-sale financial assets are those nonderivative financial assets that are designated
as available-for-sale or are not classified in any of the three preceding categories. They are
purchased and held indefinitely and may be sold in response to liquidity requirements or
changes in market conditions.
After initial recognition, available-for-sale financial assets are measured at fair value. The
effective yield component of debt securities classified as available-for-sale financial assets, as
well as the impact of restatement on foreign currency-denominated debt securities classified as
available-for-sale, is reported in the consolidated statement of income. The unrealized gains
and losses arising from the fair valuation of available-for-sale financial assets are excluded,
net of applicable tax, from the consolidated statement of income and are reported under
“Unrealized gain on available-for-sale investments” in the equity section of the consolidated
balance sheet and in the consolidated statement of changes in equity.
The Company’s available-for-sale financial assets include investments in ordinary common
shares and debt instruments (see Note 11).
e. Other Financial Liabilities at Amortized Cost
Other financial liabilities at amortized cost pertain to issued financial instruments or their
components that are not classified or designated at fair value through profit or loss and contain
contractual obligations to deliver cash or another financial asset to the holder or to settle the
obligation other than by the exchange of a fixed amount of cash or another financial asset for a
fixed number of own equity shares. The components of issued financial instruments that
contain both liability and equity elements are accounted for separately, with the equity
component being assigned the residual amount after deducting from the instrument as a whole
the amount separately determined as the fair value of the liability component on the date of
issue.
This category includes loans and borrowings which are initially recognized at fair value of the
consideration received less directly attributable transaction costs.
*SGVMC210558*
- 10 After initial recognition, interest-bearing loans and borrowings are subsequently measured at
amortized cost using the effective interest rate method.
Gains or losses are recognized in the consolidated statement of income when the liabilities are
derecognized as well as through the amortization process.
The Company’s other financial liabilities at amortized cost include trade and other payables
(see Note 13), interest-bearing loans and borrowings (see Note 15) and obligations for
program rights (see Note 26).
Derivative Financial Instruments and Hedging
The Company uses derivative financial instruments such as interest rate swaps and cross currency
swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such
derivative financial instruments are initially recognized at fair value on the date on which a
derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are
carried as assets when the fair value is positive and as liabilities when the fair value is negative.
Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge
accounting are taken directly to the consolidated statement of income.
For the purpose of hedge accounting, hedges are classified as:
§
fair value hedges when hedging the exposure to changes in the fair value of a recognized asset
or liability;
§
cash flow hedges when hedging exposure to variability in cash flows that is either attributable
to a particular risk associated with a recognized asset or liability or a forecast transaction; or
§
hedges of a net investment in a foreign operation.
A hedge of the foreign currency risk of a firm commitment is accounted for as a cash flow hedge.
At the inception of a hedge relationship, the Company formally designates and documents the
hedge relationship to which the Company wishes to apply hedge accounting and the risk
management objective and strategy for undertaking the hedge. The documentation includes
identification of the hedging instrument, the hedged item or transaction, the nature of the risk
being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting
the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged
risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value
or cash flows and are assessed on an ongoing basis to determine that they actually have been
highly effective throughout the financial reporting periods for which they were designated.
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
Fair Value Hedges. Fair value hedges are hedges of the Company’s exposure to changes in the
fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified
portion of such an asset, liability or firm commitment, that is attributable to a particular risk and
could affect profit or loss. For fair value hedges, the carrying amount of the hedged item is
adjusted for gains and losses attributable to the risk being hedged, the derivative is remeasured at
fair value and gains and losses from both are taken to the consolidated statement of income.
The Company has no derivatives that are designated or accounted for as fair value hedges as of
December 31, 2007 and 2006.
*SGVMC210558*
- 11 Cash Flow Hedges. Cash flow hedges are hedges of the exposures to variability in cash flows that
are attributable to a particular risk associated with a recognized asset or liability or a highly
probable forecast transaction and could affect the consolidated statement of income. Changes in
the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are
recognized directly in equity, while any hedge ineffectiveness is recognized immediately in the
consolidated statement of income.
Amounts taken to equity are transferred to the consolidated statement of income when the hedged
transaction affects profit or loss, such as when the hedged financial income or financial expense is
recognized or when a forecast sale or purchase occurs. Where the hedged item is the cost of a
nonfinancial asset or liability, the amounts taken to equity are transferred to the initial carrying
amount of the nonfinancial asset or liability.
If the forecast transaction is no longer expected to occur, amounts previously recognized in equity
are transferred to the consolidated statement of income. If the hedging instrument expires or is
sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is
revoked, amounts previously recognized in equity remain in equity until the forecast transaction
occurs. If the related transaction is not expected to occur, the amount is taken to the consolidated
statement of income.
In October 2005, the Company designated its outstanding interest rates and cross currency swaps
as cash flow hedges. In 2007, these were terminated as a result of the prepayment of the
underlying obligation (see Note 26). There are no outstanding cash flow hedges as of
December 31, 2007.
Hedges of a Net Investment. Hedges of a net investment in a foreign operation, including a hedge
of a monetary item that is accounted for as part of the net investment, are accounted for in a way
similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective
portion of the hedge are recognized directly in equity while any gains or losses relating to the
ineffective portion are recognized in the consolidated statement of income. On disposal of the
foreign operation, the cumulative value of any such gains or losses recognized directly in equity is
transferred to the consolidated statement of income.
The Company has no hedges of a net investment as of December 31, 2007 and 2006.
Impairment of Financial Assets
The Company assesses at each balance sheet date whether a financial asset or group of financial
assets is impaired.
Assets Carried at Amortized Cost. If there is an objective evidence that an impairment loss on
loans and receivables carried at amortized cost has been incurred, the amount of the loss is
measured as the difference between the asset’s carrying amount and the present value of estimated
future cash flows (excluding future credit losses that have not been incurred) discounted at the
financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial
recognition). The carrying amount of the asset shall be reduced either directly or through use of
an allowance account. The amount of the loss shall be recognized in the consolidated statement of
income.
*SGVMC210558*
- 12 The Company first assesses whether an objective evidence of impairment exists individually for
financial assets that are individually significant, and individually or collectively for financial
assets that are not individually significant. If it is determined that no objective evidence of
impairment exists for an individually assessed financial asset, whether significant or not, the asset
is included in a group of financial assets with similar credit risk characteristics and that group of
financial assets is collectively assessed for impairment. Assets that are individually assessed for
impairment and for which an impairment loss is or continues to be recognized are not included in
a collective assessment of impairment.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the previously
recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognized in the consolidated statement of income, to the extent that the carrying value of the
asset does not exceed its amortized cost at the reversal date.
In relation to trade receivables, a provision for impairment is made when there is objective
evidence (such as the probability of insolvency or significant financial difficulties of the debtor)
that the Company will not be able to collect all of the amounts due under the original terms of the
invoice. The carrying amount of the receivable is reduced through use of an allowance account.
Impaired debts are derecognized when they are assessed as uncollectible.
Assets Carried at Cost. If there is an objective evidence that an impairment loss on an unquoted
equity instrument that is not carried at fair value because its fair value cannot be reliably
measured, or on a derivative asset that is linked to and must be settled by delivery of such an
unquoted equity instrument has been incurred, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows
discounted at the current market rate of return for a similar financial asset.
Available-for-Sale Financial Assets. If an available-for-sale financial asset is impaired, an amount
comprising the difference between its cost (net of any principal payment and amortization) and its
current fair value, less any impairment loss previously recognized in the consolidated statement of
income, is transferred from equity to the consolidated statement of income. Reversals of
impairment losses in respect of equity instruments classified as available-for-sale are not
recognized in the consolidated statement of income. Reversals of impairment losses, if any, on
debt instruments are reversed through the consolidated statement of income, if the increase in fair
value of the instrument can be objectively related to an event occurring after the impairment loss
was recognized in the consolidated statement of income.
Available-for-sale financial asset is considered impaired if there is prolonged or significant decline
in market value against cost.
Derecognition of Financial Assets and Liabilities
Financial Assets. A financial asset (or, where applicable a part of a financial asset or part of a
group of similar financial assets) is derecognized where:
§
the rights to receive cash flows from the asset have expired;
§
the Company retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party under a ‘pass-through’
arrangement; or
*SGVMC210558*
- 13 §
the Company has transferred its rights to receive cash flows from the asset and either (a) has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control of the
asset.
Where the Company has transferred its rights to receive cash flows from an asset and has neither
transferred nor retained substantially all the risks and rewards of the asset nor transferred control
of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the
asset. Continuing involvement that takes the form of a guarantee over the transferred asset is
measured at the lower of original carrying amount of the asset and the maximum amount of
consideration that the Company could be required to repay.
Financial Liabilities. A financial liability is derecognized when the obligation under the liability
is discharged or cancelled or has expired.
Where an existing financial liability is replaced by another from the same lender on substantially
different terms, or the terms of an existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original liability and the recognition of a new
liability, and the difference in the respective carrying amounts is recognized in the consolidated
statement of income.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount reported in the consolidated
balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized
amounts and there is an intention to settle on a net basis, or to realize the asset and settle the
liability simultaneously. This is not generally the case with master netting agreements, and the
related assets and liabilities are presented gross in the consolidated balance sheet.
Inventories
Inventories included under “Other current assets” account in the consolidated balance sheet are
valued at the lower of cost or net realizable value. Cost is determined on the weighted average
method. Net realizable value of inventories that are for sale is the selling price in the ordinary
course of business, less the cost of marketing and distribution. Net realizable value of inventories
not held for sale is the current replacement cost. Unrealizable inventories are written off.
Property and Equipment
Property and equipment, except land, are carried at cost (including capitalized interest), excluding
the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in
value. Such cost includes the cost of replacing part of such property and equipment when that cost
is incurred if the recognition criteria are met. Land is stated at cost less any impairment in value.
Depreciation is computed on a straight line method over the property and equipment’s useful lives.
The property and equipment’s residual values, useful lives and method of depreciation are
reviewed, and adjusted if appropriate, at each financial year-end.
Construction in progress represents equipment under installation and building under construction
and is stated at cost which includes cost of construction and other direct costs. Construction in
progress is not depreciated until such time that the relevant assets are completed and become
available for operational use.
*SGVMC210558*
- 14 An item of property and equipment is derecognized upon disposal or when no future economic
benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds and the carrying amount of
the asset) is included in the consolidated statement of income in the year the asset is derecognized.
Asset Retirement Obligation
The net present value of legal obligations associated with the retirement of an item of property and
equipment that resulted from the acquisition, construction or development and the normal
operations of property and equipment is recognized in the period in which it is incurred and a
reasonable estimate of the obligation can be made.
Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of
intangible assets acquired in a business combination is fair value as at the date of acquisition.
Following initial recognition, intangible assets are carried at cost less any accumulated
amortization in the case of intangible assets with finite lives, and any accumulated impairment
losses. The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets with finite lives are amortized over the useful economic life and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. The
amortization period and the amortization method for an intangible asset with a finite useful life is
reviewed at least at each financial year-end. Changes in the expected useful life or the expected
pattern of consumption of future economic benefits embodied in the asset is accounted for by
changing the amortization period or method, as appropriate, and treated as changes in accounting
estimates. The amortization expense on intangible assets with finite lives is recognized in the
consolidated statement of income in the expense category consistent with the function of the
intangible asset.
Intangible assets with indefinite useful lives are tested for impairment annually either individually
or at the cash-generating unit level. Such intangibles are not amortized. The useful life of an
intangible asset with an indefinite life is reviewed annually to determine whether indefinite life
assessment continues to be supportable. If not, the change in the useful life assessment from finite
to indefinite is made on a prospective basis.
A summary of the policies applied to the Company’s acquired intangible assets is as follows:
Intangible Asset
Useful Lives
Program Rights
Finite (license term
or economic life,
whichever is
shorter)
Amortization
Method Used
Amortized on the
basis of program
usage except for
CPI, which is
amortized on a
straight-line
method over the
license term.
Impairment
Testing/
Recoverable
Amount Testing
If the remaining
expected benefit
period is shorter
than the
Company’s initial
estimates, the
Company
accelerates
amortization of the
purchase price or
license fee.
Current and
Noncurrent
Portion
Based on the
estimated year of
usage except CPI,
which is based on
license term.
*SGVMC210558*
- 15 -
Amortization
Method Used
Impairment
Testing/
Recoverable
Amount Testing
Current and
Noncurrent
Portion
Intangible Asset
Useful Lives
Story, Music and
Publication Rights
Finite (useful
economic benefit)
Amortized on the
basis of the useful
economic life.
If the remaining
expected benefit
period is shorter
than the
Company’s initial
estimates, the
Company
accelerates
amortization of the
cost.
Based on the
estimated year of
usage.
Movie In-Process
Finite
Individual-filmforecast
computation
method.
If the unamortized
film cost is less
than the fair value
of the film, the
asset is written
down to its
recoverable
amount.
Based on the
estimated year of
usage.
Video Rights and
Record Master
Finite (six months
or 10,000 copies
sold of video discs
and tapes,
whichever comes
first)
Amortized on the
basis of number of
copies sold.
If the remaining
expected benefit
period is shorter
than the
Company’s initial
estimates, the
Company
accelerates
amortization of the
cost.
Current.
Cable Channels CPI
Indefinite
No amortization.
Annually and more Noncurrent.
frequently when an
indication of
impairment exists.
Production and
Distribution
Business - Middle
East
Finite - 25 years
Amortized on a
straight-line basis
over the period of
25 years.
If the remaining
expected benefit
period is shorter
than the
Company’s initial
estimates, the
Company
accelerates
amortization of the
cost.
Noncurrent.
*SGVMC210558*
- 16 Investments in Associates
The Company’s investments in associates, included as part of “Other noncurrent assets” account in
the consolidated balance sheet, are accounted for under the equity method of accounting. An
associate is an entity in which the Company has significant influence and which is neither a
subsidiary nor a joint venture.
Under the equity method, investment in associates is carried in the consolidated balance sheet at
cost plus post-acquisition changes in the Company’s share in net assets of the associate. Goodwill
relating to an associate is included in the carrying amount of the investment and is not amortized.
The consolidated statement of income reflects the share on the results of operations of an
associate. Where there has been a change recognized directly in the equity of the associate, the
Company recognizes its share in any changes and discloses this, when applicable, in the
consolidated statement of changes in equity. The reporting dates of the associates and the
Company are identical and the associates’ accounting policies conform to those used by the
Company for like transactions and events in similar circumstances.
Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the
cost of the business combination over the Company’s interest in the net fair value of the acquiree’s
identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is
measured at cost less any accumulated impairment losses.
Goodwill is shown under “Other noncurrent assets” account in the consolidated balance sheet.
Tax 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. These
are included under “Other noncurrent assets” account in the consolidated balance sheet
(see Note 11).
Deferred Charges and Credits
Loss or gain on sale of decoders and set-top boxes which has no stand alone value without the
subscription revenue are aggregated and recognized ratably over the longer of subscription
contract term or the estimated customer service life. These are presented as part of “Other
noncurrent assets” account and “Trade and other payables” account (under “Deferred revenue”),
respectively, in the consolidated balance sheet.
Impairment of Nonfinancial Assets
The Company assesses at each reporting date whether there is an indication that property and
equipment, noncurrent program rights and other intangible assets, and tax credits may be impaired.
If any such indication exists, or when annual impairment testing for an asset is required, the
Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is
the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use
and is determined for an individual asset, unless the asset does not generate cash inflows that are
largely independent of those from other assets or groups of assets. Where the carrying amount of
an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its
recoverable amount. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. Impairment losses are recognized in the
*SGVMC210558*
- 17 consolidated statement of income in those expense categories consistent with the function of the
impaired asset.
For assets excluding goodwill, an assessment is made at each reporting date as to whether there is
any indication that previously recognized impairment losses may no longer exist or may have
decreased. If such indication exists, the recoverable amount is estimated. A previously
recognized impairment loss is reversed only if there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment loss was recognized. If that is
the case, the carrying amount of the asset is increased to its recoverable amount. That increased
amount cannot exceed the carrying amount that would have been determined, net of depreciation
and amortization, had no impairment loss been recognized for the asset in prior years. Such
reversal is recognized in the consolidated statement of income unless the asset is carried at
revalued amount, in which case the reversal is treated as a revaluation increase. After such a
reversal, the depreciation and amortization charge is adjusted in future periods to allocate the
asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining
useful life.
Goodwill. Goodwill is reviewed for impairment, annually or more frequently if events or changes
in circumstances indicate that the carrying value may be impaired. Impairment is determined for
goodwill by assessing the recoverable amount of the cash-generating units, to which the goodwill
relates. Where the recoverable amount of the cash-generating units is less than the carrying
amount of the cash-generating units to which the goodwill has been allocated, an impairment loss
is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. The
Company performs its annual impairment test of goodwill at December 31.
Associates. After application of the equity method, the Company determines whether it is
necessary to recognize any additional impairment loss with respect to the Company’s net
investment in the associate. The Company determines at each balance sheet date whether there is
any objective evidence that the investments in associates are impaired. If this is the case, the
Company calculates the amount of impairment as being the difference between the fair value of
the associate and the acquisition cost and recognizes the amount in the consolidated statement of
income.
Revenue
Revenue is recognized when it is probable that the economic benefits associated with the
transaction will flow to the Company and the amount of the revenue can be measured reliably.
Airtime revenue is recognized as income on the dates the advertisements are aired. The fair values
of barter transactions are included in airtime revenue and the related accounts. These transactions
represent advertising time exchanged for program materials, merchandise or service.
Sale of services include:
a. Subscription fees which are recognized as follows:
DTH Subscribers and Cable Operators. Subscription fees are recognized under the accrual
basis in accordance with the terms of the agreements.
Share in DirecTV Subscription Revenue. Subscription revenue from subscribers of DirecTV
who subscribe to the The Filipino Channel is recognized in accordance with the Deal
Memorandum, as discussed in Note 24.1.
*SGVMC210558*
- 18 Subscription Revenue from ABS-CBN Now. Subscription revenue from online streaming
services of Filipino-oriented content and programming is received in advance (included as
“Deferred revenue” under “Trade and other payables” account in the consolidated balance
sheet) and is deferred and recognized as revenue over the period during which the service is
performed.
b. Telecommunications revenue which is recognized when earned. These are stated net of the
share of the other telecommunications carriers, if any, under existing correspondence and
interconnection agreements. Interconnection fees and charges are based on agreed rates with
the other telecommunications carriers.
Income from prepaid phone cards are realized based on actual usage hours or expiration of the
unused value of the card, whichever comes earlier. Income from prepaid card sales for which
the related services have not been rendered as of balance sheet date, is presented as “Other
current liabilities” under “Trade and other payables” account in the consolidated balance
sheet.
c. Channel lease revenue which is recognized as income on a straight-line basis over the lease
term.
d. Income from film exhibition which is recognized, net of theater shares, on the dates the films
are shown.
e. Income from TV rights and cable rights which are recognized on the dates the films are
permitted to be publicly shown as stipulated in the agreement.
License fees earned from DirecTV is recognized upon migration of the DTH subscribers of
ABS-CBN International to DirecTV. The additional license fees for each migrated subscriber that
will remain for 14 consecutive months from the date of activation will be recognized on the 14th
month (see Note 24.1).
Sale of goods is recognized when delivery has taken place and transfer of risks and rewards has
been completed. These are stated net of sales discounts, returns and allowances.
Income and related costs pertaining to the sale and installation of decoders and set-top boxes
which has no stand alone value without the subscription revenue are aggregated and recognized
ratably over the longer of subscription contract term or the estimated customer service life.
Short-messaging-system/text-based revenue, sale of news materials and Company-produced
programs included under “Sale of services” account in the consolidated statement of income are
recognized upon delivery.
Royalty income, included as part of “Sale of services” account in the consolidated statement of
income, is recognized upon rendering of service based on the terms of the agreement and is
reduced to the extent of the share of the composers or co-publishers of the songs produced for
original sound recording.
Management fees, included as part of “Other income” account in the consolidated statement of
income, is recognized based on the terms of the management agreement.
*SGVMC210558*
- 19 Rental income is recognized as income on a straight-line basis over the lease term.
Interest income is recognized on a time proportion basis that reflects the effective yield on the
asset.
Dividends are recognized when the shareholders’ right to receive payment is established.
Leases
The determination whether an arrangement is, or contains a lease is based on the substance of the
arrangement at the inception date of whether the fulfillment of the arrangement is dependent on
the use of a specific asset or the arrangement conveys a right to use the asset. A reassessment is
made after inception of the lease only if one of the following applies:
a. there is a change in contractual terms, other than a renewal or extension of the agreement;
b. a renewal option is exercised or extension granted, unless the term of the renewal or extension
was initially included in the lease term;
c. there is a change in the determination of whether the fulfillment is dependent on a specified
asset; or
d. there is a substantial change to the asset.
Where a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gave rise to the reassessment for scenarios a, c or d and the date of
renewal or extension period for scenario b.
Finance Leases. Finance leases, which transfer to the Company substantially all the risks and
benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at
the fair value of the leased property or, if lower, at the present value of the minimum lease
payments. Lease payments are apportioned between the finance charges and reduction of the lease
liability so as to achieve a constant rate of interest on the remaining balance of the liability.
Finance charges are charged directly against the consolidated statement of income.
Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset
and the lease term, if there is no reasonable certainty that the Company will obtain ownership by
the end of the lease term.
Operating Leases. Leases where the Company retains substantially all the risks and benefits of
ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating
an operating lease are added to the carrying amount of the leased asset and recognized over the
lease term on the same basis as rental income.
Operating lease payments are recognized as expense in the consolidated statement of income on a
straight-line basis over the lease term.
Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation and a reliable estimate can be made of the amount of the
*SGVMC210558*
- 20 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.
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 and ceases when the assets are
ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable
amount, an impairment loss is recorded. Borrowing costs include interest charges and other costs
incurred in connection with the borrowing of funds.
Pension Costs
The Company has funded, defined benefit pension plans except for ABS-CBN International which
has a defined contribution pension plan. The cost of providing benefits under the defined benefit
plans is determined separately for each plan using the projected unit credit method. Actuarial
gains and losses are recognized as income or expense when the net cumulative unrecognized
actuarial gains and losses for each individual plan at the end of the previous reporting year
exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at
that date. These gains or losses are recognized over the expected average remaining working lives
of the employees participating in the plans.
The past service cost is recognized as an expense on a straight-line basis over the average period
until the benefits become vested. If the benefits are already vested immediately following the
introduction of, or changes to, a pension plan, past service cost is recognized immediately.
The defined benefit liability is the aggregate of the present value of the defined benefit obligation
and actuarial gains and losses not recognized, reduced by past service cost not yet recognized and
the fair value of plan assets out of which the obligations are to be settled directly. If such
aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of
cumulative unrecognized net actuarial losses and past service cost and the present value of any
economic benefits available in the form of refunds from the plan or reductions in the future
contributions to the plan.
For ABS-CBN International, the defined contribution pension plan is composed of the
contribution of ABS-CBN International or employee (or both) to the employee’s individual
account. These contributions generally are invested on behalf of the employee through American
Funds. Employees ultimately receive the balance in their account, which is based on contributions
plus or minus investment gains or losses. The value of each account will fluctuate due to changes
in the value of investments.
Income Taxes
Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantively enacted at the balance
sheet date.
*SGVMC210558*
- 21 Deferred Tax. Deferred income tax is provided, using the balance sheet liability method, on all
temporary differences at the balance sheet date between the tax bases of assets and liabilities and
their carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences, including
asset revaluations. Deferred income tax assets are recognized for all deductible temporary
differences, carryforward benefits of unused tax credits from excess minimum corporate income
tax (MCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that
taxable profit will be available against which the deductible temporary differences and
carryforward benefits of unused tax credits from excess MCIT and unused NOLCO can be
utilized. Deferred income tax, however, is not recognized when it arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the
time of the transaction, affects neither the accounting profit nor taxable profit.
Deferred income tax liabilities are not provided on nontaxable temporary differences associated
with investments in domestic subsidiaries and associates. With respect to investments in other
subsidiaries and associates, deferred income tax liabilities are recognized except where the timing
of the reversal of the temporary difference can be controlled and it is probable that the temporary
difference will not reverse in the foreseeable future.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred tax assets
are measured at each balance sheet date and are recognized to the extent that it has become
probable that future taxable profit will allow the deferred tax to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply
in the period when the asset is realized or the liability is settled, based on tax rates and tax laws
that have been enacted or substantively enacted at the balance sheet date.
Income tax relating to items recognized directly in equity is recognized in equity and not in the
consolidated statement of income.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable
right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to
the same taxable entity and the same taxation authority.
Foreign Currency Transactions
Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the
date of the transaction. Monetary assets and liabilities denominated in foreign currencies are
retranslated at the functional currency closing exchange rate at the balance sheet date. All
differences are taken to the consolidated statement of income with the exception of differences on
foreign currency borrowings that provide a hedge against a net investment in a foreign entity.
These are taken directly to equity until the disposal of the net investment, at which time they are
recognized in the consolidated statement of income. Tax charges and credits attributable to
exchange differences on those borrowings are also dealt with in equity. Nonmonetary items that
are measured in terms of historical cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date when the fair value was determined.
*SGVMC210558*
- 22 Earnings Per Share (EPS)
Basic EPS amounts are calculated by dividing the net income attributable to equity holders of the
Parent Company for the year over the weighted average number of common shares outstanding
during the year. Diluted EPS amounts are computed in the same manner, adjusted for the dilutive
effect of any potential common shares. As the Company has no dilutive potential common shares
outstanding, basic and diluted EPS are stated at the same amount.
Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are
disclosed in the notes to consolidated financial statements unless the possibility of an outflow of
resources embodying economic benefits is remote. A contingent asset is not recognized in the
consolidated financial statements but disclosed in the notes to consolidated financial statements
when an inflow of economic benefits is probable.
Events after the Balance Sheet Date
Post year-end events that provide additional information about the Company’s financial position at
the balance sheet date (adjusting events) are reflected in the consolidated financial statements.
Post year-end events that are not adjusting events are disclosed in the notes to consolidated
financial statements when material.
3. Management’s Use of Judgment and Estimates
The Company’s consolidated financial statements prepared under PFRS require management to
make judgments and estimates that affect amounts reported in the consolidated financial
statements and related notes. Future events may occur which will cause the judgments and
assumptions used in arriving at the estimates to change. The effects of any change in judgments
and estimates are reflected in the consolidated financial statements as they become reasonably
determinable.
Judgments and estimates are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances.
Judgments
In the process of applying the Company’s accounting policies, management has made the following
judgments, apart from those involving estimations, which have the most significant effect on the
amounts recognized in the consolidated financial statements:
Leases. The evaluation whether an arrangement contains a lease is based on its substance. An
arrangement is, or contains a lease when the fulfillment of the arrangement depends on a specific
asset or assets and the arrangement conveys the right to use the asset.
The Company has entered into operating lease arrangements as a lessor and as a lessee. The
Company, as a lessee, has determined that the lessor retains substantial risks and rewards of
ownership of these properties which are on operating lease agreements. As a lessor, the Company
retains substantially all the risks and benefits of ownership of the assets.
*SGVMC210558*
- 23 The Company has also entered into finance lease agreements covering certain property and
equipment. The Company has determined that it bears substantially all the risks and benefits
incidental to ownership of said properties which are on finance lease agreements.
The carrying amount of property and equipment under finance lease amounted to P
=310 million and
=175 million as of December 31, 2007 and 2006, respectively (see Note 9).
P
Determination of Functional Currency. Management uses judgment in assessing the functional
currency of ABS-CBN Middle East and ABS-CBN Europe. Management has determined the
functional currency of these companies to be the USD and GBP, respectively, which are not their
local currency but the currency that reflects the underlying transactions, events and conditions that are
relevant to ABS-CBN Middle East and ABS-CBN Europe. It is the currency that mainly influences
the revenue from and cost of rendering services.
Financial Assets not Quoted in an Active Market. The Company classifies financial assets by
evaluating, among others, whether the asset is quoted or not in an active market. Included in the
evaluation on whether a financial asset is quoted in an active market is the determination on whether
quoted prices are readily and regularly available, and whether those prices represent actual and
regularly occurring market transactions on an arm’s length basis.
Estimates
The key assumptions concerning future and other key sources of estimation at the balance sheet date,
that have a significant risk of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below.
Revenue Recognition. The Company’s telecommunications revenue recognition policies require the
use of estimates and assumptions that may affect the reported amounts of revenues and receivables.
The difference between the amount initially recognized and actual settlement or actual billing is taken
up in the accounts in the next period. However, there is no assurance that such use of estimates will
not result in material adjustments in future periods.
Fair Value of Financial Instruments. PFRS requires that certain financial assets and liabilities
(including derivative instruments) be carried at fair value, which requires the use of accounting
estimates and judgment. While significant components of fair value measurement are determined
using verifiable objective evidence (i.e., foreign exchange rates, interest rates, volatility rates), the
timing and amount of changes in fair value would differ using a different valuation methodology.
Any change in the fair values of financial assets and liabilities (including derivative instruments)
directly affects the consolidated statement of income and equity.
The fair values of financial assets and liabilities are set out in Note 26.
Allowance for Doubtful Accounts. The Company maintains an allowance for doubtful accounts at a
level considered adequate to provide for potential uncollectible receivables. The level of allowance is
evaluated by the Company on the basis of factors that affect the collectibility of the accounts. These
factors include, but are not limited to, the length of the Company’s relationship with the customers,
average age of accounts and collection experience. The Company performs a regular review of the
age and status of these accounts, designed to identify accounts with objective evidence of impairment
and provide the appropriate allowance for impairment losses. Accounts that are specifically identified
*SGVMC210558*
- 24 to be potentially uncollectible are provided with adequate allowance through charges to income in the
form of provision for doubtful accounts. A provision is also established as a certain percentage of
receivables not provided with specific reserves. This percentage is based on a collective assessment
of historical collection, current economic trends, changes in customer payment terms and other factors
that may affect the Company’s ability to collect payments. The amount and timing of recorded
expenses for any period would differ if the Company made different judgments or utilized different
methodologies. An increase in allowance for doubtful accounts would increase the recorded
operating expenses and decrease current assets.
Provision for doubtful accounts amounted to P
=102 million in 2007, P
=94 million in 2006 and
=160 million in 2005 (see Note 18). Trade and other receivables, net of allowance for doubtful
P
accounts, amounted to P
=4,919 million and P
=4,383 million as of December 31, 2007 and 2006,
respectively (see Note 6). Allowance for doubtful accounts as of December 31, 2007 and 2006
amounted to P
=319 million and =
P551 million, respectively (see Note 6).
Net Realizable Value of Inventories. Inventories are carried at net realizable value whenever net
realizable value of inventories becomes lower than cost due to damage, physical deterioration,
obsolescence, changes in price levels or other causes. The allowance account is reviewed on a
regular basis to reflect the accurate valuation in the financial records. Inventory items identified to
be obsolete and unusable are written off and charged as expense in the period such losses are
identified.
Provision for decline in value of inventory amounted to P
=15 million in 2007 and P
=1 million in
2006 and 2005. Inventories at net realizable value amounted to P
=170 million and P
=207 million as
of December 31, 2007 and 2006, respectively (see Note 7).
Estimated Useful Lives. The useful life of each item of the Company’s property and equipment and
intangible assets with finite life is estimated based on the period over which the asset is expected to be
available for use. Estimation for property and equipment is based on a collective assessment of
industry practice, internal technical evaluation and experience with similar assets while for intangible
assets with finite life, estimated life is based on the life of agreement covering such intangibles. The
estimated useful life of each asset is reviewed periodically and updated if expectations differ from
previous estimates due to physical wear and tear or other limits on the use of the asset. It is possible,
however, that future results of operations could be materially affected by changes in the amounts and
timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in
the estimated useful life of any property and equipment or intangible assets would increase the
recorded expenses and decrease noncurrent assets.
The carrying values of property and equipment and intangible assets with definite life are as follows
(see Notes 9 and 10):
Property and equipment - net
Program rights
Story, music and publication rights
Movie in-process
Video rights and record master
Production and distribution business - Middle East
2007
P
=9,467,115
2,024,563
5,236
73,648
8,369
99,750
2006
=9,724,640
P
1,536,958
4,787
83,561
7,800
124,684
*SGVMC210558*
- 25 Impairment of Available-for-Sale Investments. The Company treats available-for-sale investments as
impaired when there has been a significant or prolonged decline in the fair value below its cost or
where there is objective evidence that impairment exists. The determination of what is ‘significant’ or
‘prolonged’ requires judgment. The Company treats ‘significant’ generally as 20% or more of the
original cost of investment, and ‘prolonged’ as greater than six months. In addition, the Company
evaluates other factors, including normal volatility in share price for quoted equities and the future
cash flows and discount factors for unquoted equities.
As of December 31, 2007 and 2006, the carrying value of available-for-sale investments amounted to
=77 million and =
P
Asset Retirement Obligation. Determining asset retirement obligation requires estimation of the costs
of dismantling installations and restoring leased properties to their original condition. While it is
believed that the assumptions used in the estimation of such costs are reasonable, significant changes
in these assumptions may materially affect the recorded expense or obligation in future periods.
Asset retirement obligation amounted to P
=15 million and P
=17 million as of December 31, 2007 and
2006, respectively.
Recognition of Deferred Tax Assets. The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit
will be available to allow all or part of the deferred tax assets to be utilized. However, there is no
assurance that sufficient taxable profit will be generated to allow certain deferred tax assets to be
utilized.
Unrecognized deferred tax assets of subsidiaries as of December 31, 2007 and 2006 amounted to
=203 million and P
P
=193 million, respectively. Net recognized deferred tax assets as of
December 31, 2007 and 2006 amounted to P
=184 million and P
=302 million, respectively
(see Note 22).
Present Value of Pension Obligation. The cost of defined benefit obligation is determined using
actuarial valuations. The actuarial valuation involves making assumptions about discount rates,
expected rates of return on plan assets, and future salary increases. Due to the long-term nature of
these plans, such estimates are subject to uncertainty.
The expected rate of return on plan assets was based on average historical premium on plan assets.
The assumed discount rates were determined using the market yields on Philippine bonds with
terms consistent with the expected employee benefit payout as of balance sheet date (see Note 23).
As of December 31, 2007 and 2006, the present value of the pension obligation of the Company
amounted to P
=860 million and =
As of December 31, 2007 and 2006, unrecognized net actuarial loss amounted to P
=195 million and
=398 million, respectively (see Note 23).
P
*SGVMC210558*
- 26 Impairment of Nonfinancial Assets. The Company assesses impairment on assets whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The
factors that the Company considers important which could trigger an impairment review include the
following:
§
significant underperformance relative to expected historical or projected future operating results;
§
significant changes in the manner of use of the acquired assets or the strategy for overall business;
and
§
significant negative industry or economic trends.
The Company recognizes an impairment loss whenever the carrying amount of an asset exceeds it
recoverable amount. The recoverable amount is computed using the value in use approach.
Recoverable amounts are estimated for individual assets or, if it is not possible, for the
cash-generating unit to which the asset belongs.
Noncurrent assets that are subjected to impairment testing when impairment indicators are present and
annually for those intangibles with indefinite useful lives are as follows (see Notes 9, 10 and 11):
Property and equipment - net
Program rights
Cable channels - CPI
Production and distribution business - Middle East
Tax credits
Investments in associates
2007
P
=9,467,115
1,095,271
459,968
99,750
1,706,733
43,759
2006
=9,724,640
P
854,112
459,968
124,684
1,741,030
44,233
No impairment loss for noncurrent assets was recognized in 2007, 2006 and 2005.
Impairment of Goodwill. The Parent Company’s management conducts an annual review for any
impairment in value of the goodwill. The impairment on the goodwill is determined by comparing:
(a) the carrying amount of the cash-generating unit; and (b) the present value of the annual projected
cash flows for five years and the present value of the terminal value computed under the discounted
cash flow method. The key assumptions used in the impairment test of goodwill are discussed in
Note 12 to the consolidated financial statements.
The carrying amount of goodwill, shown under “Other noncurrent assets” account in the consolidated
balance sheets, amounted to nil and P
=23 million as of December 31, 2007 and 2006, respectively
(see Note 11).
Provision for impairment loss of goodwill amounted to =
P23 million in 2007. No impairment loss was
recognized in 2006 and 2005.
*SGVMC210558*
- 27 Contingencies. The Company is currently involved in various legal proceedings. The Company’s
estimate of the probable costs for the resolution of these claims has been developed in consultation
with outside counsel handling defense in these matters and is based upon an analysis of potential
results. The Company currently does not believe these proceedings will have a material adverse
effect on its consolidated financial position and results of operations. It is possible, however, that
future results of operations could be materially affected by changes in the estimates or in the
effectiveness of strategies relating to these proceedings (see Note 29).
4. 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, it operates in three major
geographical areas. In the Philippines, its home country, the Company is involved in
broadcasting, cable operations and other businesses. In the United States and in other locations
(which include Middle East, Europe, Australia, Canada and Japan), the Company operates its
cable and satellite operations to bring television programming outside the Philippines.
Inter-segment Transactions
Segment revenue, segment expenses and segment results include transfers among business
segments and among geographical segments. Such transfers are accounted for at competitive
market prices charged to unaffiliated customers for similar services. Those transfers are
eliminated upon consolidation.
*SGVMC210558*
- 28 -
Business 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, 2007, 2006 and 2005:
2007
Revenue
External sales
Inter-segment sales
Total revenue
Results
Segment result
Finance costs
Foreign exchange gain (loss)
Interest income
Equity in net earnings (losses) of
associates
Other income - net
Income tax
Net income (loss)
Assets and Liabilities
Segment assets
Investments in associates - at
equity
Consolidated total assets
Segment liabilities
Other Segment Information
Capital expenditures:
Property and equipment
Intangible assets
Depreciation and amortization
of program rights and other
rights
Noncash expenses other than
depreciation and amortization
of program rights and other
rights
P
= 13,536,874
74,842
P
= 13,611,716
Broadcasting
2006
=11,168,763
P
217,032
=11,385,795
P
2005
2007
=11,612,208
P
110,815
=11,723,023
P
P
= 4,736,012
128,082
P
= 4,864,094
Cable and Satellite
2006
=4,455,323
P
103,371
=4,558,694
P
2005
2007
=4,068,221
P
–
=4,068,221
P
P
= 1,617,935
168,611
P
= 1,786,546
Other Businesses
2006
=1,396,317
P
236,122
=1,632,439
P
2005
=1,366,647
P
273,159
=1,639,806
P
2007
Eliminations
2006
2005
P
=–
(371,535)
(P
=371,535)
P–
=
(556,525)
(P
=556,525)
P–
=
(383,974)
(P
=383,974)
2007
P
= 19,890,821
–
P
= 19,890,821
Consolidated
2006
=17,020,403
P
–
=17,020,403
P
2005
=17,047,076
P
–
=17,047,076
P
P
= 1,512,804
(954,248)
174,659
71,318
P815,000
=
(971,931)
119,151
152,141
P300,454
=
(955,168)
(9,606)
259,971
P
= 191,326
(24,665)
(3,853)
71,504
P53,128
=
(52,400)
35,305
5,159
=385,466
P
(11,122)
(29,905)
32,545
P
= 194,545
(2,655)
26,747
3,645
=96,560
P
(177)
17,225
4,605
(P
=538,785)
(872)
(7,650)
4,955
P
= 485,212
34,601
–
(34,601)
=696,794
P
42,562
–
–
=903,586
P
–
–
(36)
P
= 2,383,887
(946,967)
197,553
111,866
=1,661,482
P
(981,946)
171,681
161,905
=1,050,721
P
(967,162)
(47,161)
297,435
–
868,429
(596,303)
P
= 1,076,659
–
672,636
(375,273)
=411,724
P
–
469,311
8,517
=73,479
P
11,994
63,314
(245,001)
P
= 64,619
(51,853)
340,660
(191,643)
=138,356
P
(194,166)
746,489
62,465
=991,772
P
–
89,328
(120,299)
P
= 191,311
–
53,748
(75,365)
=96,596
P
515
23,056
(239,834)
(P
=758,615)
–
(522,169)
(24,867)
(P
=61,824)
–
(618,337)
(25,151)
=95,868
P
–
(951,714)
–
(P
=48,164)
11,994
498,902
(986,470)
P
= 1,270,765
(51,853)
448,707
(667,432)
=742,544
P
(193,651)
287,142
(168,852)
=258,472
P
P
= 20,259,428
=18,543,208
P
=20,694,815
P
P
= 4,703,501
=4,417,299
P
=1,642,458
P
P
= 2,708,434
=4,631,595
P
=3,976,767
P
(P
=1,790,720)
(P
=4,036,600)
(P
=1,856,854)
P
= 25,880,643
=23,555,502
P
=24,457,186
P
3,556,588
P
= 23,816,016
3,580,822
=22,124,030
P
2,487,992
=23,182,807
P
–
P
= 4,703,501
–
=4,417,299
P
–
=1,642,458
P
–
P
= 2,708,434
–
=4,631,595
P
–
=3,976,767
P
(3,512,829)
(P
=5,303,549)
(3,536,589)
(P
=7,573,189)
(2,443,759)
(P
=4,300,613)
43,759
P
= 25,924,402
44,233
=23,599,735
P
44,233
=24,501,419
P
P
= 4,294,474
=4,176,947
P
=4,000,924
P
P
= 2,068,630
=1,623,141
P
=2,402,669
P
P
= 1,680,151
=3,908,614
P
=814,048
P
(P
=1,780,195)
(P
=4,059,165)
(P
=1,893,961)
P
= 6,263,060
=5,649,537
P
=5,323,680
P
P
= 679,633
906,657
=442,914
P
646,632
=651,185
P
636,090
P
= 241,110
667,484
=119,913
P
124,171
=223,346
P
67,076
P
= 65,247
169,210
P47,241
=
214,129
P14,718
=
196,756
P
=–
–
=–
P
–
=–
P
28,826
P
= 985,990
1,743,351
=610,068
P
984,932
=889,249
P
928,748
1,849,685
1,705,721
1,761,354
349,055
252,750
201,534
108,148
99,217
99,159
–
–
–
2,306,888
2,057,688
2,062,047
333,364
196,649
572,025
128,815
90,125
465,378
33,857
11,540
11,517
–
–
496,036
298,314
756,529
(292,391)
Geographical Segment Data
The following tables present revenue and expenditure and certain asset information regarding geographical segments for the years ended December 31, 2007, 2006 and 2005:
2007
Revenue
External sales
Inter-segment sales
Total revenue
Other Segment Information
Segment assets
Capital expenditures:
Property and equipment
Intangible assets
Philippines
2006
2005
2007
United States
2006
2005
2007
Others
2006
2005
2007
Eliminations
2006
2005
2007
Consolidated
2006
2005
P
= 15,939,870
371,535
P
= 16,311,405
=13,084,108
P
556,525
=13,640,633
P
=13,202,093
P
383,974
=13,586,067
P
P
= 2,603,441
–
P
= 2,603,441
=2,815,774
P
–
=2,815,774
P
=2,919,411
P
–
=2,919,411
P
P
= 1,347,510
–
P
= 1,347,510
=1,120,521
P
–
=1,120,521
P
=925,572
P
–
=925,572
P
P
=–
(371,535)
(P
=371,535)
=–
P
(556,525)
(P
=556,525)
=–
P
(383,974)
(P
=383,974)
P
= 19,890,821
–
P
= 19,890,821
=17,020,403
P
–
=17,020,403
P
=17,047,076
P
–
=17,047,076
P
P
= 28,714,224
=28,153,007
P
=25,769,513
P
P
= 2,350,836
=2,659,344
P
=1,863,083
P
P
= 162,891
=360,573
P
=1,169,437
P
(P
=5,303,549)
(P
=7,573,189)
(P
=4,300,614)
P
= 25,924,402
=23,599,735
P
=24,501,419
P
777,111
1,743,351
560,225
984,932
707,714
899,922
132,357
–
29,728
–
170,079
–
76,522
–
20,115
–
11,456
–
985,990
1,743,351
610,068
984,932
889,249
928,748
–
–
–
–
–
28,826
*SGVMC210558*
- 29 -
5. Cash and Cash Equivalents
This account consists of the following:
2006
=1,334,611
P
327,221
=1,661,832
P
2007
P
=1,552,986
592,792
P
=2,145,778
Cash on hand and in banks
Cash equivalents
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are short-term
placements, which are made for varying periods of up to three months depending on the
immediate cash requirements of the Company, and earn interest at the respective short-term
placement rates.
6. Trade and Other Receivables
2006
=4,010,212
P
288,715
217,630
121,214
97,963
197,965
4,933,699
551,169
=4,382,530
P
2007
P
=4,069,754
153,409
214,481
511,282
–
288,622
5,237,548
318,830
P
=4,918,718
Trade receivables
Due from related parties (see Note 14)
Advances to employees and talents
Advances to suppliers
Receivable from DirecTV (see Note 24.1)
Other receivables
Less allowance for doubtful accounts
Trade receivables are noninterest-bearing and are generally on 60-90 days’ terms.
Receivable from DirecTV was collected in 2007.
Movements in the allowance for doubtful accounts are as follows:
Balance at January 1, 2007
Provisions for the year (see Note 18)
Write-offs and others
Balance at December 31, 2007
Trade
Airtime Subscription
P
=440,832
P
=58,187
47,757
9,452
(283,911)
(6,591)
P
=204,678
P
=61,048
Others
P
=22,720
19,739
(21,140)
P
=21,319
Nontrade
P
=29,430
25,453
(23,098)
P
=31,785
Total
P
=551,169
102,401
(334,740)
P
=318,830
Balance at January 1, 2006
Provisions for the year (see Note 18)
Write-offs and others
Balance at December 31, 2006
=409,854
P
44,146
(13,168)
=440,832
P
=90,450
P
23,009
(90,739)
=22,720
P
=12,537
P
7,268
9,625
=29,430
P
=599,408
P
94,060
(142,299)
=551,169
P
=86,567
P
19,637
(48,017)
=58,187
P
*SGVMC210558*
- 30 -
7. Other Current Assets
Creditable withholding and prepaid taxes
Inventories at net realizable value
Preproduction expenses
Advance payment to a supplier
Prepaid expenses and others
2007
P
=313,087
169,565
153,486
–
168,378
P
=804,516
2006
=360,723
P
206,899
281,497
80,000
82,103
=1,011,222
P
Inventories consist mainly of materials and supplies of the Parent Company and records and other
consumer products held for sale by subsidiaries. The cost of inventories carried at net realizable
value amounted to P
=216 million and P
=244 million as of December 31, 2007 and 2006,
respectively.
8. Long-term Receivables from Related Parties
On June 30, 2004, Sky Vision Corporation (Sky Vision) and Sky Cable Corporation (Sky Cable,
formerly Central CATV, Inc.) (“Sky Cable” or “Issuer”) issued a convertible note to the Parent
Company amounting to US$30 million equivalent to P
=1,579 million as of December 31, 2007 and
2006. The Parent Company’s long-term receivable from Sky Vision, includes accrued interest
receivable of P
=459 million as of December 31, 2007 and 2006. The note is subject to interest of
13% compounded annually and matured on June 30, 2006. The principal and accrued interest as
of maturity date shall be mandatorily converted, based on the prevailing U.S. Dollar to Philippine
Peso exchange rate on Maturity Date, at a conversion price equivalent to a twenty percent (20%)
discount of: (a) the market value of the Shares, in the event of a public offering of the Issuer
before Maturity Date; (b) the valuation of the Shares by an independent third party appraiser that
is a recognized banking firm, securities underwriter or one of the big three international
accounting firms or their Philippine affiliate jointly appointed by Lopez, Inc. and Benpres
Holdings Corporation (Benpres Group) and Philippine Long Distance Telephone Company and
Mediaquest Holdings, Inc. (PLDT Group) pursuant to the Master Consolidation Agreement
(MCA) (see Note 11.3) dated July 18, 2001 as amended or supplemented.
As of December 31, 2007, the valuation done by an independent third party appraiser has not been
agreed by the Benpres Group and PLDT Group and accordingly, the conversion price has not been
determined. Based on the provisions of the convertible note, its conversion cannot be completed
without the determination of the conversion price, which in turn depends on the valuation of Sky
Vision or Sky Cable, by an independent third party. Consequently, ABS-CBN cannot convert the
notes without such valuation. The conversion date was effectively extended since the conversion
price was not fixed on June 30, 2006. The conversion date will effectively be the date when the
conversion price will be set. ABS-CBN will gain control of Sky Cable upon conversion of the
convertible note. Consequently, the voting rights on the underlying shares are retained by the
original shareholders and ABS-CBN has no right to exercise such voting rights.
As of March 26, 2008, the conversion price is yet to be finalized and formally agreed by the
parties.
*SGVMC210558*
- 31 The convertible note does not specifically state that interest shall accrue after June 30, 2006 in the
event that the convertible note is not converted for any reason. Thus, no interest was charged after
June 30, 2006. Interest income amounted to P
=115 million and P
=261 million in 2006 and 2005,
respectively (see Note 21.2).
Prior to the issuance of the convertible note, Sky Vision, Sky Cable and The Philippine Home
Cable Holdings, Inc. (Home) had trade and advances payable to their shareholders in the Benpres
Group and the PLDT Group, respectively. Upon receipt of the proceeds of the note, Sky Vision,
Sky Cable and Home prioritized the servicing of their outstanding payables to third-party suppliers
and creditors, as well as new payables due to CPI. As a result, these companies did not service
payables to their existing shareholders outstanding as of June 30, 2004. Included in the amounts
left unpaid were CPI’s receivable from Sky Cable of around P
=437 million. Subject to approval of
its creditors, the Parent Company intends to include CPI’s receivable in the above equity
conversion in Sky Vision under the same terms of the note.
On January 11, 2007, the Parent Company signed a commitment letter with ABN Amro Bank
N.V., BPI Capital Corporation and ING Bank N.V. (together, the Mandated Lead Arrangers) to
arrange and underwrite on a firm commitment basis the refinancing/restructuring of the existing
long-term loan. Consequently, the execution copies of the agreement amending the Senior Credit
Agreement (SCA) facility was signed on March 27, 2007. It provides a carve out allowing
=437 million in receivables of CPI from Sky Cable to be converted into equity. This shall
P
effectively supersede the consent requirement under the old facility (see Note 11.3).
On September 14, 2007, the Company together with the relevant parties of the SCA executed the
“First Amendment Agreement” which, among others, increases the amount of support that the
Company can extend to Sky Cable. From the previous threshold of P
=400 million aggregated
advances and guarantees, the agreement now allows up to P
=2,250 million.
On September 20, 2007, related to the acquisition by ABS-CBN of about 66% of Sky Cable Debt
from third party creditors as discussed in Note 15, Sky Cable issued two Promissory Notes to
ABS-CBN in the aggregate amount of P
=1,798 million. As a consequence, ABS-CBN became the
eventual lender on record of Sky Cable due to the loans that it absorbed. The loan currently pays
monthly interest at 3mPDST-F plus 1% with a final maturity of June 30, 2011. The Promissory
Notes are further governed by the terms and conditions of the Facility Agreement dated July 2,
2004. Interest income amounted to P
=25 million in 2007 (see Note 21.2).
On February 21, 2008, ABS-CBN and the remaining third party creditors of Sky Cable approved
the amendment of the Sky Cable Debt under a Facility Agreement. The amendment mainly
focused on the extension of the repayment period from December 2011 to September 2016 and
pertained to certain terms and conditions related to the term loan agreement (see Note 15.4).
ABS-CBN’s receivable from Sky Cable was recorded at fair value. Receivable discount which
represents the difference between the nominal value and fair value of the receivable amounted to
=374 million.
P
*SGVMC210558*
- 32 Unamortized receivable discount as of December 31, 2007, which will be accreted over the term
of the receivable using the effective interest rate method, is as follows:
Year
2008
2009
2010
2011
2012 to 2016
Amount
P40,390
=
44,540
49,458
55,130
174,334
=363,852
P
Accretion of receivable, included as part of interest income, amounted to P
=10 million in 2007
(see Note 21.2).
Repayments of receivable from Sky Cable based on nominal values are scheduled as follows:
Year
2011
2012
2013
2014
2015
2016
Amount
P54,629
=
252,801
332,195
383,345
431,831
343,365
=1,798,166
P
In 2007 and 2006, equity in net earnings and losses of Sky Vision amounting to P
=12 million and
=52 million has been charged and credited, respectively, against the “Long-term receivables from
P
related parties” account in the consolidated balance sheets.
As of December 31, 2007 and 2006, total receivables from Sky Vision and Sky Cable amounted to
P
=2,423 million, respectively.
9. Property and Equipment
Land and
Building and
Land
Improvements Improvements
At January 1, 2007, net
of accumulated
depreciation
Additions
Disposals
Reclassifications
Depreciation charge for
the year (see Notes 17,
18, and 19)
At December 31, 2007,
net of accumulated
depreciation
P
=296,691
274
–
–
(1,417)
P
=295,548
Television,
Radio, Movie
and Auxiliary
Equipment
Other
Equipment
Construction
in Progress
P
=7,690,771
1,072
(1,014)
88,197
P
=956,266
342,649
(945)
110,599
P
=665,298
404,747
(31,359)
63,679
(493,354)
(407,028)
(308,391)
P
=7,285,672
P
=1,001,541
P
=793,974
P
=115,614
237,248
(7)
(262,475)
–
P
=90,380
Total
P
=9,724,640
985,990
(33,325)
–
(1,210,190)
P
=9,467,115
*SGVMC210558*
- 33 -
Land and
Land
Building and
Improvements Improvements
At January 1, 2007:
Cost
Accumulated
depreciation
Net carrying amount
At December 31, 2007:
Cost
Accumulated
depreciation
Net carrying amount
At January 1, 2006, net
of accumulated
depreciation
Additions
Disposals
Reclassifications
Depreciation charge for
the year (see Notes 17,
18, and 19)
At December 31, 2006,
net of accumulated
depreciation
At January 1, 2006:
Cost
Accumulated
depreciation
Net carrying amount
At December 31, 2006:
Cost
Accumulated
depreciation
Net carrying amount
Television,
Radio, Movie
and Auxiliary
Equipment
Other
Equipment
Construction
in Progress
Total
P
=19,482,831
P
=298,983
P
=9,825,584
P
=5,765,479
P
=3,477,171
P
=115,614
(2,292)
P
=296,691
(2,134,813)
P
=7,690,771
(4,809,213)
P
=956,266
(2,811,873)
P
=665,298
–
P
=115,614
P
=299,257
P
=9,902,141
P
=6,179,553
P
=3,835,220
P
=90,380
P
=20,306,551
(3,709)
P
=295,548
(2,616,469)
P
=7,285,672
(5,178,012)
P
=1,001,541
(3,041,246)
P
=793,974
–
P
=90,380
(10,839,436)
P
=9,467,115
=297,944
P
–
–
(61)
=8,114,474
P
7,194
–
42,584
=1,055,532
P
311,034
(218)
(5,455)
=700,871
P
54,036
(2,444)
203,900
P118,778
=
237,804
–
(240,968)
=10,287,599
P
610,068
(2,662)
–
(1,192)
(473,481)
(404,627)
(291,065)
–
(9,758,191)
P
=9,724,640
(1,170,365)
=296,691
P
=7,690,771
P
=956,266
P
=665,298
P
=115,614
P
=9,724,640
P
=305,940
P
=9,778,788
P
=5,530,811
P
=3,201,128
P
=118,778
P
=18,935,445
P
(7,996)
=297,944
P
(1,664,314)
P8,114,474
=
(4,475,279)
P1,055,532
=
(2,500,257)
=700,871
P
–
=118,778
P
(8,647,846)
=10,287,599
P
=298,983
P
=9,825,584
P
=5,765,479
P
=3,477,171
P
=115,614
P
=19,482,831
P
(2,292)
=296,691
P
(2,134,813)
P7,690,771
=
(4,809,213)
=956,266
P
(2,811,873)
=665,298
P
–
=115,614
P
(9,758,191)
P9,724,640
=
Property and equipment of the Parent Company with a carrying amount of P
=8,367 million and
=8,746 million as of December 31, 2007 and 2006, respectively, were pledged as collateral to
P
secure the Parent Company’s long-term debt (see Note 15.2).
Unamortized borrowing costs capitalized as part of property and equipment amounted to
=934 million and P
P
=973 million as of December 31, 2007 and 2006, respectively. No borrowing
cost was capitalized beginning 2002.
Property and equipment includes the following amounts where the Company is a lessee under a
finance lease (see Note 24.3):
Cost - capitalized finance lease
Accumulated depreciation
Net book value
2007
P
=699,195
(389,598)
P
=309,597
2006
=467,608
P
(292,875)
=174,733
P
*SGVMC210558*
- 34 The useful lives of the Company’s property and equipment are estimated as follows:
Land improvements
Building and improvements
Television, radio, movie and auxiliary equipment
Other equipment
10 years
15 to 40 years
10 to 15 years
3 to 10 years
The Company determined depreciation charges for each significant part of an item of property and
equipment.
10. Program Rights and Other Intangible Assets
2007
Story, Music
and
Program Publication
Rights
Rights
Balance at beginning
of year
Additions
Amortization and
write-off during
the year (see
Notes 17, 18, and 19)
Balance at end of year
Less current portion
Noncurrent portion
Movie
In-Process
Video Rights
and Record
Master
Cable
Channels CPI
Production
and
Distribution
Business Middle East
P
=124,684
–
P
=1,536,958
1,584,303
P
=4,787
449
P
=83,561
137,113
P
=7,800
21,486
P
=459,968
–
(1,096,698)
2,024,563
929,292
P
=1,095,271
–
5,236
61
P
=5,175
(147,026)
73,648
69,672
P
=3,976
(20,917)
8,369
8,369
P
=–
–
459,968
–
P
=459,968
(24,934)
99,750
–
P
=99,750
Total
P
=2,217,758
1,743,351
(1,289,575)
2,671,534
1,007,394
P
=1,664,140
2006
Balance at beginning
of year
Additions
Amortization and
write-off during
the year (see
Notes 17, 18 and 19)
Noncurrent portion
Cable
Channels CPI
Production
and
Distribution
Total
=11,395
P
17,771
=459,968
P
–
=141,759
P
–
=2,326,993
P
984,932
(21,366)
7,800
7,800
=–
P
–
459,968
–
=459,968
P
(17,075)
124,684
–
=124,684
P
(1,094,167)
2,217,758
773,290
=1,444,468
P
Program
Rights
Story, Music
and
Publication
Rights
Movie
In-Process
Video Rights
and Record
Master
=1,629,849
P
793,514
=4,561
P
1,144
P79,461
=
172,503
(918)
4,787
220
=4,567
P
(168,403)
83,561
82,424
=1,137
P
(886,405)
1,536,958
682,846
=854,112
P
Costs and related accumulated amortization of other intangible assets are as follows:
Cost
Accumulated amortization
Net carrying amount
2007
Production
and
Cable Distribution
Business Channels CPI Middle East
P
=574,960
P
=212,358
(114,992)
(112,608)
P
=459,968
P
=99,750
Total
P
=787,318
(227,600)
P
=559,718
Cable
Channels CPI
=574,960
P
(114,992)
=459,968
P
2006
Production
and
Distribution
=212,358
P
(87,674)
=124,684
P
Total
P787,318
=
(202,666)
=584,652
P
*SGVMC210558*
- 35 The cable channels namely Lifestyle Channel, Cinema One, and Myx Channel, were acquired by
CPI from Sky Vision in 2001. Based on the Company’s analysis of all the relevant factors, there
is no foreseeable limit to the period over which this business is expected to generate net cash
inflows for the Company and therefore, assessed to have an indefinite life. As at December 31,
2007 and 2006, cable channels were tested for impairment (see Note 12).
Production and distribution business for Middle East operations represents payments arising from
the sponsorship agreement between Arab Digital Distribution (ADD) and ABS-CBN Middle East.
This agreement grants the Company the right to operate in the Middle East with ADD as sponsor
for a period of 25 years.
11. Other Noncurrent Assets
Tax credits with tax credit certificates (TCCs)
Available-for-sale investments
Investments in associates
Goodwill - net (see Note 12)
Deferred charges and others - net
11.1.
2007
P
=1,706,733
77,242
43,759
–
196,810
P
=2,024,544
2006
=1,741,030
P
68,426
44,233
22,565
289,669
=2,165,923
P
Tax Credits
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.
11.2.
Available-for-Sale Investments
Available-for-sale investments consist mainly of investments in ordinary shares with no fixed
maturity date or coupon rate. Available-for-sale investments with a carrying value of
=15 million as of December 31, 2007 and 2006 were pledged as part of the collateral to secure the
P
Parent Company’s long-term debt (see Note 15).
In 2007 and 2006, unrealized fair value gains on available-for-sale investments amounting to
=14 million and P
P
=21 million, respectively, were directly charged to equity.
*SGVMC210558*
- 36 11.3.
Investments in Associates
Investments in associates as of December 31, 2007 and 2006 are as follows:
Company
Amcara Broadcasting Network, Incorporated
(Amcara)
Star Cinema Productions, Inc. (Star Cinema)
Sky Vision
Place of
Incorporation
Principal
Activities
Philippines
Philippines
Philippines
Services
Movie production
Cable operation
Acquisition costs
Accumulated equity in net losses:
Balance at beginning of year
Equity in net losses during the year
Ownership
Interest
49.0
45.0
10.2
2007
P
=541,292
2006
=541,292
P
(497,059)
(474)
(497,533)
P
=43,759
(497,059)
–
(497,059)
=44,233
P
As of December 31, 2007 and 2006, the remaining carrying value of investments in associates
pertains to Amcara. Investments in Star Cinema and Sky Vision have been reduced to zero due to
accumulated equity in net losses.
Condensed financial information of the associates follows:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
Net equity (capital deficiency)
2007
P
=1,737,793
5,339,165
(6,215,023)
(464,063)
P
=397,872
2006
=1,197,691
P
3,181,357
(7,850,401)
(316,626)
(P
=3,787,979)
Revenue
Cost and expenses
Net income (loss)
P
=3,575,877
(2,918,731)
P
=657,146
P2,221,032
=
(2,341,186)
(P
=120,154)
On July 18, 2001, the Parent Company, along with the Benpres Group signed an MCA whereby
they agreed with 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 Sky Cable and
Pilipino Cable Corporation (PCC), which operates cable television systems in Metro Manila and
key provincial areas under the tradenames “Sky Cable” and “Sun Cable”. Unilink owns Home,
which operates cable television systems in Metro Manila and key provincial areas under the
tradename “Home Cable”.
*SGVMC210558*
- 37 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 MCA envisioned the transfer to be
completed within six months from signing date, or by January 18, 2002, the Benpres Group and
PLDT Group agreed on January 16, 2002 to extend this closing date.
In view of the above, in a separate Memorandum of Agreement (Agreement) executed on
April 8, 2004, the major stockholders of Home and Sky Vision have agreed to consolidate the
ownership of their respective shares in Home and Sky Vision and to combine the operations,
assets and liabilities of Home and Sky Cable. To effect the consolidation, Home transferred its
assets and liabilities to Sky Cable in exchange for a 33% ownership. The issuance of shares was
approved by the SEC on August 30, 2004.
It is a plan to transfer Sky Vision’s Minority Shareholders (Sky Vision Minority) to Sky Cable to
put into effect in Sky Cable what was originally intended for Beyond. With this transfer and as
stipulated in the MCA, the Sky Vision Minority shall hold 17.3% of Sky Cable while Sky Vision
will hold 55% and Home holding the balance of 27.7%. Barring any unforeseen impediments, it is
expected that the transfer of the Sky Vision Minority to Sky Cable will be completed in 2008.
In relation to the consolidation discussed above, a competitor broadcasting company filed a case
before the National Telecommunications Commission (NTC) asking for the latter to declare as
null and void the consolidation of the cable operating companies. On November 16, 2004, the
NTC denied the motion for cease and desisted order filed by the competitor broadcasting
company. On November 30, 2004, the competitor broadcasting company filed a motion for
reconsideration which was also denied by the NTC on October 13, 2005. This case was then
elevated by the complainant to the Court of Appeals (“CA”). On October 10, 2007, the CA has
rendered its decision dismissing the petition of the complainant. The complainant has filed a
Motion for Reconsideration at the CA. It is the opinion of Sky Vision’s legal counsels that the
case filed by the competitor television broadcasting company is without legal basis.
In November 2005, Sky Vision met with its creditors to request for an extension of the grace
period for another five (5) years, with principal amortization to start in 2011. The creditors have
already formed a steering committee to address the request of Sky Vision. In September 2006, the
Sky Cable paid a token payment amounting to P
=5 million, upon which the principal payments due
in September 2006, December 2006 and March 2007 were deferred to be paid in July 2007.
A second token payment amounting to P
=5 million should be paid upon finalization of the debt
restructuring.
11.4.
Goodwill
Goodwill in investment in a subsidiary was fully provided with allowance for impairment losses in
2007.
11.5.
Deferred Charges
Deferred charges as of December 31, 2007 and 2006 amounting to P
=122 million and P
=85 million,
respectively, mainly pertain to excess of cost over revenue from sale and installation of decoders
and set-top boxes. Amortization of deferred charges amounted to P
=40 million and P
=27 million in
2007 and 2006, respectively.
*SGVMC210558*
- 38 In view of the Deal Memorandum with DirecTV discussed in Note 24.1, the Company wrote off
in 2005 the deferred charges amounting to P
=348 million pertaining to the DTH subscribers.
12. Impairment Testing of Goodwill and Cable Channels
The Company performs impairment testing annually or more frequently when there are indications
of impairment for intangible assets with infinite lives. The Company has identified that goodwill
and cable channels of CPI have an infinite life. The Company performed impairment testing of
these assets at December 31.
Cable channels of CPI amounted to P
=460 million as of December 31, 2007 and 2006
(see Note 10).
Goodwill pertaining to an investment in a subsidiary amounting to P
=23 million as of December 31,
2006, included under “Other noncurrent assets” account in the consolidated balance sheet, was
fully provided with an allowance for impairment loss in 2007. There were no other impairment
losses recognized in 2007, 2006 and 2005.
For the impairment test of goodwill and cable channels, the recoverable amount and the carrying
amount of the cash-generating unit was compared. The recoverable amount of the cash-generating
unit is its value-in-use. Value-in-use was determined using cash flow projections which were
based on financial budgets approved by the subsidiaries’ senior management covering a five-year
period. Due to a low interest rate environment, the discount rate applied to the cash flow
projections was 10.54% in 2007, an improvement from the 15.22% used in 2006. A 0-3%
perpetuity growth rate was assumed at the end of the five-year forecast period.
Key Assumptions
Following are the key assumptions on which management has based its cash flow projections to
undertake impairment testing of goodwill and cable channels:
Gross Revenues. On the average, gross revenues of the subsidiaries over the next five years were
projected to grow in line with the economy or with nominal Gross Domestic Product. This
assumes that the market share of the subsidiaries in their respective industries will be flat on the
assumption that the industries also grow at par with the economy. Historically, advertising
spending growth had a direct correlation with economic growth.
Operating Expenses. On the average, operating expenses were projected to increase at a singledigit growth rate and at a slower pace than revenue.
Gross Margins. Increased efficiencies over the next five years are expected to result in margin
improvements.
Discount Rate. The discount rate used to arrive at the present value of future cash flows was the
Company’s Weighted Average Cost of Capital (WACC). WACC was based on the appropriate
weights of debt and equity, which were multiplied with the assumed costs of debt and equity.
*SGVMC210558*
- 39 -
13. Trade and Other Payables
Trade
Accrued expenses:
Salaries and other employee benefits
Taxes
Interest
Production cost and other expenses
Due to related parties (see Note 14)
Deferred revenue
Other current liabilities
2007
P
=1,737,716
2006
=1,682,625
P
773,723
595,343
13,306
1,091,421
242,358
324,026
221,149
P
=4,999,042
691,488
602,204
15,656
934,429
224,678
240,045
162,790
=4,553,915
P
14. Related Party Disclosures
Parties are considered to be related if one party has the ability, directly or indirectly, to control the
other party or exercise significant influence over the other party in making financial and operating
decisions. Parties are also considered to be related if they are subject to common control or
common significant influence.
14.1.
Transactions with Related Parties
Significant transactions of the Company with its associates and related parties follow:
Associates:
License fees charged by CPI to Sky Cable,
PCC and Home
Blocktime fees paid by Studio 23 to Amcara
Interest on noncurrent receivable from Sky Cable
(see Notes 8 and 21.2)
Management fees charged to Sky Cable
(see Note 21.3)
Interest on noncurrent receivable from Sky Vision
(see Notes 8 and 21.2)
Affiliates:
Expenses paid by the Parent Company and
subsidiaries to Manila Electric Company
(Meralco), Bayan Telecommunications
Holding, Inc. (Bayantel) and other related
parties (see Notes 17, 18 and 19)
2007
2006
2005
P
=105,198
53,960
=104,927
P
57,078
=112,334
P
60,816
35,280
–
–
21,184
–
–
–
115,424
261,161
424,825
413,036
432,346
(Forward)
*SGVMC210558*
- 40 -
Termination cost charges of Bayantel, a subsidiary
of Lopez, Inc., to ABS-CBN Global
(see Note 19)
Airtime revenue from Manila North Tollways
Corp., Bayantel and Meralco, an associate
of Lopez, Inc.
Expenses and charges paid for by the Parent
Company which are reimbursed by the
concerned related parties
2007
2006
2005
P
=277,094
=236,244
P
=286,549
P
74,025
50,718
61,273
27,859
36,862
34,788
The related receivables from and payables to related parties, presented under “Trade and other
receivables” and “Trade and other payables” accounts, respectively, in the consolidated balance
sheets, are as follows:
2007
2006
Due from:
Associates
Affiliates
Total
P
=42,993
110,416
P
=153,409
=180,189
P
108,526
=288,715
P
Due to:
Associates
Affiliates
Total
P
=69,178
173,180
P
=242,358
P32,938
=
191,740
=224,678
P
a. License Fees Charged by CPI to Sky Cable
CPI entered into a cable lease agreement (Agreement) with Sky Cable for the airing of the
cable channels (see Note 10) to the franchise areas of Sky Cable and its cable affiliates. The
initial Agreement with Sky Cable is for a period of five years effective January 1, 2001,
renewable on a yearly basis upon mutual consent of both parties. Said Agreement was
renewed for one year in 2006 and 2007 and under negotiation for 2008. Under the terms of
the Agreement, CPI receives license fees from Sky Cable and its cable affiliates computed
based on agreed percentage of subscription revenues of Sky Cable and its cable affiliates. As
the owner of the said cable channels, CPI develops and produces its own shows and acquires
program rights from various foreign and local suppliers.
b. Blocktime Fees Paid by Studio 23 to Amcara
Studio 23 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.
c. Management Fees Charged to Sky Cable
The Parent Company renders management services to Sky Cable through designated
employees.
d. Other transactions with associates include cash advances for working capital requirements.
*SGVMC210558*
- 41 14.2.
Terms and Conditions of Transactions with Related Parties
The sales to and purchases from related parties are made at normal market prices. Outstanding
balances as of year-end are unsecured, interest-free and settlement occurs in cash, except for the
long-term receivables from Sky Vision and Sky Cable discussed in Note 8. For the years ended
December 31, 2007, 2006 and 2005, the Company has not made any provision for doubtful
accounts relating to amounts owed by related parties. This assessment is undertaken each
financial year by examining the financial position of the related party and the market in which the
related party operates.
As discussed in Note 15, certain obligations of the Parent Company are jointly and severally
guaranteed by its principal subsidiaries.
14.3.
Compensation of Key Management Personnel of the Company
Compensation (see Note 16.3)
Pension benefit
Vacation leaves and sick leaves
Termination benefits
Total compensation paid to key
management personnel
2007
P
=447,500
43,609
21,628
711
2006
=413,692
P
47,840
29,484
–
2005
=358,321
P
32,128
3,920
70,181
P
=513,448
=491,016
P
=464,550
P
15. Interest-Bearing Loans and Borrowings
Maturity
Current:
Bank loans
Long-term debt
Obligations under capital lease
(see Note 24)
Noncurrent:
Long-term debt
(net of transaction costs
and debt discount)
(see Note 24)
15.1.
2008
2008
Effective Interest Rate
2006
2007
2007
2006
10.28
12.26
P
=400,000
10,100
=473,979
P
1,554,855
177,706
P
=587,806
108,305
=2,137,139
P
P
=4,684,585
=2,251,904
P
243,413
P
=4,927,998
185,047
=2,436,951
P
7.40
6.94
2008
2008–2014
2008–2011
6.75
12.90
Amount
Bank Loans
This represents peso-denominated and dollar-denominated loans obtained from local banks which
bear average annual interest rates of 7.40% in 2007 and 10.28% in 2006.
*SGVMC210558*
- 42 15.2.
Term Loan under the SCA
On June 18, 2004, the Parent Company entered into an SCA with several foreign and local banks
(Original Lenders) for a US$120 million dual currency syndicated term loan facility for the
purpose of refinancing existing indebtedness incurred for the construction of the Eugenio
Lopez, Jr. Communications Center, additional investment in the cable TV business and funding
capital expenditures and working capital requirements. The SCA is classified into three (3) groups
namely: Tranche A, a floating rate facility (3.5% + LIBOR) amounting to US$62 million;
Tranche B, a floating rate facility (3.5% + MART1 T-bill) amounting to P
=2,688 million; and,
Tranche C, a fixed rate facility (3.5% + FXTN) amounting to P
=560 million. Both Tranche A and
Tranche B have a term of five years with 17 quarterly unequal payments and Tranche C has a term
of four years with four annual unequal installments. These have all been availed of in March
2005. The Parent Company’s obligation under the SCA is secured and covered by a Mortgage
Trust Indenture (MTI) which consists of substantially all of the Parent Company’s real property
and movable assets used in connection with its business and insurance proceeds related thereto
(see Notes 9 and 11.2). Further, the Parent Company’s obligation under the SCA is jointly and
severally guaranteed by its principal subsidiaries.
The SCA contains provision regarding the maintenance of certain financial ratios and limiting,
among others, the incurrence of additional debt, the payment of dividends, making investments,
the issuing or selling of the Parent Company’s capital stock or some of its subsidiaries, the selling
or exchanging of assets, creation of liens and effecting mergers. As of December 31, 2007 and
2006, the Parent Company is in compliance with the provisions of the SCA.
As indicated in the SCA, all existing loans of the Parent Company outside the SCA were settled
via proceeds of the term loan facility.
To manage its exposures to foreign currency exchange and interest rate risks relating to the facility
drawdowns, the Parent Company entered into interest rate and cross currency swap contracts with
counterparty banks. These contracts were all terminated in 2007 as a result of the prepayment of
the underlying Tranche A of the SCA facility (see Note 26).
On January 11, 2007, the Parent Company signed a commitment letter with the Mandated Lead
Arrangers to arrange and underwrite on a firm commitment basis the refinancing/restructuring of
the existing long-term loan. Consequently, the execution copies of the agreement amending the
SCA facility was signed on March 27, 2007. The major amendments to the existing agreement
that were agreed upon with the Mandated Lead Arrangers are as follows:
a. There will be an additional amount that will be available for drawdown amounting to
US$5 million. Once effected, total outstanding loan will be around P
=4,440 million,
=270 million more than the P
P
=4,170 million that is currently outstanding.
b. The Tranche B and Tranche C will have bullet repayment schemes maturing in March 2012
while maintaining the original structure of the Tranche A facility with a final due date of until
June 2009. Interest payments will continue to be paid on a quarterly basis.
c. The applicable margins added to the benchmark interest rates will be reduced from 3.50% to
an average of about 2.20%.
*SGVMC210558*
- 43 d. Except for the Quezon City Broadcast Complex and certain broadcast machinery and
equipment contained therein, all other assets will be removed from the MTI and will no longer
form part of the security package.
e. Certain mandatory prepayment provisions will be removed.
f.
The Parent Company financial ratio requirement will be removed, while maintaining a
financial ratio requirement on a consolidated basis but at more relaxed thresholds.
g. The Company will be allowed to make interest-bearing advances and guarantees to Sky Vision
of up to P
=400 million.
h. The Company will be allowed to convert into equity outstanding advances amounting to
US$30 million including interest and P
=437 million, respectively, made to Sky Vision by the
Parent Company and CPI.
On September 14, 2007, the relevant parties to the SCA facility executed the First Amendment
Agreement. The amendments centered mainly on the following provisions:
a. Allow the Company to incur additional unsecured financial indebtedness;
b. Increase the amount of support that the Company can extend to Sky Vision and/or Sky Cable
from P
=400 million to P
=2,250 million; and
c. Remove the pro rata requirement in cases of prepayments.
The amendment of the SCA facility substantially modified the terms of Tranche C. Accordingly,
this resulted in the derecognition of the original liability and recognition of a new liability. Loss
on derecognition, included as part of “Finance costs” account in the 2007 consolidated statement
of income, amounted to P
=16 million (P
=11 million, net of tax) in 2007 (see Note 21.1).
On December 18, 2007, the Company prepaid all outstanding Tranche A of the SCA facility
amounting to US$27 million (P
=1,132 million) from the proceeds of the P
=1,350 million term loan
from Banco de Oro Universal Bank (BDO).
15.3.
Term Loan Facility with BDO
On December 13, 2007, the Company together with BDO, signed a P
=1,350 million secured facility
to refinance the entire Tranche A of the SCA facility equivalent to US$31 million. The
refinancing effectively extended the maturity from June 2009 to December 2012 with an interest
rate of 3mPDSTF plus 2.15%.
The BDO facility contains provision regarding the maintenance of certain financial ratios and
limiting, among others, the incurrence of additional debt, the payment of dividends, making
investments, the issuing or selling of the Parent Company’s capital stock or some of its
subsidiaries, the selling or exchanging of assets, creation of liens and effecting mergers. As of
December 31, 2007, the Parent Company is in compliance with the provisions of the BDO facility.
The Parent Company’s obligation under the BDO facility is jointly and severally guaranteed by its
principal subsidiaries.
*SGVMC210558*
- 44 15.4.
Sky Cable Debt Cash and Exchange Offer
In the invitation dated July 27, 2007, ABS-CBN invited holders of outstanding loan obligations of
Sky Cable evidenced by promissory notes issued under the Facility Agreement dated July 2, 2004
among Sky Vision, Sky Cable, Home, certain institutions and Equitable PCI Bank - Trust Banking
(“Sky Cable Debt”) to offer to:
i.
sell their Sky Cable Debt to ABS-CBN for up to 70% of the principal amount of the Sky
Cable Debt (“Cash Offer”); or
ii.
exchange their Sky Cable Debt for notes at up to 100% of the principal amount of the Sky
Cable Debt to be exchanged (“Exchange Offer”).
Holders of P
=944 million Sky Cable Debt opted for the Cash Offer while holders of P
=854 million
opted for the Exchange Offer. The total loans acquired by ABS-CBN amounted to
=1,798 million. Thus, ABS-CBN became Sky Cable’s creditor.
P
Cash Offer. On September 20, 2007, ABS-CBN settled the P
=944 million Sky Cable loans in the
amount of P
=662 million. To finance the settlement of the loans, ABS-CBN signed a syndicated
loan for P
=800 million with ING Bank N.V. and Mizuho Corporate Bank, Ltd., Manila Branch with
Mizuho Corporate Bank, Ltd., Manila Branch acting as the facility agent. The loan is unsecured
and unsubordinated with interest rate of 3mPHIBOR plus 2.75% per annum with a final maturity
on September 20, 2012. The total amount of money withdrawn is P
=662 million.
Exchange Offer. On September 18, 2007, ABS-CBN successfully signed a syndicated loan for
=854 million with the previous lenders of Sky Cable, namely, United Coconut Planters Bank,
P
Bank of the Philippine Islands, Mega International Commercial Bank Co., Ltd., Olga Vendivel
and Wise Capital Investment & Trust Company, Inc., with Banco De Oro - EPCI, Inc. acting as
the facility agent. The loan is unsecured and unsubordinated with a fixed coupon of 2% with a
final maturity on September 18, 2014.
The Parent Company’s obligation under these facilities is jointly and severally guaranteed by its
principal subsidiaries.
Both loan facilities contain provisions regarding the maintenance of certain financial ratios and
limiting, among others, the incurrence of additional debt, the payment of dividends, making
investments, the issuing or selling of the Parent Company’s capital stock or some of its
subsidiaries, the selling or exchanging of assets, creation of liens and effecting mergers. As of
December 31, 2007, the Parent Company is in compliance with the provisions of the two facilities.
Debt discount which represents the difference between the nominal value and fair value of the
debt issued related to the Exchange Offer amounted to P
=298 million.
Receivable from Sky Cable. As previously discussed, ABS-CBN became the eventual lender on
record of Sky Cable due to the loans it absorbed. On September 20, 2007, Sky Cable issued two
Promissory Notes to ABS-CBN in the aggregate amount of P
=1,798 million. This loan currently
pays monthly interest at 3mPDST-F plus 1% with a final maturity of June 30, 2011. The
Promissory Notes are further governed by the terms and conditions of the Facility Agreement
dated July 2, 2004.
*SGVMC210558*
- 45 On February 21, 2008, ABS-CBN and the remaining third party creditors of Sky Cable approved
the amendment of the Sky Cable Debt under a Facility Agreement. The amendment mainly
focused on the extension of the repayment period from December 2011 to September 2016 and
pertained to certain terms and conditions related to the term loan agreement.
ABS-CBN recognized “Day 1” profit of P
=206 million (P
=144 million, net of tax) in 2007 which
represents the difference between the fair value of Sky Cable Debt acquired and the fair value of
the consideration given (i.e., ABS-CBN debt and cash). This was included as part of “Other
income” account in the 2007 consolidated statement of income (see Note 21.3).
15.5.
Schedule of Maturities and Repayments
Repayments of long-term debt based on nominal values are scheduled as follows:
2008
2009
2010
2011
2012
SCA
Tranche B
Tranche C
=–
P
=–
P
–
–
–
–
–
–
1,850,000
403,200
=1,850,000
P
=403,200
P
BDO Facility
=10,125
P
43,875
108,000
378,000
810,000
=1,350,000
P
Sky Cable Debt
Exchange
Cash Offer
Offer
=–
P
=–
P
–
–
–
–
–
–
662,172
854,208
=662,172
P
=854,208
P
Total
=10,125
P
43,875
108,000
378,000
4,579,580
=5,119,580
P
Details of unamortized transaction costs and debt discount, presented as a deduction from the
Company’s long-term debt as of December 31, are as follows:
2007
P
=135,393
289,502
P
=424,895
Transaction costs
Debt discount
2006
=113,691
P
–
=113,691
P
Transaction costs and debt discount are amortized over the term of the loans using the effective
interest rate method as follows:
Transactions Costs
2008
2009
2010
2011
2012–2014
Tranche B
=13,814
P
15,310
16,858
18,562
4,912
=69,456
P
BDO Facility
=3,309
P
3,549
3,672
3,623
2,374
=16,527
P
Cash Offer
=4,368
P
4,773
5,270
5,834
4,795
=25,040
P
Exchange
Offer
=3,651
P
3,371
3,460
3,562
10,326
=24,370
P
Debt
Discount
=33,002
P
36,067
39,182
42,913
138,338
=289,502
P
Total
=58,144
P
63,070
68,442
74,494
160,745
=424,895
P
Amortization of transaction costs and debt discount are as follows (see Note 21.1):
Transaction costs
Debt discount (charged to interest
expense)
2007
P
=102,101
2006
=83,860
P
2005
=87,046
P
8,699
P
=110,800
–
=83,860
P
–
=87,046
P
*SGVMC210558*
- 46 The 2007 amortization includes unamortized transaction costs of US$860,000 (P
=36 million) as of
prepayment date of the Tranche A. This should have been amortized until the final maturity of the
Tranche A in June 2009 had it not been prepaid in December 2007.
16. Equity
16.1.
Capital Stock
Details of authorized and issued capital stock are as follows:
2007
Number of
Shares
Amount
2006
Number of
Shares
(In Thousands)
Authorized Common shares - P
=1 par value
Issued Common shares
16.2.
Amount
(In Thousands)
1,500,000,000
P
=1,500,000
1,500,000,000
=1,500,000
P
779,583,312
P
=779,583
779,583,312
=779,583
P
Retained Earnings
Unappropriated retained earnings available for dividend distribution is adjusted to exclude the
Parent Company’s accumulated equity in net losses of subsidiaries and associates amounting to
P
=1,563 million as of December 31, 2007 and 2006, respectively.
On March 28, 2007, the BOD approved the declaration of cash dividend of P
=0.45 per share or an
aggregate amount of P
=351 million to all stockholders of record as of April 20, 2007 payable on
May 15, 2007. On March 26, 2008, the BOD approved the declaration of cash dividend of P
=0.825
per share to all stockholders of record as of April 30, 2008 payable on or before May 27, 2008.
16.3.
Philippine Depository Receipts (PDRs) Convertible to Common Shares
2007
Number of
Shares
Amount
2006
Number of
Shares
(In Thousands)
Acquisition during the year
Issuance during the year
8,881,071
5,595,790
(1,698,741)
12,778,120
P
=177,621
182,258
(35,912)
P
=323,967
Amount
(In Thousands)
10,000,000
–
(1,118,929)
8,881,071
=200,000
P
–
(22,379)
=177,621
P
This account represents ABS-CBN PDRs held by the Parent Company which are convertible into
ABS-CBN shares. These PDRs were listed in the Philippine Stock Exchange on October 7, 1999.
Each PDR grants the holders, upon payment of the exercise price and subject to certain other
conditions, the delivery of one ABS-CBN share or the sale of and delivery of the proceeds of such
sale of one ABS-CBN share. The ABS-CBN shares are still subject to ownership restrictions on
shares of corporations engaged in mass media and ABS-CBN may reject the transfer of shares to
persons other than Philippine nationals. The PDRs may be exercised at any time from October 7,
*SGVMC210558*
- 47 1999 until the expiry date as defined in the terms of the offering. Any cash dividends or other
cash distributions in respect of the underlying ABS-CBN shares shall be applied by ABS-CBN
Holdings Corporation, issuer of PDRs, towards payment of operating expenses and any amounts
remaining shall be distributed pro-rata among outstanding PDR holders.
In 2007, the Parent Company acquired 5,595,790 PDRs for P
=182 million.
In June 2007 and December 2006, the Parent Company issued P
=36 million and P
=22 million of
these PDRs, which are convertible into 1,698,741 and 1,118,929 ABS-CBN shares, respectively,
to some of its officers as payment for their bonuses (see Note 14.3). The PDRs issued were based
on quoted prices at the time of issuance.
16.4.
Excess of Acquisition Cost over the Carrying Value of Minority Interests
On January 29, 2007, ABS-CBN Interactive acquired the remaining 25% interest in ABS-CBN
Multimedia from the latter’s individual shareholders for P
=11 million. The carrying value of the
interest acquired amounted to P
=4 million as of the acquisition date. The excess of cash paid over
the carrying value of interest acquired amounting to P
=7 million was recorded as “Excess of
acquisition cost over the carrying value of minority interests” in the 2007 consolidated balance
sheet.
On December 20, 2000, ABS-CBN Interactive established an equity-settled, share-based
compensation plan available to its officers and employees. As of December 31, 2006, there were
9,613,314 shares available for the said option. The estimated value of the option amounted to
=10 million as of December 31, 2006.
P
In 2007, ABS-CBN Interactive received from its officers and employees additional P
=2 million for
1,646,133 shares. In December 2007, the Parent Company paid the officers and employees
=25 million in exchange for the 11,259,447 shares allocated for the option valued at P
P
=12 million
as of the date of exchange. The purchase was accounted for as an acquisition of minority interest.
The excess of cash paid over the value of the shares amounting to P
=13 million was recorded as
“Excess of acquisition cost over the carrying value of minority interests” in the 2007 consolidated
balance sheet.
17. Production Costs
(see Notes 10, 14 and 24)
Amortization of program rights
and other rights (see Note 10)
Depreciation (see Note 9)
2007
2006
2005
P
=2,661,814
=2,412,150
P
=2,513,203
P
972,181
833,439
840,284
853,470
645,150
735,424
635,035
711,354
679,547
1,360,191
P
=6,492,806
1,098,470
=5,714,518
P
946,396
=5,690,784
P
*SGVMC210558*
- 48 Other program expenses consist of production expenses including, but not limited to, set
requirements, prizes, transportation, advertising and other expenses related to the promotional
activities of various projects during the year.
18. General and Administrative Expenses
Personnel expenses (see Note 23)
Contracted services
Taxes and licenses
Provision for doubtful accounts
Entertainment, amusement and
recreation
Amortization of deferred charges
and other intangible assets
Other expenses (see Note 14)
2007
P
=2,596,516
549,000
2006
=2,078,012
P
488,064
2005
=2,505,486
P
507,288
548,547
460,687
183,289
172,752
102,401
536,905
447,521
151,185
519,539
94,060
496,076
404,060
151,407
503,475
159,520
99,530
138,948
118,634
24,934
789,700
P
=5,527,356
17,075
663,373
=5,134,682
P
363,888
637,384
=5,847,218
P
2007
2006
2005
P
=582,044
285,200
281,988
=423,554
P
374,646
133,272
=535,809
P
404,600
363,115
243,228
229,051
16,040
1,148,364
P
=2,785,915
151,899
200,592
47,266
894,178
=2,225,407
P
115,964
167,972
47,894
738,252
=2,373,606
P
19. Cost of Sales and Services
Termination costs (see Note 14)
Inventory cost (see Note 10)
Amortization of program rights
(see Note 10)
Personnel expenses (see Note 23)
Other expenses (see Note 14)
*SGVMC210558*
- 49 -
20. Agency Commission, Incentives and Co-producers’ Share
Agency commission
Incentives and co-producers’ share
2007
P
=1,890,270
810,587
P
=2,700,857
2006
=1,547,307
P
737,007
=2,284,314
P
2005
=1,534,605
P
550,142
=2,084,747
P
Industry rules allow ABS-CBN to sell up to 18 minutes of commercial spots per hour of television
programming. These spots are sold mainly through advertising agencies which act as the buying
agents of advertisers, and to a lesser extent, directly to advertisers. Substantially, all gross airtime
revenue, including airtime sold directly to advertisers, is subject to a standard 15% agency
commission.
Incentives include early payment and early placement discount as well as commissions paid to the
Company’s account executives and cable operators.
The Company has co-produced shows which are programs produced by ABS-CBN together with
independent producers. Under this arrangement, ABS-CBN provides the technical facilities and
airtime, and handles the marketing of the shows. The co-producer shoulders all other costs of
production. The revenue earned on these shows is shared between ABS-CBN and the coproducer.
21. Other Income and Expenses
21.1.
Finance Costs
Interest expense (see Note 26)
Mark-to-market loss (gain) - net
(see Note 26)
Amortization of debt issue costs
(see Note 15)
Hedge cost (see Note 26)
Loss on derecognition of debt
(see Note 15)
Bank service charges (see Note 5)
2007
P
=405,108
2006
=631,816
P
2005
=683,465
P
348,887
114,974
(34,435)
102,101
59,123
83,860
137,689
87,046
218,845
16,221
15,527
P
=946,967
–
13,607
=981,946
P
–
12,241
=967,162
P
The following are the sources of the Company’s interest expense (see Note 15):
Long-term debt
Bank loans
2007
P
=343,289
39,890
21,929
P
=405,108
2006
=563,701
P
34,442
33,673
=631,816
P
2005
=603,338
P
62,294
17,833
=683,465
P
*SGVMC210558*
- 50 21.2.
Interest Income
The following are the sources of the Company’s interest income:
Cash and cash equivalents
(see Note 5)
Long-term receivables from related
parties (see Notes 8 and 14)
21.3.
2007
2006
2005
P
=76,586
=46,481
P
=36,274
P
35,280
P
=111,866
115,424
=161,905
P
261,161
=297,435
P
2007
2006
2005
P
=205,663
=–
P
=–
P
109,858
38,607
144,774
P
=498,902
102,898
25,046
320,763
=448,707
P
90,374
11,450
185,318
=287,142
P
Other Income
Gain on acquisition and exchange
of debt (see Note 15)
Rental income
Royalty income
Others - net (see Note 14)
Others mainly pertain to income from gate receipts, studio tours, management fees and other
miscellaneous revenues.
22. Income Tax
The components of consolidated net deferred tax assets of the Company follow:
2007
Capitalized interest, duties and taxes
(net of accumulated depreciation)
Accrued pension obligation and other
employee benefits
Accrued expenses
Allowance for doubtful accounts
Gain on acquisition and exchange of debt
(net of accretion)
Customers’ deposits
Unrealized foreign exchange loss - net
Allowance for inventory obsolescence
NOLCO
MCIT
Cumulative translation adjustments (CTA)
of cash flow hedge
Mark-to-market loss
Others
(P
=282,073)
2006
(P
=295,652)
278,864
126,831
75,037
222,083
112,103
122,928
(61,819)
38,771
(27,891)
8,182
6,186
2,530
–
37,690
(69,881)
4,561
9,888
986
–
–
19,734
P
=184,352
86,685
40,241
30,147
=301,779
P
*SGVMC210558*
- 51 The provision for income tax follows:
Current
Deferred
2007
P
=946,310
40,160
P
=986,470
2006
=563,651
P
103,781
=667,432
P
2005
P436,633
=
(267,781)
=168,852
P
The details of the unrecognized deductible temporary differences, NOLCO and certain MCIT of
the subsidiaries follow:
2007
P
=520,070
35,362
5,081
–
10,220
P
=570,733
NOLCO
Allowance for doubtful accounts
MCIT
Unearned revenue
Accrued retirement expense and others
2006
=296,124
P
199,946
6,312
31,471
5,607
=539,460
P
Management believes that it is not probable that taxable income will be available against which
the temporary differences, NOLCO and MCIT will be utilized.
MCIT of the subsidiaries amounting to P
=8 million can be claimed as tax credit against future
regular corporate income tax as follows:
Year Incurred
2005
2006
2007
Expiry Dates
December 31, 2008
December 31, 2009
December 31, 2010
Amount
=1,543
P
3,038
3,030
=7,611
P
NOLCO of the subsidiaries amounting to P
=538 million can be claimed as deductions from regular
corporate income tax as follows:
Year Incurred
2005
2006
2007
Expiry Dates
December 31, 2008
December 31, 2009
December 31, 2010
Amount
P86,685
=
235,080
215,979
=537,744
P
As of December 31, 2007 and 2006, deferred income tax liability has not been recognized on
undistributed earnings of ABS-CBN Global, holding company of the Parent Company’s foreign
subsidiaries, amounting to P
=200 million and P
=122 million, respectively, since the Parent Company
is able to control the reversal of the temporary difference. The undistributed earnings are
earmarked for expansion in the Company’s foreign operations.
*SGVMC210558*
- 52 The reconciliation of statutory tax rates to effective tax rates applied to income before income tax
is as follows:
Statutory tax rate
Additions to (reduction in) income taxes
resulting from the tax effects of:
Interest income subject to final tax
Unrecognized deferred tax assets
Nondeductible interest expense
Equity in net losses of investees
Others, mainly income subject to
different tax rates and change
in tax rate - net
Effective tax rates
2007
35%
2006
35%
2005
32%
(2)
1
1
–
(1)
2
4
1
(3)
(8)
1
14
9
44%
6
47%
3
39%
23. Pension Plan
The Company’s pension plan is composed of funded (Parent Company) and unfunded
(subsidiaries), noncontributory and actuarially computed pension plan except for
ABS-CBN International (contributory) covering substantially all of its employees. The benefits
are based on years of service and compensation during the last year of employment.
In 2005, the Company implemented an Early Retirement Program. The employees availed this
program from July to December 2005. Total retrenchment cost amounted to P
=576 million, net of
recognized curtailment gain of P
=158 million.
The following tables summarize the components of consolidated net benefit expense (income)
recognized in the consolidated statements of income and accrued pension obligation recognized in
the consolidated balance sheets.
Net Pension Expense (Income)
Current service cost
Interest cost
Expected return on plan assets
Net actuarial loss (gain) recognized
during the year
Curtailment gain
Net pension expense (income)
2007
P
=118,462
71,373
(17,486)
2006
=53,038
P
36,480
(14,031)
2005
=41,474
P
51,482
(12,847)
22,933
–
P
=195,282
(50)
–
=75,437
P
(351)
(158,418)
(P
=78,660)
*SGVMC210558*
- 53 Accrued Pension Obligation
Present value of obligation
Fair value of plan assets
Unfunded obligation
Unrecognized net actuarial loss
Pension obligation
2006
P853,765
=
(175,580)
678,185
(398,369)
=279,816
P
2007
P
=860,113
(264,458)
595,655
(195,007)
P
=400,648
Consolidated changes in the present value of the defined benefit obligation are as follows:
Defined benefit obligation at beginning of year
Actuarial loss (gain) on obligation
Current service cost
Interest cost
Benefits paid
Curtailment gain
Defined benefit obligation at end of year
2006
=343,887
P
454,516
53,038
36,480
(34,156)
–
=853,765
P
2007
P
=853,765
(143,545)
118,462
71,373
(38,218)
(1,724)
P
=860,113
Change in the fair value of plan assets of the Parent Company are as follows:
Fair value of plan assets at beginning of year
Expected return on plan assets
Actual contribution
Actuarial gains
Fair value of plan assets at end of year
Actual return on Parent Company’s plan assets
2007
P
=175,580
17,486
70,000
1,392
P
=264,458
2006
=138,952
P
14,031
–
22,597
=175,580
P
P
=18,878
=36,628
P
The Company expects to contribute P
=100 million to its defined benefit obligation in 2008.
The major categories of plan assets as a percentage of the fair value of total plan assets are as
follows:
2006
2007
(Percentage)
Investment in FXTN/FRTN
Investment in bonds
Short-term equity investment
Others
49.7
17.1
24.5
8.7
100.0
48.3
24.1
19.6
8.0
100.0
The overall expected rate of return on assets is determined based on the market prices prevailing
on that date, applicable to the period over which the obligation is to be settled.
*SGVMC210558*
- 54 The principal assumptions used as of January 1, 2007, 2006 and 2005 in determining pension
benefit obligations for the Company’s plans are shown below:
2006
2007
2005
(Percentage)
Discount rate
Expected rate of return on plan assets
Future salary rate increases
11.0
10.0
7.0
7.2
9.0
9.0
13.5
10.0
6.0
Discount rate prevailing as of December 31, 2007 is 10.312%.
Amounts for the current and previous two periods are as follows:
Defined benefit obligation
Fair value of plan assets
Deficit
Experience adjustments on defined
benefit obligation
Experience adjustments on
plan assets
2007
(P
=860,113)
264,458
(595,655)
2006
(P
=853,765)
175,580
(678,185)
(10)
(119,602)
–
22,597
–
1,320
2005
(P
=343,887)
138,952
(204,935)
24. Commitments
24.1.
Deal Memorandum with DirecTV
On June 1, 2005, the Parent Company and ABS-CBN International entered in to a 25-year Deal
Memorandum (Memorandum) with DirecTV in which the Parent Company granted DirecTV the
exclusive right via satellite, internet protocol technology and satellite master antenna television
system or similar system, to display, exhibit, perform and distribute certain programs of the Parent
Company that are listed in the Memorandum. ABS-CBN International may engage in any
marketing plan mutually agreed by both parties. All costs under any mutually agreed marketing
plans shall be shared equally between DirecTV and ABS-CBN International.
As provided in the Memorandum, all rights, title and interest in and to the content, discrete
programs or channels not granted to DirecTV are expressly reserved by the Parent Company. All
programming decisions with respect to the programs shall be in the Parent Company’s
commercially reasonable discretion, including the substitution or withdrawal of any scheduled
programs, provided that the Parent Company agrees that the programs will consist substantially
the same content and genre provided for in the Memorandum.
The Memorandum also provides for the following license fees to be paid by DirecTV to the Parent
Company:
a. A license fee for each existing DTH subscriber of ABS-CBN International or new subscriber
who becomes an activated subscriber during the migration period (from June 2005 to
February 2006); and
*SGVMC210558*
- 55 b. An additional license fee for each activated subscriber who becomes an activated subscriber
during the migration period and remains a subscriber for 14 consecutive months.
The Memorandum also provides that subscription revenues, computed as the current and stand
alone retail price per month for a subscription to The Filipino Channel multiplied by the average
number of subscribers, shall be divided equally between DirecTV and ABS-CBN International.
Starting July 2005, existing DTH subscribers of ABS-CBN International have been migrating to
DirecTV. License fee earned from DirecTV amounted to P
=548 million in 2007 (representing
additional license fee for each subscriber who became activated during the migration period and
remained a subscriber for 14 months), P
=1,117 million in 2006 and P
=1,619 million in 2005.
ABS-CBN International’s share in the subscription revenue earned from subscribers that have
migrated to DirecTV amounted to P
=772 million in 2007, P
=616 million in 2006 and P
=93 million in
2005.
On January 17, 2006, the Parent Company and DirecTV agreed to amend the Memorandum
entered in June 1, 2005 to include, among others, the extension of the migration period from
February 2006 to August 2006.
24.2.
Operating Lease
As Lessee
The Parent Company and subsidiaries lease office facilities, space and satellite equipment. Future
minimum rental payable under non-cancelable operating leases are as follows:
Within one year
After one year but not more than five years
After five years
2007
P
=191,648
850,989
198,227
P
=1,240,864
2006
=306,035
P
932,241
455,545
=1,693,821
P
As Lessor
The Parent Company has entered into commercial property leases on its building, consisting of the
Parent Company’s surplus office buildings. These non-cancelable leases have remaining
non-cancelable lease terms of 3 to 5 years. All leases include a clause to enable upward revision
of the rental charge on a predetermined rate.
Future minimum rentals receivable under non-cancelable operating leases are as follows:
Within one year
After five years
2007
P
=26,433
82,972
–
P
=109,405
2006
=149,769
P
186,845
366
=336,980
P
*SGVMC210558*
- 56 24.3.
Obligations under Capital Lease
The Company has finance leases over various items of equipment. Future minimum lease
payments under finance leases and hire purchase contracts together with the present value of the
net minimum lease payments are as follows:
Within one year
Total minimum lease payments
Less amounts representing finance charges
Present value of minimum lease payments
2007
P
=214,300
271,377
485,677
64,558
421,119
177,706
P
=243,413
2006
=136,775
P
206,872
343,647
50,295
293,352
108,305
=185,047
P
25. Financial Risk Management Objectives and Policies
The Company’s principal financial instruments, other than derivatives, comprise cash and cash
equivalents, available-for-sale financial assets, and bank loans. The main purpose of these
financial instruments is to raise funds for the Company’s operations. The Company has various
other financial assets and liabilities such as trade receivables and trade payables, which arise
directly from its operations.
The Company also enters into derivative transactions, including principally interest rate swaps and
cross currency swaps. The purpose is to manage the interest rate and currency risks arising from
the Company’s sources of finance.
It is, and has been throughout the year under review, the Company’s policy that no trading in
financial instruments shall be undertaken.
The main risks arising from the Company’s financial instruments are interest rate risk, foreign
currency risk, credit risk and liquidity risk. The BOD reviews and agrees on the policies for
managing each of these risks and they are summarized below. The Parent Company’s accounting
policies in relation to derivatives are set out in Note 2.
Cash Flow Interest Rate Risk
The Company’s exposure to the risk for changes in market interest rates relates primarily to the
Company’s long-term receivable and debt obligations with floating interest rates.
To manage this mix in a cost-efficient manner, the Company entered into interest rate swaps, in
which the Company agrees to exchange, at specified intervals, the difference between fixed and
variable rate interest amounts calculated by reference to an agreed-upon notional principal
amount. These swaps are designated to hedge underlying debt obligations. Before the
prepayment of all outstanding loan obligations under Tranche A of the SCA facility and after
taking into account the effect of interest rate swaps, approximately 43% of the Company’s
borrowings are at a fixed rate of interest. However, in 2007, the derivative contracts that cover
these swaps have been terminated as a result of the prepayment of the underlying loan obligation.
Without the existence of any swaps, the Company’s loan with fixed rate of interest is at about 25%
of the total loans at the end of 2007.
*SGVMC210558*
- 57 The following table sets out the carrying amount, by maturity, of the Company’s consolidated
financial instruments that are exposed to interest rate risk:
Two to
Within One to Two
One Year
Years Three Years
Three
to Four
Years
Four
to Five
Years
More than
Five Years
Transaction
Costs and
Discount
Total
2007
Long-term receivable Floating rate
Interest-bearings loans
and borrowings:
Fixed rate
Floating rate
P
=–
P
=–
P
=–
P
= 54,629
P
= 252,801
P
= 1,490,737
(P
= 363,852)
P
= 1,434,315
614,300
10,127
131,375
43,875
84,473
108,000
42,080
378,000
416,648
3,322,172
854,207
–
(378,430)
(111,023)
1,764,653
3,751,151
2006
Interest-bearings loans
and borrowings:
Fixed rate
Floating rate
750,326
1,452,582
271,516
1,474,821
127,694
589,209
18,975
–
2,020
–
–
–
(8,808)
(104,245)
1,161,723
3,412,367
Interest on financial instruments classified as floating rate is repriced at intervals of less than three
months. Interest on financial instruments classified as fixed rate is fixed until the maturity of the
instrument. The other financial instruments of the Company that are not included in the above
tables are noninterest-bearing and are therefore not subject to interest rate risk.
On the average, benchmark interest rates, 3-month PDST-F, declined by 100 basis points since the
end of 2006. Looking at past trends, however, this has not always been the case with several
periods showing some upward adjustments due to several market pressures. Based on these
experiences, the Company provides the following table to demonstrate the sensitivity to a
reasonably possible change in interest rates, with all other variables held constant, of the
Company’s income before income tax (through the impact on floating rate borrowings). There is
no impact on the Company’s equity other than those already affecting the net income.
Increase (Decrease) in Basis Points
Effect on Income Before Income Tax
(In Millions)
2007
+200
-200
(P
=46)
46
Foreign Currency Risk
The Company’s primary exposure to the risk in changes in foreign currency relates to the
Company’s long-term debt obligation. Before the prepayment of all outstanding dollar loan
obligations under Tranche A of the SCA facility, approximately 26% of the Company’s
borrowings are denominated in currencies other than the functional currency of the operating unit.
These were all covered by cross currency swaps which have all been terminated as a result of the
prepayment of the underlying loan obligation. As of December 31, 2007, there are no outstanding
derivative contracts and all the Company’s loan obligations are in Philippine currency.
It is the Company’s policy to enter into cross currency swaps to manage foreign currency risk and
eliminate the variability of cash flows due to changes in the fair value of the foreign-currency
denominated debt with maturity of more than one year.
Other than the debt obligations, the Company has transactional currency exposures. Such
exposure arises when the transaction is denominated in currencies other than the functional
currency of the operating unit or the counterparty.
*SGVMC210558*
- 58 The following table shows the Company’s significant foreign currency-denominated financial
assets and liabilities and their Philippine peso equivalents as of December 31, 2007:
Original Currency
Financial assets:
Trade and other receivables
Investments
Financial liabilities:
Net foreign currency-denominated
financial assets
United Arab
Emirates
Dirham
(AED)
CAD
USD
EURO
(EUR)
JPY
Peso
Equivalent
25,591
24,001
946
50,538
572
1,271
–
1,843
–
7,534
–
7,534
1,083
664
–
1,747
9,978
7,237
–
17,215
1,250,980
1,182,857
39,067
2,472,904
14,551
6,611
21,162
1,555
–
1,555
971
–
971
520
–
520
491
–
491
729,511
278,208
1,007,719
29,376
288
6,563
1,227
16,724
1,465,185
In translating the foreign currency-denominated monetary assets and liabilities into peso amounts,
the Company used the following exchange rates:
Currency
USD
EUR
JPY
CAD
AED
Exchange Rate
41.28
61.25
0.38
42.07
11.43
The following table demonstrates the sensitivity to a reasonably possible change in US$ exchange
rate, with all other variables held constant, of the Company’s income before income tax and
equity. The impact on the Company’s equity already excludes the impact on transactions affecting
the net income.
USD
EUR
JPY
CAD
AED
Increase
(Decrease)
in P
= to Foreign
Currency
Exchange Rate
2%
-3%
6%
-4%
14%
-4%
5%
-5%
5%
-4%
Effect
on Income
Before
Income Tax
=9,063
P
(16,110)
1,965
(1,178)
87
(25)
–
–
–
–
Effect
on Equity
(Gross of Tax)
=12,088
P
(21,492)
(884)
530
268
(79)
2,371
(2,537)
9,594
(7,132)
*SGVMC210558*
- 59 The change in currency rate is based on the Company’s best estimate of expected change
considering historical trends and experiences. Positive change in currency rate reflects a weaker
peso against foreign currency.
Credit Risk
The Company is exposed to credit risk from operational and certain of its financing activities. On
the Company’s credit risk arising from operating activities, the Company only extends credit with
recognized and accredited third parties. The Company implements a pay before broadcast policy
to new customers. To improve collections over the Company’s trade receivables, the Company
grants discounts on early payment. In addition, receivable balances are monitored on an ongoing
basis. Such determination takes into consideration the age of the receivable and the current
solvency of the individual accounts.
With regard to the Company’s financing activities, as a general rule, the Company transacts these
activities with counterparties that have a long credit history in the market and outstanding
relationship with the Company. The policy of the Company is to have the BOD accredit these
banks and/or financial institutions before any of these financing activities take place.
With respect to credit risk arising from the financial assets of the Company, which comprise trade
and other receivables, cash and cash equivalents, available-for-sale financial assets, and
receivables from related parties, the Company’s exposure to credit risk arises from default of the
counterparty, with a maximum exposure equal to the carrying amount of these instruments.
There is no requirement for collateral over trade receivables since the Company trades only with
recognized and accredited counterparties.
At balance sheet date, the only significant concentration of credit risk is the long-term receivable
from Sky Cable.
The maximum exposure to credit risk is partly represented by the carrying amounts of the
financial assets that are reported in the consolidated balance sheets.
Credit Risk Exposures. The table below shows the gross maximum exposure to on- and offbalance sheet credit risk exposures (including derivatives) of the Company, without considering
the effects of collateral, credit enhancements and other credit risk mitigation techniques as of
December 31:
Trade and other receivables - net
Derivative assets
Available-for-sale investments (included as part of
“Other noncurrent assets”)
2007
P
=2,145,778
4,918,718
–
2006
=1,661,832
P
4,382,530
12,438
77,242
3,892,197
P
=11,033,935
68,426
2,423,392
=8,548,618
P
*SGVMC210558*
- 60 Credit Quality per Class of Financial Asset. The credit quality of financial assets is being
managed by the Company using internal credit ratings. The table below shows the credit quality
by class of financial assets based on the Company’s credit rating system as of December 31, 2007:
Neither Past Due nor Impaired
Past Due but
Low
Moderate
High not Impaired
Cash and cash equivalents:
Cash on hand and in banks
Cash equivalents
Trade receivables:
Airtime
Subscriptions
Others
Nontrade receivables
Due from related parties
Long-term receivables from
related parties
Total
Impaired
Total
=–
P
–
=–
P
–
=1,552,986
P
592,792
=–
P
–
=–
P
–
=1,552,986
P
592,792
31,695
104,921
484
28,995
–
330,034
128,366
164,709
131,779
–
1,103,219
171,077
124,781
295,886
–
609,138
429,555
551,653
523,544
153,409
219,173
61,094
39,855
34,181
–
2,293,259
895,013
881,482
1,014,385
153,409
–
=166,095
P
–
=754,888
P
3,892,197
=7,732,938
P
–
=2,267,299
P
–
3,892,197
=354,303 P
P
=11,275,523
The credit quality of the financial assets was determined as follows:
§
Low Credit Quality
For receivables, this covers accounts of slow paying customers and those whose payments are
received upon demand at report date.
§
Moderate Credit Quality
For receivables, this covers accounts of standard paying customers, those whose payments are
within the credit term, and new customers for which sufficient credit history has not been
established.
§
High Credit Quality
This includes deposits or placements to counterparties with good credit rating or bank
standing. For receivables, this covers, as of report date, accounts of good paying customers,
with good credit standing and with no history of account treatment for a defined period.
Trade Receivables
These represent amounts collectible from advertising agencies, advertisers or trade customers
arising from the sale of airtime, subscription, services and/or goods in the ordinary course of
business.
Airtime. This account refers to revenue generated from the sale of time or time block within the
on-air broadcast hours on television and radio.
*SGVMC210558*
- 61 Subscriptions. This account refers to revenue generated from regular subscriber’s fees for either:
(1) access to programs aired through DTH and cable television systems, or (2) direct sale of
publications to subscribers.
Others. This account refers to other revenue generated from the sale of goods and services.
Nontrade Receivables
These represent claims, arising from sources other than the sale of airtime, subscriptions, services
and goods in the ordinary course of business, that are reasonably expected to be realized in cash.
The table below shows the aging analysis of past due but not impaired receivables per class that
the Company held as of December 31, 2007. A financial asset is past due when a counterparty has
failed to make a payment when contractually due.
Neither Past Past Due but not Impaired
Due nor
30 Days
Impaired Less than 30
and Over
Trade receivables:
Airtime
Subscriptions
Others
Nontrade receivables
Due from related parties
Total
=1,464,948
P
404,364
289,974
456,660
–
=2,615,946
P
=231,322
P
18,321
172,819
28,065
–
=450,527
P
=377,816
P
411,234
378,834
495,479
153,409
=1,816,772
P
Impaired
Allowance
=219,173
P
61,094
39,855
34,181
–
=354,303
P
(P
=204,678)
(61,048)
(21,319)
(31,785)
–
(P
=318,830)
Total
=2,088,581
P
833,965
860,163
982,600
153,409
=4,918,718
P
Based on the cash flow projection, past due receivables are expected to be collected within 2008.
Liquidity Risk
The Company seeks to manage its funds through cash planning on a weekly basis. This
undertaking specifically considers the maturity of both the financial investments and financial
assets and projected operational disbursements. The Company also employs historical figures and
forecasts from its collection and disbursements. As part of its liquidity risk management, the
Company regularly evaluates its projected and actual cash flows. As a general rule, cash balance
should be equal to P
=200 million at any given time to compensate for operation exigencies in the
periodic absence of cash inflow.
It is the Company’s objective to maintain a balance between continuity of funding and flexibility
through the use of bank credit and investment facilities. As such, the Company continuously
assesses conditions in the financial markets for opportunities to pursue fund raising activities. In
2007, the Company closed several refinancing activities to extend its debt maturity profile from a
probable average of 2.70 years to 4.80 years as of December 31, 2007. Also, the Company places
funds in the money market only when there are surpluses from the Company’s requirements.
Placements are strictly made based on cash planning assumptions and as much as possible, covers
only a short period of time.
*SGVMC210558*
- 62 The table below summarizes the maturity profile of the Company’s financial liabilities based on
contractual undiscounted payments.
Trade and other
payables
Derivative liabilities
Obligations for program
rights
Interest-bearing loans
and borrowings
Total
Within
One Year
One to
Two Years
Three to
Four Years
2007
Four to
Five Years
More than
Five Years
Total
P
= 4,403,699
–
P
=–
–
P
=–
–
P
=–
–
P
=–
–
P
=4,403,699
–
790,992
3,808
–
–
–
794,800
1,048,586
P
= 6,243,277
1,172,319
P
=1,176,127
4,762,840
P
=4,762,840
975,939
P
=975,939
–
P
=–
7,959,684
P
=13,158,183
Within
One Year
One to
Two Years
Three to
Four Years
Four to
Five Years
More than
Five Years
Total
=3,951,711
P
357,920
=–
P
–
=–
P
–
=–
P
–
=–
P
–
=3,951,711
P
357,920
347,879
64,065
–
–
–
411,944
2,585,938
=7,243,448
P
2,364,052
=2,428,117
P
882,215
=882,215
P
1,865
=1,865
P
–
=–
P
5,834,070
=10,555,645
P
2006
Trade and other
payables
Derivative liabilities
Obligations for program
rights
Interest-bearing loans
and borrowings
Total
Capital Management
The primary objective of the Company’s capital management is to ensure that it maintains healthy
capital ratios and strong credit ratings while viably supporting its business to maximize
shareholder value.
The Company’s approach focuses on efficiently allocating internally generated cash for
operational requirements and investments to grow the existing business as well as to deliver on its
commitment of a regular dividend payout at a maximum of 50% of the previous year’s net
income. Shortages if any and acquisitions or investments in new business are funded by the
incurrence of additional debt largely capped by existing loan covenants on financial ratios.
As evidenced by the quarterly financial certificates that the Company issued to its lenders, all
financial ratios are within the required limits all throughout 2007 as follows:
Financial Ratios
Debt to earnings before
income tax, depreciation
and amortization
Earnings before income tax
to financing cost
Debt service coverage ratio
Required
Less than or equal to 2.25
Greater than or equal to
2.00 on or before
September 30, 2007
Grater than or equal to 3.00
after September 30,
2007
Greater than or equal
to 1.10
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
0.96
0.87
1.06
1.09
2.94
3.49
4.04
4.50
1.39
1.54
2.18
1.63
*SGVMC210558*
- 63 -
26. Financial Assets and Financial Liabilities
The following table sets forth the carrying values and estimated fair values of consolidated
financial assets and liabilities recognized as of December 31, 2007 and 2006. There are no
material unrecognized financial assets and liabilities as of December 31, 2007 and 2006.
2006
2007
Financial Assets
Loans and receivables:
Trade and other receivables - net
Long-term receivables from
related parties
Derivative assets designated as
accounting hedges
Available-for-sale financial assets Available-for-sale investments
(included as part of “Other
noncurrent assets”)
Financial Liabilities
Other financial liabilities at amortized cost:
Interest-bearing loans and borrowings
Derivative liabilities designated as
accounting hedges
Carrying
Amount
Fair Value
Carrying
Amount
Fair Value
P
=2,145,778
4,918,718
P
=2,145,778
4,918,718
=1,661,832
P
4,382,530
=1,661,832
P
4,382,530
3,892,197
4,256,049
2,423,392
2,423,392
–
–
12,438
12,438
77,242
P
=11,033,935
77,242
P
=11,397,787
68,426
=8,548,618
P
68,426
=8,548,618
P
P
=4,403,699
5,515,804
794,800
P
=4,403,699
5,911,140
796,344
=3,951,711
P
4,574,090
411,944
=3,951,711
P
4,630,763
414,994
–
P
=10,714,303
–
P
=11,111,183
357,920
=9,295,665
P
357,920
=9,355,388
P
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:
Cash and Cash Equivalents, Trade and Other Receivables and Trade and Other Payables. Due to
the short-term nature of transactions, the fair values of these instruments approximate the carrying
amount as of balance sheet date.
Available-for-Sale Investments. The fair values of publicly-traded instruments were determined
by reference to market bid quotes as of balance sheet date. Investments in unquoted equity
securities for which no reliable basis for fair value measurement is available are carried at cost, net
of impairment.
Long-term Receivables from Related Parties. The receivable from Sky Cable, which is subjected
to monthly repricing, is not discounted since it approximates fair value.
*SGVMC210558*
- 64 Obligations for Program Rights. Estimated fair value is based on the discounted value of future
cash flows using the applicable risk-free rates for similar types of loans adjusted for credit risk.
Interest-bearing Loans and Borrowings. Fair value was computed based on the following:
Term loan
Other variable rate loans
Fair Value Assumptions
Estimated fair value is based on the discounted value of
future cash flows using the applicable risk-free rates for
similar types of loans adjusted for credit risk. The interest
rates used to discount the future cash flows have ranged from
4.3% to 5.4% for those that are dollar-denominated and from
4.4% to 12.5% for those that are peso-denominated.
The face value approximates fair value because of recent and
frequent repricing (i.e., 3 months) based on market
conditions.
Principal-only Swaps and Interest Rate Swaps. The fair values were computed as the present
value of estimated future cash flows.
Bifurcated Foreign Currency Forwards. The fair values of embedded foreign currency forwards
were calculated by reference to forward exchange market rate at balance sheet date.
Derivative Instruments
Cross Currency Swaps. In 2004, the Parent Company entered into long-term cross currency
swaps that hedge 100% of the Tranche A Principal against foreign exchange risk. Under these
agreements, the Parent Company effectively swaps the principal amount of certain US dollardenominated loans under the SCA into Philippine peso-denominated loans with payments up to
June 2009.
The Company is also obligated to pay swap costs based on a fixed rate of 8.0% on a notional
amount of P
=353 million, 5.125% on a notional amount of P
=55 million, 3-month PHIREF minus
2.9% on a notional amount of P
=2 billion and 3-month PHIREF minus 3.1% on a notional amount
of P
=264 million.
On December 18, 2007, the Company prepaid all its outstanding loan obligations under Tranche A
of the SCA facility amounting to US$27 million (P
=1,132 million). This made it necessary for the
Company to unwind the existing cross currency swaps. On December 20, 2007, the Company
paid P
=394 million to unwind the hedges. CTA amounting to P
=232 million previously recorded in
equity were recognized in the 2007 consolidated statement of income (see Note 21.1).
Interest Rate Swaps. To manage the interest rate exposure from the floating rate loans, the
Company also entered into USD interest rate swaps and PHP interest rate swaps which effectively
swap certain floating rate loans into fixed-rate loans. In 2007, the USD interest rate swaps have
been terminated as a result of the prepayment of the outstanding loan obligations under Tranche A
of the SCA facility. The Company received a total of US$12,000 (P
=0.5 million) as net settlement
for the unwinding of the interest rate swaps. CTA amounting to P
=44 million previously recorded
in equity were recognized in the 2007 consolidated statement of income (see Note 21.1).
*SGVMC210558*
- 65 Hedge Accounting Implications of Swaps. The Parent Company’s principal-only currency swaps
and USD interest rate swap are designated as cash flow hedges on October 1, 2005 to manage the
Parent Company’s exposure to variability in cash flows attributable to foreign exchange and
interest rate risks of the underlying debt obligations. Since the critical terms of the swaps and the
outstanding debt obligations coincide, the hedges are expected to exactly offset changes in
expected cash flows due to fluctuations in foreign exchange and the prime rate over the term of the
debt obligations.
From October 1, 2005 up to December 31, 2005, the effective net mark-to-market losses that have
been deferred in equity for these cash flow hedges amounted to P
=53 million (P
=34 million, net of
tax). Prior to designation as cash flow hedges, the principal-only currency swaps accounted for
mark-to-market losses in the consolidated statement of income of about P
=32 million (net of
=316 million gain on the swap differentials), while the USD interest rate swap accounted for
P
mark-to-market gains in the consolidated statement of income of P
=48 million.
The effective net mark-to-market losses that have been deferred in equity for these cash flow
hedges amounted to P
=249 million (P
=162 million, net of tax) in 2006.
As previously discussed, in December 2007, the Company terminated all outstanding cross
currency swap and interest rate swap contracts as a result of the prepayment of all the outstanding
Tranch A loan of the SCA facility. The net mark-to-market losses amounting to P
=277 million
previously recorded in equity were recognized in the 2007 consolidated statement of income
(see Note 21.1).
As part of the transition adjustments as of January 1, 2005, the Company initially recognized an
aggregate amount of P
=117 million (P
=76 million net of tax), representing the fair value for the
principal-only currency swaps (net of the impact of the foreign exchange restatement) and the
USD and PHP interest rate swaps. This amount is initially recorded as a credit adjustment in CTA
(‘initial CTA’) and will be amortized using the effective interest method over the remaining term
of the underlying related loans. Amortization of the initial CTA amounted to P
=54 million in 2007
and P
=31 million in 2006. This is recorded as a reduction in interest expense (see Note 21.1).
In 2006, the Company made a reassessment of its outstanding cross currency swap and interest
rate swap. The valuation of each swap transaction was remeasured to conform with the values
derived by each of the counterparties to the hedges. This recalibration resulted in the increase of
the derivative liability and decrease of the derivative asset by P
=105 million and P
=26 million,
respectively, in 2006. The aggregate total of P
=131 million was then recorded in equity and was
transferred to the 2007 consolidated statement of income when the Company terminated the hedge
contracts as a result of the prepayment of all outstanding Tranche A loan of the SCA facility in
2007.
*SGVMC210558*
- 66 Movements in the CTA related to derivative instruments are as follows:
Amounts taken to equity
Reversal of tax effect
Amounts transferred to profit and loss:
Due to the termination of hedged item
and related cross currency swap
Due to the termination of hedged item
and related interest rate swap
Amortization of initial CTA
Less tax effects of items taken directly to equity
2007
(P
=160,986)
24,874
(86,685)
2006
P32,623
=
(248,966)
–
–
232,335
44,359
(53,897)
222,797
–
–
P
=–
–
(31,328)
(31,328)
(247,671)
(86,685)
(P
=160,986)
Embedded Derivatives. As of December 31, 2007 and 2006, the Company has outstanding
embedded foreign currency derivatives which were bifurcated from various non-financial
contracts. The impact of these embedded derivatives is not significant.
As discussed in Note 8, the Parent Company has a receivable from Sky Vision that is convertible
into the latter’s common share, which are not quoted in an active market. The conversion option
embedded in the receivable is not separately accounted for as a financial asset at fair value through
profit and loss. The entire receivable from Sky Vision is reported at cost subject to impairment.
The table below summarizes the fair values of derivative instruments (both freestanding and
embedded) as of December 31, 2006:
Cross currency swaps
Interest rate swaps
Embedded derivatives
Derivative
Assets
=–
P
11,340
1,098
=12,438
P
Derivative
Liabilities
=357,695
P
–
225
=357,920
P
The net movements in fair value changes of the Company’s derivative instruments as of
December 31, 2007 and 2006 are as follows:
Net changes in fair value of derivatives:
Designated as accounting hedges
Not designated as accounting hedges
Less fair value of settled instruments
2007
(P
=345,482)
(47,124)
–
(392,606)
(392,606)
P
=–
2006
=89,393
P
(364,814)
873
(274,548)
70,934
(P
=345,482)
*SGVMC210558*
- 67 -
27. EPS Computations
Basic EPS amounts are calculated by dividing the net income for the period attributable to
common shareholders by the weighted average number of common shares outstanding during the
period.
The following table presents information necessary to calculate EPS:
2007
2006
2005
(a) Net income attributable to
equity holders of parent
P
=1,266,744
=740,552
P
=251,731
P
(b) Weighted average shares
outstanding:
At beginning of year
Acquisition (see Note 16)
Issuances (see Note 16)
At end of year
769,676,556
(2,082,404)
990,932
768,585,084
769,583,312
769,583,312
–
93,244
769,676,556
–
–
769,583,312
P
=1.648
=0.962
P
=0.327
P
Basic/Diluted EPS (a/b)
The Company has no dilutive potential common shares outstanding, therefore basic EPS is the
same as diluted EPS.
28. Note to Statements of Cash Flows
Noncash investing and financing
activities:
Acquisition of program rights
on account
Acquisition of property and
equipment under
capital lease
Payment of bonus through
the issuance of PDRs
equipment on account
equipment as settlement
of trade receivables
2007
2006
2005
P
=670,165
=393,736
P
=265,852
P
280,287
118,004
166,077
55,141
22,379
–
–
–
81,466
–
–
44,280
*SGVMC210558*
- 68 -
29. Other Matters
a. In 1972, the Parent Company discontinued its operations when the government took
possession of its property and equipment. In the succeeding years, the property and
equipment were used without compensation to the Parent Company by Radio Philippines
Network, Inc. (RPN) from 1972 to 1979, and Maharlika Broadcasting System (MBS) from
1980 to 1986. A substantial portion of these property and equipment was also used from 1986
to 1992 without compensation to the Parent Company by People’s Television 4, another
government entity. In 1986, the Parent Company resumed commercial operations and was
granted temporary permits by the government to operate several television and radio stations.
The Parent Company, together with Chronicle Broadcasting System, filed a civil case on
January 14, 1988 against Ferdinand E. Marcos and his family, RPN, MBS, et. al, before the
Sandiganbayan to press collection of the unpaid rentals for the use of its facilities from
September 1972 to February 1986 totaling P
=305 million plus legal interest compounded
quarterly and exemplary damages of P
=100 million.
The BOD resolved on June 27, 1991 to declare as scrip dividends, in favor of all stockholders
of record as of that date, whatever amount that may be recovered from the foregoing pending
claims and the rentals subsequently settled in 1995. The scrip dividends were declared on
March 29, 2000. In 2003, additional scrip dividends of P
=13 million were recognized for the
said stockholders.
On April 28, 1995, the Parent Company and the government entered into a compromise
settlement of rental claims from 1986 to 1992. The compromise agreement includes payment
to the Parent Company of P
=30 million (net of the government’s counterclaim against the
Parent Company of P
=68 million) by way of tax credits or other forms of noncash settlement as
full and final settlement of the rentals from 1986 to 1992. The TCCs were issued in 1998.
b. The Company has contingent liabilities with respect to claims and lawsuits filed by third
parties. The events that transpired last February 4, 2006, which resulted in the death of 71
people and injury to about 200 others led the Company to shoulder the burial expenses of the
dead and medical expenses of the injured, which did not result in any direct or contingent
financial obligation that is material to the Company. The Company has settled all of the
funeral and medical expenses of the victims of the tragedy. Given the income flows and net
asset base of the Company, said expenses do not constitute a material financial obligation of
the Company, as the Company remains in sound financial position to meet its obligations.
As of March 26, 2008, the claims in connection with the events of February 4, 2006 are still
pending and remain contingent liabilities. While the funeral and medical expenses have all
been shouldered by the Company, there still exist claims for compensation for the deaths and
injuries upon evaluation of these claims, the amount of which have not been declared and
cannot be determined with certainty at this time. Management is nevertheless of the opinion
that should there be any adverse judgment based on these claims, this will not materially affect
the Company’s financial position and results of operations.
*SGVMC210558*

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