abs-cbn broadcasting corporation...4 10. securities registered pursuant to sections 8 & 12 of...

ABS-CBN Broadcasting Corporation Sgt. Esguerra Avenue, Quezon City, Philippines

May 21, 2009

To: Listing & Disclosures Department

Philippine Stock Exchange, Inc.

Exchange Road, Ortigas Center, Pasig City

Attn: Ms. Janet A. Encarnacion

Head, Disclosure Department

From: ABS-CBN Broadcasting Corporation

Tel No.: (632) 924-4101/415-2272

Fax No.: (632) 431-9368

Subject: Amended Definitive Information Statement Dated May 21, 2009

Gentlemen / Mesdames:

In connection with our disclosure last 19 May 2009 with regard to ABS-CBN Broadcasting Corporation’s

(“ABS-CBN” or the “Company”) Definitive Information Statement for the Annual Stockholders’ Meeting,

we are submitting to the Exchange the Company’s Amended Definitive Information Statement reflecting

the following revisions:

1. Control and Compensation Information, Page 6. We have updated the number of shares

beneficially owned by ABS-CBN Holdings Corporation as of April 30, 2009. The number

previously stated was the number of shares as of March 31, 2009.

2. Involvement in Certain Legal Proceedings, 4. As prescribed by the Securities and

Exchange Commission (“SEC”), our opening statement now reads: “For the past 5 years,

including the date of this definitive information statement…”

3. Annex C. Prices of ABS-CBN’s common shares and PDRs now reflect the latest practicable

trading date of May 20, 2009.

Further, the SEC has already approved the printing and the distribution of ABS-CBN’s Definitive

Information Statement to the Company’s shareholders.

We hope that you find everything in order.

Very truly yours,

Charles A. Gamo

Head, Corporate Planning & Investor Relations

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1 8 0 3 SEC Registration Number

(Company’s Full Name)

A B S - C B N B R O A D C A S T C E N T E R

S G T . E S G U E R R A A V E . C O R N E R

M O . I G N A C I A S T . D I L I M A N

Q U E Z O N C I T Y

(Business Address: No. Street City/Town/Province)

Rolando P. Valdueza 415-2272 (Contact Person) (Company Telephone Number)

1 2 3 1 Amended 20-IS 0 6 1 8 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

6,848 P=8.4 billion $6 million Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S

Remarks: Please use BLACK ink for scanning purposes.

COVER SHEET

A B S - C B N B R O A D C A S T I N G C O R P O R A T I O N

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ANNUAL STOCKHOLDERS’ MEETING

NOTICE OF ANNUAL STOCKHOLDERS’ MEETING

To: All Stockholders of ABS-CBN Broadcasting Corporation Please take notice that the Annual Meeting of Stockholders of ABS-CBN Broadcasting Corporation will be held on Thursday, June 18, 2009 at 8:00 a.m. at the Dolphy Theater (formerly Studio 1), ABS-CBN Broadcast Center, Sgt. Esguerra Avenue corner Mo. Ignacia St., Diliman, Quezon City, to discuss the following:

A G E N D A 1. Call to Order 2. Proof of Service of Notice 3. Certification of Presence of Quorum 4. Approval of the Minutes of the Annual Stockholders’ Meeting held on June 26, 2008 5. Report of Management 6. Approval of Audited Financial Statements 7. Election of Directors for Ensuing Year 8. Ratification of all acts of the Board of Directors, Executive Committee and Management for the period

covering January 1, 2008 through December 31, 2008 adopted in the ordinary course of business. 9. Appointment of External Auditors 10. Amendment of Article II, sec. 1 to change the date of the annual meeting from the last Thursday of

May of each year to the third Thursday of June of each year 11. Adjournment

For purposes of the meeting, only stockholders of record as of April 15, 2009 are entitled to attend and vote in the said meeting. Copies of the minutes of Annual Stockholders' Meeting held on June 26, 2008 will be available upon request. Should you be unable to attend the meeting in person, you may appoint a Proxy by executing the appropriate form. MANAGEMENT IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND MANAGEMENT A PROXY. For validation, however, please return your proxies to the undersigned at 4/F Benpres Bldg., Meralco Ave. cor. Exchange Rd., Ortigas Center, Pasig City not later than June 8, 2009. For your convenience in registering your attendance, please have some form of identification such as a passport, driver’s license or voter’s I.D. By order of the Board of Directors:

MANUEL L.M. TORRES Corporate Secretary

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 20-IS

INFORMATION STATEMENT PURSUANT TO SECTION 17.1(b) OF THE SECURITIES REGULATION CODE

1. Check the appropriate box: [ /] Preliminary Information Statement [ /] Definitive Information Statement 2. Name of registrant as specified in its charter:

ABS-CBN BROADCASTING CORPORATION

3. Province, Country or other jurisdiction of incorporation or organization

QUEZON CITY, PHILIPPINES 4. SEC Identification Number: 1803 5. BIR Tax Identification Number: 301-000406-761V 6. Address of Principal Office

ABS-CBN Broadcast Center Sgt. Esguerra Avenue corner Mother Ignacia Street Quezon City 1103 Philippines

7. Registrant’s telephone no. and area code: (632) 924-41-01 up to 22 /

415-22-72 8. Date, time and place of the meeting of security holders

Date : June 18, 2009 Time : 8:00 A.M. Place : Dolphy Theater, ABS-CBN Broadcast Center

Sgt. Esguerra Avenue corner Mother Ignacia St., Quezon City 1103 Philippines

9. Approximate date of which the Information Statement is first to be sent or given to security holders

May 27, 2009

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10. Securities registered pursuant to Sections 8 & 12 of the Code or Section 4 and 8 of the Revised Securities Act:

a. Authorized Capital Stock Php1,500,000,000 (Php1.00 par value) b. Number of Shares Outstanding as of March 31, 2009

Common Shares 779,584,602 shares c. Amount of Debt Outstanding as of March 31, 2009 Short Term & Long Term Debt (current & noncurrent) Php8,714 million 11. Are any or all of these securities listed on the Philippine Stock Exchange? Yes [ / ] No [ ]

The Company’s common shares have been listed on the Philippine Stock Exchange since 1992.

- 0 -

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ABS-CBN BROADCASTING CORPORATION INFORMATION STATEMENT

This information statement is dated May 27, 2009 and is being furnished to stockholders of record of ABS-CBN Broadcasting Corporation (the “Company) as of April 15, 2009 in connection with the Annual Stockholders’ Meeting. WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

======================================================== GENERAL INFORMATION

Date, time and place of meeting of security holders Date - June 18, 2009, Thursday Time - 8:00 A.M. Place - Dolphy Theater, ABS-CBN Broadcast Center, Quezon City

Principal Office - ABS-CBN Broadcast Center, Sgt. Esguerra Ave., cor. Mo. Ignacia St., Quezon City, Metro Manila

Approximate date of which the Information Statement is first to be sent to security holders

May 27, 2009 Right of Appraisal A stockholder has a right to dissent and demand payment of the fair value of his share: (i) in case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholders or class of shares or of authorizing preferences over the outstanding shares or of extending or shortening the term of corporate existence; (ii) in case any sale, lease, mortgage or disposition of all or substantially all the corporate property or assets; and (iii) in case of merger or consolidation. The appraisal right may be exercised by a stockholder who has voted against the proposed corporate action, by making a written demand on the Company within 30 days after the date on which the vote was taken for the payment of the fair market value of his shares. There are no matters or proposed corporate actions which may give rise to a possible exercise by security holders of their appraisal rights under Title X of the Corporation Code of the Philippines. Interest of Certain Persons in Matters to be acted upon (a) No Director or Executive Officer of the Company has any substantial interest, direct or indirect, by

security holdings or otherwise, in any matter to be acted upon other than election to office. (b) No Director has informed the Company of his opposition to any action to be taken by the registrant

at the meeting.

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CONTROL AND COMPENSATION INFORMATION Voting Securities and Principal Holders Thereof (a) The Company has 779,584,602 common shares subscribed and outstanding as of

April 30, 2009. Every stockholder shall be entitled to one vote for each share of stock held as of the established record date.

(b) All stockholders of record as of April 15, 2009 are entitled to notice of and to vote at the Company’s Annual Stockholders’ Meeting.

(c) With respect to the election of directors, a stockholder may vote such number of shares for as many persons as there are directors to be elected or he may accumulate said shares and give one candidate as many votes as the number of directors to be elected or he may distribute them on the same principle among as many candidates as he shall see fit; provided, that the total number of votes cast by him shall not exceed the total number of shares owned by him multiplied by the whole number of directors to be elected.

(d) Security ownership of certain Record and Beneficial Owners and Management:

(1) Security Ownership of Certain Record and Beneficial Owners (of more than 5%) as of April 30, 2009:

Title

Of class Name and Address of

Record Owner Name of Beneficial Owner and Relationship with Record Owner

Citizenship No. of Shares Held

Per cent Owned

Common Lopez, Inc. 5/F Benpres Bldg, Exchange Road corner Meralco Ave., Pasig City

Lopez, Inc. (Oscar M. Lopez, Chairman, is

authorized to vote on

behalf of Lopez, Inc.)

Filipino

446,231,607

57.24%

Common PCD Nominee Corporation (PCD) G/F Makati Stock Exchange Bldg., Ayala Ave., Makati City (PCD is not related to the Company)

ABS-CBN Holdings Corp. (Oscar M. Lopez, Chairman, is

authorized to vote on behalf of ABS-CBN

Holdings Corp)

Filipino

307,286,092

39.42%

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 Corporation is a participant of PCD. The 269,800,200 shares beneficially owned by ABS-CBN Holdings Corporation form part of the 307,286,092 shares registered in the name of PCD. ABS-CBN Holdings Corporation is owned 50% by Lopez, Inc. and 50% by Oscar M. Lopez, Manuel M. Lopez, Presentacion L. Psinakis, and Eugenio Lopez III. The shares in the Company registered and beneficially owned by it are covered by Philippine Deposit Receipts (PDR) which gives the holder thereof the right to delivery or sale of the underlying share. The PDRs are listed

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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. As of April 30, 2009, there are no other participants under PCD account who owns more than 5% of the voting securities.

(2) Security Ownership of Directors and Management as of April 30, 2009:

As of April 30, 2009, the Company’s directors and senior officers owned an aggregate of 1,452,338 shares of the Company, equivalent to 0.1863% of the Company’s total issued and outstanding capital stock.

Title of Class

Stockholder Name Position Nature of Beneficial Ownership

Citizenship No. of Co. Shares Held

Percent Held

Common Eugenio L. Lopez III Chairman and CEO Direct Filipino 651,191 0.0835%

Common Augusto Almeda-Lopez Vice-Chairman Direct Filipino 249,833 0.0320%

Common Oscar M. Lopez Director Direct Filipino 61,620 0.0079%

Common Presentacion L. Psinakis Director Direct Filipino 3 0.0000%

Common Federico R. Lopez Director Direct Filipino 1 0.0000%

Common Ma. Rosario N. Santos-Concio Director, President and COO

Direct Filipino 1 0.0000%

Common Manuel L. Lopez Jr. Director Direct Filipino 1 0.0000%

Common Angel S. Ong Director Direct Filipino 29,413 0.0038%

Common Federico M. Garcia Independent Director Direct Filipino 226,207 0.0290%

Common Jose C. Vitug Independent Director Direct Filipino 1 0.0000%

Common Pedro N. Dy-liacco Independent Director Direct Filipino 1 0.0000%

Common Rolando P. Valdueza Chief Finance Officer Direct Filipino 11,800 0.0015%

Common Ma. Socorro V. Vidanes Managing Director, ABS-CBN TV Production*

Direct Filipino 10,000 0.0013%

Common Antonio S. Ventosa Head, Corporate Marketing and Concurrent Officer-in-Charge, Studio

23**


Common Mario Carlo P. Nepomuceno Chief Human Resources and Organization and Development Learning

Officer


Common Vivian Y. Tin Chief Research and Business Analysis Officer


Common Evelyn L. Javier Chief Information Officer Direct Filipino 10,000 0.0013%

Common Raul Pedro G. Bulaong Managing Director, ABS-CBN Technical Production

Operations


Common Leonardo P. Katigbak Head, Special Projects Direct Filipino 58,204 0.0075%

Common Louis Benedict O. Bennett Officer-in-Charge, Regional Network Group


Common Jose Ramon D. Olives Managing Director, Cable Channel and Print Media

Group***


Common Johnny C. Sy Chief Information Officer Direct Filipino 17,987 0.0023%

Security Ownership of all Directors and Officers 1,452,338 0.1863%

*Appointed Head of Channel 2 Mega Manila Management effective March 18, 2009 **Appointed Managing Director of Cable Channel and Print Media Group effective April 1, 2009 ***Until April 1, 2009

None of the members of the Company’s directors and management owns 2.0% or more of the outstanding capital stock of the Company.

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(e) The Company knows of no person holding more than 5% of common shares under a voting trust or

similar agreement. (f) No change of control in the Company has occurred since the beginning of its last fiscal year. Directors and Executive Officers as of April 30, 2009 Nominees for Election as Members of the Board of Directors, Including the Independent Directors The following have been 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 Angel S. Ong Manuel L. Lopez, Jr. Federico M. Garcia (Independent Director) Jose C. Vitug (Independent Director) Pedro N. Dy-liacco (Independent Director)

All of the above nominees are incumbent directors. They were formally nominated by a shareholder of the Company, Lopez Inc., through its Chairman, Mr. Oscar M. Lopez. The nominees will serve as directors of the Company for one year from date of election. In 2006, the stockholders approved amendments to the by-laws, which included, among other things, the amendment of Article III, sec. 6 to provide for the qualifications and disqualifications of directors, including independent directors and the procedures for the nominations of directors. As amended, the by-laws provide that nominations shall be submitted in writing to the Board of Directors at least 30 business days before the annual meeting and that the Board or a duly constituted committee shall pre-screen the qualifications and prepare a final list of qualified nominee. The entire Board and its Chairman, Mr. Eugenio Lopez III, acts as the Nomination Committee and passes upon the qualifications of the independent director. In this regard, the Board approved the above nominees in a meeting of the Board held on March 26, 2008. Below is a summary of the nominees’ qualifications: The following directors have held their current positions in their respective companies for more than 5 years unless otherwise indicated. Eugenio L. Lopez III, Filipino, age 57 Chairman of the Board of Directors and Chief Executive Officer Mr. Lopez was elected Chairman of the Company’s Board of Directors on December 10, 1997, when his father, the late Eugenio “Geny” Lopez, Jr., turned over the reins of the family-owned company to the younger Mr. Lopez, who had been President since 1993 and Director since 1986. He joined the Company in 1986 as Finance Director before he became General Manager in 1988. He graduated with a Bachelor of Arts degree in Political Science from Bowdoin College. He has a Masters degree in Business Administration from Harvard Business School. Mr. Lopez is a recipient of various Philippine broadcasting industry awards.

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Augusto Almeda-Lopez, Filipino, age 81 Vice-Chairman Mr. Augusto Almeda-Lopez joined the Company in 1962. He has served as Vice Chairman since 1989. Mr. Almeda-Lopez is also the Vice-Chairman of First Philippine Holdings Corporation. He also serves as the Chairman of ACRIS Corporation and ADTEL, Inc. while he serves as a Director of various companies in the telecommunications, manufacturing, and service industries, namely First Philippine Industrial Corporation, First Gen Renewables, Inc., First Electro Dynamics Corporation, Philippine Electric Corporation, Bayan Telecommunications, Inc., and Sky Vision Corporation. He is an alumnus of De La Salle College and Ateneo de Manila, is a graduate of the University of the Philippines College of Law class 1952 and he completed the Advanced Management Program course at Harvard University in 1969. Ma. Rosario Santos-Concio, Filipino, age 54 Board Member, President and Chief Operating Officer Prior to her appointment as President and Chief Operating Officer, Ms. Santos-Concio was Head of Channel 2 Mega Manila Management where she brought greater synergy between Marketing, Sales, and Production. She was also was in charge of achieving profit margins, nationwide ratings, annual programming strategy and customer development targets of the Company. She is also known as an award-winning actress and an accomplished film and TV producer. Onscreen, Ms. Santos-Concio hosts the network’s longest-running drama anthology Maalaala Mo Kaya. As President and COO, she leads the Executive Committee and all subsidiary and division heads report to her. Ms. Santos-Concio graduated cum laude from St. Paul’s College in Manila with a Communications Arts degree. In 2007, Ms. Santos-Concio also completed the Advanced Management Program at Harvard Business School. Oscar M. Lopez, Filipino, age 79 Board Member Mr. Oscar M. Lopez has served as Director since 1966. He also serves as Chairman and Chief Executive Officer of the First Philippine Holdings Corporation (FPHC), and Chairman of Benpres Holdings Corporation (Benpres) and all member-companies of First Gen Corporation (First Gen), First Gas group of companies and Energy Development Corporation. Through his Chairmanship of FPHC and Benpres, Mr. Lopez serves as Chairman of the Lopez Group of Companies. Mr. Lopez has led FPHC’s efforts in other businesses aside from energy and power, including toll road construction, industrial park and real estate development, and electronics manufacturing. Mr. Lopez has a Masters degree in Public Administration from the Littauer School of Public Administration in Harvard University, where he also earned his Bachelor of Arts degree, cum laude. Presentacion L. Psinakis, Filipino, age 74 Board Member Ms. Psinakis has served as a Director of the Company since 1988. Ms. Psinakis is the founder and President of Griffin Sierra Travel, Inc. (formerly Sierra Tours, Inc.). She is a member of the Board of Trustees of the Eugenio Lopez Foundation, Inc. and also serves as director of the following companies: Lopez Inc., Benpres Insurance Agency, ADTEL Inc., and Philippine Commercial Capital, Inc. She took a Bachelor of Arts course in St. Scholastica's College. Federico R. Lopez, Filipino, age 48 Board Member Mr. Lopez is a Director of the Company since 1999. He is President and CEO of First Gen and Managing Director for Energy of First Philippine Holdings Corporation. He is a member of the boards of First Philippine Holdings Corp., Energy Development Corp., First Private Power Corp., and Bauang Private Power Corp. He also serves as director, President and CEO of First Gen Luzon Power Corporation, FG Bukidnon Power Corp., First Gen Hydro Power Corp., First Gen Geothermal Power Corp., First Gen Visayas Hydro Power Corp., First Gen Mindanao Hydro Power Corp., First Gen Energy Solutions, Inc., First Gen Northern Energy Corp., First Gen Premiere Energy Corp., Red Vulcan Holdings Corp., Prime Terracota Holdings Corp., First Gen Visayas Energy Inc., First Gen Prime Energy Corp., First Gas

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Holdings Corp., First Gas Power Corp., FGP Corp., AlliedGen Power Corp., Unified Holdings Corp., First NatGas Power Corp., FGLand Corp., and First Gas Pipeline Corp. He is also President of First Philippine Conservation, Inc. Mr. Lopez is a graduate of the University of Pennsylvania with a Bachelor of Arts degree in Economics and International Relations, cum laude. Manuel L. Lopez, Jr., Filipino, age 41 Board Member Mr. Lopez, Jr. has served as a Director of the Company from 2000 to 2006 and in 2008. He was Assistant Vice President for Affiliate Marketing for ABS-CBN International North America from 1993 to 1996. He then joined SkyCable and became a Director and later became Regional Director for Pilipino Cable Corporation from 1999 up to the present. He is currently the Chairman of the Board of Pacifichub Corporation and the Executive Vice-President of Benpres Insurance Agency, Inc. He graduated with a Bachelor of Science degree in Business Administration from the De La Salle University. Angel S. Ong, Filipino, age 58 Board Member Mr. Ong is the President and Chief Operating Officer of Benpres Holdings Corporation since 2004. He was Chief Financial Officer of Benpres from 2001 to 2004 and Vice President for Finance from 1998 to 2000. He is a member of the Board of First Philippine Infrastructure Development Corporation, Bayan Telecommunications, Inc. and Bayan Telecommunications Holdings Corporation. Mr. Ong received his Bachelor of Science in Commerce degree from the Philippine College of Commerce and a Masters degree in Business Administration from the University of the Philippines. Federico M. Garcia, Filipino, age 65 Board Member Mr. Garcia was president of ABS-CBN from 1998 to 2003. Prior to his appointment as President, Mr. Garcia was Executive Vice President and General Manager. He also worked as a TV Sales Executive with ABS-CBN in 1966 until Martial Law. Before rejoining the Company in 1987, he was Executive Vice President of GMA-7, managing its marketing and programming activities. He attended the College of Business Administration at the University of the Philippines. Mr. Garcia is a recipient of various Philippine broadcasting industry awards. Justice Jose C. Vitug, Filipino, age 74 Board Member Justice Vitug was Associate Justice of the Supreme Court from 1993 to 2004. He has been a Consultant of the Committee on Revision of the Rules of the Court, Supreme Court of the Philippines since 2004. He was Chairman of the Philippine Stock Exchange and the SCCP Securities Clearing Corporation of the Philippines from 2005 to 2009. He is currently Chairman of the Angeles University Foundation Medical Center, a post held since 2007. He has been an Independent Director of Aboitiz Equity Ventures, Inc. since 2005 and Clark Electric Distribution Corporation since 2007. He is the Chairman Emeritus of the Commercial Law Department and Senior Professor of the Philippine Judicial Academy, Supreme Court of the Philippines and a Trustee of Mission Communications Foundation, Inc., since 2006. Pedro N. Dy-liacco, Filipino, age 61 Board Member Mr. Dy-liacco started his professional career with Procter & Gamble, Johnson Wax and Ace-Compton Advertising before joining Nestlé Philippines, Inc. in 1977 as an Advertising Manager. He became the Regional Sales Manager of South Minadanao in 1980, worked in Vevey, Switzerland from 1981 to 1982, and became Group Product Manager of Coffee & Beverages Marketing Group, in 1982. Mr. Dy-liacco then held various positions in Nestlé Philippines, Nestlé Indonesia, and Nestlé Singapore. He returned to Nestlé Philippines as Director of Communications in 1997, and in 2005, he became Director of Communications & Marketing Services. He is currently a member of the International Chamber of Commerce’s Commission on Marketing & Advertising, and is concurrently a Management Consultant. Mr. Dy-liacco graduated with a Bachelor of Arts degree from the University of the Philippines in 1968.

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Independent Directors of the Board The Company’s Independent Directors, Mr. Federico M. Garcia, Justice Jose C. Vitug and Mr. Pedro N. Dy-liacco have at least one (1) share of the stock of the Company in their respective names, are college graduates and possess integrity, probity and assiduousness. They are persons who, apart from their fees as directors of the Company, are independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with their exercise of independent judgment in carrying out their responsibilities as directors of the Company. Specifically, Mr. Garcia, Justice Vitug and Mr. Dy-liacco: (i) are not directors or officers or substantial stockholders of the Company or its related companies or any of its substantial shareholders (other than as independent directors of any of the foregoing); (ii) are not relatives of any director, officer or substantial shareholder of the Company, or any of its related companies, or Lopez, Inc., or any of its other substantial shareholders; (iii) are not acting as nominees or representatives of a substantial shareholder of the Company, or any of its related companies, or Lopez, Inc., or any of its other substantial shareholders; (iv) have not been employed in any executive capacity by the Company, or any of its related companies or Lopez, Inc., or by any of its other substantial shareholders within the last two (2) years; (v) are not retained as professional advisers by the Company, or any of its related companies, or Lopez, Inc., or any of its other 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 Lopez, Inc. or with any of its substantial shareholders, whether by themselves or with other persons or through a firm of which they are partners or companies of which they are directors or substantial shareholders, other than transactions which are conducted at arms length and are immaterial; and (vii) do not own more than two percent of the shares of the Company and/or its related companies and/or Lopez, Inc. or any of its other substantial shareholders. Mr. Garcia, Justice Vitug, and Mr. Dy-liacco do not possess any of the disqualifications enumerated under Section II (5) of the Code of Corporate Governance and Section II (D) of SEC Memorandum Circular No. 16, Series of 2002. Executive / Corporate Officers Maria A. Ressa, Filipino, age 46 Managing Director, News & Current Affairs Division and concurrent Managing Director, ANC Ms. Ressa heads ABS-CBN’s News & Current Affairs (NCA) division. She is responsible for the overall strategic direction as well as the day-to-day operations of the NCA group. She is also concurrently the Managing Director for ABS-CBN News Channel (ANC), the country’s first and only 24-hour news cable channel. Maria graduated cum laude from Princeton University in the United States with a degree in Bachelor of Arts in English Literature, minor in Molecular Biology. She was a scholar for Fulbright Fellowship in the United States. She had an illustrious 17-year stint at Cable News Network (CNN), with her last assignment being the Bureau Chief for Southeast Asia. She was CNN’s Manila Bureau Chief in 1988 and CNN’s Jakarta Bureau Chief in 1995. Ms. Ressa was a recipient of the Asian Television Award in 1999; SAIS-Novartis International Journalism Award in 2000; Ferris Professorship of Journalism in 2001, National Headliner Award for Investigative Journalism and the TOYM (Philippines) in 2002; Outstanding Investigative Journalism from the Emmy Awards in 2003 and Judges’ Citation from the US Overseas Press Club in 2004. She is the author of “Seeds of Terror: An Eyewitness Account of Al-Qaeda's Newest Center of Operations in Southeast Asia”, published by Simon & Schuster in 2003. Ma. Socorro V. Vidanes, Filipino, age 47 Managing Director, ABS-CBN TV Production* Ms. Vidanes held the position of Managing Director for ABS-CBN TV Production from 2001 to 2008. She was responsible for the conceptualization, production and management of all TV Entertainment programs on ABS-CBN Channel 2. She has been with ABS-CBN since 1986, starting as an Associate

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Producer and has since then been involved in the production of all types of programs – talk shows, variety, reality, game, comedy and drama. Ms. Vidanes obtained her degree of Bachelor of Arts in Communication Arts from the Ateneo de Manila University. *Appointed Head of Channel 2 Mega Manila Management effective March 18, 2009 Jose Agustin C. Benitez, Jr., Filipino, age 49 Head, Channel 2 Sales Mr. Benitez joined the Company in April 2006 as the Company’s Head of Channel 2 Sales. He is tasked with establishing strategic long-term partnerships with agencies and advertiser clients by helping them build their businesses and, at the same time, bring in revenues to the Company. He provides sales solutions to clients from a broad range of traditional and non-traditional media products. He was formerly Sales Head of ABC Channel 5 and of GMA Channel 7, and was instrumental in developing the Sales Units of both Companies. He was one of the first Sales Heads who was able to use his media/advertising background to successfully blend “science” with the selling skills of both teams. Before becoming involved in Broadcast Sales, Mr. Benitez was formerly Media Director and Vice President of Ace Saatchi and Saatchi, where he provided leadership to a media department that handled diverse clients such as San Miguel Corporation, Procter & Gamble Distributing Philippines Inc., Nestle Philippines Inc., Johnson & Johnson Philippines Inc., and Jollibee Foods Corporation. Here he won for the agency the first-ever Agency of Record (AOR) assignment of P&G. He was also formerly President and CEO of Zenith Optimedia, Nestle’s independent media agency, and President and CEO of Optimum Media, where he was mainly responsible for winning the Smart AOR business. This Smart win triggered a streak of 14 consecutive new business wins, helping the agency become a formidable force in the industry in a span of 3 months. Antonio S. Ventosa, Filipino, age 47 Head, Corporate Marketing and Concurrent Officer-in-Charge, Studio 23* Mr. Ventosa joined the Company in April 2006 as Head of Marketing. He brings with him several years of experience in marketing, having spent more than two decades honing his skills in understanding and driving strategic marketing communications considerations that build leadership brands. He was an account director at Dentsu Young and Rubicam Malaysia for Colgate Palmolive Singapore and Malaysia, and regional account director at Leo Burnett in Singapore for McDonald’s Asia before returning to the Philippines in 1994. He was, at one time, the chairman and the president of the Association of Accredited Advertising Agencies of the Philippines or 4A’s, and a board director of AdBoard. He is the founding chairman of the Araw Values Awards, and was the director-in-charge of the first 4A’s Advertising Summit in 2002. Prior to joining the Company, he was managing director of Leo Burnett Manila, where he has worked extensively to expand the agency’s capability as a holistic communications organization that provide clients with the most effective communication and brand building programs. He was also responsible for directing the total marketing communications programs for clients whose brands are now leaders in their category. He was also concurrent President of Arc Worldwide Philippines, the newly established marketing services company aligned with Leo Burnett. Mr. Ventosa graduated with a marketing degree from De La Salle University. *Appointed as Managing Director, Cable Channel & Print Media Group effective April 1, 2009 Jose Ramon D. Olives, Filipino, age 46 Managing Director, Cable Channels & Print Media Group* Mr. Olives was appointed Head of Cable Channels & Print Media Group in 2007, spearheading a monumental first in any local broadcasting company to join the print and cable businesses in the synergy of the ABS-CBN Publishing, Inc. and Creative Programs, Inc. This new unit is tasked to

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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 Company. In his 20 years with the Company, he held numerous positions to include Senior Vice President for Business Development since 2001. He is also credited with the development of The Filipino Channel during his nine year stint as Senior Vice-President for the International Division beginning in 1991, overseeing the operations of The Filipino Channel, the premier cable channel of the Company, in North America, Middle East, Japan and Australia. Mr. Olives joined the Company in 1987 as an assistant to the Administrative Director. He has a Bachelor of Arts degree in Communication Research, magna cum laude, from the University of the Philippines. *Until March 31, 2009 Rafael L. Lopez, Filipino, age 52 Chief Operating Officer, ABS-CBN Global Limited Mr. Lopez assumed the position of Senior Vice President and Chief Operating Officer of ABS-CBN Global Limited in July 2004. He concurrently serves as the Managing Director of ABS-CBN International in North America and has held this position since July 1998. He started as the Information Technology Head of ABS-CBN International in North America in 1994. Prior to this, he spent 12 years working as a systems analyst for Bell Atlantic. He graduated from the San Francisco State University with a Bachelor of Arts degree in Music. He also obtained a degree in computer programming from Control Data Institute and completed the Stanford Business Executive Program for Executives in August 2002. Ma. Lourdes N. Santos, Filipino, age 52 Managing Director, ABS-CBN Film Productions Inc. and Star Records, Inc. Ms. Santos holds more than two decades of experience in the local film industry having started as a production assistant for Vanguard Films in 1982. She went on to become head of the movie division of Gryk Ortaleza, Inc., an entertainment company, then a line producer for Regal Films in 1986 and the general manager of Vision Films in 1989. She joined the company as executive producer for its drama programs. In 1995, she became the Managing Director of Star Cinema Productions, Inc. Concurrent with her current position as ABS-CBN Film Production, Inc.’s Managing Director, Ms. Santos was appointed Senior Vice-President of the Television Drama Division for the Company’s Entertainment Group in 2003. In 2006, she was likewise assigned to handle Star Records, Inc. Ms. Santos graduated cum laude in BS Hotel and Restaurant Management at the University of Santo Tomas. Rolando P. Valdueza, Filipino, age 49 Chief Finance Officer Mr. Valdueza was appointed Chief Finance Officer on April 2, 2008. Prior to his appointment as CFO, he was Head of the Regional Network Group (RNG). As Head of RNG, he made a mark by managing RNG to help establish focus on ratings and revenues. He also institutionalized specific strategies to further strengthen local programming and ABS-CBN affinity with the local communities and improved operating efficiencies. Before joining the Company in 1988 as Budge Officer, he was an auditor with SGV & Company and then worked as Finance Manager at National Marine Corporation. He also served as Sky Cable Regional Director for Visayas and Mindanao and later became Managing Director of Pilipino Cable Company. Mr. Valdueza took up BS Accounting at University of the East and graduated magna cum laude in 1981.

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Other members of the Company’s senior management team as of 30 April 2009 are as follows: Mario Carlo P. Nepomuceno Chief Human Resources and Organizational Development

and Learning Officer Vivian Y. Tin Chief Research & Business Analysis Officer

Atty. Maximilian T. Uy Chief Legal Counsel

Ramon R. Osorio Chief Government, Corporate Affairs and PR Officer

Evelyn L. Javier Chief Information Officer

Esperanza M. Bulaong Head, Customer Relationship Management

Robert G. Labayen Head, Creative Communication Management

Raul Pedro G. Bulaong Managing Director, Technical Production Operations

Charles A. Gamo Head, Investor Relations and Corporate Planning

Leonardo P. Katigbak Head, Special Projects and Licensing

Peter A. Musngi Managing Director, Manila Radio and Sports

Louis Benedict O. Bennett Officer-in-Charge, Regional Network Group

Nelson Edison Aguiflor Head, ABS-CBN Global Manila Operations

Carlo Katigbak Managing Director, SkyCable

Consuelo Nolasco-Lopez Managing Director, ABS-CBN Interactive

Luis Paolo M. Pineda Head, Business Development

Ma. Juanita A. dela Cruz Head, Project Digital Terrestrial Television

Johnny C. Sy Head, Digital Consumer Devices

Olivia M. Lamasan Senior Vice President, ABS-CBN Film Productions Inc.

Involvement of Directors and Officers in Certain Legal Proceedings For the past 5 years, including the date of this definitive information statement, the Company is not aware of any bankruptcy proceedings filed by or against any business of which a director, person nominated to become a director, executive officer, or control person of the Company is a party or of which any of their property is subject. For the past 5 years, including the date of this definitive information statement, the Company is not aware of any conviction by final judgment in a criminal proceeding, domestic or foreign, or being subject to a pending criminal proceeding, domestic or foreign, of any of its director, person nominated to become a director, executive officer, or control person. For the past 5 years, including the date of this definitive information statement, the Company is not aware of any order, judgment, or decree not subsequently reversed, superseded, or vacated, by any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending, or otherwise limiting the involvement of a director, person nominated to become a director, executive officer, or control person of the Company in any type of business, securities, commodities, or banking activities. For the past 5 years, including the date of this definitive information statement, 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. 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.

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Family Relationships Mr. Oscar M. Lopez is the brother of Mrs. Presentacion L. Psinakis. He is the uncle of Mr. Eugenio L. Lopez III and Mr. Manuel L. Lopez, Jr., and the father of Mr. Federico R. Lopez. Mr. Manuel L. Lopez, Jr., Mr. Eugenio L. Lopez III and Mr. Federico R. Lopez are first cousins. Ms. Consuelo Nolasco-Lopez is the sister-in-law of Mr. Manuel Lopez, Jr. Relationships and Related Transactions There had been no material transactions during the past 2 years, nor is any material transaction presently proposed, to which the Company was or is to be a party in which any director, executive officer of the Company, or security holder of more than 10% of the Company’s voting securities, any relative or spouse of any such director or executive officer or owner of more than 10% of the Company’s voting securities had or is to have direct or indirect material interest. Furthermore, there had been no material transactions during the past 2 years, nor is any material transaction presently proposed, between the Company and parties that fall outside the definition of “related parties” under PAS No. 24, but with whom the registrants or its related parties have a relationship (e.g., former senior management of the Company or other parties who have some other former or current relationship with the Company) that enables the parties to negotiate terms of material transactions that may not be availed from other, more clearly independent parties on an arm's length basis. Parent Company Lopez, Inc. is the registered owner of 57.24% of the voting stock of the Company as of December 31, 2008. Lopez, Inc. is the holding company of the Lopez family. It is owned by the respective holding companies of the families of Eugenio Lopez, Jr., Oscar M. Lopez, Presentacion L. Psinakis and Manuel M. Lopez. It has issued convertible notes covering the shares in the Company registered and beneficially owned by it in favor of Benpres Holdings Corporation. Resignation of Directors Because of Disagreement with Policies No director has resigned or declined to stand for re-election to the Board of Directors since the date of the last annual meeting of security holders of the Company because of a disagreement with the Company on matters relating to the Company’s operations, policies and practices.

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Compensation of Directors and Executive Officers Information as to the aggregate compensation paid or accrued during the last 2 fiscal years and to be paid in the ensuing fiscal year to the Company’s chief and 5 other most highly compensated executive officers follow:

SUMMARY COMPENSATION TABLE

Annual Compensation

Name Year Salary (P) Bonus (P) Other Annual Compensation

Chief executive and 2009E 64,439,134

most highly compensated 2008 60,791,636 41,180,491 0

executive officers: 2007 55,934,340 27,389,517 0

Ma. Rosario N. Santos-Concio

Ma. Lourdes N. Santos

Olivia M. Lamasan

Vivian Y. Tin

Jose Agustin C. Benitez, Jr.

All managers and up 2009E 505,569,298

as a group unnamed 2008 476,952,168 198,052,134 0

2007 592,374,040 241,948,131 0

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. No action is to be taken with respect to any bonus, profit sharing, pension/retirement plan, granting of extension of any option, warrant or right to purchase any securities to be given to the Company's directors and executive officers. Independent Public Accountants The principal accountants and external auditors of the Company is the accounting firm of SyCip, Gorres, Velayo & Company (SGV & Co.). The accounting firm of SGV & Co. has been the Company’s Independent Public Accountants for the last 5 years. There was no event in the past 5 years where SGV & Co. and the Company had any disagreement with regard to any matter relating to accounting principles or practices, financial statement disclosure or auditing scope or procedure. Up until 2006, the partner in-charge assigned by SGV & Co. as external auditor is Ms. Vivian Cruz-Ruiz. She was replaced by Mr. Jose Joel M. Sebastian in 2007 and by Ms. Haydee M. Reyes in 2008, in compliance with SRC Rule 68, paragraph 3(b)(iv) on the five year rotation of external auditors.

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.

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The aggregate fees billed for each of the last 2 fiscal years for professional services rendered by the external auditor are as follows:

2008 2007

Audit Fees 5,150,000 4,220,000

The audit committee’s approval policies and procedures for the above services from SGV & 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. ISSUANCE AND EXCHANGE OF SECURITIES Financial and Other Information

The Management Discussion and Analysis of Financial Condition and the Results of Operation for the last three fiscal years required under Part IV(c) of Rule 48 are attached hereto as Annex “A”. The Statement of Management’s Responsibility for Financial Statements as of 31 December 2008 as well as the Audited Financial Statements prepared in accordance with SRC Rule 68, as amended and Rule 68.1 are attached hereto as Annex “B”. The Management Discussion and Analysis of Financial Condition and the Results of Operation for the period January to March 2009 and the Interim Unaudited Financial Statements as of March 31, 2009 of the Company are attached hereto as Annex “B-1.” The information on market price of securities and dividends paid out are attached hereto as Annex “C”. Acquisition or Disposition of Property No action is to be taken with respect to the acquisition or disposition of any property.

Restatement of Accounts No action is to be taken with respect to the restatement of any asset, capital or surplus account of the Company. OTHER MATTERS Legal Proceedings For the past 5 years, including the date of this definitive information statement, the Company is not a party in any material litigation, i.e. legal proceedings which involves a claim for damages in an amount, exclusive of interest and cost, exceeding 10% of the current assets of the Company. While not deemed material legal proceedings due to the amount of the claims involved, the following legal proceedings involving the Company were the subject of news reports, and therefore generated public interest: 1. "ABS-CBN vs AGB Nielsen Media Research (Philippines), Inc." The Company has a pending case against AGB Nielsen for injunction and breach of contract in connection with the alleged infiltration of panel homes in various areas in the country. The case was docketed as Q-07-61665, is currently pending before the Regional Trial Court of Quezon City, Branch 80.

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2. "GMA Network, Inc. vs. ABS-CBN Broadcasting Corporation, et al" The Company also has a pending civil case for libel against it filed by GMA Network, Inc. in connection with the same events covered by the case against AGB Nielsen. The case was filed in 03 January 2008 and docketed as Q-08-61735, is pending before the Regional Trial Court of Quezon City, Branch 76. GMA's total claim against the Company is P15 million. 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. 3. “People of the Phils., vs. Santos-Concio, et al.” This case, docketed as Criminal Case No. 138027, before the Regional Trial Court of Pasig, Branch 261, arose from the incident that transpired during the anniversary celebration of "Wowowee", where a stampede resulted in the deaths of seventy one people and multiple injuries to about two hundred others. Complaints for reckless imprudence resulting in Multiple Homicide and Multiple Physical Injuries were filed against certain officers of the Company including its President & COO, Ma. Rosario N. Santos-Concio and then Managing Director for TV Production, Ma. Socorro V. Vidanes. The Court has dismissed the complaint as against accused Santos-Concio and Vidanes, but remains pending as regards certain other officers of the Company, and has suspended the proceedings pending the completion of the Department of Justice of its investigation on the possible liability of other public officials who are charged with the same offense. Action with Respect to Reports (a) Approval of the Annual Report of Management and the Audited Financial Statements for the year

ending December 31, 2008;

(b) Approval of the Minutes of the Annual Meeting of the Stockholders held on June 26, 2008, covering the following matters:

i) Annual Report of Officers; ii) Approval of Annual Report and Audited Financial Statements for the year ended December

31, 2007; iii) Election of the Members of the Board of Directors, including the Independent Directors; iv) Ratification and approval of all acts and resolutions of the Board of Directors for the fiscal

year 2008; v) Ratification of the grant of a special bonus to the directors and officers in June 2007 as part

of their performance bonus for 2006 in the form of Philippine Depositary Receipts on the Company’s shares;

vi) Amendment of Article III by adding a new section to allow directors to participate in profit sharing and bonuses of the Company and to delegate such authority to grant such profit sharing and bonuses to the Board of Directors or a designated committee;

vii) Authorizing the Corporation to act as surety or guarantor of the existing or future obligations of its subsidiaries and investee companies; and

viii) Appointment of External Auditors Amendment of Charter, By-laws or Other Documents At the stockholders’ meeting, it will be proposed that Article II, sec. 1 of the Amended By-laws be amended to change the date of the annual meeting from the last Thursday of May of each year to the third Thursday of June of each year. This will allow the Company more time to prepare and send out the materials for the annual stockholders’ meeting.

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Other Proposed Actions (a) Ratification of all acts of the Board of Directors, Executive Committee and Management for the

period covering January 1, 2008 through December 31, 2008 adopted in the ordinary course of business, such as:

i) Approval of investments; ii) Treasury matters related to opening of accounts and bank transactions; iii) Appointment of signatories and amendments thereof;

(b) Election of the Members of the Board of Directors, including the Independent Directors, for the ensuing calendar year;

(c) Election of External Auditors; Matters Not Required to be Submitted No action is to be taken with respect to any matter that is not required to be submitted to a vote of security holders. Voting Procedures

(a) Vote Required: Motions in general require the affirmative vote of a majority of the shares of the

Company’s common stock present and/or represented and entitled to vote. However, certain proposed actions may require the vote of at least a majority or at least two thirds of the outstanding capital stock of the Company. The vote required for the amendment of the by-laws is at least a majority of the outstanding capital stock of the Company. The manner of voting is non-cumulative, except as to the election of directors.

(b) Method: Straight and cumulative voting. In the election of directors, the top eleven nominees with the most number of votes will be elected as directors. If the number of nominees does not exceed the number of directors to be elected, all the shares present or represented at the meeting will be cast in favor of the nominees. If the number of nominees exceeds the number of directors to be elected, voting will be done by ballots. On the election of directors, each stockholder may vote such number of shares for as many persons as there are directors to be elected or he may accumulate such shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit; provided, that the total number of votes cast by him shall not exceed the number of shares owned by him multiplied by the whole number of directors to be elected.

Other than the nominees’ election as directors, no director, executive officer, nominee or associate of the nominees has any substantial interest, direct or indirect by security holdings or otherwise in any way of the matters to be taken upon during the meeting. The Company has not received any information that an officer, director or stockholder intends to oppose any action to be taken at the Annual Stockholders’ Meeting.

(c) The Corporate Secretary will be responsible for counting votes based on the number of shares

entitled to vote owned by the stockholders who are present or represented by proxies at any meeting of the stockholders, in the presence of the Company’s external auditor.

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ANNEX A

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR 2008 The consolidated net income of ABS-CBN Broadcasting Corporation, the country’s largest multimedia conglomerate, grew 9% in 2008 to P1.39 billion, generated from consolidated revenues of P22.3 billion. Revenues ABS-CBN Broadcasting Corporation’s (‘ABS-CBN” or the ‘Company”) consolidated revenues from airtime and direct sales rose to P22.3 billion with an increase of P2.37 billion or 12% year-on-year, inclusive of gross revenue contribution from Skycable of P2.6 billion for three quarters beginning April 2008. Net of the non-recurring license fees of P548 million in 2007, our overall core business revenue growth for 2008 is 15%. Over the past five years, our direct sales businesses have increasingly complemented our airtime revenues, in 2008 reaching 39% of total with the consolidation of Skycable and continued growth in the subscription businesses of ABS-CBN Global.

Consolidated

Amounts in million Pesos Variance

2008 2007

Amount %

Airtime revenue 13,419 13,605 (186) (1)

Sale of Services 5,784 5,298 486 9

Sale of Goods 513 489 24 5

Core Business 19,716 19,392 324 2

License fees - 548 (548) (100)

Consolidated revenues before SkyCable 19,716 19,940 (224) (1)

Add: SkyCable revenues 2,591 - 2,591 100

Consolidated revenues 22,307 19,940 2,366 12

Consolidated airtime revenues for the year totaled P13.5 billion. In the first semester of 2008, consumer spending was constrained by an acute rise in prices of basic food items and fuel, and transportation fares, prompting major advertisers across many consumer goods categories to hold back on advertising and promotions spending. Towards the later part of 2008, as inflation eased and prices reverted towards their previous levels, consumer confidence started to cautiously return and advertisers began to entice their customers back. Our core airtime businesses registered a slight contraction in revenues for the year to P13.4 billion or 1%, despite a 56% growth in cable TV airtime sales. The consolidation of Skycable brought in an additional P92 million of airtime revenues between April and December 2008 to raise consolidated airtime revenues to P13.5 billion. Airtime revenue from parent company’s free TV and radio operations contracted by P277 million or 2% to P12.5 billion. Airtime revenue growth of P92 million or 11% in other platforms was driven mostly by cable channels.

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Our core airtime sales registered a 2% growth, however, after netting out P298 million in non-recurring political adspend in 2007.

Consolidated


2008 2007

Amount %

Parent airtime revenue 12,466 12,743 (277) (2)

Other platforms 954 862 92 11

Gross airtime revenues 13,419 13,605 (186) (1)

Add: SkyCable airtime revenues 92 - 92 100

Consolidated Gross airtime revenues 13,511 13,605 (94) (1)

Direct sales from core businesses rose by P510 million to P6.3 billion, a 9% gain over 2007’s P5.8 billion. ABS-CBN Global accounted for about 80% of total direct sales before the consolidation of Skycable. ABS-CBN Global’s subscription revenues grew 28% year-on-year in US dollar terms. With continued subscriber growth in the Middle East, Canada and Japan, total viewer count reached an estimated 2 million worldwide. The sale of consumer products such as magazines, and audio and video CDs and DVDs grew 5% in 2008 to P512 million. Of ABS-CBN Film Productions, Inc.’s eight film releases in 2008, four films were top-grossers — Sakal Sakali Saklolo; Caregiver; A Very Special Love; and For the First Time. Each of these films surpassed the P100

million mark in box-office receipts and pulled in a combined P562 million. Skycable’s contribution of P2.6 billion in subscription and other service revenues boosted total direct sales to P8.8 billion, and brought direct sales growth to 52% in 2008. Expenses ABS-CBN’s continuing efforts to institutionalize financial discipline and spending restraint ensured that expenses in core businesses were kept in check. Consequently, the Company realized savings of P237 million in total expenses from core businesses to bring it down to P17.45 billion, for a slight reduction of 1% from the previous year. Cash expenses of core businesses went down by P429 million or 3% to P14.9 billion for the full year, mostly from savings in production costs and general and administrative expenses. Non-cash expenses of core businesses totaled P2.5 billion, P193 million or 8% higher than in 2007.

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Consolidated


2008 2007

Amount %

Production Cost 6,291 6,493 (202) (3)

General and Administrative Expenses 5,089 5,360 (272) (5)

Cost of Sales and Services 3,396 3,003 394 13 Agency commission, incentives & Co-prod share 2,656 2,701 (45) (2)

Other expenses (income) 15 127 (112) 88

Total Expenses from core businesses 17,447 17,683 (237) (1)

Add: Skycable expenses 2,438 - 2,438 100

Total Expenses 19,885 17,683 2,202 12

Incorporating the expenses of Skycable, total expenses reached P19.9 billion, P2.2 billion or 12% higher than in 2007. Skycable’s cash expenses of P1.9 billion increased consolidated total cash expenses to P16.8 billion, while its non-cash expenses of P561 million brings the consolidated total non-cash expense increase to 32% over last year. Total production costs in 2008 of P6.3 billion is 3% lower than last year, with a net savings of P202 million. Personnel expenses and talent fees decreased by P115 million or 4% for the year to P2.7 billion, from P2.82 billion the previous year, while P244 million in savings were derived from production process improvements, tighter control of production crew and equipment deployment, and less equipment rentals. Conscious efforts were made by the production and engineering groups to reduce the number of taping days per program to an optimally cost-effective number without sacrificing production quality.

Consolidated


2008 2007

Amount %

Personnel expenses and talent fees 2,708 2,823 (115) (4)

Facilities-related expenses 1,092 972 120 12

Other program expenses 955 1,199 (244) (20)

Sub-total: Cash production costs 4,755 4,994 (239) (5)

Non-cash production cost 1,536 1,499 37 2

Total production cost 6,291 6,493 (202) (3)

The total cost of sales and services from core businesses grew by only 13% or P393 million to P3.4 billion. ABS-CBN Global’s cost of sales rose by only 10% or P178 million. The main cost drivers for ABS-CBN Global were higher satellite costs in North America, Europe, and Australia, as well as bandwidth and set-top box costs in Canada and Japan for IPTV services. The 18% or P216 million increase in total cost of sales and services of other subsidiaries are largely attributable to higher cable channels program amortization and facilities-related expenses. Investments made to build the brand equity and viewer following of the cable channels Maxxx, Balls and Velvet, drove the cost of program acquisitions higher.

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Consolidated


2008 2007

Amount %

ABS-CBN Global 1,980 1,802 178 10

Other subsidiaries 1,416 1,200 216 18

Total cost of sales and services 3,396 3,003 393 13

Add: SkyCable cost of sales and services 829 - 829 100

Total Cost of Sales and Services 4,225 3,003 1,222 41

Total cost of sales and services amounted to P4.2 billion with Skycable’s P829 million cost of sales included, an increase of P1.22 billion or 41% year-on-year. Operating expenses—or General and Administrative Expenses (GAEX)— of core businesses in 2008 registered a 5% decline to P5.1 billion, as net savings of P271 million were generated mainly by the parent company and ABS-CBN Global. Cash GAEX for the full year of P4.46 billion is P324 million or 7% lower than last year, while non-cash GAEX is slightly up by P53 million, or 9%. The largest contributions to the decline in GAEX came from savings in personnel expenses due to lower employee headcount from natural attrition, limited additional hiring, and incomplete replacement of employees who resigned during the year, as well as from lower advertising and promotions and utilities expenses arising from cost-containment measures.

Consolidated


2008 2007

Amount %

Personnel expenses 2,385 2,597 (211) (8)

Advertising and promotions 121 151 (30) (20)

Facilities-related expenses 474 534 (60) (11)

Contracted services 540 443 97 22

Taxes and licenses 188 177 11 6

Entertainment, amusement and recreation 100 100 0 0

Other expenses 654 785 (131) (17)

Sub-total, Cash GAEX of core businesses 4,462 4,786 (324) (7)

Non-cash GAEX of core businesses 627 574 53 9

Total GAEX from core businesses 5,089 5,360 (271) (5)

Add: SkyCable GAEX 1,840 - 1,840 100

Total GAEX 6,929 5,360 1,569 29

Skycable’s incremental contribution to total GAEX for full year amounted to P1.84 billion, of which P1.28 billion are cash GAEX, while P561 million are non-cash GAEX. With Skycable’s additional operating expenses, consolidated GAEX amounts to P6.93 billion, P1.57 billion or 29% more than last year.

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Consolidated


2008 2007

Amount %

Depreciation 622 549 73 13

Amortization 5 25 (20) (78)

Non-cash expenses of core businesses 627 574 53 9

Add: Depreciation and Amortization from SkyCable 562 - 562 100

Non-cash expenses 1,189 574 615 107

Net Income and EBITDA Net income attributable to shareholders for 2008 is P1.38 billion, a P116.7 million or 9% improvement over last year’s net income attributable to shareholders of P1.267 billion that includes P329 million of net income from non-recurring DirecTV license fees. The net income of P1.38 billion includes P77 million from a one-time accounting adjustment to comply with Philippine Financial Reporting Standard 3 that pertains to the recognition of gains from the consolidation of Skycable. Net of the accounting adjustment, core net income for 2008 of P1.307 billion, is 39% higher than the 2007 core net income of P938 million, after removing the non-recurring income from DirecTV license fees recorded in 2007. Earnings before interest, taxes, depreciation and amortization (EBITDA) for 2008 reached P6.1 billion, P1.1 billion or 21% higher over last year’s P5 billion, and yielding an EBITDA margin of 27.4% for 2008 versus 25.4% a year ago. Core EBITDA—net of the corresponding P309 million PFRS 3-related accounting adjustment—is P5.8 billion, a 28% increase over 2007’s core EBITDA of P4.55 billion, after removing P509 million of EBITDA contribution from DirecTV license fees in 2007. Balance Sheet Accounts As at December 31, 2008, total consolidated assets stood at P32.8 billion, P6.7 billion or 26% higher than year-end 2007 total assets of P26.1 billion. Cash and cash equivalents of P2.52 billion is 18% higher than the year-end 2007 balance. Consolidated trade receivables stood at P4.59 billion, P520 million or 13% higher than as at the end of 2007. Days sales outstanding is at 75 days, the same level as it was as at December 31, 2007. Total interest-bearing loans increased by about P3.2 billion or 58% to P8.71 billion versus P5.5 billion a year ago. The Company signed loan facility agreements in the 3rd quarter of 2008 for P3 billion in new loans of which P2.0 billion was drawn. The loan facility was obtained to fund current and future capital investment, including production and broadcast equipment, transmission network expansion and upgrades. The remaining increase in indebtedness is primarily attributable to the consolidation of Skycable’s debt into ABS-CBN Broadcasting Corporation’s balance sheet. Shareholders’ equity stood at P15.1 billion, a P776 million or 5% increase over the P14.3 billion at the end of 2007. The Company’s net debt-to-equity ratio increased to 0.41x versus 0.23x at the end of 2007. The Company’s debt and coverage ratios remain well within the limits prescribed under its loan covenants.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR 2007 (not restated) 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.

Consolidated

Amounts in million pesos 2007 2006 Variance

Amount %

Airtime revenue 13,605 10,663 2,942 28

Sale of services 5,299 4,712 587 12

Sale of goods 439 529 (90) (17)

License fees 548 1,117 (569) (51)


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.

Consolidated


Amount %

Parent airtime revenue 12,743 9,602 3,140 33

Other platforms 862 1,060 (199) (19)

Gross airtime revenue 13,605 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.

26

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.


Amount %

ABS-CBN Global 3,814 3,384 430 13


Total sale of services 5,299 4,712 587 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.


Amount %

ABS-CBN Global 148 244 (96) (39)

Other subsidiaries 291 285 6 2

Total sale of goods 439 529 (90) (17)

Expenses Total expenses rose 13% or Php2.02 billion in 2007 compared to 2006.

Consolidated

Amounts in million pesos 2007 2006 Variance Amount %

Production cost 6,493 5,714 778 14

General and administrative 5,527 5,135 393 8

Cost of sales and services 2,786 2,225 561 25

Agency commission, incentives, & co-prod share 2,701 2,284 417 18

Other expenses 127 252 (125) (50)

Total expenses 17,634 15,610 2,023 13

Less: non-recurring expense 33 454 (421) (93)

Total recurring expenses 17,600 15,156 2,444 16 The big-ticket expense items are production cost and general and administrative expenses (GAEX). Production cost in 2007 was up 14% or Php778 million versus the earlier year due to a higher number of in-house produced shows. Excluding non-cash charges such as depreciation and amortization of program rights, cash production cost increased 15% or Php650 million in 2007 from the earlier year.

27

Consolidated


Personnel expenses and talent fees 2,662 2,412 250 10

Facilities related expenses 972 833 139 17

Other program expenses 1,360 1,098 262 24

Sub-total -cash production cost 4,994 4,344 650 15

Non-cash production cost 1,498 1,370 128 9

Total production cost 6,493 5,714 778 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.

Consolidated


Amount %

Personnel expenses 2,597 2,078 519 25





Entertainment, amusement and recreation 100 139 (39) (28)

Other expenses 892 757 135 18

Sub-total -cash GAEX 4,953 4,630 323 7

Non-cash GAEX 574 505 69 14

Total GAEX 5,527 5,135 393 8

Less: non-recurring expense 33 454 (421) (93)

Total recurring GAEX 5,494 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 2007 2006 Variance

Amount %

ABS-CBN Global 1,635 1,215 421 35



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.

28

Amount in million pesos 2007 2006 Variance Amount %

Depreciation 1,210 1,170 40 3

Amortization 1,122 904 217 24

Non-cash expenses 2,332 2,075 257 12

Depreciation expense had a modest increase of 3%, with its share to total non-cash expenses dropping to 52% last year versus 56% in 2006. Operating and Pre-tax Income With consolidated revenues rising faster than total expenses, both operating and pre-tax income had high double-digit growth rates. For instance, pre-tax income in 2007 increased 60% year-on-year or Php847 million to Php2.26 billion. Consequently, pre-tax margin rose to 11% from 8%. The 50% drop in other net expenses last year also helped the Company boost pre-tax income and ultimately net income. Lower finance costs coupled with positive contribution from Sky Cable helped lower other net expenses. Net Income The Company raked in earnings of Php1.27 billion in 2007, up 71% year-on-year. Earnings before interest, taxes, depreciation, and amortization (EBITDA) was at a record high of Php5.06 billion in 2007, up P882 million or 21% year-on-year. The Company’s highest EBITDA prior to 2007 was in 2003, Php4.42 billion. Profitability Margins Gross profit margin for the airtime business improved seven percentage points to 32% last year from 25% in 2006. This was due to the 28% growth in airtime sales that outstripped the slower blended growth rate of 15% in production costs and revenue deductions (agency commission, incentives, and co-producers’ share). In absolute terms, gross profit soared 66% or Php1.75 billion year-on-year. While the gross profit margin for direct sales dropped six percentage points, it remained above 50%. Also, the resulting blended gross profit margin for airtime and direct sales still managed to show a two-percentage point improvement. EBITDA margin remained healthy at 25% while net income margin rose to 6% from 4%. Balance Sheet Accounts Total consolidated assets reached Php26.17 billion, 9% higher versus end-2006 level. Cash and cash equivalents reached Php2.15 billion, up 29% versus 2006. Consolidated trade and other receivables increased 12% to Php4.92 billion, with trade receivables accounting for 77% of total. Trade receivables dropped 1% to Php4 billion, translating to days sales outstanding (DSO) of 75 days versus 86 days in 2006. Other current assets dropped 20% to Php805 million due to lower pre-production expenses. Total interest-bearing loans and borrowings increased 21% to Php5.52 billion from Php4.57 billion since the Company assumed a portion of Sky Cable’s obligations to its creditors. As a result, net debt to equity ratio increased from 0.21x in 2006 to 0.24x as of end-2007.

29

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.

30

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR 2006 (not restated) ABS-CBN Broadcasting Corp.’s (ABS-CBN) net income in 2006 more than doubled to P741 million from P252 million in 2005. Despite an industry wide slowdown in ad spending particularly in 2H06, airtime revenues grew by 3% P10,663 million in 2006. In addition, revenues were boosted by license fees from the migration of DTH (direct to home) subscribers in North America to DirecTV’s platform. Expense growth, on the other hand, remained controlled due to more prudent production cost spending coupled with lower employee cost. Revenues Gross revenues, which consist of gross airtime revenues, sale of services, license fees, and sale of goods rose by 2% year on year (YoY) to P17,386 million for 2006.

Consolidated


Airtime revenues 10,663 10,334 329 3

Sale of services 5,077 4,248 829 20 License fees 1,117 1,619 (502) (31)

Sale of goods 529 846 (317) (37)

Gross revenues 17,386 17,047 339 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.

Consolidated


Amount %

Parent airtime revenues 9,602 9,362 240 3

Other platforms 1,060 971 89 9

Gross airtime revenues 10,663 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.

31

As of end-December, total subscriber base of ABS-CBN Global grew by 21% YoY, equivalent to 1.6 million viewers worldwide.


Amount %

ABS-CBN Global 3,749 3,131 618 20


Total sale of services 5,077 4,248 829 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.


Amount %

ABS-CBN Global 244 501 (258) (51)

Other subsidiaries 285 344 (59) (17)

Total sale of goods 529 846 (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.

32

Consolidated


Amount %

Production cost 5,714 5,691 24 0

General and administrative 5,135 5,847 (712) (12)

Cost of sales and services 2,417 2,374 44 2

Agency commission, incentives, & co-prod share 2,458 2,085 373 18

Other expenses 252 623 (372) (60)

Total expenses 15,976 16,620 (644) (4)

Less: non-recurring expense 467 1,420 (952) (67)

Total recurring expenses 15,508 15,200 308 2

Operating expenses, which consist of production cost, general and administrative expenses, cost of sales and services, and agency commission declined by 2% to P15,724 million in 2006. Cash operating expenses were flat while non-cash operating expenses declined by 14% YoY. If we strip-out the non-recurring charges, total opex went up by 5% to P15,257 million. Production cost was almost flat YoY at P5,714 million. Excluding non-cash charges such as depreciation and amortization of program rights, cash production cost increased slightly to P4,344 million. Talent fees, which account for 42% of total production cost, declined by 4% to P2,412 million as a result of a more efficient production planning which led to lesser number of taping days. Other program expenses, on the other hand, went up by 16% to P1,098 million due to expenses related to the Pacquiao fights coupled with increased marketing activities in the provinces to enhance the Company’s leadership nationwide.

Consolidated


Amount %

Personnel expenses and talent fees 2,412 2,513 (101) (4)

Facilities related expenses 833 840 (7) (1)

Other program expenses 1,098 946 152 16

Sub-total -cash production cost 4,344 4,300 44 1

Non-cash production cost 1,370 1,391 (20) (1)

Total production cost 5,714 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.

33

Consolidated


Amount %

Personnel expenses 2,078 2,505 (427) (17)

Advertising and promotions 520 503 16 3





Other expenses 757 816 (58) (7)

Sub-total -cash GAEX 4,630 4,995 (365) (7)

Non-cash GAEX 505 852 (347) (41)

Total GAEX 5,135 5,847 (712) (12)

Less: non-recurring expense 467 1,420 (952) (67)

Total recurring GAEX 4,667 4,427 240 5

Cost of sales and services, which is the cost related to sale of services and sale of goods, went up by 2% to P2,417 million in 2006. This compares against a 10% growth in combined sale of services and sale of goods hence reflecting margin improvement of the subsidiaries. ABS-CBN Global, which accounted for 58% of cost of sales and services, registered a 3% decline in cost of sales.


Amount %

ABS-CBN Global 1,406 1,454 47 (3)

Other subsidiaries 1,011 920 91 10


Non-cash operating expenses, composed primarily of depreciation and amortization, went down by 14% to P2,075 million in 2006 from P2,407 million in the same period last year. Bulk of the decline can be attributed to lower amortization costs which dropped by 23% to P904 million as the Company already completed the amortization of deferred subsidies on the decoder boxes of existing US DTH subscribers in 2005. Amortization of program rights, on the other hand, increased by 7% to P887 million as the Company accelerated the amortization of movies based on their commercial viability.


Amount %

Depreciation 1,170 1,235 (64) (5)

Amortization 904 1,172 (268) (23)

Non-cash expenses 2,075 2,407 (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.

34

Net Income Other expenses declined by 60% to P252 million in 2006 from P623 million in 2005. Net finance costs decreased by 10% to P648 million on the back of lower outstanding debt as of December. Other income, on the other hand, increased by 56% to P449 million from P287 million due to gate receipts from the Pacquiao-Larios boxing bout organized by the Company in July. Meanwhile, equity losses reached P52 million as against P194 million the prior year, reflecting the continued improvement in Skycable’s operations. As a result of the improvement in operating income and lower other expenses, the Company reported a net income of P742 million in 2006, 187% higher YoY. Net of minority interest, net income attributable to equity holders reached P741 million in 2006, up 194% YoY from P252 million in 2005. Similarly, earnings before interest, taxes, depreciation, and amortization (EBITDA) went up by 19% to P4,188 million, translating to an EBITDA margin of 24%. Balance Sheet Accounts Total consolidated assets reached P23,902 million, 4% lower vs end-2005. Cash and cash equivalents declined by 5% to P1,662 million. Consolidated trade and other receivables dropped by 6% to P4,382 million with trade receivables accounting for 81% of total. Trade receivables increased by 3% to P4,010 million, translating to trade days sales outstanding (DSO) of 84 days or flat vs 2005. Other current assets increased by 28% to P1,011 million due mainly to production expenses of yet to be aired episodes of the Company’s programs particularly soap operas as well as upcoming movies of ABS-CBN 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.

*SGVMC211620*

1 8 0 3

SEC Registration Number

A B S - C B N B R O A D C A S T I N G C O R P O R A T I O N A N D 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 S t r e e t c o r n e r S g t . E s g u e r r a A v e n u e , Q u e z o n C i t y

(Business Address: No. Street City/Town/Province)

Rolando P. Valdueza 415-2272 (Contact Person) (Company Telephone Number)

1 2 3 1 A A C F S 0 4 2 7 Month Day (Form Type) Month Day

(Fiscal Year) (Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section Total Amount of Borrowings

6,881 P=8.4 billion $6.0 million Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S Remarks: Please use BLACK ink for scanning purposes.

COVER SHEET

*SGVMC211620*

INDEPENDENT AUDITORS’ REPORT The Stockholders and the Board of Directors ABS-CBN Broadcasting Corporation Mother Ignacia Street corner Sgt. Esguerra Avenue Quezon City We have audited the accompanying financial statements of ABS-CBN Broadcasting Corporation and Subsidiaries, which comprise the consolidated balance sheets as at December 31, 2008 and 2007, and the consolidated statements of income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2008, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

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

A member firm of Ernst & Young Global Limited

*SGVMC211620*

- 2 -

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of ABS-CBN Broadcasting Corporation and Subsidiaries as of December 31, 2008 and 2007, and their financial performance and their cash flows for each of the three years in the period ended December 31, 2008 in accordance with Philippine Financial Reporting Standards. SYCIP GORRES VELAYO & CO. Haydee M. Reyes Partner CPA Certificate No. 83522 SEC Accreditation No. 0663-A Tax Identification No. 102-095-265 PTR No. 1566461, January 5, 2009, Makati City March 25, 2009

*SGVMC211620*

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) December 31 2008 2007 ASSETS Current Assets Cash and cash equivalents (Note 6) P=2,524,254 P=2,145,778 Trade and other receivables - net (Notes 7 and 20) 5,040,139 4,918,718 Program rights and other intangible assets - current

(Notes 4, 12 and 14) 1,439,876 1,007,394 Other current assets - net (Notes 8 and 30) 1,115,970 804,516 Total Current Assets 10,120,239 8,876,406 Noncurrent Assets Long-term receivables from related parties - net

(Notes 4, 9 and 16) – 3,893,236 Property and equipment - net (Notes 10, 16 and 28) 14,735,554 9,467,115 Goodwill (Notes 2, 4, 11 and 14) 1,906,211 20,061 Program rights and other intangible assets - noncurrent

(Notes 4, 12 and 14) 2,170,856 1,664,140 Deferred tax assets - net (Note 26) 603,191 184,352 Other noncurrent assets - net (Notes 13 and 16) 3,299,621 2,023,505 Total Noncurrent Assets 22,715,433 17,252,409 P=32,835,672 P=26,128,815

LIABILITIES AND EQUITY

Current Liabilities Trade and other payables (Notes 15 and 20) P=5,642,073 P=4,999,042 Income tax payable 489,963 53,646 Interest-bearing loans and borrowings - current portion

(Notes 9, 10, 13 and 16) 1,131,783 587,806 Obligations for program rights - current portion (Note 17) 1,063,365 790,992 Total Current Liabilities 8,327,184 6,431,486

Noncurrent Liabilities Interest-bearing loans and borrowings - net of current portion

(Notes 9, 10, 13, and 16) 7,582,621 4,927,998 Obligations for program rights - net of current portion (Note 17) 151,994 3,808 Accrued pension obligation (Note 27) 791,936 400,648 Deferred tax liability (Note 26) 632,600 – Other noncurrent liabilities (Note 18) 201,935 14,924 Total Noncurrent Liabilities 9,361,086 5,347,378 17,688,270 11,778,864

(Forward)

*SGVMC211620*

- 2 - December 31 2008 2007

Equity Attributable to Equity Holders of the Parent Company

Capital stock (Note 19) P=779,583 P=779,583 Additional paid-in capital 725,276 725,276 Cumulative translation adjustments (Note 30) (193,351) (293,460) Unrealized gain on available-for-sale investments (Note 13) 23,838 35,599 Retained earnings (Note 19) 14,121,334 13,381,026 Philippine depository receipts convertible to common shares

(Note 19) (376,324) (323,967) 15,080,356 14,304,057 Minority Interests (Notes 4 and 11) 67,046 45,894 Total Equity 15,147,402 14,349,951 P=32,835,672 P=26,128,815 See accompanying Notes to Consolidated Financial Statements.

*SGVMC211620*

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in Thousands, Except Per Share Amounts) Years Ended December 31 2008 2007 2006

REVENUE Airtime (Note 20) P=13,510,986 P=13,604,591 P=10,662,767 Sale of services (Notes 20 and 28) 8,283,372 5,298,481 4,711,550 Sale of goods 512,501 489,159 529,108 License fees (Note 28) – 548,213 1,116,978 22,306,859 19,940,444 17,020,403

EXPENSES (INCOME) General and administrative expenses

(Notes 10, 12, 13, 20, 21, 27 and 28) 6,928,390 5,360,298 5,134,682 Production costs (Notes 10, 12, 20, 22, 27 and 28) 6,290,973 6,492,806 5,714,518 Cost of sales and services

(Notes 10, 12, 20, 23, 27 and 28) 4,225,024 3,002,596 2,225,407 Agency commissions, incentives and co-producers’

share (Note 24) 2,656,359 2,700,857 2,284,314 Finance costs (Notes 16, 25 and 30) 722,117 581,859 866,972 Interest income (Notes 4, 6, 9, 20 and 25) (90,120) (111,866) (161,905) Foreign exchange loss (gain) - net 26,133 (197,553) (171,681) Equity in net losses (earnings) of associates

(Notes 9 and 13) (5,064) (11,994) 51,853 Other income - net (Notes 9, 16, 20, 25, 28 and 30) (868,729) (133,794) (333,733) 19,885,083 17,683,209 15,610,427

INCOME BEFORE INCOME TAX 2,421,776 2,257,235 1,409,976

PROVISION FOR INCOME TAX (Note 26) 1,032,075 986,470 667,432

NET INCOME P=1,389,701 P=1,270,765 P=742,544

Attributable to: Equity holders of the Parent Company (Note 31) P=1,383,464 P=1,266,744 P=740,552 Minority interests 6,237 4,021 1,992 P=1,389,701 P=1,270,765 P=742,544

Basic/Diluted Earnings per Share attributable to Equity Holders of the Parent Company (Note 31) P=1.803 P=1.648 P=0.962

See accompanying Notes to Consolidated Financial Statements.

*SGVMC211620*

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2008 (Amounts in Thousands) Minority Interests Attributed to Equity Holders of the Parent Company (Notes 4 and 11) Total Equity Cumulative Unrealized Gain Philippine Translation on Available- Receipts (PDRs) Additional Adjustments for-Sale (AFS) Retained Earnings Convertible to Capital Stock Paid-in (CTA) Investments Unappropriated Common Shares (Note 19) Capital (Note 30) (Note 13) Appropriated (Note 19) (Note 19) Total At January 1, 2008 P=779,583 P=725,276 (P=293,460) P=35,599 P=8,300,000 P=5,081,026 (P=323,967) P=14,304,057 P=45,894 P=14,349,951 Translation adjustments during

the year – – 100,109 – – – – 100,109 – 100,109 Unrealized fair value loss on AFS

investments (Note 13) – – – (11,761) – – – (11,761) – (11,761) Total income and expense

for the year recognized directly in equity – – 100,109 (11,761) – – – 88,348 – 88,348

Net income for the year – – – – – 1,383,464 – 1,383,464 6,237 1,389,701 Total income and expense

for the year – –

100,109 (11,761) –

1,383,464 –

1,471,812 6,237 1,478,049 Increase in minority interests

(Note 4) – – – – – – – – 14,915 14,915 Cash dividends declared (Note 19) – – – – – (643,156) – (643,156) – (643,156) Acquisitions of PDRs (Note 19) – – – – – – (52,357) (52,357) – (52,357) At December 31, 2008 P=779,583 P=725,276 (P=193,351) P=23,838 P=8,300,000 P=5,821,334 (P=376,324) P=15,080,356 P=67,046 P=15,147,402

At January 1, 2007 P=779,583 P=706,047 (P=179,328) P=21,105 P=8,300,000 P=4,165,094 (P=177,621) P=13,614,880 P=63,007 P=13,677,887 Cash flow hedges (Note 30) – – 214,883 – – – – 214,883 – 214,883 Translation adjustments during

the year – – (275,118) – – – – (275,118) – (275,118) Amortization of initial CTA (Note

30) – – (53,897) – – – – (53,897) – (53,897) Unrealized fair value gain on AFS

investments (Note 13) – – – 14,494 – – – 14,494 – 14,494 Total income and expense

for the year recognized directly in equity – – (114,132) 14,494 – – – (99,638) – (99,638)

Net income for the year – – – – – 1,266,744 – 1,266,744 4,021 1,270,765 Total income and expense

for the year – – (114,132) 14,494 – 1,266,744 – 1,167,106 4,021 1,171,127 Decrease in minority interests

(Note 11) – – – – – – – – (21,134) (21,134) Cash dividends declared (Note 19) – – – – – (350,812) – (350,812) – (350,812) Acquisitions of PDRs (Note 19) – – – – – – (182,258) (182,258) – (182,258) Issuances of PDRs (Note 19) – 19,229 – – – – 35,912 55,141 – 55,141 At December 31, 2007 P=779,583 P=725,276 (P=293,460) P=35,599 P=8,300,000 P=5,081,026 (P=323,967) P=14,304,057 P=45,894 P=14,349,951

*SGVMC211620*

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Minority Interests Attributed to Equity Holders of the Parent Company (Notes 4 and 11) Total Equity Cumulative Unrealized Gain Philippine Translation on Available- Receipts (PDRs) Additional Adjustments for-Sale (AFS) Retained Earnings Convertible to Capital Stock Paid-in (CTA) Investments Unappropriated Common Shares (Note 19) Capital (Note 30) (Note 13) Appropriated (Note 19) (Note 19) Total Cash flow hedges (Note 30) – – (162,281) – – – – (162,281) – (162,281) Translation adjustments during

the year – – (138,913) – – – – (138,913) – (138,913) Amortization of initial CTA

(Note 30) – – (31,328) – – – – (31,328) – (31,328) Unrealized fair value gain on AFS

investments (Note 13) – – – 21,105 – – – 21,105 – 21,105 Total income and expense

for the year recognized directly in equity – – (332,522) 21,105 – – – (311,417) – (311,417)

Net income for the year – – – – – 740,552 740,552 1,992 742,544 Total income and expense

for the year – – (332,522) 21,105 – 740,552 –

429,135 1,992 431,127 Issuance of PDRs (Note 19) – – – – – – 22,379 22,379 – 22,379 At December 31, 2006 P=779,583 P=706,047 (P=179,328) P=21,105 P=8,300,000 P=4,165,094 (P=177,621) P=13,614,880 P=63,007 P=13,677,887 See accompanying Notes to Consolidated Financial Statements.

*SGVMC211620*

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Thousands) Years Ended December 31 2008 2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=2,421,776 P=2,257,235 P=1,409,976 Adjustments for: Depreciation and amortization (Note 10) 1,841,737 1,210,190 1,170,365 Amortization of: Program rights and other intangibles

(Note 12) 1,409,964 1,270,487 1,094,167 Deferred charges (Note 13) 30,074 40,267 26,683 Debt issue costs (Note 25) 23,687 102,101 83,860 Interest expense (Note 25) 672,558 405,108 631,816 Interest income (Note 25) (90,120) (111,866) (161,905) Gain on derecognition of debt (Note 25) – 16,221 – Equity in net losses (earnings) of associates (5,064) (11,994) 51,853 Net unrealized foreign exchange loss (gain) 4,653 (108,672) (199,659) Gain on sale of property and equipment (3,498) – – Loss on acquisition and exchange of debt

(Notes 25) (309,107) (205,663) – Mark-to-market loss - net (Note 25) 216 348,887 114,974 Operating income before working capital changes 5,996,876 5,212,301 4,222,130 Provisions for: Pension expense (Note 27) 261,986 195,282 75,437 Doubtful accounts (Note 21) 194,541 102,401 94,060 Other employee benefits 44,188 44,653 43,750 Decline in value of inventory 21,591 14,830 1,200 Decrease (increase) in: Trade and other receivables (592,310) (177,806) 284,508 Other current assets 146,302 242,455 (471,590) Decrease in: Trade and other payables (388,291) (694,371) (202,298) Obligations for program rights (385,194) (284,268) (400,220) Payments of accrued pension obligation (Note 27) (98,030) (38,218) (34,156) Net cash generated from operations 5,201,659 4,617,259 3,612,821 Income tax paid (1,000,391) (921,480) (257,417) Net cash provided by operating activities 4,201,268 3,695,779 3,355,404

(Forward)

*SGVMC211620*

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Years Ended December 31 2008 2007 2006

CASH FLOWS FROM INVESTING ACTIVITIES Additions to: Property and equipment (Notes 10 and 32) (P=2,129,404) (P=707,699) (P=491,566) Program rights and other intangible assets

(Notes 12 and 32) (954,060) (1,073,186) (591,196) Cash acquired from business combination (Note 4) 836,657 – – Acquisition of minority interests (Note 4) (1,354,227) (35,904) – Decrease (increase) in: Other noncurrent assets (864,184) 267,320 (33,079) Long-term receivables from related parties – (1,251,712) – Proceeds from sale of property and equipment 75,796 33,325 2,662 Interest received 70,838 111,882 46,483 Net cash used in investing activities (4,318,584) (2,655,974) (1,066,696)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from: Long-term debt 2,049,896 2,895,498 – Bank loans 706,250 400,000 473,979 Payments of: Dividends (627,497) (347,327) – Interest (580,486) (452,656) (598,900) Bank loans (387,500) (277,859) (355,398) Long-term debt (307,869) (2,280,487) (1,798,223) Capital lease (203,161) (152,520) (114,597) Decrease in minority interests 188,005 (5,290) – Acquisition of Philippine depository receipts (Note 19) (52,357) (182,258) – Payments for the termination of cross currency swaps

and interest rate swaps (Note 30) – (393,480) – Net cash used in financing activities 785,281 (796,379) (2,393,139)

EFFECTS OF EXCHANGE RATE CHANGES AND TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS (289,489) 240,520 14,533

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 378,476 483,946 (89,898)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,145,778 1,661,832 1,751,730

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 6) P=2,524,254 P=2,145,778 P=1,661,832

See accompanying Notes to Consolidated Financial Statements.

*SGVMC211620*

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands Unless Otherwise Specified) 1. Corporate Information

ABS-CBN Broadcasting Corporation (“ABS-CBN” or “Parent Company”) is incorporated in the Philippines. The Parent Company’s core business is television and radio broadcasting. Its subsidiaries and associates are involved in the following related businesses: cable and direct-to-home (DTH) television distribution and telecommunications services overseas, movie production, audio recording and distribution, video/audio post production, and film distribution. Other activities of the subsidiaries include merchandising, internet and mobile services and publishing.

The Parent Company is 58%-owned by Lopez, Inc., a Philippine entity, the ultimate parent company.

The common shares of ABS-CBN were listed beginning July 8, 1992 and have since been traded in the Philippine Stock Exchange (PSE).

The registered office address of the Parent Company is Mother Ignacia Street corner Sgt. Esguerra Avenue, Quezon City.

The accompanying consolidated financial statements were approved and authorized for issue by the Board of Directors (BOD) on March 25, 2009, as reviewed and recommended for approval by the Audit Committee on the same date.

2. Summary of Significant Accounting Policies

Basis of Preparation The consolidated financial statements of ABS-CBN and all its subsidiaries (collectively referred to as “the Company”) have been prepared on a historical cost basis, except for derivative financial instruments and available-for-sale (AFS) investments that have been measured at fair value.

The consolidated financial statements are presented in Philippine Peso, which is the functional and presentation currency of the Parent Company. All values are rounded to the nearest thousand, except when otherwise indicated.

Statement of Compliance The consolidated financial statements of the Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRS) issued by the Philippine Financial Reporting Standards Council.

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*SGVMC211620*

Changes in Accounting Policies

Amended PFRS and Philippine Interpretations. The Company has adopted the following Philippine Interpretations which became effective January 1, 2008 and amendments to existing standards which became effective July 1, 2008:

§ Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions

This interpretation requires arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme by the entity even if (a) the entity chooses or is required to buy those equity instruments (e.g., treasury shares) from another party, or (b) the shareholder(s) of the entity provide the equity instruments needed. It also provides guidance on how subsidiaries, in their separate financial statements, account for such schemes when their employees receive rights to the equity instruments of the parent. This interpretation did not have an impact to the Company as it currently does not have any stock option plan.

§ Philippine Interpretation IFRIC 12, Service Concession Arrangements

This interpretation applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements. This interpretation did not have an impact to the Company as it has no service concession arrangements.

§ Philippine IFRIC 14, Philippine Accounting Standards (PAS) 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

This interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognized as an asset under PAS 19, Employee Benefits. This interpretation did not have an impact to the Company as all defined benefit schemes are currently not fully funded.

§ Amendments to PAS 39, Financial Instruments: Recognition and Measurement, and PFRS 7, Financial Instruments: Disclosures - Reclassification of Financial Assets

The amendments allow reclassification of certain held-for-trading investments to either held-to-maturity (HTM), loans and receivables or AFS financial instruments and certain AFS to loans and receivables. The Company does not have investments eligible for reclassification under the amendments.

Voluntary Change in Accounting for Acquisition of Minority Interest. In 2008, the Company changed its accounting for acquisition of minority interest from entity concept method to parent entity extension method to be aligned with the accounting policy of Benpres Holdings Corporation (Benpres), its intermediate holding company. Under parent entity extension method, the difference between the fair value of the consideration and the net book value of the net assets acquired is presented as goodwill. The change was accounted for retrospectively and the 2007 consolidated financial statements have been restated. The changed resulted in the increase and decrease in the “Goodwill” and “Excess of acquisition cost over the carrying value of minority

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*SGVMC211620*

interests”, a separate component of equity, respectively, by P=20 million. There was no impact on the consolidated net income for the years ended December 31, 2007 and 2006.

Basis of Consolidation The consolidated financial statements include the financial statements of the Parent Company and its subsidiaries as of December 31 each year. Control is normally evidenced when the Parent Company owns, either directly or indirectly, more than 50% of the voting rights of an entity’s capital stock.

Following is a list of the subsidiaries or companies, which ABS-CBN controls as of December 31, 2008, 2007 and 2006:

Place of Functional Ownership Interest Company Incorporation Principal Activities Currency 2008 2007 2006 ABS-CBN Global Ltd.

(ABS-CBN Global) (a) (l) Cayman Islands Holding company United States Dollar

(USD) 100.0 100.0 100.0

ABS-CBN International (b) (l) California, USA Cable and satellite programming services

USD 98.0 98.0 98.0

ABS-CBN Australia Pty. Ltd. (ABS-CBN Australia) (b) (l)

Victoria, Australia Cable and satellite programming services

Australian Dollar (AUD)

100.0 100.0 100.0

ABS-CBN Telecom North America, Inc.) (b) (l)

California, USA Telecommunications USD 100.0 100.0 100.0

The Filipino Channel Canada, ULC (ABS-CBN Canada)(b) (c) (l)

Canada Cable and satellite programming services

Canadian Dollar (CAD)

100.0 100.0 –

ABS-CBN Europe Ltd. (ABS-CBN Europe) (b) (d) (l)

United Kingdom Cable and satellite programming services

Great Britain Pound (GBP)

100.0 100.0 100.0

ABS-CBN Japan, Inc. (ABS-CBN Japan) (b) (e) (l) (m)

Japan Cable and satellite programming services

Japanese Yen (JPY) 100.0 100.0 100.0

ABS-CBN Middle East FZ-LLC (ABS-CBN Middle East) (b) (l)

Dubai, UAE Cable and satellite programming services

USD 100.0 100.0 100.0

ABS-CBN Middle East LLC (b) (l)

Dubai, UAE Trading USD 100.0 100.0 100.0

E-Money Plus, Inc. (b) Philippines Services - money remittance

Philippine Peso 100.0 100.0 100.0

ABS-CBN Center for Communication Arts, Inc. (f)

Philippines Educational/training Philippine Peso 100.0 100.0 100.0

ABS-CBN Film Productions, Inc. (ABS-CBN Films)

Philippines Movie production Philippine Peso 100.0 100.0 100.0

ABS-CBN Interactive, Inc. (ABS-CBN Interactive)

Philippines Services - interactive media


ABS-CBN Multimedia, Inc. (ABS-CBN Multimedia) (see Note 11) (g)

Philippines Digital electronic content distribution


ABS-CBN Integrated and Strategic Property Holdings, Inc.

Philippines Real estate Philippine Peso 100.0 100.0 100.0

ABS-CBN Publishing, Inc. (ABS-CBN Publishing)

Philippines Print publishing Philippine Peso 100.0 100.0 100.0

Culinary Publications, Inc. (h) Philippines Print publishing Philippine Peso 70.0 70.0 70.0 Creative Programs, Inc. (CPI) Philippines Content development and

programming services Philippine Peso 100.0 100.0 100.0

Professional Services for Television & Radio, Inc.

Philippines Services - production Philippine Peso 100.0 100.0 100.0

Sarimanok News Network, Inc. Philippines Content development and programming services


Sky Films, Inc. (i) Philippines Services - film distribution

Philippine Peso – – 100.0

Star Recording, Inc. Philippines Audio and video production and distribution


Star Songs, Inc. Philippines Music publishing Philippine Peso 100.0 100.0 100.0

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*SGVMC211620*

Place of Functional Ownership Interest Company Incorporation Principal Activities Currency 2008 2007 2006 Studio 23, Inc. (Studio 23) Philippines Content development and


TV Food Chefs, Inc. Philippines Services - restaurant and food


Roadrunner Network, Inc. (Roadrunner)

Philippines Services - post production Philippine Peso 98.9 98.9 98.9

Sky Cable Corporation (Sky Cable) (see Note 4)

Philippines Cable television services Philippine Peso 65.3 – –

Bright Moon Cable Networks, Inc. (j)


Cavite Cable Corporation (j) Philippines Cable television services Philippine Peso 65.3 – – Cepsil Consultancy and

Management Corporation (j) Philippines Cable television services Philippine Peso 65.3 – –

HM Cable Networks, Inc. (j) Philippines Cable television services Philippine Peso 65.3 – – HM CATV, Inc. (j) Philippines Cable television services Philippine Peso 65.3 – – Hotel Interactive Systems, Inc. (j) Philippines Cable television services Philippine Peso 65.3 – – Isla Cable TV, Inc. (j) Philippines Cable television services Philippine Peso 65.3 – – Satellite Cable TV, Inc. (j) Philippines Cable television services Philippine Peso 65.3 – – Sunvision Cable, Inc. (j) Philippines Cable television services Philippine Peso 65.3 – – Sun Cable Holdings,

Incorporated (SCHI) (j) Philippines Cable television services Philippine Peso 65.3 – –

Tarlac Cable Television Network, Inc. (j)


JMY Advantage Corporation (j) Philippines Cable television services Philippine Peso 62.0 – – Suburban Cable Network, Inc. (j) Philippines Cable television services Philippine Peso 60.7 – – Discovery Cable, Inc. (j) Philippines Cable television services Philippine Peso 45.7 – – Home-Lipa Cable, Inc. (j) Philippines Cable television services Philippine Peso 39.2 – – Pilipino Cable Corporation

(PCC) (j) (k) Philippines Cable television services Philippine Peso 65.3 – –

Bisaya Cable Television Network, Inc. (j)


Moonsat Cable Television, Inc. (j) Philippines Cable television services Philippine Peso 65.3 – – Sun Cable Systems Davao, Inc. (j) Philippines Cable television services Philippine Peso 65.3 – – Telemondial Holdings, Inc.

(THI) (j) (k) Philippines Cable television services Philippine Peso 65.3 – –

First Ilocandia CATV, Inc. (j) Philippines Cable television services Philippine Peso 59.4 – – Mactan CATV Network, Inc. (j) Philippines Cable television services Philippine Peso 59.4 – – Pacific CATV, Inc. (Pacific) (j) Philippines Cable television services Philippine Peso 59.4 – – Cebu Cable Television, Inc. (j) Philippines Cable television services Philippine Peso 41.8 – – Davao Cableworld Network,

Inc. (j) Philippines Cable television services Philippine Peso 39.2 – –

(a) With a branch in the Philippines (b)Through ABS-CBN Global

(c) Incorporated and started commercial operations in 2007 (d) With a branch in Italy (e) Incorporated in 2006 and started commercial operations in 2007 (f) Nonstock ownership interest (g ) Through ABS-CBN Interactive

(h) Through ABS-CBN Publishing (i) Merged with ABS-CBN Films in 2007 (j) Through Sky Cable (k) Subsidiary of SCHI (l) Considered as foreign subsidiaries (m) Subsidiary of ABS-CBN Europe

The financial statements of the subsidiaries are prepared for the same reporting year as the Parent Company, using consistent accounting policies. All significant intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognized in assets and liabilities, are eliminated in full on consolidation. Unrealized gains and losses are eliminated unless costs cannot be recovered.

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*SGVMC211620*

Subsidiaries are fully consolidated from the date on which control is transferred to the Company. Control is achieved when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Consolidation of subsidiaries ceases when control is transferred out of the Company. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of income from the date of acquisition or up to the date of disposal, as appropriate.

As a result of the conversion of the convertible note in Sky Cable in 2008, the related accounts of Sky Cable and subsidiaries have been included in the 2008 consolidated financial statements effective March 15, 2008 (see Note 4).

Minority Interests Minority interests represent the portion of profit or loss and net assets not held by the Company and are presented separately in the consolidated statement of income and within the equity section of the consolidated balance sheet, separately from equity attributable to equity holders of the Parent Company. This includes the equity interests in ABS-CBN International, Culinary Publications, Inc., Roadrunner and Sky Cable and its subsidiaries.

Acquisition of minority interest is accounted for using the parent entity extension method, whereby, the difference between the fair value of the consideration and net book value of the share in the net assets acquired is presented as goodwill.

The proportionate amount of the fair values of identifiable assets and liabilities upon acquisition of a consolidated subsidiary and any subsequent changes in equity of a consolidated subsidiary attributable to a minority shareholder’s interest are shown separately as “Minority interests” in the consolidated balance sheet. A minority shareholder’s interest in the results of operations of a subsidiary is shown as “Minority interests” in the consolidated statement of income. Any losses applicable to a minority shareholder in a consolidated subsidiary in excess of the minority shareholder’s equity in the subsidiary are charged against the minority interest to the extent that the minority shareholder has binding obligation to, and is able to, make good of the losses.

Business Combination and Goodwill Business combinations are accounted for using the purchase accounting method. This involves recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value.

Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Company’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash-generating units or group of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Company are assigned to those units or groups of units. Each unit or group of units to which goodwill is allocated represents the lowest level within the Company at which goodwill is monitored for internal management purposes.

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*SGVMC211620*

Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation in determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation adjustments and goodwill is recognized in the consolidated statement of income.

Goodwill on investments in associates is included in the carrying amount of the related investments.

Functional and Presentation Currency The consolidated financial statements are presented in Philippine Peso, which is ABS-CBN’s functional and presentation currency. Each entity determines its own functional currency, which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity, and items included in the financial statements of each entity are measured using that functional currency.

The functional currency of all the subsidiaries, except foreign subsidiaries, is the Philippine Peso. The functional currencies of the foreign subsidiaries are disclosed under the Basis of Consolidation section. As of reporting date, the assets and liabilities of foreign subsidiaries are translated into the presentation currency of the Company (the Philippine Peso) at the rate of exchange ruling at balance sheet date and, their statements of income are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to “Cumulative translation adjustments” account within the equity section of the consolidated balance sheet. Upon disposal of any of these foreign subsidiaries, the deferred cumulative amount recognized in equity relating to that particular foreign entity will be recognized in the consolidated statement of income.

Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value.

Financial Instruments

Date of Recognition. Financial instruments are recognized in the consolidated balance sheet when the Company becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized using the trade date. Derivatives are recognized on trade date basis.

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*SGVMC211620*

Initial Recognition of Financial Instruments. All financial instruments are initially recognized at fair value. The initial measurement of financial instruments includes transaction costs, except for securities at fair value through profit or loss (FVPL). The Company classifies its financial assets in the following categories: financial assets at FVPL, HTM investments, loans and receivables and AFS investments. Financial liabilities are classified as either financial liabilities at FVPL or other financial liabilities at amortized cost. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

Determination of Fair Value. The fair value of financial instruments traded in organized financial markets is determined by reference to quoted market bid prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs, that are active at the close of business at balance sheet date. When current bid and asking prices are not available, the price of the most recent transaction is used since it provides evidence of current fair value as long as there has not been significant change in economic circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Such techniques include using reference to similar instruments for which observable prices exist, discounted cash flows analyses, and other relevant valuation models.

Day 1 Profit. Where the transaction price in a non-active market is different to the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 profit) in the consolidated statement of income. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the “Day 1” profit amount.

Financial Assets and Liabilities at FVPL. Financial assets and liabilities at FVPL include financial assets and liabilities held for trading and financial assets and liabilities designated upon initial recognition as at FVPL. Financial assets and liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term.

Derivatives are also classified under financial assets or liabilities at FVPL, unless they are designated as hedging instruments in an effective hedge.

Financial assets or liabilities may be designated by management at initial recognition as at FVPL if any of the following criteria are met:

§ The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis;

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§ The assets and liabilities are part of a group of financial assets, liabilities or both which are managed and their performance are evaluated on a fair value basis in accordance with a documented risk management strategy; or

§ The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis that it would not be separately recorded.

Financial assets or liabilities at FVPL are recorded in the consolidated balance sheet at fair value. Subsequent changes in fair value are recognized directly in the consolidated statement of income. Interest earned or incurred is recorded as interest income or expense, respectively, while dividend income is recorded as other income according to the terms of the contract, or when the right of payment has been established.

The Company’s embedded derivative instruments are classified under this category (see Note 30).

Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as at FVPL, designated as AFS financial assets or HTM investments. After initial measurement, loans and receivables are subsequently carried at amortized cost using the effective interest rate method, less any allowance for impairment. Gains and losses are recognized in the consolidated statement income when the loans and receivables are derecognized or impaired, as well as through the amortization process.

Loans and receivables are included in current assets if maturity is within 12 months from balance sheet date. Otherwise, these are classified as noncurrent assets.

This category includes the Company’s cash and cash equivalents (see Note 6), trade and other receivables (see Note 7), and long-term receivables from related parties (see Note 9).

HTM Investments. Quoted nonderivative financial assets with fixed or determinable payments and fixed maturities are classified as HTM investments when the Company’s management has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this category. After initial measurement, HTM investments are measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between the initially recognized amount and the maturity amount, less allowance for impairment. This calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts.

Gains and losses are recognized in the consolidated statement of income when the investments are derecognized or impaired, as well as through the amortization process.

The Company has no HTM investments as of December 31, 2008 and 2007.

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AFS Financial Assets. AFS financial assets are those nonderivative financial assets that are designated as AFS or are not classified in any of the three preceding categories. After initial measurement, AFS financial assets are measured at fair value, with unrealized gains or losses being recognized as a separate component of equity until the investment is derecognized or determined to be impaired, at which time the cumulative gain or loss previously reported in equity account is included in the consolidated statement of income.

AFS financial assets are included in current assets if management intends to sell these financial assets within 12 months from balance sheet date. Otherwise, these are classified as noncurrent assets.

The Company’s AFS financial assets include investments in ordinary common shares (see Note 13).

Other Financial Liabilities. Financial liabilities are classified in this category if these are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings.

Other financial liabilities are initially recognized at fair value of the consideration received, less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any related issue costs, discount or premium. Gains and losses are recognized in the consolidated statement of income when the liabilities are derecognized, as well as through the amortization process.

Expenditures incurred in connection with availments of long-term debt are deferred and amortized using effective interest rate method over the term of the loans. Debt issue costs are netted against the related long-term debt allocated correspondingly to the current and noncurrent portion.

Classified under other financial liabilities are trade and other payables (see Note 15), interest-bearing loans and borrowings (see Note 16), obligations for program rights (see Note 17) and customers’ deposits (see Note 18).

Derivative Financial Instruments and Hedge Accounting The Company uses derivative financial instruments such as interest rate swaps and cross currency swaps to hedge its risks associated with interest rate and foreign currency fluctuations.

Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. The fair value of interest swaps and cross currency swaps is determined by reference to market values for similar instruments. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the consolidated statement of income for the current year as mark-to-market gain or loss.

For the purpose of hedge accounting, derivatives can be designated as cash flow hedges or fair value hedges, depending on the type of risk exposure.

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At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Cash Flow Hedges. Cash flow hedges are hedges of the exposures to variability in cash flows that are attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect the consolidated statement of income. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are recognized directly in equity, while any hedge ineffectiveness is recognized immediately in the consolidated statement of income.

Amounts taken to equity are transferred to the consolidated statement of income when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale or purchase occurs. Where the hedged item is the cost of a nonfinancial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the nonfinancial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognized in equity are transferred to the consolidated statement of income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to the consolidated statement of income.

The Company’s interest rates and cross currency swaps designated as cash flow hedges were terminated in 2007 as a result of the prepayment of the underlying obligation (see Note 30). There are no outstanding cash flow hedges as of December 31, 2008.

The Company has no derivatives that are designated or accounted for as fair value hedges as of December 31, 2008 and 2007.

Embedded Derivatives An embedded derivative is separated from the host contract and accounted for as derivative if all the following conditions are met: (a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristic of the host contract; (b) a separate instrument with the same terms as the embedded derivative would meet the definition of the derivative; and (c) the hybrid or combined instrument is not measured at FVPL.

The Company assesses whether embedded derivatives are required to be separated from host contracts when the Company first becomes party to the contract. Re-assessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required.

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Impairment of Financial Assets The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

Loans and Receivables. For loans and receivables carried at amortized cost, the Company first assesses whether an objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

If there is an objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition).

The carrying amount of the asset is reduced either directly or through use of an allowance account and the amount of the loss is recognized in the consolidated statement of income. Interest income continues to be accrued on the reduced carrying amount based on the original effective interest rate of the asset. If in case the receivable has proven to have no realistic prospect of future recovery, any allowance provided for such receivable is written off against the carrying value of the impaired receivable.

If in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognized in the consolidated statement of income. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

A provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognized when they are assessed as uncollectible.

Likewise, for other receivables, it was also established that accounts outstanding for less than a year should have no provision for impairment but accounts outstanding over a year should have a 100% provision, which was arrived at after assessing individually significant balances. Provision for individually non-significant balances was made on a portfolio or group basis after performing the regular review of the age and status of the individual accounts and portfolio/group of accounts relative to historical collections, changes in payment terms and other factors that may affect ability to collect payments.

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Assets Carried at Cost. If there is an objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

AFS Financial Assets. For AFS investments, the Company assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired.

In case of equity investments classified as AFS, impairment indications would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the consolidated statement of income, is removed from equity and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income. Increases in fair value after impairment are recognized directly in equity.

Derecognition of Financial Assets and Liabilities Financial Assets. A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized where:

§ the rights to receive cash flows from the asset have expired;

§ the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or

§ the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of income.

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Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated balance sheet.

Inventories Inventories, included under “Other current assets” account in the consolidated balance sheet, are valued at the lower of cost or net realizable value. Cost is determined on the weighted average method. Net realizable value of inventories that are for sale is the selling price in the ordinary course of business, less the cost of marketing and distribution. Net realizable value of inventories not held for sale is the current replacement cost. Unrealizable inventories are written off.

Preproduction Expenses Preproduction expenses, included under “Other current assets” account in the consolidated balance sheet, represent costs incurred prior to the airing of the programs or episodes. These costs include talent fees of artists and production staff and other costs directly attributable to production of programs. These are charged to expense upon airing of the related program or episodes. Costs related to previously taped episodes determined not to be aired are charged to expense.

Property and Equipment Property and equipment, except land, are carried at cost (including capitalized interest), excluding the costs of day-to-day servicing, less accumulated depreciation, amortization and impairment in value. Such cost includes the cost of replacing part of such property and equipment when that cost is incurred if the recognition criteria are met. Land is stated at cost, which includes initial purchase price and other cost directly attributable in bringing such asset to its working condition, less any impairment in value.

Subscriber’s initial installation costs, including materials, labor and overhead costs are capitalized as distribution equipment (included in the “Television, radio, movie and auxiliary equipment” account) and depreciated over a period no longer than the depreciation period of the distribution equipment. The costs of subsequent disconnection and reconnection are charged to current operations. Unissued spare parts and supplies represent major spare parts that can be used only in connection with the distribution equipment. Unissued spare parts and supplies are not depreciated but tested for impairment until become available for use. These are included in the “Other equipment” account.

When each major inspection is performed, its cost is recognized in the carrying amount of the property and equipment as a replacement if the recognition criteria are satisfied.

Depreciation and amortization are computed on a straight-line method over the useful lives of property and equipment.

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The property and equipment’s residual values, useful lives and method of depreciation and amortization are reviewed, and adjusted if appropriate, at each financial year-end.

Construction in progress represents equipment under installation and building under construction and is stated at cost which includes cost of construction and other direct costs. Construction in progress is not depreciated until such time that the relevant assets are completed and become available for operational use.

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of income in the year the asset is derecognized.

Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization in the case of intangible assets with finite lives, and any accumulated losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization on intangible assets with finite lives is recognized in the consolidated statement of income in the expense category consistent with the function of the intangible asset.

Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

A summary of the policies applied to the Company’s acquired intangible assets is as follows:

Intangible Asset Useful Lives Amortization Method Used

Impairment Testing/ Recoverable Amount Testing

Current and Noncurrent Portion

Program Rights Finite (license term or economic life, whichever is shorter)

Amortized on the basis of program usage, except for CPI, which is amortized on a straight-line method over the license term or economic life,

If the remaining expected benefit period is shorter than the Company’s initial estimates, the Company accelerates amortization of the

Based on the estimated year of usage except CPI, which is based on license term.

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Intangible Asset Useful Lives Amortization Method Used

Impairment Testing/ Recoverable Amount Testing

Current and Noncurrent Portion

whichever is shorter.

purchase price or license fee.

Story, Music and Publication Rights

Finite (useful economic benefit)

Amortized on the basis of the useful economic life.

If the remaining expected benefit period is shorter than the Company’s initial estimates, the Company accelerates amortization of the cost.

Based on the estimated year of usage.

Movie In-Process Finite No amortization, recognized as expense upon showing

If the unamortized film cost is less than the fair value of the film, the asset is written down to its recoverable amount.


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.


Current.

Cable Channels - CPI

Indefinite No amortization. Annually and more frequently when an indication of impairment exists.

Noncurrent.

Production and Distribution Business - Middle East

Finite - 25 years Amortized on a straight-line basis over the period of 25 years.


Noncurrent.

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Customer relationships acquired in a business combination (see Note 4) is amortized on a straight-line basis over the estimated customer service life ranging from three to 15 years.

Investment Properties Investment properties, except land, are measured at cost, including transaction costs, less accumulated depreciation and any impairment in value. The carrying amount includes the cost of replacing part of an existing investment property at the time the cost is incurred if the recognition criteria are met, and excludes day-to-day servicing of an investment property. Land is stated at cost less any impairment in value.

Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale.

For a transfer from investment property to owner-occupied property or inventories, the cost of property for subsequent accounting is its carrying value at the date of change in use. If the property occupied by the Company as an owner-occupied property becomes an investment property, the Company accounts for such property in accordance with the policy stated under “Property and Equipment” up to the date of change in use.

Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the statement of operations in the year of retirement or disposal.

These are included under “Other noncurrent assets” account in the consolidated balance sheet.

Investments in Associates The Company’s investments in associates, included as part of “Other noncurrent assets” account in the consolidated balance sheet, are accounted for under the equity method of accounting. An associate is an entity over which the Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.

Under the equity method, investment in associates is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Company’s share in net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized. The consolidated statement of income reflects the share on the results of operations of an associate. When ABS-CBN’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, ABS-CBN’s does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share in any changes and discloses this, when applicable, in the consolidated statement of changes in equity.

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The reporting dates of the associates and the Company are identical and the associates’ accounting policies conform to those used by the Company for like transactions and events in similar circumstances. Unrealized intercompany profits arising from the transactions with the associate are eliminated.

Tax Credits Tax credits from government airtime sales availed under Presidential Decree (PD) No. 1362 are recognized in the books upon actual airing of government commercials and advertisements. These are included under “Other noncurrent assets” account in the consolidated balance sheet.

Impairment of Nonfinancial Assets The Company assesses at each reporting date whether there is an indication that property and equipment, noncurrent program rights and other intangible assets with finite lives, and tax credits may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income. After such a reversal, the depreciation and amortization are adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

The following criteria are also applied in assessing impairment of specific nonfinancial assets:

Goodwil and Cable Channels. Goodwill and cable channels are reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill and cable channels by assessing the recoverable amount of the cash-generating units, to which the goodwill and cable channels relates. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount of the cash-generating unit (or group of cash-generating units) to which the goodwill and cable channels has been allocated, an impairment loss is recognized in the consolidated statement of income. Impairment losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in future periods. The Company performs its annual impairment test of goodwill and cable channels as of December 31 of each year.

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Investments in Associates. After application of the equity method, the Company determines whether it is necessary to recognize any additional impairment loss with respect to the Company’s net investment in the associate. The Company determines at each balance sheet date whether there is any objective evidence that the investments in associates are impaired. If this is the case, the Company calculates the amount of impairment as being the difference between the fair value of the associate and the acquisition cost and recognizes the amount in the consolidated statement of income.

Revenue Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of the revenue can be measured reliably.

Airtime revenue is recognized as income on the dates the advertisements are aired. The fair values of barter transactions are included in airtime revenue and the related accounts. These transactions represent advertising time exchanged for program materials, merchandise or service.

Sale of services include:

a. Subscription fees which are recognized as follows:

DTH Subscribers and Cable Operators. Subscription fees are recognized under the accrual basis in accordance with the terms of the agreements.

Share in DirecTV Subscription Revenue. Subscription revenue from subscribers of DirecTV who subscribe to the “The Filipino Channel” is recognized in accordance with the Deal Memorandum as discussed in Note 28.

Subscription Revenue from ABS-CBN Now. Subscription revenue from online streaming services of Filipino-oriented content and programming is received in advance (included as “Deferred revenue” under “Trade and other payables” account in the consolidated balance sheet) and is deferred and recognized as revenue over the period during which the service is performed.

Cable Subscribers. Subscription fees are recognized under the accrual basis in accordance with the terms of the agreements. Subscription fees billed or collected in advance are deferred and shown as “Deferred revenue” under “Trade and other payables” account in the consolidated balance sheet and recognized as revenue when service is rendered.

b. Telecommunications revenue which is recognized when earned. These are stated net of the share of the other telecommunications carriers, if any, under existing correspondence and interconnection agreements. Interconnection fees and charges are based on agreed rates with the other telecommunications carriers.

Income from prepaid phone cards are realized based on actual usage hours or expiration of the unused value of the card, whichever comes earlier. Income from prepaid card sales for which the related services have not been rendered as of balance sheet date, is presented as “Other current liabilities” under “Trade and other payables” account in the consolidated balance sheet.

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c. Channel lease revenue which is recognized as income on a straight-line basis over the lease term.

d. Income from film exhibition which is recognized, net of theater shares, on the dates the films are shown.

e. Income from TV rights and cable rights which are recognized on the dates the films are permitted to be publicly shown as stipulated in the agreement.

f. Pay-per-view fees are recognized on the date the movies or special programs are viewed.

License fees earned from DirecTV is recognized upon migration of the DTH subscribers of ABS-CBN International to DirecTV. The additional license fees for each migrated subscriber that will remain for 14 consecutive months from the date of activation will be recognized on the 14th month (see Note 28).

Sale of goods is recognized when delivery has taken place and transfer of risks and rewards has been completed. These are stated net of sales discounts, returns and allowances.

Income and related costs pertaining to the sale and installation of decoders and set-top boxes which has no stand alone value without the subscription revenue are aggregated and recognized ratably over the longer of subscription contract term or the estimated customer service life.

Short-messaging-system/text-based revenue, sale of news materials and Company-produced programs included under “Sale of services” account in the consolidated statement of income are recognized upon delivery.

Royalty income, included as part of “Sale of services” account in the consolidated statement of income, is recognized upon rendering of service based on the terms of the agreement and is reduced to the extent of the share of the composers or co-publishers of the songs produced for original sound recording.

Installation/reconnection/disconnection fees (shown as part of “Other income” account in the consolidated statement of income) are recognized when the services are rendered.

Management fees, included as part of “Other income” account in the consolidated statement of income, are recognized based on the terms of the management agreement.

Rental income is recognized as income on a straight-line basis over the lease term.

Interest income is recognized on a time proportion basis that reflects the effective yield on the asset.

Dividends are recognized when the shareholders’ right to receive payment is established.

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Channel License Fees Channel license fees included under “Cost of sales and services” account in the consolidated statement of income are charged to operations in the year these fees are incurred.

Leases The determination whether an arrangement is, or contains a lease is based on the substance of the arrangement at the inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:

a. there is a change in contractual terms, other than a renewal or extension of the agreement;

b. a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term;

c. there is a change in the determination of whether the fulfillment is dependent on a specified asset; or

d. there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios a, c or d and the date of renewal or extension period for scenario b.

Finance Leases. Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against the consolidated statement of income.

Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term.

Operating Leases. Leases where the Company retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income.

Operating lease payments are recognized as expense in the consolidated statement of income on a straight-line basis over the lease term.

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Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

Customers’ Deposits Customers’ deposits, included as part of “Other noncurrent liabilities” account in the consolidated balance sheet, are initially recognized at fair value. The discount is recognized as deferred revenue and amortized over the estimated remaining term of the deposit using the effective interest rate method.

Asset Retirement Obligation The net present value of legal obligations associated with the retirement of an item of property and equipment that resulted from the acquisition, construction or development and the normal operations of property and equipment is recognized in the period in which it is incurred and a reasonable estimate of the obligation can be made. This is included as part of “Other noncurrent liabilities” account in the consolidated balance sheet.

Borrowing Costs Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds.

Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset until such time that the assets are substantially ready for their intended use or sale, which necessarily take a substantial period of time. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred and ceases when the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized in the consolidated statement of income.

Pension Costs The Company’s pension plans are funded (Parent Company and Sky Cable) and unfunded (other subsidiaries) defined benefit pension plans, except for ABS-CBN International, which has a defined contribution pension plan. The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plans.

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The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognized immediately.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized, reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plans.

For ABS-CBN International, the defined contribution pension plan is composed of the contribution of ABS-CBN International or employee (or both) to the employee’s individual account. These contributions generally are invested on behalf of the employee through American Funds. Employees ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. The value of each account will fluctuate due to changes in the value of investments.

Income Taxes

Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at balance sheet date.

Deferred Tax. Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred income tax assets are recognized for all deductible temporary differences and carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) over the regular corporate income tax and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of unused tax credits from excess MCIT and unused NOLCO can be utilized. Deferred income tax, however, is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit.

Deferred income tax liabilities are not provided on nontaxable temporary differences associated with investments in domestic subsidiaries and associates. With respect to investments in other subsidiaries and associates, deferred income tax liabilities are recognized except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

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The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are measured at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred income tax to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at balance sheet date.

Income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statement of income.

Deferred income tax assets and liabilities are offset, if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Foreign Currency-denominated Transactions Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing exchange rate at balance sheet date. All differences are taken to the consolidated statement of income. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Dividends on Common Shares of the Parent Company Dividends on common shares are recognized as liability and deducted from equity when approved by the shareholders of the Parent Company. Dividends for the year that are approved after balance sheet date are dealt with as an event after balance sheet date.

Earnings Per Share (EPS) attributable to the Equity Holders of the Parent Company Basic EPS amounts are calculated by dividing the net income attributable to equity holders of the Parent Company for the year over the weighted average number of common shares outstanding during the year, with retroactive adjustments for any stock dividends and stock split.

Diluted EPS amounts are computed in the same manner, adjusted for the dilutive effect of any potential common shares. As the Company has no dilutive potential common shares outstanding, basic and diluted EPS are stated at the same amount.

Contingencies Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable.

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Events after Balance Sheet Date Any event after balance sheet date that provides additional information about the Company’s financial position at balance sheet date (adjusting events) are reflected in the consolidated financial statements. Events after balance sheet date that are not adjusting events are disclosed in the notes to consolidated financial statements when material.

Segment Reporting For management purposes, the Company’s operating businesses are organized and managed separately into three business activities. Such business segments are the bases upon which the Company reports its primary segment information. The Company operates in three geographical area where it derives its revenue. Financial information on segment reporting is presented in Note 5, Segment Information.

Future Changes in Accounting Policies The Company did not early adopt the following standards and Philippine Interpretations that have been approved but are not yet effective.

Effective in 2009

§ PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective January 1, 2009)

The amended PFRS 1 allows an entity, in its separate financial statements, to determine the cost of investments in subsidiaries, jointly controlled entities or associates (in its opening PFRS financial statements) as one of the following amounts: a) cost determined in accordance with PAS 27; b) at the fair value of the investment at the date of transition to PFRS, determined in accordance with PAS 39; or c) previous carrying amount (as determined under generally accepted accounting principles) of the investment at the date of transition to PFRS. The new requirements will not have a significant impact on the consolidated financial statements.

§ Amendments to PFRS 2, Share-based Payments - Vesting Condition and Cancellations (effective January 1, 2009)

This standard restricts the definition of “vesting condition” to a condition that includes an explicit or implicit requirement to provide services. Any other conditions are non-vesting conditions, which have to be taken into account to determine the fair value of the equity instruments granted. In the case that an award does not vest as the result of a failure to meet a non-vesting condition that is within the control of either the entity or the counterparty, this must be accounted for as cancellation. The Company has not entered into share-based payment schemes with non-vesting conditions attached and, therefore, does not expect significant impact on its consolidated financial statements.

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§ PFRS 8, Operating Segments (effective January 1, 2009)

PFRS 8 will replace PAS 14, Segment Reporting, and adopts a full management approach to reporting segment information. The information reported would be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. Such information may be different from that reported in the consolidated balance sheet and consolidated statement of income and the Company will provide explanations and reconciliations of the differences. This standard is only applicable to an entity that has debt or equity instruments that are traded in a public market or that files (or is in the process of filing) its financial statements with a securities commission or similar party. The Company will assess the impact of this standard to its current manner of reporting segment information.

§ PAS 23, Borrowing Costs (effective January 1, 2009)

The standard requires capitalization of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. In accordance with the transitional requirements in the standard, the Company will adopt this as a prospective change. The Company assessed that adoption of this amendment will have no significant impact on its consolidated financial statements.

§ Amendments to PAS 1, Presentation of Financial Statements (effective January 1, 2009)

The amended standard requires that the statement of changes in equity includes only transactions with owners and all non-owner changes are presented in equity as a single line with details included in a separate statement. The standard also introduces a new statement of comprehensive income that combines all items of income and expense recognized in profit or loss together with “other comprehensive income.” The revisions specify what is included in other comprehensive income, such as gains and losses on AFS investments, actuarial gains and losses on defined benefit pension plans and changes in the asset revaluation reserve. Entities can choose to present all items in one statement or to present two linked statements, a separate statement of income and statement of comprehensive income. The Company will apply the amended standard in 2009. The Company is still evaluating whether it will have one or two statements.

§ Amendments to PAS 27, Consolidated and Separate Financial Statements - Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective January 1, 2009)

The changes are in respect of the holding companies separate financial statements including (a) the deletion of ‘cost method’, making the distinction between pre- and post-acquisition profits no longer required; and (b) in cases of reorganizations where a new parent is inserted above an existing parent of the group (subject to meeting specific requirements), the cost of the subsidiary is the previous carrying amount of its share of equity items in the subsidiary rather than its fair value. All dividends will be recognized in profit or loss. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. The Company is currently evaluating the impact of the changes in accounting policies when it adopts the foregoing amendments on January 1, 2009.

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§ Amendments to PAS 32, Financial Instruments: Presentation, and PAS 1, Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation (effective January 1, 2009)

These amendments specify, among others, that puttable financial instruments will be classified as equity if they have all of the following specified features: (a) the instrument entitles the holder to require the entity to repurchase or redeem the instrument (either on an ongoing basis or on liquidation) for a pro rata share of the entity’s net assets, (b) the instrument is in the most subordinate class of instruments, with no priority over other claims to the assets of the entity on liquidation, (c) all instruments in the subordinate class have identical features, (d) the instrument does not include any contractual obligation to pay cash or financial assets other than the holder’s right to a pro rata share of the entity’s net assets, and (e) the total expected cash flows attributable to the instrument over its life are based substantially on the profit or loss, a change in recognized net assets, or a change in the fair value of the recognized and unrecognized net assets of the entity over the life of the instrument. The Company assessed that adoption of this amendment will have no significant impact on its consolidated financial statements.

§ Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (effective July 1, 2008)

This interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and realized in income over the period that the award credits are redeemed or expire. The Company is still evaluating the impact of adoption of this interpretation on its consolidated financial statements.

§ Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective October 1, 2008)

This interpretation provides guidance on identifying foreign currency risks that qualify for hedge accounting in the hedge of net investment; where within the group the hedging instrument can be held in the hedge of a net investment; and how an entity should determine the amount of foreign currency gains or losses, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. The Company assessed that adoption of this interpretation will have no significant impact on its consolidated financial statements.

Improvements to PFRS. In May 2008, the International Accounting Standards Board issued its first omnibus of amendments to certain standards, primarily with a view to removing inconsistencies and clarifying wording. The Company has not yet adopted the following relevant amendments and anticipates that these changes will have no material effect on the consolidated financial statements.

§ PFRS 5, Non-current Assets Held for Sale and Discontinued Operations

When a subsidiary is held for sale, all of its assets and liabilities will be classified as held for sale under PFRS 5, even when the entity retains a non-controlling interest in the subsidiary after the sale.

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§ PAS 1, Presentation of Financial Statements

Assets and liabilities classified as held for trading in accordance with PAS 39, Financial Instruments: Recognition and Measurement, are not automatically classified as current in the balance sheet.

§ PAS 16, Property, Plant and Equipment

The amendment replaces the term “net selling price” with ”fair value less costs to sell” to be consistent with PFRS 5, Non-current Assets Held for Sale and Discontinued Operations, and PAS 36, Impairment of Assets.

Items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental, are transferred to inventory when rental ceases and they are held for sale. Proceeds of such sales are subsequently shown as revenue. Cash payments on initial recognition of such items, the cash receipts from rents and subsequent sales are all shown as cash flows from operating activities.

§ PAS 19, Employee Benefits

This revises the definition of ‘past service costs’ to include reductions in benefits related to past services (‘negative past service costs’) and to exclude reductions in benefits related to future services that arise from plan amendments. Amendments to plans that result in a reduction in benefits related to future services are accounted for as a curtailment.

This also revises the definition of ‘return on plan assets’ to exclude plan administration costs if they have already been included in the actuarial assumptions used to measure the defined benefit obligation and the definition of ‘short-term’ and ‘other long-term’ employee benefits to focus on the point in time at which the liability is due to be settled and deletes the reference to the recognition of contingent liabilities to ensure consistency with PAS 37, Provisions, Contingent Liabilities and Contingent Assets.

§ PAS 23, Borrowing Costs

This revises the definition of borrowing costs to consolidate the types of items that are considered components of “borrowing costs,” i.e., components of the interest expense calculated using the effective interest rate method.

§ PAS 28, Investments in Associates

If an associate is accounted for at fair value in accordance with PAS 39, only the requirement of PAS 28 to disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or repayment of loans applies. An investment in an associate is a single asset for the purpose of conducting the impairment test. Therefore, any impairment test is not separately allocated to the goodwill included in the investment balance.

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§ PAS 31, Interests in Joint Ventures

If a joint venture is accounted for at fair value, in accordance with PAS 39, only the requirements of PAS 31 to disclose the commitments of the venturer and the joint venture, as well as summary financial information about the assets, liabilities, income and expense will apply.

§ PAS 36, Impairment of Assets

When discounted cash flows are used to estimate “fair value less cost to sell” additional disclosure is required about the discount rate, consistent with disclosures required when the discounted cash flows are used to estimate “value in use”.

§ PAS 38, Intangible Assets

Expenditure on advertising and promotional activities is recognized as an expense when the Company either has the right to access the goods or has received the services. Advertising and promotional activities now specifically include mail order catalogues.

This deletes references to there being rarely, if ever, persuasive evidence to support an amortization method for finite life intangible assets that results in a lower amount of accumulated amortization than under the straight-line method, thereby effectively allowing the use of the unit of production method.

§ PAS 39, Financial Instruments: Recognition and Measurement

Changes in circumstances relating to derivatives - specifically derivatives designated or de-designated as hedging instruments after initial recognition are not reclassifications. When financial assets are reclassified as a result of an insurance company changing its accounting policy in accordance with paragraph 45 of PFRS 4, Insurance Contracts, this is a change in circumstance, not a reclassification.

This removes the reference to a ‘segment’ when determining whether an instrument qualifies as a hedge and requires use of the revised effective interest rate (rather than the original effective interest rate) when re-measuring a debt instrument on the cessation of fair value hedge accounting.

§ PAS 40, Investment Properties

This revises the scope (and the scope of PAS 16, Property, Plant and Equipment) to include property that is being constructed or developed for future use as an investment property. Where an entity is unable to determine the fair value of an investment property under construction, but expects to be able to determine its fair value on completion, the investment under construction will be measured at cost until such time as fair value can be determined or construction is complete.

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Effective 2010

§ PFRS 3 (Revised), Business Combinations, and PAS 27 (Revised), Consolidated and Separate Financial Statements (effective July 1, 2009)

The revised standards will supersede the existing PFRS 3 and PAS 27, respectively, with earlier application permitted. PFRS 3 (Revised) introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognized, the reported results in the period in which an acquisition occurs, and future reported results. PAS 27 (Revised) requires that a change in the ownership interest of a subsidiary is accounted for as an equity transaction. Therefore, such change will have no impact on goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes introduced by PFRS 3 (Revised) must be applied prospectively while PAS 27 (Revised) must be applied retrospectively subject to certain exceptions. These will affect future acquisitions and transactions with minority interest.

§ Amendment to PAS 39, Financial Instruments: Recognition and Measurement -Eligible Hedged Items (effective July 1, 2009)

This addresses only the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. The Company assessed that adoption of this amendment will have no significant impact on its consolidated financial statements.

Effective 2012

§ Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate (effective January 1, 2012)

This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The Company assessed that adoption of this interpretation will have no significant impact on its consolidated financial statements.

3. Management’s Use of Judgments and Estimates

The Company’s consolidated financial statements prepared under PFRS require management to make judgments and estimates that affect amounts reported in the consolidated financial statements and related notes. Future events may occur which will cause the judgments and assumptions used in arriving at the estimates to change. The effects of any change in judgments and estimates are reflected in the consolidated financial statements as they become reasonably determinable.

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Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Judgments In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements:

Determination of Functional Currency. The Parent Company and all other subsidiaries and associates, except for foreign subsidiaries, have determined that their functional currency is the Philippine Peso. The Philippine Peso is the currency of the primary economic environment in which the Parent Company and all other subsidiaries and associates, except for foreign subsidiaries, operate. The Philippine Peso is also the currency that mainly influences the sale of goods and services as well as the costs of selling such goods and providing such services.

The foreign subsidiaries have determined the USD, AUD, CAD, GBP or JPY to be their functional currency. Thus, the accounts of foreign subsidiaries were translated to Philippine Peso for purposes of consolidation to the ABS-CBN Group’s accounts.

Leases. The evaluation whether an arrangement contains a lease is based on its substance. An arrangement is, or contains a lease when the fulfillment of the arrangement depends on a specific asset or assets and the arrangement conveys the right to use the asset.

The Company has entered into operating lease arrangements as a lessor and as a lessee. The Company, as a lessee, has determined that the lessor retains substantial risks and benefits of ownership of these properties, while as a lessor, the Company retains substantially all the risks and benefits of ownership of the assets adjudged due to the following circumstances:

§ the lease term is only for a limited number of years;

§ lease is renewable but there is no purchase option at a significant discount as of date; and

§ the lease payments represents solely compensation for use of asset rather than for purchase of the assets.

The Company has also entered into finance lease agreements covering certain property and equipment. The Company has determined that it bears substantially all the risks and benefits incidental to ownership of said properties adjusted due to:

§ the lease term represents substantially the full economic life in years of the asset under lease;

§ lease is renewable and there is currently a purchase option at a significant discount which the Company is likely to exercise; and

§ the lease payments represents amortization for purchase of the assets.

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The carrying amount of property and equipment under finance lease amounted to P=220 million and P=310 million as of December 31, 2008 and 2007, respectively (see Note 10).

Financial Assets not Quoted in an Active Market. The Company classifies financial assets by evaluating, among others, whether the asset is quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an active market is the determination on whether quoted prices are readily and regularly available, and whether those prices represent actual and regularly occurring market transactions on an arm’s-length basis.

Estimates The key assumptions concerning future and other key sources of estimation at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Revenue Recognition. The Company’s telecommunications revenue recognition policies require the use of estimates and assumptions that may affect the reported amounts of revenue and receivables. Revenue is stated net of the share of the other telecommunications carriers, but the definite amounts of the net share are determined subsequent to the reporting date. Thus, the Company initially estimates the amounts based on history of sharing.

The difference between the amount initially recognized and actual settlement or actual billing is recognized in the next period. However, there is no assurance that such use of estimates will not result in material adjustments in future periods.

Fair Value of Financial Instruments. PFRS requires that certain financial assets and liabilities (including derivative instruments) be carried at fair value, which requires the use of accounting estimates. The fair values of financial instruments of short-term nature and those that are subjected to monthly repricing are estimated to approximate their carrying amounts. For certain financial instruments which are not quoted in an active market, fair values are assessed to be the present value of estimated future cash flows discounted at risk-free rates applicable to the financial instrument.

The fair values of financial assets and liabilities are set out in Note 30.

Allowance for Doubtful Accounts. The Company reviews its loans and receivables at each reporting date to assess whether an allowance for impairment should be recorded in the consolidated statement of income. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes in the allowance.

The Company evaluates specific balances where management has information that certain amounts may not be collectible. In these cases, the Company uses judgment, based on available facts and circumstances, and a review of the factors that affect the collectibility of the accounts including, but not limited to, the age and status of the receivables, collection experience and past loss experience. The review is made by management on a continuing basis to identify accounts to be provided with allowance. These specific reserves are re-evaluated and adjusted as additional information received affects the amount estimated. In addition to specific allowance against individually significant receivables, the Company also makes a collective impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default

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than when originally granted. This collective allowance is based on historical default experience, current economic trends, changes in customer payment terms and other factors that may affect the Company’s ability to collect payments. The amount and timing of recorded expenses for any period would differ if the Company made different judgments or utilized different methodologies. An increase in allowance for doubtful accounts would increase the recorded operating expenses and decrease current and noncurrent assets.

The allowance is established by charges to income in the form of provision for doubtful accounts. Provision for doubtful accounts amounted to P=195 million in 2008, P=102 million in 2007 and P=94 million in 2006 (see Note 21). Trade and other receivables, net of allowance for doubtful accounts, amounted to P=5,040 million and P=4,919 million as of December 31, 2008 and 2007, respectively (see Note 7). Allowance for doubtful accounts as of December 31, 2008 and 2007 amounted to P=440 million and P=319 million, respectively (see Note 7). Long-term receivables from related parties amounted to P=3,893 million as of December 31, 2007 (see Note 9).

Net Realizable Value of Inventories. Inventories are carried at net realizable value whenever net realizable value of inventories becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes. The allowance account is reviewed on a regular basis to reflect the accurate valuation in the financial records. Inventory items identified to be obsolete and unusable are written off and charged as expense in the year such losses are identified.

Provision for decline in value of inventory amounted to P=22 million in 2008, P=15 million in 2007 and P=1 million in 2006. Inventories at net realizable value amounted to P=226 million and P=170 million as of December 31, 2008 and 2007, respectively (see Note 8).

Estimated Useful Lives of Property and Equipment and Intangible Assets. The useful life of each item of the Company’s property and equipment and intangible assets with finite life is estimated based on the period over which the asset is expected to be available for use. Estimation for property and equipment is based on a collective assessment of industry practice, internal technical evaluation and experience with similar assets while for intangible assets with finite life, estimated life is based on the life of agreement covering such intangibles. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of these assets. However, it is possible that future results of operations could be materially affected by changes in the estimates brought about by changes in the aforementioned factors. The amounts and timing of recording the depreciation and amortization for any year, with regard to the property and equipment and intangible assets would be affected by changes in these factors and circumstances. A reduction in the estimated useful life of any property and equipment or intangible assets would increase the recorded expenses and decrease noncurrent assets.

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There is no change in the estimated useful lives of property and equipment and intangible assets during the year. The carrying values of property and equipment and intangible assets with finite life are as follows (see Notes 10 and 12):

2008 2007 Property and equipment P=14,735,554 P=9,467,115 Program rights 2,408,864 2,024,563 Customer relationships 538,413 – Production and distribution business - Middle East 108,964 99,750 Movie in-process 86,962 73,648 Story, music and publication rights 5,462 5,236 Video rights and record master 2,099 8,369

Impairment of AFS Investments. The Company treats AFS investments as impaired when there has been a significant or prolonged decline in the fair value below its cost or where there is objective evidence that impairment exists. The determination of what is “significant” or “prolonged” requires judgment. The Company treats ‘significant’ generally as 20% or more of the original cost of investment, and “prolonged” as greater than 12 months. In addition, the Company evaluates other factors, including normal volatility in share price for quoted equities and the future cash flows and discount factors for unquoted equities.

As of December 31, 2008 and 2007, the carrying value of AFS investments amounted to P=371 million and P=77 million, respectively (see Note 13).

Asset Retirement Obligation. Determining asset retirement obligation requires estimation of the costs of dismantling installations and restoring leased properties to their original condition. While it is believed that the assumptions used in the estimation of such costs are reasonable, significant changes in these assumptions may materially affect the recorded expense or obligation in future periods.

Asset retirement obligation amounted to P=18 million and P=15 million as of December 31, 2008 and 2007, respectively (see Note 18).

Recognition of Deferred Tax Assets. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. However, there is no assurance that sufficient taxable profit will be generated to allow certain deferred tax assets to be utilized.

Net recognized deferred tax assets as of December 31, 2008 and 2007 amounted to P=603 million and P=184 million, respectively (see Note 26). Unrecognized deferred tax assets of subsidiaries as of December 31, 2008 and 2007 amounted to P=838 million and P=203 million, respectively.

Present Value of Pension Obligation. The cost of defined benefit obligation is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on plan assets, and future salary increases. Due to the long-term nature of these plans, such estimates are subject to uncertainty.

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The expected rate of return on plan assets was based on average historical premium on plan assets. The assumed discount rates were determined using the market yields on Philippine bonds with terms consistent with the expected employee benefit payout as of balance sheet date (see Note 27).

As of December 31, 2008 and 2007, the present value of the pension obligation of the Company amounted to P=569 million and P=860 million, respectively (see Note 27). Unrecognized net actuarial gain amounted to P=579 million as of December 31, 2008 and unrecognized net actuarial loss amounted to P=195 million as of December 31, 2007 (see Note 27).

Impairment of Nonfinancial Assets. The Company assesses impairment on assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The factors that the Company considers important which could trigger an impairment review include the following:

§ significant underperformance relative to expected historical or projected future operating results;

§ significant changes in the manner of use of the acquired assets or the strategy for overall business; and

§ significant negative industry or economic trends.

The Company recognizes an impairment loss whenever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is computed using the value in use approach. Recoverable amounts are estimated for individual assets or, if it is not possible, for the cash-generating unit to which the asset belongs.

The carrying values of noncurrent assets that are subjected to impairment testing when impairment indicators are present are as follows (see Notes 10, 12 and 13):

2008 2007 Property and equipment - net P=14,735,554 P=9,467,115 Tax credits 2,681,185 1,706,733 Program rights 1,055,011 1,095,271 Customer relationships 538,413 – Production and distribution business - Middle East 108,964 99,750 Investments in associates 43,301 43,759

In 2008, Sky Cable provided an impairment loss for tax credits amounting to P=99.7 million (see Note 13). No impairment loss for noncurrent assets was recognized in 2007 and 2006.

Impairment of Goodwill and Cable Channels. The Company performs impairment review on goodwill and cable channels annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. This requires an estimation of the value in use of the cash-generating units to which goodwill is allocated. Estimating the value in use requires the Company to make an estimate of the expected future cash flows from the cash-generating units and to make use of a suitable discount rate to calculate the present value of those future cash flows.

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*SGVMC211620*

The impairment on the goodwill and cable channels is determined by comparing: (a) the carrying amount of the cash-generating unit; and (b) the present value of the annual projected cash flows for five years and the present value of the terminal value computed under the discounted cash flow method. The key assumptions used in the impairment test of goodwill and cable channels are discussed in Note 14 to the consolidated financial statements.

The carrying amount of goodwill amounted to P=1,906 million and P=20 million (as adjusted) as of December 31, 2008 and 2007, respectively (see Note 11). The carrying amount of the cable channels amounted to P=460 million as of December 31, 2008 and 2007 (see Note 12).

Provision for impairment loss of goodwill amounted to P=23 million in 2007. No impairment loss was recognized in 2008 and 2006.

Contingencies. The Company is currently involved in various legal proceedings. The Company’s estimate of the probable costs for the resolution of these claims has been developed in consultation with outside counsel handling defense in these matters and is based upon an analysis of potential results. The Company currently does not believe these proceedings will have a material adverse effect on its consolidated financial position and results of operations. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of strategies relating to these proceedings (see Note 34).

4. Business Combination and Acquisitions

a. Conversion of Note and Advances

On June 30, 2004, Sky Vision Corporation (Sky Vision) and Sky Cable (“Issuer”) issued a convertible note (“the Note”) to the Parent Company amounting to US$30.0 million (P=1,581 million). The amount for conversion also includes advances of the Parent Company to Sky Cable amounting to P=459 million and accrued interest receivable of P=459 million. As December 31, 2007, the Note, including advances and interest, amounted to P=2,499 million (see Note 9).

The Note was subject to interest of 13.0% compounded annually and matured on June 30, 2006. The principal and accrued interest as of maturity date is mandatorily converted into common shares of the Issuer, based on the prevailing USD to Philippine Peso exchange rate on maturity date, at a conversion price equivalent to a 20% discount of: (a) the market value of the shares, in the event of a public offering of the Issuer before maturity date; (b) the valuation of the shares by an independent third party appraiser that is a recognized banking firm, securities underwriter or one of the big three international accounting firms or their Philippine affiliate jointly appointed by Lopez, Inc. and Benpres (collectively referred to as Benpres Group) and Philippine Long Distance Telephone Company and Mediaquest Holdings, Inc. (collectively referred to as PLDT Group) pursuant to the Master Consolidation Agreement dated July 18, 2001, as amended or supplemented.

The Note does not specifically state that interest shall accrue after June 30, 2006 in the event that the Note is not converted for any reason. Thus, no interest was charged after June 30, 2006. Interest income amounted to P=115 million in 2006.

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*SGVMC211620*

As of December 31, 2007, the conversion price of the Note had not yet been determined. Based on the provisions of the Note, the conversion of the Note cannot be completed without the determination of the conversion price, which in turn depends on the valuation of Sky Cable by an independent third party. Thus, the Parent Company did not convert the Note at that time without such valuation. The conversion date was effectively extended.

On May 20, 2008, the Benpres Group and the PLDT Group acknowledged the fairness and reasonableness of the valuation for Sky Cable effective March 15, 2008. Based on this final valuation of Sky Cable, the Parent Company’s convertible note of P=2,499 million, including advances and interest of P=918 million, has an equivalent subscription to 269,645,828 Sky Cable shares, representing 65.3% effective interest in Sky Cable. Consequently, for financial reporting purposes, effective March 15, 2008, Sky Cable is considered as a subsidiary of the Parent Company with a 65.3% effective interest.

On December 8, 2008, the Parent Company and Sky Vision entered into an Assignment Agreement, where the Parent Company assigned the Note in Sky Cable to Sky Vision in consideration of Philippine Depository Receipts (PDRs) to be issued by Sky Vision upon approval by the Securities and Exchange Commission (SEC) of the increase in the authorized capital stock of Sky Cable. The PDRs are convertible into the underlying Sky Cable shares discussed in the foregoing. Pursuant to this Assignment Agreement, Sky Vision is contractually bound to issue the PDRs to the Parent Company upon the issuance of the underlying Sky Cable shares to Sky Vision. Effectively, the economic interest over the underlying Sky Cable shares still remains with the Parent Company. However, Sky Vision is the legal owner of the subscription to the 65.3% effective interest in Sky Cable.

The PDR will grant the Parent Company the right, upon payment of the exercise price and subject to certain other conditions, the delivery of Sky Cable shares or the sale of and delivery of the proceeds of such sale of Sky Cable shares. The PDR may be exercised at any time by the Parent Company, thus, providing potential voting rights to the Parent Company. Any cash dividends or other cash distributions in respect of the underlying Sky Cable shares shall be distributed to the Parent Company.

The voting rights will remain with Sky Vision as legal owner. However, by virtue of the PDR, the Parent Company has economic benefits over the underlying Sky Cable shares and voting rights upon exercise of the PDRs.

As of March 25, 2009, the PDRs of Sky Vision have not yet been issued to the Parent Company pending approval by the SEC of the increase in the authorized capital stock of Sky Cable.

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*SGVMC211620*

The conversion of Note is considered as a business combination and accounted for using purchase method. Accordingly, the consideration of P=2,499 million was allocated to the identifiable assets and liabilities based on the fair values at conversion date. The fair values of the identifiable assets and liabilities of Sky Cable at the date of conversion and the corresponding carrying amounts immediately before the acquisition were:

Fair Value Recognized on

Acquisition Carrying Value Cash and cash equivalents P=836,657 P=836,657 Trade and other receivables 393,921 393,921 Prepaid expenses and other current assets 603,186 603,186 Property and equipment 4,959,816 3,547,717 Customer relationships 607,166 – Other noncurrent assets 1,378,030 1,469,630 Trade and other current liabilities (2,562,550) (2,562,550) Long-term debt (2,919,270) (2,919,270) Due to related parties (674,582) (674,582) Deferred tax liability (614,965) – Other noncurrent liabilities (213,451) (213,451) Net assets 1,793,958 P=481,258 Acquired ownership interest 65.3% Net assets acquired 1,171,275 Goodwill arising on acquisition 1,327,696 Consideration P=2,498,971

There is no cash outflow on the acquisition.

From the date of conversion of Note, Sky Cable has contributed P=29 million to the net income of the Company. If the combination had taken place at the beginning of the year, the net income for the Company would have been P=1,441 million and revenue would have been P=25,868 million.

On February 19, 2009, the BOD of ABS-CBN approved the conversion of P=1,798 million loan and P=900 million advances to PDRs with underlying 278,588,814 Sky Cable shares at conversion price of P=9.69 a share. The conversion will be considered as acquisition of minority interest. Upon conversion of the foregoing loan and advances, the effective interest of ABS-CBN will increase from 65.3% to 79.3%. The loan and advances were eliminated upon consolidation of Sky Cable to ABS-CBN.

On March 2, 2009, by virtue of a separate Assignment Agreement, ABS-CBN assigned the P=1,798 million loan to Sky Vision. As a consideration for the assignment, Sky Vision agreed to issue ABS-CBN PDRs which shall be convertible into Sky Cable shares. The terms of the agreement are similar to the Assignment Agreement discussed in the foregoing.

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*SGVMC211620*

b. Acquisition of PCC

On May 23, 2008, Sky Cable, through Sky Vision, acquired the minority interest in PCC from SCHI for a cash payment of P=1,248 million and an assumption of liability of THI of P=106 million. SCHI owns THI, which in turn owns the remaining 45.5% equity of PCC. Consequently, as of December 31, 2008, PCC became a wholly owned subsidiary of Sky Cable. The difference between the fair value of the consideration transferred and liability assumed and the carrying value of the minority interest in PCC, amounting to P=558 million, is recognized as goodwill (see Note 11).

5. Segment Information

Segment information is prepared on the following bases:

Business Segments For management purposes, the Company is organized into three business activities - broadcasting, cable and satellite, and other businesses. This segmentation is the basis upon which the Company reports its primary segment information. The broadcasting segment is principally the television and radio broadcasting activities which generates revenue from sale of national and regional advertising time. Cable and satellite business primarily develops and produces programs for cable television, including delivery of television programming outside the Philippines through its DTH satellite service, cable television channels and blocked time on television stations. In 2008, as a result of the conversion of the Note in Sky Cable (see Note 4), the cable and satellite business includes cable television services of Sky Cable and its subsidiaries in Metro Manila and in certain provincial areas in the Philippines. Other businesses include movie production, consumer products and services.

Geographical Segments Although the Company is organized into three business activities, it operates in three major geographical areas. In the Philippines, its home country, the Company is involved in broadcasting, cable operations and other businesses. In the United States and in other locations (which include Middle East, Europe, Australia, Canada and Japan), the Company operates its cable and satellite operations to bring television programming outside the Philippines.

Inter-segment Transactions Segment revenue, segment expenses and segment results include transfers among business segments and among geographical segments. The transfers are accounted for at competitive market prices charged to unrelated customers for similar services. Such transfers are eliminated upon consolidation.

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*SGVMC211620*

Business Segment Data The following tables present revenue and income information and certain asset and liability information regarding business segments for each of the three years in the period ended December 31, 2008:

Broadcasting Cable and Satellite Other Businesses Eliminations Consolidated 2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006 Revenue External sales P=12,672,124 P=13,536,874 P=11,168,763 P=8,053,504 P=4,736,012 P=4,455,323 P=1,581,231 P=1,667,558 P=1,396,317 P=– P=– P=– P=22,306,859 P=19,940,444 P=17,020,403 Inter-segment sales 45,589 74,842 217,032 204,587 128,082 103,371 112,643 168,611 236,122 (362,819) (371,535) (556,525) – – – Total revenue P=12,717,713 P=13,611,716 P=11,385,795 P=8,258,091 P=4,864,094 P=4,558,694 P=1,693,874 P=1,836,169 P=1,632,439 (P=362,819) (P=371,535) (P=556,525) P=22,306,859 P=19,940,444 P=17,020,403

Results Segment results P=1,398,536 P=1,512,804 P=815,000 P=140,729 P=191,326 P=53,128 P=116,313 P=194,545 P=96,560 P=550,535 P=485,212 P=696,794 P=2,206,113 P=2,383,887 P=1,661,482 Finance costs (617,827) (589,141) (826,957) (209,627) (24,665) (52,400) (2,170) (2,655) (177) 107,507 34,601 157,536 (722,117) (581,859) (866,972) Foreign exchange gain (loss) (78,122) 174,659 119,151 (61,712) (3,853) 35,305 113,701 26,747 17,225 – – – (26,133) 197,553 171,681 Interest income 192,013 71,318 152,141 33,433 71,504 5,159 3,026 3,645 4,605 (138,352) (34,601) – 90,120 111,866 161,905 Equity in net earnings (losses) of

associates – – – 5,064 11,994 (51,853) – – – – – – 5,064 11,994 (51,853) Other income - net 694,405 503,321 527,662 301,722 63,314 340,660 100,427 89,328 53,748 (227,825) (522,169) (733,311) 868,729 133,794 333,733 Income tax (627,627) (596,303) (375,273) (184,038) (245,001) (191,643) (138,473) (120,299) (75,365) (81,937) (24,867) (25,151) (1,032,075) (986,470) (667,432) Net income P=961,378 P=1,076,658 P=411,724 P=25,571 P=64,619 P=138,356 P=192,824 P=191,311 P=96,596 P=209,928 (P=61,824) P=95,868 P=1,389,701 P=1,270,765 P=742,544

Assets and Liabilities Investments in associates - at

equity P=6,689,619 P=3,556,588 P=3,580,822 P=– P=– P=– P=– P=– P=– (P=6,646,318) (P=3,512,829) (P=3,536,589) P=43,301 P=43,759 P=44,233 Segment assets 20,816,075 20,259,428 18,543,208 13,054,997 4,703,501 4,417,299 2,199,622 2,715,106 4,631,595 (3,881,514) (1,777,331) (4,036,600) 32,189,180 25,900,704 23,555,502

Segment liabilities P=4,787,999 P=4,294,474 P=4,176,947 5,403,789 P=2,068,630 P=1,623,141 P=806,743 P=1,680,151 P=3,908,614 (P=2,657,265) (P=1,780,195) (P=4,059,165) P=8,341,266 P=6,263,060 P=5,649,537

Other Segment Information Capital expenditures: Property and equipment P=1,380,196 P=709,836 P=442,914 P=775,181 P= 259,621 P=119,913 P=70,519 P=65,247 P=47,241 P=– P=– P=– P=2,225,896 P=1,034,704 P=610,068 Intangible assets 1,183,485 906,657 646,632 370,069 667,484 124,171 173,739 169,210 214,129 – – – 1,727,293 1,743,351 984,932 Depreciation and amortization 1,909,392 1,849,684 1,705,722 1,125,754 354,925 269,825 216,732 276,068 288,985 (177) – – 3,251,701 2,480,677 2,264,532 Noncash expenses other than

depreciation and amortization 217,850 333,364 196,649 295,033 122,945 83,590 18,818 33,856 11,539 – – – 531,701 490,165 291,778

Geographical Segment Data The following tables present revenue and expenditure and certain asset information regarding geographical segments for each of the three years in the period ended December 31, 2008:

Philippines United States Others Eliminations Consolidated 2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006 2008 2007 2006 Revenue External sales P=17,785,396 P=15,939,870 P=13,084,108 P=2,613,171 P=2,603,441 P=2,815,774 P=1,908,292 P=1,397,133 P=1,120,521 P=– P=– P=– P=22,306,859 P=19,940,444 P=17,020,403 Inter-segment sales 362,819 371,535 556,525 – – – – – – (362,819) (371,535) (556,525) – – – Total revenue P=18,148,215 P=16,311,405 P=13,640,633 P=2,613,171 P=2,603,441 P=2,815,774 P=1,908,292 P=1,397,133 P=1,120,521 (P=362,819) (P=371,535) (P=556,525) P=22,306,859 P=19,940,444 P=17,020,403

Other Segment Information Segment assets P=31,990,281 P=28,677,136 P=28,108,774 P=3,154,630 P=2,350,836 P=2,659,344 P=925,783 P=162,891 P=360,573 (P=3,881,514) (P=5,290,159) (P=7,573,189) P=32,189,180 P=25,900,704 P=23,555,502 Capital expenditures: Property and equipment 2,035,862 825,825 560,225 73,380 132,357 29,728 116,654 76,522 20,115 – – – 2,225,896 1,034,704 610,068 Intangible assets 1,727,293 1,743,351 984,932 – – – – – – – – – 1,727,293 1,743,351 984,932

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*SGVMC211620*

6. Cash and Cash Equivalents

This account consists of the following:

2008 2007 Cash on hand and in banks P=1,396,794 P=1,552,986 Cash equivalents 1,127,460 592,792 P=2,524,254 P=2,145,778

Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are short-term placements, which are made for varying periods of up to three months depending on the immediate cash requirements of the Company, and earn interest at the respective short-term placement rates.

Interest earned from cash and cash equivalents amounted to P=60 million, P=77 million and P=46 million in 2008, 2007 and 2006, respectively (see Note 25).

7. Trade and Other Receivables


2008 2007 Trade: Airtime P=2,537,684 P=2,293,259 Subscriptions 992,103 895,013 Others 1,060,765 881,482 Advances to suppliers 273,832 511,282 Advances to employees and talents 178,092 214,481 Due from related parties (see Note 20) 123,903 153,409 Others 313,866 288,622 5,480,245 5,237,548 Less allowance for doubtful accounts 440,106 318,830 P=5,040,139 P=4,918,718

Trade receivables are noninterest-bearing and are generally on 60–90 days’ terms. Advances to supplier, employees, talents and other receivables are usually settled within one year. For terms and conditions relating to due from related parties, refer to Note 20.

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*SGVMC211620*

Movements in the allowance for doubtful accounts are as follows:

Trade Airtime Subscriptions Others Nontrade Total Balance at January 1, 2008 P=204,678 P=61,048 P=21,319 P=31,785 P=318,830 Provisions (see Note 21) 55,274 117,645 18,352 3,270 194,541 Effect of business combination

(see Note 4) 34,528 1,478,893 148,101 28,942 1,690,464 Write-offs and others (13,394) (1,563,778) (161,743) (24,814) (1,763,729) Balance at December 31, 2008 P=281,086 P=93,808 P=26,029 P=39,183 P=440,106

Balance at January 1, 2007 P=440,832 P=58,187 P=22,720 P=29,430 P=551,169 Provisions (see Note 21) 47,757 9,452 19,739 25,453 102,401 Write-offs and others (283,911) (6,591) (21,140) (23,098) (334,740) Balance at December 31, 2007 P=204,678 P=61,048 P=21,319 P=31,785 P=318,830

8. Other Current Assets


2008 2007 Preproduction expenses P=374,348 P=153,486 Creditable withholding and prepaid taxes 287,328 313,087 Inventories - at net realizable value 225,660 169,565 Derivative assets (see Note 30) 16,223 – Prepaid expenses and others 212,411 168,378 P=1,115,970 P=804,516

Inventories consist mainly of materials and supplies of the Parent Company, cable, construction and installation supplies of Sky Cable and records and other consumer products held for sale by other subsidiaries. The cost of inventories carried at net realizable value amounted to P=440 million and P=216 million as of December 31, 2008 and 2007, respectively.

Prepaid expenses include prepayments for rentals, transponder services and other various projects. 9. Long-term Receivables from Related Parties

In 2007, this account consists of the following:

Convertible note (see Note 4) P=2,498,971 Long-term receivables 1,434,314 3,933,285 Less accumulated equity in net losses of Sky Vision 40,049 P=3,893,236

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*SGVMC211620*

On September 20, 2007, related to the acquisition by the Parent Company of about 66% of Sky Cable Debt from third party creditors as discussed in Note 16, Sky Cable issued two Promissory Notes to the Parent Company in the aggregate amount of P=1,798 million. As a consequence, the Parent Company became the eventual lender on record of Sky Cable due to the loans that it absorbed. The loan pays monthly interest at 3mPDST-F plus 1% with a final maturity of September 2016, as amended on February 21, 2008 (see Note 16). The Promissory Notes are further governed by the terms and conditions of the Facility Agreement dated July 2, 2004. Interest income amounted to P=13 million and P=25 million in 2008 and 2007 (see Note 25).

This amount of support of the Company to Sky Cable was in compliant with the Senior Credit Agreement (SCA) and the First Amendment Agreement dated September 14, 2007, which increased previous threshold of P=400 million aggregated advances and guarantees to P=2,250 million.

In 2007, the long-term receivables from Sky Cable were recorded at fair value amounting to P=1,434 million. Unamortized receivable discount amounted to P=364 million as of December 31, 2007. Accretion of receivable, included as part of interest income, amounted to P=9 million and P=10 million in 2008 and 2007, respectively (see Note 25).

In December 2008, the Parent Company purchased additional Sky Cable Debt for a consideration of P=103 million or 55% of the principal amount of P=188 million. The receivable from Sky Cable pays monthly interest at 3mPDST-F plus 1% with final maturity on September 2016.

In 2008, upon consolidation of Sky Cable to ABS-CBN, the long-term receivables from Sky Cable totaling P=1,537 million were eliminated and the difference between the carrying value of Sky Cable’s debt and the carrying value of ABS-CBN’s long-term receivables from Sky Cable amounting P=309 million was recognized as gain (see Note 25).

10. Property and Equipment

Details and movements of this account are as follows:

2008

Land and Land Improvements

Buildings and Improvements

Television, Radio, Movie, and Auxiliary

Equipment Other

Equipment Construction

in Progress Equipment

in Transit Total Cost Balance at beginning of year P=299,257 P=9,902,141 P=6,179,553 P=3,835,220 P=90,380 P=– P=20,306,551 Additions 53,490 71,245 912,081 676,377 512,703 – 2,225,896 Effect of business combination

(see Note 4) 77,884 101,758 4,217,493 501,271 15,410 46,000 4,959,816 Disposals/retirements – (44,283) (109,725) (117,978) (1,296) – (273,282) Reclassifications 63,510 56,421 211,693 14,758 (367,528) 21,146 – Translation adjustments – 18,933 47,121 27,657 (81,995) – 11,716 Balance at end of year 494,141 10,106,215 11,458,216 4,937,305 167,674 67,146 27,230,697 Accumulated Depreciation

and Amortization Balance at beginning of year 3,709 2,616,469 5,178,012 3,041,246 – – 10,839,436 Depreciation and amortization 156 480,915 902,359 458,307 – – 1,841,737 Disposals/retirements – (225) (98,989) (101,770) – – (200,984) Reclassifications 582 (437) (3,226) 3,081 – – – Translation adjustments – 7,065 21,064 (13,175) – – 14,954 Balance at end of year 4,447 3,103,787 5,999,220 3,387,689 – – 12,495,143 Net book value P=489,694 P=7,002,428 P=5,458,996 P=1,549,616 P=167,674 P=67,146 P=14,735,554

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*SGVMC211620*

2007

Land and Land

Improvements

Buildings and

Improvements

Television, Radio, Movie, and Auxiliary

Equipment Other

Equipment Construction

in Progress Total

Cost Balance at beginning of year P=298,983 P=9,825,584 P=5,765,479 P=3,477,171 P=115,614 P=19,482,831 Additions 274 1,072 342,649 404,747 285,962 1,034,704 Disposals/retirements – (2,735) (1,929) (80,065) (7) (84,736) Reclassifications – 104,601 113,613 57,569 (275,783) – Translation adjustments – (26,381) (40,259) (24,202) (35,406) (126,248) Balance at end of year 299,257 9,902,141 6,179,553 3,835,220 90,380 20,306,551 Accumulated Depreciation

and Amortization Balance at beginning of year 2,292 2,134,813 4,809,214 2,811,873 – 9,758,192 Depreciation and amortization 1,417 493,354 407,028 308,391 – 1,210,190 Disposals/retirements – (1,721) (984) (48,706) – (51,411) Reclassifications – (13) (3,340) 3,353 – – Translation adjustments – (9,964) (33,906) (33,665) – (77,535) Balance at end of year 3,709 2,616,469 5,178,012 3,041,246 – 10,839,436 Net book value P=295,548 P=7,285,672 P=1,001,541 P=793,974 P=90,380 P=9,467,115

The useful lives of the Company’s property and equipment are estimated as follows:

Land improvements 5 to 10 years Buildings and improvements 10 to 40 years Television, radio, movie and auxiliary equipment 10 to 15 years Other equipment 3 to 10 years

The Company determined depreciation and amortization for each significant part of an item of property and equipment.

Property and equipment of the Parent Company with a carrying amount of P=8,852 million and P=8,367 million as of December 31, 2008 and 2007, respectively, were pledged as collateral to secure the Parent Company’s long-term debt (see Note 16).

Certain property and equipment of Sky Cable and PCC with a carrying value of P=1,993 million as of December 31, 2008 were pledged as collateral to secure the long-term debt of Sky Cable and PCC (see Note 16).

Unamortized borrowing costs capitalized as part of property and equipment amounted to P=907 million and P=934 million as of December 31, 2008 and 2007, respectively. No borrowing cost was capitalized since 2002.

Property and equipment includes the following amounts where the Company is a lessee under a finance lease (see Note 28):

2008 2007 Cost - capitalized finance lease P=723,791 P=699,195 Accumulated depreciation (503,475) (389,598) Net book value P=220,316 P=309,597

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*SGVMC211620*

The land in San Juan, Metro Manila transferred by Home Cable Holdings, Inc. (Home Cable) to Sky Cable, with a carrying value of P=74 million, is subject to an ongoing litigation wherein the original sale of the land to Home Cable is being contested. It is the opinion of Sky Cable’s legal counsel that it is possible, but not probable that the claim will be settled against Sky Cable. Accordingly, no provision for any liability has been made in the consolidated financial statements. As of March 25, 2009, negotiations are still on-going.

11. Goodwill


2008

2007 (As restated -

see Note 2) Cost: Balance at beginning of year As previously reported P=42,626 P=22,565 Effect of change in accounting for

acquisition of minority interest (see Note 2) – 20,061

As restated 42,626 42,626 Effect of business combination (see Note 4) 1,327,696 –

Excess of acquisition cost over the carrying value of minority interest (see Note 4) 558,454 –

Balance at end of year 1,928,776 42,626 Accumulated impairment loss - Balance at beginning and end of year (22,565) (22,565) P=1,906,211 P=20,061

On January 29, 2007, ABS-CBN Interactive acquired the remaining 25% interest in ABS-CBN Multimedia from the latter’s individual shareholders for P=11 million. The carrying value of the interest acquired amounted to P=4 million as of the acquisition date. The excess of cash paid over the carrying value of interest acquired amounting to P=7 million was recognized as goodwill (as adjusted, see Note 2) in the 2007 consolidated balance sheet.

On December 20, 2000, ABS-CBN Interactive established an equity-settled, share-based compensation plan available to its officers and employees. In 2007, the Parent Company paid P=25 million to the officers and employees in exchange for the 11,259,447 shares allocated for the option with a total value of P=12 million as of the date of exchange. The purchase was accounted for as an acquisition of minority interest. The excess of cash paid over the value of the shares amounting to P=13 million was recognized as goodwill (as adjusted, see Note 2) in the 2007 consolidated balance sheet.

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*SGVMC211620*

12. Program Rights and Other Intangible Assets

Movements of this account are as follows:

2008

Program Rights

Story, Music and

Publication Rights

Movie In-Process

Video Rights and Record

Master Customer

Relationships

Cable Channels -

CPI

Production and

Distribution Business -

Middle East Total Balance at beginning

of year P=2,024,563 P=5,236 P=73,648 P=8,369 P=– P=459,968 P=99,750 P=2,671,534 Additions 1,554,774 7,049 161,011 4,459 – – – 1,727,293 Effect of business

combination (see Note 4) – – – – 607,166 – 607,166

Amortization and write-off (1,170,473) (6,823) (147,697) (10,729) (68,753) – (5,489) (1,409,964)

Translation adjustments – – – – – – 14,703 14,703 Balance at end of year 2,408,864 5,462 86,962 2,099 538,413 459,968 108,964 3,610,732 Less current portion 1,353,853 64 83,860 2,099 – – – 1,439,876 Noncurrent portion P=1,055,011 P=5,398 P=3,102 P=– P=538,413 P=459,968 P=108,964 P=2,170,856

2007

Program Rights

Story, Music and

Publication Rights

Movie In-Process

Video Rights and Record

Master

Cable Channels -

CPI

Production and

Distribution Business -

Middle East Total Balance at beginning of year P=1,536,958 P=4,787 P=83,561 P=7,800 P=459,968 P=124,684 P=2,217,758 Additions 1,584,303 449 137,113 21,486 – – 1,743,351 Amortization and write-off

during the year (1,096,698) – (147,026) (20,917) – (5,846) (1,270,487) Translation adjustments – – – – – (19,088) (19,088) Balance at end of year 2,024,563 5,236 73,648 8,369 459,968 99,750 2,671,534 Less current portion 929,292 61 69,672 8,369 – – 1,007,394 Noncurrent portion P=1,095,271 P=5,175 P=3,976 P=– P=459,968 P=99,750 P=1,664,140

The customer relationships acquired in a business combination relate to the core subscribers of Sky Cable postpaid, prepaid and platinum, broadband and other Sky Cable’s subsidiaries at conversion date who have sustained their relationship with Sky Cable and subsidiaries for more than a year (see Note 4).

The cable channels include Lifestyle Channel, Cinema One, and Myx Channel acquired by CPI from Sky Vision. Based on the Company’s analysis of all the relevant factors, there is no foreseeable limit to the period over which this business is expected to generate net cash inflows for the Company and therefore, assessed to have an indefinite life. As such, yearly amortization has been discontinued. The carrying amount is net of previously recognized amortization amounting to P=115 million. As of December 31, 2008 and 2007, cable channels were tested for impairment (see Note 14).

Production and distribution business for Middle East operations represents payments arising from the sponsorship agreement between Arab Digital Distribution (ADD) and ABS-CBN Middle East. This agreement grants the Company the right to operate in the Middle East with ADD as sponsor for a period of 25 years.

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*SGVMC211620*

13. Other Noncurrent Assets


2008 2007 Tax credits with tax credit certificates (TCCs) P=2,681,185 P=1,706,733 AFS investments 371,414 77,242 Investment property 66,528 – Investments in associates 43,301 43,759 Deferred charges and others - net 137,193 195,771 P=3,299,621 P=2,023,505

Tax Credits Tax credits represent claims on the government arising from airing of government commercials, advertisements and cablecast services for various government commercials. Pursuant to PD No. 1362, these will be collected in the form of tax credits which the Company can use in paying for import duties and taxes on its broadcasting and cable equipment. The tax credits cannot be used to pay for any other tax obligation to the government. The Company expects to utilize these tax credits within the next 10 years until 2018.

In 2008, Sky Cable recognized a provision for impairment of tax credits amounting to P=99.7 million included in the “General and administrative expenses” account in the consolidated statement of income.

AFS Investments AFS investments consist mainly of investments in quoted and unquoted ordinary shares. AFS investments with a carrying value of P=15 million as of December 31, 2008 and 2007 were pledged as part of the collateral to secure the Parent Company’s long-term debt (see Note 16).

The fair value adjustments on AFS investments amounting to P=12 million loss in 2008 and P=14 million and P=21 million gain in 2007 and 2006, respectively, were directly charged to equity.

On November 12, 2008, ABS-CBN Global, a subsidiary, purchased a total of 2,524,488 shares of Series P common stock of Multiply, Inc. (Multiply), a Delaware, US corporation engaged in independent social networking site, equivalent to 5% equity interest. ABS-CBN Global Cayman purchased the investment at US$1.98 per share for an aggregate purchase price of US$5 million. The Stock Purchase Agreement provides that during the two-year period immediately following the Initial Closing date, Multiply may issue additional 1,964,051 shares of Series P common stock at a the same price per share as the original purchase for an aggregate purchase price of up to US$3.9 million, in exchange for in-kind contributions of marketing and advertising supplied by ABS-CBN Global, intended to be used to acquire new users of Multiply’s services.

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*SGVMC211620*

Investment Properties This account pertains to parcel of land purchased by ABS-CBN International, with a two-storey house constructed thereon, located in Redwood City, California, USA. The real property which was acquired in July 2008 at a purchase price of US$1.4 million (P=67 million) was intended to be held by ABS-CBN International as investment property. To fund the acquisition, ABS-CBN International availed loan from Citibank North America amounting to US$1.05 million (P=50 million) (see Note 16).

Investments in Associates The following are the associates of the Company as of December 31, 2008, 2007 and 2006:

Principal Percentage Company Activities of Ownership Amcara Broadcasting Network, Incorporated

(Amcara) Services 49.0 Star Cinema Productions, Inc. (Star Cinema) Movie production 45.0 Sky Vision Investment holding 10.2

Details of the account are as follows:

2008 2007 Acquisition costs P=541,292 P=541,292 Accumulated equity in net losses: Balance at beginning of year (497,533) (497,059) Equity in net losses during the year (458) (474) Balance at end of year (497,991) (497,533) P=43,301 P=43,759

All the associates are incorporated in the Philippines.

As of December 31, 2008 and 2007, the remaining carrying value of investments in associates pertains to Amcara. Investments in Star Cinema and Sky Vision have been reduced to zero due to accumulated equity in net losses.

Condensed financial information of the associates follows:

2008 2007 Current assets P=68,380 P=1,737,793 Noncurrent assets 322,216 5,339,165 Current liabilities (219,812) (6,215,023) Noncurrent liabilities – (464,063) Net equity P=170,784 P=397,872

Revenue P=37,945 P=3,575,877 Cost and expenses (68,299) (2,918,731) Net income (loss) (P=30,354) P=657,146

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*SGVMC211620*

Deferred Charges Deferred charges as of December 31, 2008 and 2007 amounting to P=107 million and P=164 million, respectively, mainly pertain to excess of cost over revenue from sale and installation of decoders and set-top boxes. Amortization of deferred charges amounted to P=30 million, P=40 million and P=27 million in 2008, 2007 and 2006, respectively.

14. Impairment Testing of Goodwill and Cable Channels

The Company performs impairment testing annually or more frequently when there are indications of impairment for goodwill and intangible assets with infinite lives. The Company has identified that cable channels of CPI have an infinite life. The Company performed impairment testing of these assets as of December 31.

Cable channels of CPI amounted to P=460 million as of December 31, 2008 and 2007 (see Note 12).

Goodwill pertaining to an investment in a subsidiary amounting to P=23 million was fully provided with an allowance for impairment loss in 2007. There were no other impairment losses recognized in 2008 and 2006.

For the impairment test of goodwill and cable channels, the recoverable amount and the carrying amount of the cash-generating unit was compared. The recoverable amount of the cash-generating has been determined based on a value in use calculation using cash flow projections which were based on financial budgets approved by senior management of the subsidiaries covering a five-year period. Due to a low interest rate environment, the discount rate applied to the cash flow projections was 10.38% in 2008, a slight change from 10.54% in 2007. A 0-5% perpetuity growth rate was assumed at the end of the five-year forecast period.

Key Assumptions Following are the key assumptions on which management has based its cash flow projections to undertake impairment testing of goodwill and cable channels:

Gross Revenue. On the average, gross revenue of the subsidiaries over the next five years were projected to grow in line with the economy or with nominal Gross Domestic Product. This assumes that the market share of the subsidiaries in their respective industries will be flat on the assumption that the industries also grow at par with the economy. Historically, advertising spending growth had a direct correlation with economic growth.

Operating Expenses. On the average, operating expenses were projected to increase at a single-digit 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.

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*SGVMC211620*

15. Trade and Other Payables


2008 2007 Trade P=1,534,930 P=1,737,716 Accrued expenses: Salaries and other employee benefits 526,928 773,723 Taxes 335,574 595,343 Interest 260,379 13,306 Production costs and other expenses 1,366,754 1,091,421 Due to related parties (see Note 20) 797,975 242,358 Deferred revenue 467,544 324,026 Other current liabilities 351,989 221,149 P=5,642,073 P=4,999,042

Trade payables are noninterest-bearing and are normally settled on 30 to 90-day term. For terms and conditions relating to due to related parties, refer to Note 20.

Accrued interest includes PCC’s overdue and accrued interest amounting to P=133 million as of December 31, 2008 which were restructured as a Yield Recapture Obligation (YRO) and bears an interest of 5.50% per annum. The YRO shall be paid out of the excess cash of PCC at any time during the term of the loan. If there is no excess cash or the same is not sufficient to cover the YRO, PCC shall pay the YRO on November 21, 2009, the maturity date (see Note 16).

Deferred revenue pertains to subscription fees billed or received in advance. Other current liabilities include statutory liabilities.

16. Interest-bearing Loans and Borrowings

The details of this account are as follows:

2008 2007

Current Portion

Long-term Portion Total

Current Portion


Parent Company P=902,125 P=6,828,044 P=7,730,169 P=574,895 P=4,900,511 P=5,475,406 Sky Cable – 691,413 691,413 – – – PCC 212,307 – 212,307 – – – ABS-CBN International 17,351 63,164 80,515 12,911 27,487 40,398 P=1,131,783 P=7,582,621 P=8,714,404 P=587,806 P=4,927,998 P=5,515,804

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*SGVMC211620*

Parent Company

The details of interest-bearing loans and borrowings of the Parent Company are as follows: 2008 2007

Current Portion


Current Portion


Bank loans P=737,600 P=– P=737,600 P=400,000 P=– P=400,000 Term loans: SCA: Tranche B – 1,794,357 1,794,357 – 1,780,543 1,780,543 Tranche C – 403,200 403,200 – 403,200 403,200 Banco de Oro

Universal Bank (BDO) 40,327 1,286,330 1,326,657 10,100 1,323,373 1,333,473

Syndicated loans – 1,216,917 1,216,917 – 1,177,469 1,177,469 Security Bank

Corporation (Security Bank) – 989,233 989,233 – – –

Bank of the Philippine Islands (BPI) – 978,597 978,597 – – –

Obligations under capital lease (see Note 28) 124,198 159,410 283,608 164,795 215,926 380,721

P=902,125 P=6,828,044 P=7,730,169 P=574,895 P=4,900,511 P=5,475,406

Bank Loans This represents peso-denominated and dollar-denominated loans obtained from local banks which bear average annual interest rates of 8.85% in 2008 and 7.40% in 2007.

Term Loans under the SCA On June 18, 2004, the Parent Company entered into an SCA with several foreign and local banks (Original Lenders) for a US$120 million dual currency syndicated term loan facility for the purpose of refinancing existing indebtedness incurred for the construction of the Eugenio Lopez, Jr. Communications Center, additional investment in the cable television business and funding capital expenditures and working capital requirements of ABS-CBN. The SCA is classified into three groups namely:

§ Tranche A, a floating rate facility (3.5% + LIBOR) amounting to US$62 million § Tranche B, a floating rate facility (3.5% + MART1 T-bill) amounting to P=2,688 million § Tranche C, a fixed rate facility (3.5% + FXTN) amounting to P=560 million

The term loans have all been availed of in March 2005. The Parent Company’s obligations under the SCA are secured and covered by a Mortgage Trust Indenture (MTI) which consists of substantially all of the Parent Company’s real property and movable assets used in connection with its business and insurance proceeds related thereto (see Notes 10 and 13). Further, the Parent Company’s obligations under the SCA are jointly and severally guaranteed by its principal subsidiaries.

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The SCA contains provision regarding the maintenance of certain financial ratios and limiting, among others, the incurrence of additional debt, the payment of dividends, making investments, the issuing or selling of the Parent Company’s capital stock or some of its subsidiaries, the selling or exchanging of assets, creation of liens and effecting mergers. As of December 31, 2008, the Parent Company is in compliance with the provisions of the SCA.

To manage its exposures to foreign currency exchange and interest rate risks relating to the facility drawdowns, the Parent Company entered into interest rate and cross currency swap contracts with counterparty banks. These contracts were all terminated in 2007 as a result of the prepayment of the underlying Tranche A of the SCA facility (see Note 30).

On January 11, 2007, the Parent Company signed a commitment letter with the Mandated Lead Arrangers to arrange and underwrite on a firm commitment basis the refinancing/restructuring of the existing term loans. Consequently, the execution copies of the agreement amending the SCA facility was signed on March 27, 2007. The major amendments to the existing agreement that were agreed upon with the Mandated Lead Arrangers are as follows:

a. Additional amount available for drawdown amounting to US$5 million. The additional amount for drawdown was consequently drawn on March 29, 2007.

b. Bullet repayment schemes for Tranche B and Tranche C maturing in March 2012 while maintaining the original structure of the Tranche A facility with a final due date of until June 2009. Interest payments on a quarterly basis.

All outstanding US dollar-denominated loans under Tranche A amounting to US$27 million (P=1,132 million), were fully paid on December 18, 2007 from the proceeds of the P=1,350 million term loan from BDO.

c. Reduction from 3.50% to an average of about 2.20% of the applicable margins added to the benchmark interest rates.

d. All other assets, except for the Quezon City Broadcast Complex and certain broadcast machinery and equipment contained therein, are removed from the MTI and no longer form part of the security package.

e. Certain mandatory prepayment provisions are removed.

f. No financial ratio requirement on the parent company financial statements while maintaining a financial ratio requirement on a consolidated basis but at more relaxed thresholds.

g. The Company is allowed to make interest-bearing advances and guarantees to Sky Vision of up to P=400 million.

h. The Company is allowed to convert into equity outstanding advances amounting to US$30 million including interest and P=437 million, respectively, made to Sky Vision by the Parent Company and CPI (see Note 4).

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On September 14, 2007, the relevant parties to the SCA facility executed the First Amendment Agreement. The amendments centered mainly on the following provisions:

a. Allow the Company to incur additional unsecured financial indebtedness;

b. Increase the amount of support that the Company can extend to Sky Vision and/or Sky Cable from P=400 million to P=2,740 million; and

The amendment of the SCA facility substantially modified the terms of Tranche C. Accordingly, this resulted in the derecognition of the original liability and recognition of a new liability. Loss on derecognition, included as part of “Other income” account in the consolidated statement of income, amounted to P=16 million (P=11 million, net of tax) in 2007 (see Note 25).

On December 19, 2007, the relevant parties to the SCA facility executed the Second Amendment Agreement. The amendments centered mainly on the removal of the pro-rata requirement in cases of prepayment.

Term Loan Facility with BDO On December 13, 2007, the Company together with BDO, signed a P=1,350 million secured facility to refinance the entire Tranche A of the SCA facility equivalent to US$31 million. The refinancing effectively extended the maturity from June 2009 to December 2012 with an interest rate of 3mPDSTF plus 2.15%.

The BDO facility contains provision regarding the maintenance of certain financial ratios and limiting, among others, the incurrence of additional debt, the payment of dividends, making investments, the issuing or selling of the Parent Company’s capital stock or some of its subsidiaries, the selling or exchanging of assets, creation of liens and effecting mergers. As of December 31, 2008, the Parent Company is in compliance with the provisions of the BDO facility.

The Parent Company’s obligation under the BDO facility is jointly and severally guaranteed by its principal subsidiaries.

Syndicated Loans for Sky Cable Debt. In the invitation dated July 27, 2007, ABS-CBN invited holders of outstanding loan obligations of Sky Cable evidenced by promissory notes issued under the Facility Agreement dated July 2, 2004 among Sky Vision, Sky Cable, Philippine Home Cable Holdings, Inc., (“Home Cable”) and certain institutions and Equitable PCI Bank - Trust Banking (“Sky Cable Debt”) to offer to:

i. sell their Sky Cable Debt to ABS-CBN for up to 70% of the principal amount of the Sky Cable Debt (“Cash Offer”); or

ii. exchange their Sky Cable Debt for notes at up to 100% of the principal amount of the Sky Cable Debt to be exchanged (“Exchange Offer”).

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Holders of P=944 million Sky Cable Debt opted for the Cash Offer while holders of P=854 million opted for the Exchange Offer. The total loans acquired by ABS-CBN amounted to P=1,798 million or 66% of Sky Cable total outstanding debt of P=2,800 million. Thus, ABS-CBN became Sky Cable’s creditor.

Cash Offer. On September 20, 2007, ABS-CBN settled the P=944 million Sky Cable loans in the amount of P=662 million. To finance the settlement of the loans, ABS-CBN signed a syndicated loan for P=800 million with ING Bank N.V. and Mizuho Corporate Bank, Ltd., Manila Branch with Mizuho Corporate Bank, Ltd., Manila Branch acting as the facility agent. The loan is unsecured and unsubordinated with interest rate of 3mPHIBOR plus 2.75% per annum with final maturity on September 20, 2012. The total amount of money withdrawn is P=662 million.

Exchange Offer. On September 18, 2007, ABS-CBN successfully signed a syndicated loan for P=854 million with the previous lenders of Sky Cable, namely, United Coconut Planters Bank, Bank of the Philippine Islands, Mega International Commercial Bank Co., Ltd., Olga Vendivel and Wise Capital Investment & Trust Company, Inc., with Banco De Oro - EPCI, Inc. acting as the facility agent. The loan is unsecured and unsubordinated with a fixed coupon of 2% with final maturity on September 18, 2014.

The Parent Company’s obligations under these facilities are jointly and severally guaranteed by its principal subsidiaries.

Both loan facilities contain provisions regarding the maintenance of certain financial ratios and limiting, among others, the incurrence of additional debt, the payment of dividends, making investments, the issuing or selling of the Parent Company’s capital stock or some of its subsidiaries, the selling or exchanging of assets, creation of liens and effecting mergers. As of December 31, 2008, the Parent Company is in compliance with the provisions of the two facilities.

Debt discount which represents the difference between the nominal value and fair value of the debt issued related to the Exchange Offer amounted to P=298 million.

ABS-CBN recognized “Day 1” profit of P=206 million (P=144 million, net of tax) in 2007, which represents the difference between the fair value of Sky Cable Debt acquired and the fair value of the consideration given (i.e., ABS-CBN debt and cash). This was included as part of “Other income” account in the 2007 consolidated statement of income (see Note 25).

On February 21, 2008, ABS-CBN and the remaining third party creditors of Sky Cable approved the 2nd amendment of the Sky Cable Debt under a Facility Agreement. The amendment included the rescheduling of the principal amortization to commence in December 2011 with final maturity in September 2016.

Term Loan Facility with Security Bank. On August 15, 2008, the Company successfully signed a P=1,000 million loan facility with Security Bank jointly arranged by BPI Capital Corp and SB Capital Investment Corp. This was fully drawn on August 27, 2008. The funds are used for capital expenditures and general corporate purposes. The loan is unsecured, unsubordinated and guaranteed by certain of the Company’s subsidiaries. The interest rate on the loan is 3mPDSTF plus 2.15% per annum with final maturity of August 27, 2013.

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Term Loan Facility with BPI. On September 30, 2008, the Company successfully signed a P=2,000 million loan facility with BPI Bank of the Philippine Islands Asset Management and Trust Group as Investment Manager for ALFM Peso Bond Fund, Inc., Bank of the Philippine Islands Asset Management and Trust Group as Trustee for various Trust Accounts, The Philippine American Life and General Insurance Company and The Insular Life Assurance Company, Ltd., as Fixed Loan Lenders and Allied Banking Corporation and Allied Savings Bank as Variable Loan Lenders. This was jointly arranged by BPI Capital Corp. and SB Capital Investment Corp. The funds are used for capital expenditures and general corporate purposes. The loan facility is unsecured and unsubordinated and guaranteed by certain of the Company’s subsidiaries.

On October 30, 2008, the Company availed P=1,000 million from the Fixed Loan Lenders with fixed loan interest rate of 7yrPDSTF plus 1.5% per annum and final maturity of October 30, 2015.

On September 30, 2008, the Company signed the Combined Facility Agreement with Security Bank Corporation, lender of the facility agreement executed on August 15, 2008, BPI Bank of the Philippine Islands Asset Management and Trust Group as Investment Manager for ALFM Peso Bond Fund, Inc., Bank of the Philippine Islands Asset Management and Trust Group as Trustee for various Trust Accounts, The Philippine American Life and General Insurance Company and The Insular Life Assurance Company, Ltd., as Fixed Loan Lenders and Allied Banking Corporation and Allied Savings Bank as Variable Loan Lenders, all lenders of the facility agreement executed on September 30, 2008, together with BPI Capital Corp and SB Capital Investment Corp acting as joint arrangers of both facilities. The agreement shall combine both loan facilities in all material respects to be administered by BPI Asset Management and Trust Group acting as facility agent.

The debt issue cost on the combined facility which represents documentary stamp taxes, arranger, underwriting and other legal fees amounted to P=33 million.

Schedule of Maturities and Repayments

Repayments of long-term debt based on nominal values are scheduled as follows:

SCA

Syndicated Security

Bank/BPI

Tranche B Tranche C BDO Facility Loans Facilities Total 2009 P=– P=– P=43,875 P=– P=– P=43,875 2010 – – 108,000 – – 108,000 2011 – – 378,000 – – 378,000 2012 1,850,000 403,200 810,000 662,172 – 3,725,372 2013–2015 – – – 854,208 2,000,000 2,854,208

P=1,850,000 P=403,200 P=1,339,875 P=1,516,380 P=2,000,000 P=7,109,455

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Details of unamortized debt issue cost, presented as a deduction from the Company’s long-term debt as of December 31 are as follows:

2008 2007 Debt discount P=256,500 P=289,502 Transaction costs 143,994 135,393 P=400,494 P=424,895

Debt issue costs are amortized over the term of the loans using the effective interest rate method as follows:

Transactions Costs

Tranche B BDO Facility Syndicated

Loans Security

Bank/BPI Debt

Discount Total 2009 P=15,310 P=3,548 P=7,000 P= 3,506 P=36,067 P=65,431 2010 16,858 3,672 8,186 4,490 39,182 72,388 2011 18,562 3,623 9,360 5,010 42,913 79,468 2012 4,913 2,375 9,023 5,606 47,010 68,927 2013–2015 – – 9,394 13,558 91,328 114,280

P=55,643 P=13,218 P=42,963 P=32,170 P=256,500 P=400,494

Amortization of debt issue costs are as follows (see Note 25):

2008 2007 2006 Debt discount (charged to interest expense) P=33,002 P=8,699 P=– Transaction costs 23,687 102,101 P=83,860 P=56,689 P=110,800 P=83,860

The 2007 amortization includes unamortized transaction costs of US$860,000 (P=36 million) as of prepayment date of the Tranche A. This should have been amortized until the final maturity of the Tranche A in June 2009 had it not been prepaid in December 2007.

Sky Cable Under the Debt Restructuring Agreement (DRA) dated July 2, 2004, the restructured loans, which bear interest equal to the 90-day MART1 rate or the 91-day treasury bill rate in the absence of MART1, plus 1%, is payable in seven years inclusive of a two-year grace period, in 20 unequal consecutive quarterly amortizations commencing on September 30, 2006.

On February 21, 2008, ABS-CBN and the remaining third party creditors of Sky Cable approved the 2nd amendment to the Facility Agreement. The amendment includes the rescheduling of the principal amortizations to commence in December 2011 with final maturity in September 2016.

The agreement provided for certain requirements and restrictions with respect to, among others, the maintenance of certain financial ratios, capital expenditures and business acquisition outside the business plan, incurrence of additional debt, declaration of cash dividends, amendments of its Articles of Incorporation or By-laws, reorganization, undertaking a quasi reorganization, reducing its capital or change its fiscal year. In 2008, Sky Cable did not comply with one of the financial ratios required by the creditors in the agreement. On November 3, 2008, Sky Cable received a waiver of this ratio from the majority of its creditors as required by the agreement.

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The terms of the collateral trust indenture covering a portion of Sky Vision and Sky Cable’s loans provide that Sky Cable shall at all times maintain the required collateral value, which consists of various property and equipment (see Note 10) sufficient to cover at least 200% of the total outstanding amount of the loan.

The schedule of debt repayment based on the 2nd amendment to the Facility Agreement is as follows:

Year Amount 2011 P=70,718 2012 225,464 2013 55,820 2014 50,838 2015 98,561 2016 190,012 P=691,413

PCC On February 27, 2004, PCC, together with its creditors, agreed to restructure PCC’s long-term debt. The restructured debt, which bears an interest rate equal to MART1 plus a spread ranging from 2.0% to 4.5% per annum, net of taxes, is payable in 15 quarterly installments commencing on May 21, 2006.

The debt agreement provided for certain requirements and restrictions with respect to, among others, the maintenance of certain financial ratios, material purchases or disposals of property and equipment, incurrence of additional debt, declaration of cash dividends, and significant changes in the ownership or control of PCC. Starting 2005, PCC did not comply with certain financial ratios required by the creditors in the debt agreement. As a result of non-compliance with the loan covenants, the entire unpaid principal amount of the loan became due and demandable. Accordingly, the loan has been classified as current liability in the 2008 consolidated balance sheet. PCC, however, continues to service the interest payments at maturity dates based on the debt agreement and has not received any demand for payment.

As of December 31, 2008, the outstanding principal balance of the debt has been reduced to P=212.3 million and expected to be fully paid by November 2009. The interest-bearing loans are collateralized by the following:

a. Mortgage trust indenture on certain property and equipment of PCC, Sky Cable and other subsidiaries with a total carrying value of P=1,346.7 million as of December 31, 2008 (see Note 10). Sound value of the properties amounted to P=1,543.9 million as of December 31, 2008. The sound value of the collateral shall at all times be equivalent to at least 200% of the aggregate amount of the loans.

b. Joint and several suretyship agreement with Sky Vision.

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ABS-CBN International The details of interest-bearing loans and borrowings of ABS-CBN International are as follows:

2008 2007

Current Portion


Current Portion


Term loan P=1,383 P=48,290 P=49,673 P=– P=– P=– Obligations under

capital lease (see Note 28) 15,968 14,874 30,842 12,911 27,487 40,398

P=17,351 P=63,164 P=80,515 P=12,911 P=27,487 P=40,398

On August 19, 2008, ABS-CBN International availed of a loan from Citibank, North America amounting to US$1.05 million (P=50 million). The loan has a term of 15 years to be repaid based on a 20-year amortization. The loan bear interest at a fixed rate per annum equal to 125 basis points in excess of Citibank’s 15-year Cost of Funds in effect three business days prior to the funding of the Loan, which Cost of Funds rate is based on the applicable term Libor Swap Rate.

Within five years of the loan agreement, an amount not exceeding 20% of the original amount may be prepaid in any 12-month period without incurring a prepayment fee.

The schedule of debt repayment is as follows:

Year Amount 2009 P=1,383 2010 1,465 2011 1,552 2012 1,643 2013-2028 43,630 P=49,673

17. Obligations for Program Rights

This account represents liabilities to foreign and local film suppliers for program rights purchased by the Company. The liabilities are noninterest-bearing and are payable in equal monthly, quarterly or semiannually installments over a period of one to two years. The amounts presented in the consolidated balance sheet represent the face amounts of the obligations, net of unamortized discounts, which represent the difference between the face amounts and the fair values of the obligations upon initial recognition. Unamortized discounts amounted to P=16 million and P=23 million as of December 31, 2008 and 2007, respectively.

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18. Other Noncurrent Liabilities


2008 2007 Customers’ deposits P=168,114 P=– Asset retirement obligation 17,786 14,924 Deferred credits 11,740 – Others 4,295 – P=201,935 P=14,924

Customer deposits relate to Sky Cable’s subscription agreements with customers. Customers’ deposits are initially recognized at fair value. The discount is recognized as deferred credits and amortized over the estimated remaining term of the deposit as other income. Customers’ deposits are refunded to the customers upon termination of service.

19. Equity

Capital Stock Details of authorized and issued capital stock as of December 31, 2008, 2007 and 2006 are as follows:

Number

of Shares Amount Authorized - Common shares - P=1 par value 1,500,000,000 P=1,500,000

Issued - Common shares 779,583,312 P=779,583

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=1,244 million and P=1,552 million as of December 31, 2008 and 2007, respectively.

On March 25, 2009, the BOD approved the declaration of cash dividend of P=0.90 per share or an aggregate amount of P=701 million to all stockholders of record as of May 5, 2009 payable on or before May 29, 2009. On March 26, 2008, the BOD approved the declaration of cash dividend of P=0.825 per share or an aggregate amount of P=643 million to all stockholders of record as of April 30, 2008 payable on or before May 27, 2008. On March 28, 2007, the BOD approved the declaration of cash dividend of P=0.45 per share or an aggregate amount of P=351 million to all stockholders of record as of April 20, 2007 payable on May 15, 2007.

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PDRs Convertible to Common Shares

2008 2007 2006

Number of

Shares Amount Number of

Shares Amount Number of

Shares Amount

(Amounts in Thousands, Except Number of Shares)

Balance at beginning of year 12,778,120 P=323,967 8,881,071 P=177,621 10,000,000 P=200,000 Acquisitions during the year 2,998,622 52,357 5,595,790 182,258 – – Issuances during the year – – (1,698,741) (35,912) (1,118,929) (22,379) Balance at end of year 15,776,742 P=376,324 12,778,120 P=323,967 8,881,071 P=177,621

This account represents ABS-CBN PDRs held by the Parent Company which are convertible into ABS-CBN shares. These PDRs were listed in the PSE on October 7, 1999. Each PDR grants the holders, upon payment of the exercise price and subject to certain other conditions, the delivery of one ABS-CBN share or the sale of and delivery of the proceeds of such sale of one ABS-CBN share. The ABS-CBN shares are still subject to ownership restrictions on shares of corporations engaged in mass media and ABS-CBN may reject the transfer of shares to persons other than Philippine nationals. The PDRs may be exercised at any time from October 7, 1999 until the expiry date as defined in the terms of the offering. Any cash dividends or other cash distributions in respect of the underlying ABS-CBN shares shall be applied by ABS-CBN Holdings Corporation, issuer of PDRs, towards payment of operating expenses and any amounts remaining shall be distributed pro-rata among outstanding PDR holders.

In 2008, the Parent Company acquired 2,998,622 PDRs and common shares for P=52 million. In 2007, the Parent Company acquired 5,595,790 PDRs and common shares for P=182 million.

In 2007 and 2006, the Parent Company issued P=36 million and P=22 million of these PDRs, which are convertible into 1,698,741 and 1,118,929 ABS-CBN shares, respectively, to some of its officers as payment for their bonuses (see Note 20). The PDRs issued were based on quoted prices at the time of issuance.

20. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

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Transactions with Related Parties In addition to the related party transactions discussed in Notes 4, 9 and 16, significant transactions of the Company with its associates and related parties follow:

2008 2007 2006 Associates: License fees charged by CPI to Sky Cable (a),

PCC and Home Cable P=108,599 P=105,198 P=104,927 Blocktime fees paid by the Parent Company

to Amcara 40,191 – – Interest on noncurrent receivable from Sky

Cable (a) (see Notes 9 and 25) 29,683 35,280 115,424 Management fees charged to Sky Cable (a) 6,302 21,184 – Blocktime fees paid by Studio 23 to Amcara – 53,960 57,078 Affiliates: Expenses paid by the Parent Company and

subsidiaries to Manila Electric Company (Meralco), Bayan Telecommunications Holding, Inc. (Bayantel) and other related parties 540,733 424,825 413,036

Termination cost charges of Bayantel, a subsidiary of Lopez, Inc., to ABS-CBN Global 266,972 277,094 236,244

Airtime revenue from Manila North Tollways Corp. (b), Bayantel and Meralco, an associate of Lopez, Inc. 55,604 74,025 50,718

Expenses and charges paid for by the Parent Company which are reimbursed by the concerned related parties 15,661 27,859 36,862

(a) Effective March 15, 2008, Sky Cable became a subsidiary of ABS-CBN (see Note 4). (b) Disposed of in November 2008.

The related receivables from and payables to related parties, presented under “Trade and other receivables” and “Trade and other payables” accounts, respectively, in the consolidated balance sheet, are as follows:

2008 2007 Due from: Affiliates P=122,577 P=110,416 Associates 1,326 42,993 P=123,903 P=153,409

Due to: Affiliates P=468,994 P=173,180 Associates 328,981 69,178 P=797,975 P=242,358

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a. License Fees Charged by CPI to Sky Cable

CPI has an existing cable lease agreement (Agreement) with Sky Cable for the airing of the cable channels (see Note 12) to the franchise areas of Sky Cable and its cable affiliates. The initial Agreement with Sky Cable is for a period of five years effective January 1, 2001, renewable on a yearly basis upon mutual consent of both parties. Said Agreement was renewed for one year in 2006 and 2007 and under negotiation for 2008. Under the terms of the Agreement, CPI receives license fees from Sky Cable and its cable affiliates computed based on agreed percentage of subscription revenue of Sky Cable and its cable affiliates. As the owner of the said cable channels, CPI develops and produces its own shows and acquires program rights from various foreign and local suppliers.

b. Management Fees Charged to Sky Cable

The Parent Company renders management services to Sky Cable through designated employees.

c. Blocktime Fees Paid by the Parent Company and Studio 23 to Amcara

The Parent Company and Studio 23 own the program rights being aired in UHF Channel 23 of Amcara. The Parent Company and Studio 23 has an existing blocktime agreement with Amcara for its provincial operations.

d. Other transactions with associates include cash advances for working capital requirements.

Terms and Conditions of Transactions with Related Parties The sales to and purchases from related parties are made at normal market prices. Outstanding balances as of year-end are unsecured, interest-free and settlement occurs in cash, except for the long-term receivables from Sky Cable discussed in Note 9. For the years ended December 31, 2008, 2007 and 2006, the Company has not made any provision for doubtful accounts relating to amounts owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates.

As discussed in Note 16, certain obligations of the Parent Company are jointly and severally guaranteed by its principal subsidiaries.

Compensation of Key Management Personnel of the Company

2008 2007 2006 Compensation (see Note 19) P=708,705 P=492,013 P=413,692 Pension benefits (see Note 27) 45,833 43,609 47,840 Vacation leaves and sick leaves 28,818 21,628 29,484 Termination benefits 640 711 – P=783,996 P=557,961 P=491,016

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21. General and Administrative Expenses


2008 2007 2006 Personnel expenses (see Note 27) P= 2,908,300 P=2,596,516 P=2,078,012 Depreciation and amortization

(see Note 10) 1,114,599 549,000 488,064 Contracted services 777,011 443,255 447,521 Facilities related expenses

(see Notes 20 and 28) 613,642 534,107 536,905 Taxes and licenses 228,820 177,496 151,185 Provision for doubtful accounts 194,541 102,401 94,060 Advertising and promotions 178,067 150,829 519,539 Entertainment, amusement and

recreation 100,473 99,051 138,948 Amortization of deferred charges

and other intangible assets (see Notes 12 and 13) 74,242 24,934 17,075

Others (see Note 20) 738,695 682,709 663,373 P=6,928,390 P=5,360,298 P=5,134,682

Others consist mainly of transportation and travel expenses, research and survey costs and stationery and office supplies.

22. Production Costs


2008 2007 2006 Personnel expenses and talent fees

(see Note 27) P=2,708,294 P= 2,823,402 P= 2,486,384 Facilities related expenses

(see Notes 12, 20 and 28) 1,092,140 972,181 833,439 Amortization of program rights

and other rights (see Note 12) 829,761 853,470 735,425 Depreciation and amortization

(see Note 10) 705,963 645,150 635,035 Other program expenses

(see Notes 12 and 20) 954,815 1,198,603 1,024,235 P=6,290,973 P=6,492,806 P=5,714,518

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.

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23. Cost of Sales and Services


2008 2007 2006 Facilities related expenses

(see Notes 20 and 28) P=1,042,773 P=613,915 P=423,554 Personnel expenses (see Note 27) 358,279 229,051 200,592 Amortization of program rights

(see Note 12) 340,712 243,228 151,899 Termination costs (see Note 20) 228,888 285,200 374,646 Inventory cost 223,689 331,612 133,272 Depreciation and amortization

(see Note 10) 21,175 16,040 47,266 Others (see Note 20) 2,009,508 1,283,550 894,178 P=4,225,024 P=3,002,596 P=2,225,407

Others consist mainly of installation costs, licenses and royalties, service fees and delivery charges.

24. Agency Commissions, Incentives and Co-producers’ Share


2008 2007 2006 Agency commissions P=1,876,481 P=1,890,270 P=1,547,307 Incentives and co-producers’ share 779,878 810,587 737,007 P=2,656,359 P=2,700,857 P=2,284,314

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 co-producer.

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25. Other Income and Expenses

Finance Costs

2008 2007 2006 Interest expense (see Note 16) P=672,558 P=405,108 P=631,816 Bank service charges 25,872 15,527 13,607 Amortization of debt issue costs

(see Note 16) 23,687 102,101 83,860 Hedge cost (see Note 30) – 59,123 137,689 P=722,117 P=581,859 P=866,972

The following are the sources of the Company’s interest expense (see Note 16):

2008 2007 2006 Long-term debt P=577,368 P=343,289 P=563,701 Bank loans 48,973 21,929 33,673 Obligations under capital lease 46,217 39,890 34,442 P=672,558 P=405,108 P=631,816

Interest Income The following are the sources of the Company’s interest income:

2008 2007 2006 Cash and cash equivalents (see Note 6) P=60,437 P=76,586 P=46,481 Long-term receivables from related parties

(see Notes 4, 9 and 20) 29,683 35,280 115,424 P=90,120 P=111,866 P=161,905

Other Income (Charges)

2008 2007 2006 Gain on acquisition and exchange of debt

(see Notes 9 and 16) P=309,107 P=205,663 P=– Rental income (see Notes 20 and 28) 99,266 109,858 102,898 Loss on derecognition of debt

(see Note 16) – (16,221) – Royalty income 23,815 38,607 25,046 Mark-to-market loss - net (see Note 30) (216) (348,887) (114,974) Others - net (see Note 20) 436,757 144,774 320,763 P=868,729 P=133,794 P=333,733

Others mainly pertain to income from gate receipts, studio tours, management fees and other miscellaneous revenue.

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26. Income Tax

The provision for income tax follows:

2008 2007 2006 Current P=969,296 P=946,310 P=563,651 Deferred 62,779 40,160 103,781 P=1,032,075 P=986,470 P=667,432

The components of consolidated net deferred tax assets and liabilities of the Company are as follows:

2008 2007 Deferred tax assets - net: Accrued pension obligation and other

employee benefits P=322,014 P=278,864 Capitalized interest, duties and taxes

(net of accumulated depreciation) (272,324) (282,073) Allowance for impairment loss on property

and equipment 160,552 – Allowance for doubtful accounts 111,795 75,037 Accrued expenses 88,839 126,831 Gain on acquisition and exchange of debt

(net of accretion) (64,704) (61,819) MCIT 56,689 2,530 NOLCO 56,338 6,186 Customers’ deposits 37,163 38,771 Unearned revenue 36,547 – Net unrealized foreign exchange loss (gain) 16,184 (27,891) Allowance for inventory obsolescence 10,703 8,182 Mark-to-market gain (2,377) – Others 45,772 19,734 P=603,191 P=184,352

Deferred tax liabilities: Excess of the fair value over the book value of net

assets of Sky Cable P=550,664 P=– Gain on acquisition and exchange of debt 81,936 – P=632,600 P=–

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The details of the unrecognized deductible temporary differences, NOLCO and certain MCIT of the subsidiaries follow:

2008 2007 Allowance for doubtful accounts P=1,509,258 P=35,362 Allowance for decline in value of inventories 558,830 – NOLCO 491,192 520,070 Unearned revenue 62,773 – MCIT 11,207 5,081 Accrued retirement expense and others 134,790 10,220 P=2,768,050 P=570,733

Management believes that it is not probable that taxable income will be available against which the temporary differences, NOLCO and MCIT will be utilized.

MCIT of the subsidiaries amounting to P=68 million can be claimed as tax credit against future regular corporate income tax as follows:

Year Incurred Expiry Dates Amount 2006 December 31, 2009 P=29,488 2007 December 31, 2010 17,430 2008 December 31, 2011 20,978 P=67,896

NOLCO of the subsidiaries amounting to P=679 million can be claimed as deductions from regular corporate income tax as follows:

Year Incurred Expiry Dates Amount 2006 December 31, 2009 P=480,812 2007 December 31, 2010 163,467 2008 December 31, 2011 34,706 P=678,985

As of December 31, 2008 and 2007, deferred income tax liability has not been recognized on undistributed earnings of ABS-CBN Global, holding company of the Parent Company’s foreign subsidiaries, amounting to P=282 million and P=200 million, respectively, since the Parent Company is able to control the reversal of the temporary difference. The undistributed earnings are earmarked for expansion in the Company’s foreign operations.

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The reconciliation of statutory tax rate to effective tax rates applied to income before income tax is as follows:

2008 2007 2006 Statutory tax rate 35% 35% 35% Additions to (reduction in) income taxes

resulting from the tax effects of: Interest income subject to final tax (4) (2) (1) Unrecognized deferred tax assets 1 1 2 Nondeductible interest expense 1 1 4 Equity in net losses of investees – – 1 Others, mainly income subject to

different tax rates and change in tax rates - net 10 9 6

Effective tax rates 43% 44% 47%

Republic Act No. 9337 introduced the increase in regular corporate income tax rate from 32% to 35% effective November 1, 2005 and reduced to 30% effective January 1, 2009.

27. Pension Benefits

The Company’s pension plans are composed of funded (Parent Company and Sky Cable) and unfunded (other subsidiaries), noncontributory and actuarially computed pension plans, except for ABS-CBN International (contributory) covering substantially all of its employees. The benefits are based on years of service and compensation during the last year of employment.

The following tables summarize the components of consolidated net benefit expense (income) recognized in the consolidated statement of income and accrued pension obligation recognized in the consolidated balance sheet.

Net Pension Expense

2008 2007 2006 Current service cost P=137,583 P=118,462 P=53,038 Interest cost 122,273 71,373 36,480 Expected return on plan assets (22,355) (17,486) (14,031) Net actuarial loss (gain) 11,733 22,933 (50) Curtailment gain (4,587) – – Past service cost (2,546) – – Benefits paid out of the Company’s fund 19,885 – – Net pension expense P=261,986 P=195,282 P=75,437

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Accrued Pension Obligation

2008 2007 Present value of obligation P=569,414 P=860,113 Fair value of plan assets (356,425) (264,458) Unfunded obligation 212,989 595,655 Unrecognized net actuarial gain (loss) 578,947 (195,007) Pension obligation P=791,936 P=400,648

Consolidated changes in the present value of the defined benefit obligation are as follows:

2008 2007 Defined benefit obligation at beginning of year P=860,113 P=853,765 Effect of business combination 295,408 – Actuarial gains on obligation (743,346) (143,545) Current service cost 137,583 118,462 Interest cost 122,273 71,373 Benefits paid (98,030) (38,218) Curtailment gain (4,587) (1,724) Defined benefit obligation at end of year P=569,414 P=860,113

Change in the fair value of plan assets of the Parent Company and Sky Cable are as follows:

2008 2007 Fair value of plan assets at beginning of year P=264,458 P=175,580 Effect of business combination 15,789 – Expected return on plan assets 22,355 17,486 Actual contribution 70,146 70,000 Actuarial gains (losses) (15,706) 1,392 Benefits paid (617) – Fair value of plan assets at end of year P=356,425 P=264,458

Actual return (loss) on plan assets (P=19,828) P=18,878

The Parent Company expects to contribute P=150 million to its defined benefit obligation in 2009. Sky Cable does not expect to contribute to its pension plan in 2009.

The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

2008 2007 (Percentage)

Cash 23.0 – Investment in FXTN/FRTN 42.2 49.7 Investment in government securities and bonds 18.1 17.1 Investment in stocks 14.1 24.5 Others 2.6 8.7 100.0 100.0

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The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled.

The principal assumptions used as of January 1, 2008, 2007 and 2006 in determining pension benefit obligations for the Company’s plans are shown below:

2008 2007 2006 (Percentage)

Discount rate 16.4 7.2 11.0 Expected rate of return on plan assets 8.0 9.0 10.0 Future salary rate increases 6.5 9.0 7.0

Amounts for the current and previous three periods are as follows:

2008 2007 2006 2005 Defined benefit obligation (P=569,414) (P=860,113) (P=853,765) (P=343,887)Fair value of plan assets 330,425 264,458 175,580 138,952Deficit (238,989) (595,655) (678,185) (204,935)Experience adjustments on defined

benefit obligation (223,203) (10) (119,602) –Experience adjustments on

plan assets (15,706) 1,392 22,597 – 28. Commitments

Deal Memorandum with DirecTV On June 1, 2005, the Parent Company and ABS-CBN International entered in to a 25-year Deal Memorandum (Memorandum) with DirecTV in which the Parent Company granted DirecTV the exclusive right via satellite, internet protocol technology and satellite master antenna television system or similar system, to display, exhibit, perform and distribute certain programs of the Parent Company that are listed in the Memorandum. ABS-CBN International may engage in any marketing plan mutually agreed by both parties. All costs under any mutually agreed marketing plans shall be shared equally between DirecTV and ABS-CBN International.

As provided in the Memorandum, all rights, title and interest in and to the content, discrete programs or channels not granted to DirecTV are expressly reserved by the Parent Company. All programming decisions with respect to the programs shall be in the Parent Company’s commercially reasonable discretion, including the substitution or withdrawal of any scheduled programs, provided that the Parent Company agrees that the programs will consist substantially the same content and genre provided for in the Memorandum.

The Memorandum also provides for the following license fees to be paid by DirecTV to the Parent Company:

a. A license fee for each existing DTH subscriber of ABS-CBN International or new subscriber who becomes an activated subscriber during the migration period (from June 2005 to February 2006); and

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b. An additional license fee for each activated subscriber who becomes an activated subscriber during the migration period and remains a subscriber for 14 consecutive months.

The Memorandum also provides that subscription revenues, computed as the current and stand alone retail price per month for a subscription to The Filipino Channel multiplied by the average number of subscribers, shall be divided equally between DirecTV and ABS-CBN International.

Starting July 2005, existing DTH subscribers of ABS-CBN International have been migrating to DirecTV. License fees earned from DirecTV amounted to P=548 million in 2007 (representing additional license fee for each subscriber who became activated during the migration period and remained a subscriber for 14 months) and P=1,117 million in 2006. ABS-CBN International’s share in the subscription revenue earned from subscribers that have migrated to DirecTV amounted to P=797 million in 2008, P=772 million in 2007 and P=616 million in 2006.

On January 17, 2006, the Parent Company and DirecTV agreed to amend the Memorandum entered in June 1, 2005 to include, among others, the extension of the migration period from February 2006 to August 2006. The contract on license fee of ABS-CBN with DirecTV ended in October 2007.

Operating Lease

As Lessee. The Parent Company and subsidiaries lease office facilities, space and satellite equipment. Future minimum rental payable under non-cancelable operating leases are as follows:

2008 2007 Within one year P=217,646 P=191,648 After one year but not more than five years 932,605 850,989 After five years 61,062 198,227 P=1,211,313 P=1,240,864

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:

2008 2007 Within one year P=11,439 P=26,433 After one year but not more than five years 38,278 82,972 P=49,717 P=109,405

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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:

2008 2007 Within one year P=164,580 P=214,300 After one year but not more than five years 190,430 271,377 Total minimum lease payments 355,010 485,677 Less amounts representing finance charges 40,560 64,558 Present value of minimum lease payments 314,450 421,119 Less current portion 140,166 177,706 P=174,284 P=243,413

Purchase Commitments Sky Cable has commitments with various program suppliers for a period of 1 to 5 years. Channel license fees are based on fixed and variable rates. Estimated fees for the next three years are as follows:

Year Amount* 2009 P=370,483 2010 236,638 2011 11,024

* Includes variable fees based on the number of active subscribers as of December 31, 2008.

The estimated fees include channel license fees contracted by Sky Cable for its subsidiaries, amounting to P=68.9 million, for which Sky Cable will be reimbursed.

29. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments comprise cash and cash equivalents, available-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.

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The main risks arising from the Company’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The BOD reviews and agrees on the policies for managing each of these risks and they are summarized below. The Company’s accounting policies in relation to derivatives are set out in Note 2.

Cash Flow Interest Rate Risk The Company’s exposure to the risk for changes in market interest rates relates primarily to the Company’s long-term receivable and debt obligations with floating interest rates.

To manage this mix in a cost-efficient manner, the Company entered into interest rate swaps, in which the Company agrees to exchange, at specified intervals, the difference between fixed and variable rate interest amounts calculated by reference to an agreed-upon notional principal amount. These swaps are designated to hedge underlying debt obligations. Before the prepayment of all outstanding loan obligations under Tranche A of the SCA facility and after taking into account the effect of interest rate swaps, approximately 43% of the Company’s borrowings are at a fixed rate of interest. However, in 2007, the derivative contracts that cover these swaps have been terminated as a result of the prepayment of the underlying loan obligation. Without the existence of any swaps, the Company’s loan with fixed rate of interest is at about 26% of the total loans at the end of 2008 and 25% as at end of 2007.

The following table sets out the carrying amount, by maturity, of the Company’s consolidated financial instruments that are exposed to interest rate risk:

Within

One Year One to Two

Years Two to

Three Years

Three to Four

Years

Four to Five Years

More than Five Years

Transaction Costs and Discount Total

2008 Interest-bearings loans

and borrowings: Fixed rate P=165,963 P=126,480 P=51,392 P=420,421 P=1,740 P=1,896,096 (P=340,871) P=2,321,221 Floating rate 993,783 108,000 448,718 3,547,636 1,055,820 339,410 (100,184) 6,393,183

2007 Long-term receivables - Floating rate P=– P=– P=– P=54,629 P=252,801 P=1,490,736 (P=363,852) P=1,434,314 Interest-bearings loans

and borrowings: Fixed rate 614,300 131,375 84,473 42,080 416,648 854,207 (378,430) 1,764,653 Floating rate 10,127 43,875 108,000 378,000 3,322,172 – (111,023) 3,751,151

Interest on financial instruments classified as floating rate is repriced at intervals of less than three months. Interest on financial instruments classified as fixed rate is fixed until the maturity of the instrument. The other financial instruments of the Company that are not included in the above tables are noninterest-bearing and are therefore not subject to interest rate risk.

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On the average, benchmark interest rates, 3-month PDST-F, increased by 160 basis points since the end of 2007. Looking at past trends, however, this has not always been the case with several periods showing some downward adjustments due to several market pressures. Based on these experiences, the Company provides the following table to demonstrate the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Company’s income before income tax (through the impact on floating rate borrowings). There is no impact on the Company’s equity other than those already affecting the net income.

Effect on Income Before Income

Tax Increase (Decrease) 2008 2007 Parent Company: Increase by 2% (P=105,169) (P=45,621) Decrease by 2% 105,169 45,621 Sky Cable: Increase by 1% (9,037) – Decrease by 1% 9,037 –

Foreign Currency Risk The Company’s primary exposure to the risk in changes in foreign currency relates to the Company’s long-term debt obligation. Before the prepayment of all outstanding dollar loan obligations under Tranche A of the SCA facility, approximately 26% of the Company’s borrowings are denominated in currencies other than the functional currency of the operating unit. These were all covered by cross currency swaps which have all been terminated as a result of the prepayment of the underlying loan obligation. As of December 31, 2008, there are no outstanding derivative contracts and all the Company’s long-term loan obligations are in Philippine currency.

It is the Company’s policy to enter into cross currency swaps to manage foreign currency risk and eliminate the variability of cash flows due to changes in the fair value of the foreign-currency denominated debt with maturity of more than one year.

Other than the debt obligations, the Company has transactional currency exposures. Such exposure arises when the transaction is denominated in currencies other than the functional currency of the operating unit or the counterparty.

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The following tables show the Company’s significant foreign currency-denominated financial assets and liabilities and their Philippine peso equivalents as of December 31, 2008 and 2007:

2008 Original Currency

USD EURO (EUR) JPY CAD GBP AUD

United Arab Emirates

Dirham (AED)

Peso Equivalent

Financial assets: Cash and cash equivalents 2,229 1,319 4,079 1,253 – – 99 189,732 Trade and other

receivables 15,776 (1,569) (7,082) – – – 4,735 763,263 Other noncurrent assets 8,154 921 9,843 297 (115) (49) 1,325 455,773 26,159 671 6,840 1,550 (115) (49) 6,159 1,408,768 Financial liabilities: Short term loans 5,000 – – – – – – 237,600 Trade and other payables 11,455 1,026 13,452 – 89 38 7,557 521,428 Obligations for program

rights 8,891 – – – – – – 422,502 25,346 1,026 13,452 – 89 38 7,557 1,181,530 Net foreign currency-

denominated financial assets (liabilities) 813 (355) (6,612) 1,550 (204) (87) (1,398) 227,238

2007

Original Currency

USD EURO (EUR) JPY CAD

United Arab Emirates

Dirham (AED)

Peso Equivalent

Financial assets: Cash and cash equivalents 25,591 572 – 1,083 9,978 1,250,980 Trade and other receivables 24,001 1,271 7,534 664 7,237 1,182,857 Other noncurrent assets 946 – – – – 39,067 50,538 1,843 7,534 1,747 17,215 2,472,904 Financial liabilities: Trade and other payables 14,551 1,555 971 520 491 729,511 Obligations for program rights 6,611 – – – – 278,208 21,162 1,555 971 520 491 1,007,719 Net foreign currency-denominated

financial assets 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 2008 2007 USD 47.52 41.28 EUR 66.63 61.25 JPY 0.53 0.38 CAD 39.17 42.07 AED 12.91 11.43

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The following table demonstrates the sensitivity to a reasonably possible change in foreign exchange rates, with all other variables held constant, of the Company’s income before income tax. There is no impact on the Company’s equity other than those already affecting the net income.

2008

Increase (Decrease)

in P= to Foreign Currency

Exchange Rate

Effect on Income

Before Income Tax

USD 3% P=1,244 -1% (345) EUR 1% (1,203) -1% 2,065 JPY 1% (85) -4% 458 CAD 2% 1 -3% (1) GBP 2% (294) -2% 274 AUD 4% (116) -7% 198 AED 3% (232) -1% 45

2007

Increase (Decrease)

in P= to Foreign Currency

Exchange Rate

Effect on Income

Before Income Tax

USD 2% P=9,063 -3% (16,110) EUR 6% 1,965 -4% (1,178) JPY 14% 87 -4% (25) CAD 5% – -5% – AED 5% – -4% –

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.

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The Company computes for the percentages of changes in exchange rates for the foreign currency denominated accounts by comparing the year-end closing rates or existing foreign currency exchange rates with the forward foreign currency exchange rates three months before and after balance sheet date. The Company assumes the trend for the six months period to be their exposure on foreign currency fluctuations

Credit Risk The Company is exposed to credit risk from operational and certain of its financing activities. On the Company’s credit risk arising from operating activities, the Company only extends credit with recognized and accredited third parties. The Company implements a pay before broadcast policy to new customers. To improve collections over the Company’s trade receivables, the Company grants discounts on early payment. In addition, receivable balances are monitored on an ongoing basis. Such determination takes into consideration the age of the receivable and the current solvency of the individual accounts.

With regard to the Company’s financing activities, as a general rule, the Company transacts these activities with counterparties that have a long credit history in the market and outstanding relationship with the Company. The policy of the Company is to have the BOD accredit these banks and/or financial institutions before any of these financing activities take place.

With respect to credit risk arising from the financial assets of the Company, which comprise trade and other receivables, cash and cash equivalents, available-for-sale financial assets, and receivables from related parties, the Company’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equal to the carrying amount of these instruments.

There is no requirement for collateral over trade receivables since the Company trades only with recognized and accredited counterparties.

The maximum exposure to credit risk is partly represented by the carrying amounts of the financial assets that are reported in the consolidated balance sheets.

Credit Risk Exposures. The table below shows the gross maximum exposure to on- and off-balance 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:

2008 2007 Cash and cash equivalents (excluding cash on hand) P=2,484,957 P=2,125,260 Trade and other receivables - net (excluding

advances to suppliers) 4,766,307 4,407,436 Derivative assets (included as part of

“Other current assets”) 16,223 – AFS investments (included as part of “Other

noncurrent assets”) 371,414 77,242 Long-term receivables from related parties – 3,893,236 P=7,638,901 P=10,503,174

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Credit Quality per Class of Financial Asset. The credit quality of financial assets is being managed by the Company using internal credit ratings. The following tables below shows the credit quality by class of financial assets based on the Company’s credit rating system as of December 31, 2008 and 2007:

2008 Neither Past Due nor Impaired Past Due but Low Moderate High not Impaired Impaired Total Cash and cash equivalents: Cash in banks P=– P=– 1,357,497 P=– P=– P=1,357,497 Cash equivalents – – 1,127,460 – – 1,127,460 Trade receivables: Airtime 13,533 311,642 1,040,364 766,503 405,642 2,537,684 Subscriptions 52,933 26,476 407,328 401,214 104,152 992,103 Others 57,424 245,537 325,840 367,170 64,794 1,060,765 Nontrade receivables 23,310 20,386 223,320 183,568 41,374 491,958 Due from related parties – – – 123,903 – 123,903 Derivative assets – – 16,223 – – 16,223 AFS investments – – 371,414 – – 371,414 P=147,200 P=604,041 P=4,869,446 P=1,842,358 P=615,962 P=8,079,007

2007 Neither Past Due nor Impaired Past Due but Low Moderate High not Impaired Impaired Total Cash and cash equivalents: Cash in banks P=– P=– P=1,532,468 P=– P=– P=1,532,468 Cash equivalents – – 592,792 – – 592,792 Trade receivables: Airtime 31,695 330,034 1,103,219 609,138 219,173 2,293,259 Subscriptions 104,921 128,366 171,077 429,555 61,094 895,013 Others 484 164,709 124,781 551,653 39,855 881,482 Nontrade receivables 28,995 7,790 97,431 334,706 34,181 503,103 Due from related parties – – – 153,409 – 153,409 AFS investments – – 77,242 – – 77,242 Long-term receivables from

related parties – – 3,893,236 – – 3,893,236 P=166,095 P=630,899 P=7,592,246 P=2,078,461 P=354,303 P=10,822,004

The credit quality of the financial assets was determined as follows:

§ Low Credit Quality

For receivables, this covers accounts of slow paying customers and those whose payments are received upon demand at report date. This also includes claims from Special subscribers.

§ Moderate Credit Quality

For receivables, this covers accounts of standard paying customers, those whose payments are within the credit term, and new customers for which sufficient credit history has not been established. This also includes of claims from Superior subscribers, airtime and channel lease and related parties without offsetting arrangement.

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§ High Credit Quality

This includes deposits or placements to counterparties with good credit rating or bank standing. For receivables, this covers, as of report date, accounts of good paying customers, with good credit standing and with no history of account treatment for a defined period. This also includes claims from Elite subscribers, advance payers, airtime and channel lease with advance payment arrangements, related parties with offsetting arrangement and existing employees.

Trade Receivables These represent amounts collectible from advertising agencies, advertisers or trade customers arising from the sale of airtime, subscription, services and/or goods in the ordinary course of business.

Airtime. This account refers to revenue generated from the sale of time or time block within the on-air broadcast hours on television and radio.

Subscriptions. This account refers to revenue generated from regular subscriber’s fees for either: (1) access to programs aired through DTH and cable television systems, or (2) direct sale of publications to subscribers.

Others. This account refers to other revenue generated from the sale of goods and services.

Nontrade Receivables These represent claims, arising from sources other than the sale of airtime, subscriptions, services and goods in the ordinary course of business, that are reasonably expected to be realized in cash.

The following tables below shows the aging analysis of past due but not impaired receivables per class that the Company held as of December 31, 2008 and 2007. A financial asset is past due when a counterparty has failed to make a payment when contractually due.

2008

Neither Past Past Due but not Impaired

Due nor

Impaired Less than 30 30 Days

and Over Impaired Allowance Total Trade receivables: Airtime P=1,365,539 P=137,454 P=629,049 P=405,642 (P=281,086) P=2,256,598 Subscriptions 486,737 82,793 318,421 104,152 (93,807) 898,296 Others 628,801 43,962 323,208 64,794 (26,029) 1,034,736 Nontrade receivables 267,016 24,906 158,662 41,374 (39,184) 452,774 Due from related parties – – 123,903 – – 123,903 P=2,748,093 P=289,115 P=1,553,243 P=615,962 (P=440,106) P=4,766,307

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2007 Neither Past Past Due but not Impaired

Due nor

Impaired Less than 30 30 Days

and Over Impaired Allowance Total Trade receivables: Airtime P=1,464,948 P=231,322 P=377,816 P=219,173 (P=204,678) P=2,088,581 Subscriptions 404,364 18,321 411,234 61,094 (61,048) 833,965 Others 289,974 172,819 378,834 39,855 (21,319) 860,163 Nontrade receivables 134,216 15,585 319,121 34,181 (31,785) 471,318 Due from related parties – – 153,409 – – 153,409 P=2,293,502 P=438,047 P=1,640,414 P=354,303 (P=318,830) P=4,407,436

Based on the cash flow projection, past due receivables are expected to be collected within 2008.

Liquidity Risk The Company seeks to manage its funds through cash planning on a weekly basis. This undertaking specifically considers the maturity of both the financial investments and financial assets and projected operational disbursements. The Company also employs historical figures and forecasts from its collection and disbursements. As part of its liquidity risk management, the Company regularly evaluates its projected and actual cash flows. As a general rule, cash balance should be equal to P=200 million at any given time to compensate for operation exigencies in the periodic absence of cash inflow.

It is the Company’s objective to maintain a balance between continuity of funding and flexibility through the use of bank credit and investment facilities. As such, the Company continuously assesses conditions in the financial markets for opportunities to pursue fund raising activities. In 2008, the Company closed two fund raising activities with final maturity of up to 2015. Currently the debt maturity profile of the company ranges from 3.7 years to 7 years. Also, the Company places funds in the money market only when there are surpluses from the Company’s requirements. Placements are strictly made based on cash planning assumptions and as much as possible, covers only a short period of time.

The table below summarizes the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments.

2008

Within

One Year One to

Two Years Three to

Four Years Four to

Five Years More than Five Years Total

Trade and other payables P=5,243,173 P=– P=– P=– P=– P=5,243,173

Obligations for program rights 1,129,685 63,000 39,375 – – 1,232,060

Interest-bearing loans and borrowings 1,673,942 2,042,639 5,702,430 2,298,980 260,154 11,978,145

Customers’ deposits – – 168,114 – – 168,114 P=8,046,800 P=2,105,639 P=5,909,919 P=2,298,980 P=260,154 P=18,621,492

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2007

Within

One Year One to

Two Years Three to

Four Years Four to

Five Years More than Five Years Total

Trade and other payables P=4,403,699 P=– P=– P=– P=– P=4,403,699

Obligations for program rights 790,992 3,808 – – – 794,800

Interest-bearing loans and borrowings 1,048,586 1,172,319 4,762,840 975,939 – 7,959,684

P=6,243,277 P=1,176,127 P=4,762,840 P=975,939 P=– P=13,158,183

Capital Management The Company’s capital structure pertains to the mix of long-term sources of funds. When the Company expands, it needs capital, and that capital can come from debt or equity.

The primary objective of the Company’s capital management is to ensure that it maintains healthy capital ratios and strong credit ratings while viably supporting its business to maximize shareholder value.

The Company’s approach focuses on efficiently allocating internally generated cash for operational requirements and investments to grow the existing business as well as to deliver on its commitment of a regular dividend payout at a maximum of 50% of the previous year’s net income. Shortages if any and acquisitions or investments in new business are funded by the incurrence of additional debt largely capped by existing loan covenants on financial ratios.

As evidenced by the quarterly financial certificates that the Company issued to its lenders, all financial ratios are within the required limits all throughout 2008 and 2007 as follows:

2008

Financial Ratios Required 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Debt to earnings before

income tax, depreciation and amortization Less than or equal to 2.25 1.10 1.20 1.33 1.49

Earnings before income tax to financing cost

Greater than or equal to 3.00 4.86 4.72 4.96 4.38

Debt service coverage ratio Greater than or equal to 1.10 2.10 2.31 1.30 1.95

2007

Financial Ratios Required 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Debt to earnings before

income tax, depreciation and amortization Less than or equal to 2.25 0.96 0.87 1.06 1.09

Earnings before income tax to financing cost

Greater than or equal to 2.00 on or before September 30, 2007 2.94 3.49 4.04 4.50

Greater than or equal to 3.00 after September 30, 2007

Debt service coverage ratio Greater than or equal to 1.10 1.39 1.54 2.18 1.63

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The following table shows the financial ratios that Sky Cable is required to maintain in accordance with the DRA:

Financial ratios Required 2008 Current ratio Greater than or equal to 0.34 0.87 Total liabilities to equity Less than or equal to 26.89 0.65 Debt service coverage ratio Greater than or equal to 1.62 0.88

In 2008, Sky Cable did not comply with the debt service coverage ratio as required by the creditors in the agreement. On November 3, 2008, Sky Cable received a waiver of this ratio from the majority of its creditors as required by the agreement.

30. Financial Assets and Liabilities

The following table sets forth the carrying values and estimated fair values of consolidated financial assets and liabilities recognized as of December 31, 2008 and 2007. There are no material unrecognized financial assets and liabilities as of December 31, 2008 and 2007.

2008 2007

Carrying Amount Fair Value


Financial Assets Loans and receivables: Cash and cash equivalents P=2,524,254 P=2,524,254 P=2,145,778 P=2,145,778 Trade and other receivables - net 4,766,307 4,766,307 4,407,436 4,407,436 Long-term receivables from

related parties – – 3,893,236 4,256,049 Derivative assets not designated as

accounting hedges (included as part of “Other current assets”) 16,223 16,223 – –

AFS financial assets (included as part of “Other noncurrent assets”) 371,414 371,414 77,242 77,242

P=7,678,198 P=7,678,198 P=10,523,692 P=10,886,505

Financial Liabilities Other financial liabilities at amortized cost: Trade and other payables P=5,306,499 P=5,306,499 P=4,403,699 P=4,403,699 Interest-bearing loans and borrowings 8,714,404 9,317,169 5,515,804 5,911,140 Obligations for program rights 1,215,359 1,297,221 794,800 796,344 Customers’ deposits (included as part

of “Other noncurrent liabilities”) 168,114 165,948 – – P=15,404,376 P=16,086,837 P=10,714,303 P=11,111,183

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Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:

Cash and Cash Equivalents, Trade and Other Receivables and Trade and Other Payables. Due to the short-term nature of transactions, the fair values of these instruments approximate the carrying amount as of balance sheet date.

Derivative Assets. The fair values were determined using forward exchange market rates as of balance sheet date.

AFS Investments. The fair values of publicly-traded instruments were determined by reference to market bid quotes as of balance sheet date. Investments in unquoted equity securities for which no reliable basis for fair value measurement is available are carried at cost, net of any impairment.

Long-term Receivables from Related Parties. The receivable from Sky Cable, which is subjected to monthly repricing, is not discounted since it approximates fair value.

Interest-bearing Loans and Borrowings. Fair value was computed based on the following:

Fair Value Assumptions Term loans Estimated fair value is based on the discounted value of

future cash flows using the applicable risk-free rates for similar types of loans adjusted for credit risk. The interest rates used to discount the future cash flows have ranged from 5.3% to 6.7% for those that are peso-denominated and 4.5% for those that are dollar-denominated.

Other variable rate loans The face value approximates fair value because of recent and frequent repricing (i.e., 3 months) based on market conditions.

Obligations for Program Rights. Estimated fair value is based on the discounted value of future cash flows using the applicable risk-free rates for similar types of loans adjusted for credit risk.

Customers’ Deposits. The fair values were calculated by discounting the expected future cashflows at prevailing credit adjusted MART1 interest ranging from 5.6% to 11.5% as of balance sheet date.

Derivative Instruments Cross Currency Swaps. In 2004, the Parent Company entered into long-term cross currency swaps that hedge 100% of the Tranche A Principal against foreign exchange risk. Under these agreements, the Parent Company effectively swaps the principal amount of certain US dollar-denominated loans under the SCA into Philippine peso-denominated loans with payments up to June 2009.

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The Company is also obligated to pay swap costs based on a fixed rate of 8.0% on a notional amount of P=353 million, 5.125% on a notional amount of P=55 million, 3-month PHIREF minus 2.9% on a notional amount of P=2 billion and 3-month PHIREF minus 3.1% on a notional amount of P=264 million.

On December 18, 2007, the Company prepaid all its outstanding loan obligations under Tranche A of the SCA facility amounting to US$27 million (P=1,132 million). This made it necessary for the Company to unwind the existing cross currency swaps. On December 20, 2007, the Company paid P=393 million to unwind the hedges. Cumulative Translation Adjustment (CTA) amounting to P=232 million previously recorded in equity were recognized in the 2007 consolidated statement of income (see Note 25).

Interest Rate Swaps. To manage the interest rate exposure from the floating rate loans, the Company also entered into USD interest rate swaps and PHP interest rate swaps which effectively swap certain floating rate loans into fixed-rate loans. In 2007, the USD interest rate swaps have been terminated as a result of the prepayment of the outstanding loan obligations under Tranche A of the SCA facility. The Company received a total of US$12,000 (P=0.5 million) as net settlement for the unwinding of the interest rate swaps. CTA amounting to P=44 million previously recorded in equity were recognized in the 2007 consolidated statement of income (see Note 25).

Hedge Accounting Implications of Swaps. The Parent Company’s principal-only currency swaps and USD interest rate swap are designated as cash flow hedges on October 1, 2005 to manage the Parent Company’s exposure to variability in cash flows attributable to foreign exchange and interest rate risks of the underlying debt obligations. Since the critical terms of the swaps and the outstanding debt obligations coincide, the hedges are expected to exactly offset changes in expected cash flows due to fluctuations in foreign exchange and the prime rate over the term of the debt obligations.

From October 1, 2005 up to December 31, 2005, the effective net mark-to-market losses that have been deferred in equity for these cash flow hedges amounted to P=53 million (P=34 million, net of tax). Prior to designation as cash flow hedges, the principal-only currency swaps accounted for mark-to-market losses in the consolidated statement of income of about P=32 million (net of P=316 million gain on the swap differentials), while the USD interest rate swap accounted for mark-to-market gains in the consolidated statement of income of P=48 million.

The effective net mark-to-market losses that have been deferred in equity for these cash flow hedges amounted to P=249 million (P=162 million, net of tax) in 2006.

As previously discussed, in December 2007, the Company terminated all outstanding cross currency swap and interest rate swap contracts as a result of the prepayment of all the outstanding Tranche A loan of the SCA facility. The net mark-to-market losses amounting to P=277 million previously recorded in equity were recognized in the 2007 consolidated statement of income (see Note 25).

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As part of the transition adjustments as of January 1, 2005, the Company initially recognized an aggregate amount of P=117 million (P=76 million net of tax), representing the fair value for the principal-only currency swaps (net of the impact of the foreign exchange restatement) and the USD and PHP interest rate swaps. This amount is initially recorded as a credit adjustment in CTA (‘initial CTA’) and will be amortized using the effective interest method over the remaining term of the underlying related loans. Amortization of the initial CTA amounted to P=54 million in 2007 and P=31 million in 2006. This is recorded as a reduction in interest expense (see Note 25).

In 2006, the Company made a reassessment of its outstanding cross currency swap and interest rate swap. The valuation of each swap transaction was remeasured to conform with the values derived by each of the counterparties to the hedges. This recalibration resulted in the increase of the derivative liability and decrease of the derivative asset by P=105 million and P=26 million, respectively, in 2006. The aggregate total of P=131 million was then recorded in equity and was transferred to the 2007 consolidated statement of income when the Company terminated the hedge contracts as a result of the prepayment of all outstanding Tranche A loan of the SCA facility in 2007.

In 2007, movements in the CTA related to derivative instruments are as follows:

Balance at beginning of year (P=160,986) Amounts taken to equity 24,874 Reversal of tax effect (86,685) Amounts transferred to profit and loss: Due to the termination of hedged item

and related cross currency swap 232,335 Due to the termination of hedged item

and related interest rate swap 44,359 Amortization of initial CTA (53,897) Balance at end of year P=–

Embedded Derivatives. As of December 31, 2008 and 2007, the Parent Company has outstanding embedded foreign currency derivatives which were bifurcated from various non-financial contracts. The impact of these embedded derivatives is not significant.

Sky Cable bifurcated embedded derivatives from its various nonfinancial contracts. These are denominated in USD which is not the functional currency of Sky Cable or its counterparty. The total notional amount as of December 31, 2008 amounted to $0.7 million. The fair value of the embedded derivative assets as of December 31, 2008 amounted to P=16 million.

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The net movements in fair value changes of the Company’s derivative instruments as of December 31, 2008 and 2007 are as follows:

2008 2007 Balance at beginning of year P=– (P=345,482) Effect of business combination 33,043 – Net changes in fair value of derivatives: Not designated as accounting hedges (216) – Designated as accounting hedges – (47,124) 32,827 (392,606) Less fair value of settled instruments (16,604) (392,606) Balance at end of year P=16,223 P=–

31. EPS Computations

Basic EPS amounts are calculated by dividing the net income for the period attributable to common shareholders by the weighted average number of common shares outstanding during the period.

The following table presents information necessary to calculate EPS:

2008 2007 2006 (a) Net income attributable to equity

holders of the Parent Company P=1,383,464 P=1,266,744 P=740,552

(b) Weighted average shares outstanding: At beginning of year 768,585,084 769,676,556 769,583,312

Acquisitions of PDRs (see Note 19) (1,217,721) (2,082,404) –

Issuances of PDRs (see Note 19) – 990,932 93,244

At end of year 767,367,363 768,585,084 769,676,556

Basic/Diluted EPS (a/b) P=1.803 P=1.648 P=0.962

The Company has no dilutive potential common shares outstanding, therefore basic EPS is the same as diluted EPS.

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32. Note to Consolidated Statements of Cash Flows

2008 2007 2006 Noncash investing and financing activities: Acquisitions of program rights

on account P=773,233 P=670,165 P=393,736 Acquisitions of property and

equipment under capital lease 96,492 280,287 118,004 Payment of bonus through the issuance

of PDRs – 55,141 22,379 33. Other Matters

a. In 1972, the Parent Company discontinued its operations when the government took possession of its property and equipment. In the succeeding years, the property and equipment were used without compensation to the Parent Company by Radio Philippines Network, Inc. (RPN) from 1972 to 1979, and Maharlika Broadcasting System (MBS) from 1980 to 1986. A substantial portion of these property and equipment was also used from 1986 to 1992 without compensation to the Parent Company by People’s Television 4, another government entity. In 1986, the Parent Company resumed commercial operations and was granted temporary permits by the government to operate several television and radio stations.

The Parent Company, together with Chronicle Broadcasting System, filed a civil case on January 14, 1988 against Ferdinand E. Marcos and his family, RPN, MBS, et. al, before the Sandiganbayan to press collection of the unpaid rentals for the use of its facilities from September 1972 to February 1986 totaling P=305 million plus legal interest compounded quarterly and exemplary damages of P=100 million.

The BOD resolved on June 27, 1991 to declare as scrip dividends, in favor of all stockholders of record as of that date, whatever amount that may be recovered from the foregoing pending claims and the rentals subsequently settled in 1995. The scrip dividends were declared on March 29, 2000. In 2003, additional scrip dividends of P=13 million were recognized for the said stockholders.

On April 28, 1995, the Parent Company and the government entered into a compromise settlement of rental claims from 1986 to 1992. The compromise agreement includes payment to the Parent Company of P=30 million (net of the government’s counterclaim against the Parent Company of P=68 million) by way of TCCs or other forms of noncash settlement as full and final settlement of the rentals from 1986 to 1992. The TCCs were issued in 1998.

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b. The Company has contingent liabilities with respect to claims and lawsuits filed by third parties. The events that transpired last February 4, 2006, which resulted in the death of 71 people and injury to about 200 others led the Company to shoulder the burial expenses of the dead and medical expenses of the injured, which did not result in any direct or contingent financial obligation that is material to the Company. The Company has settled all of the funeral and medical expenses of the victims of the tragedy. Given the income flows and net asset base of the Company, said expenses do not constitute a material financial obligation of the Company, as the Company remains in sound financial position to meet its obligations.

As of March 25, 2009, the claims in connection with the events of February 4, 2006 are still pending and remain contingent liabilities. While the funeral and medical expenses have all been shouldered by the Company, there still exist claims for compensation for the deaths and injuries upon evaluation of these claims, the amount of which have not been declared and cannot be determined with certainty at this time. Management is nevertheless of the opinion that should there be any adverse judgment based on these claims, this will not materially affect the Company’s financial position and results of operations.

c. A competitor broadcasting company filed a case before the National Telecommunications Commission (NTC) asking for the latter to declare as null and void the consolidation of the cable operating companies, Home, Sky Vision and Unilink. On November 16, 2004, the NTC denied the motion for cease and desisted order filed by the competitor broadcasting company. On November 30, 2004, the competitor broadcasting company filed a motion for reconsideration which was also denied by the NTC on October 13, 2005. This case was then elevated by the complainant to the Court of Appeals (“CA”). On October 10, 2007, the CA has rendered its decision dismissing the petition of the complainant. The complainant has filed a Motion for Reconsideration at the CA. It is the opinion of Sky Vision’s legal counsels that the case filed by the competitor television broadcasting company is without legal basis.

36

ANNEX B-1 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE 1ST QUARTER OF 2009 Consolidated revenues inclusive of Skycable’s total revenue contribution of P878 million for the first quarter of 2009 reached P5.29 billion, registering a year-on-year growth of 24%. Consolidated airtime revenues of P2.76 billion in the first quarter reflect an overall 2% decline from the same period last year. Counting a P852 million revenue contribution from Skycable, direct sales grew by 76% year-on-year to reach P2.52 billion for the first quarter and accounted for 48% or nearly half of consolidated revenues, thereby continuing to validate our diversification strategy. Total expenses of core businesses grew by only P187 million or 5% year-on-year to P4.1 billion in the first quarter. Skycable’s contribution to total expenses of P887 million pushed up consolidated total expenses to P4.95 billion, or a 28% increase, from P3.88 billion in the first quarter of last year. Net income attributable to shareholders of parent company for the first quarter of 2009 amounted to P191 million, 21% lower than the net income of P242 million in the first quarter of 2008. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the first three months of the year reached P1.35 billion, 31% higher than EBITDA in the first quarter of 2008, registering an EBITDA margin of 26%. Revenues Consolidated revenues for the first quarter of 2009 reached P5.29 billion, registering a year-on-year growth of 24%, inclusive of Skycable’s total revenue contribution of P878 million. Airtime revenues of P2.74 billion in the first quarter reflect an overall 3% decline from the same period last year. Airtime revenue contribution from Skycable and growth in airtime revenues of ABS-CBN Global and the cable channels partly offset a decline in Parent company airtime revenues as advertisers adopted a wait-and-see attitude in January and February, with most developed countries going into recession at the beginning of the year. Direct sales, which grew by 76% year-on-year, delivered P2.52 billion for the first quarter, with an P852 million revenue contribution from Skycable. Direct sales accounted for 48% or nearly half of consolidated revenues, continuing to validate our diversification strategy.

Consolidated


1Q09 1Q08

Amount %

Airtime revenue 2,738 2,832 (94) (3)

Direct Sales

Sale of Services 1,562 1,266 296 23

Sale of Goods 110 167 (57) (34)

Consolidated revenues from Core Businesses before SkyCable 4,410 4,266 144 3

Add: SkyCable revenues 878 878 100


37

Gross airtime revenues from core businesses of P2.74 billion in the first quarter declined 3% from its year-ago level. With Skycable’s P26 million airtime revenue contribution, consolidated gross airtime revenues amounts to P2.76 billion or just 2% lower than in the first quarter of 2008. Airtime revenues from Parent company of P2.52 billion is only a 5% decline from the same period last year even if advertising minutes of Channel 2 are reported to have declined by as much as 20%. The minimal decline in airtime revenues proves we are able to maintain our advertising rates at acceptable levels. ABS-CBN Global and the cable channels delivered airtime revenue growth of P63 million, thereby partially offsetting the decline in Channel 2 and Studio 23 airtime revenues.

Consolidated


1Q09 1Q08

Amount %

Parent airtime revenue 2,519 2,663 (144) (5)

Other platforms 219 169 50 30

Gross airtime revenues 2,738 2,832 (94) (3)

Add: SkyCable airtime revenues 26 26 100

Consolidated Gross airtime revenues 2,763 2,832 (69) (2)

Direct sales from core businesses in the first three months of the year increased by P240 million or 17%, to P1.67 billion, as ABS-CBN Global continued to deliver strong double-digit growth while direct sales from other platforms remained flat. ABS-CBN Global’s direct sales rose by 24% to P1.23 billion, making up three-fourths of total sale of services from core businesses for the first three months of the year. ABS-CBN Film Productions, Inc.’s film releases in the first quarter, Ang Tanging Ina ‘Nyong Lahat, Love Me Again (Land Down Under) and You Changed My Life generated P480 million in box-office receipts.

With a contribution from Skycable of P852 million in subscription and other service revenues from its core cable TV service and new voice and broadband services, total direct sales in the first quarter reached P2.53 billion, bringing direct sales growth for the three-month period to 76% year-on-year.

Consolidated


1Q09 1Q08

Amount %

ABS-CBN Global 1,232 989 243 24

Other subsidiaries 441 444 (3) (1)

Total Direct Sales 1,673 1,433 240 17

Add: SkyCable sale of services 852 852 100

Total Sale of Services 2,525 1,433 1,092 76

38

Expenses Amid uncertain business conditions that prevailed in the first quarter, ABS-CBN’s efforts to instill financial discipline since 2008 enabled it to manage costs in its core businesses and keep growth in the single-digit levels. Total expenses of core businesses grew by only P187 million or 5% year-on-year to P4.1 billion in the first quarter. Production costs continued to go down, again registering a year-on-year reduction of 4% to P1.45 billion in the first quarter of 2009, from P1.5 billion a year ago. General and Administrative Expenses, or GAEX, totalling P1.17 billion for the first three months of the year, rose by only P54 million or 5%, versus the first quarter 2008 figure. The Cost of Sales and Services from core businesses grew by P108 million to P842 million, an increase of 15%, mostly coming from ABS-CBN Global, programming rights expenses of cable channels, and production expenses of ABS-CBN Films.

Consolidated


1Q09 1Q08

Amount %

Production Cost 1,453 1,514 (61) (4)

General and Administrative Expenses 1,170 1,116 54 5

Cost of Sales and Services 842 734 108 15

Agency commission, incentives & Co-prod share 512 552 (40) (7)

Other expenses (income) 88 (38) 126 332

Total Expenses from core businesses 4,065 3,878 187 5

Add: Skycable expenses 887 887 100

Total Expenses 4,952 3,878 1,074 28

Skycable’s contribution to total expenses of P887 million raised consolidated total expenses to P4.95 billion, or a 28% increase, from P3.88 billion in the first quarter of last year. The lower production costs in the first quarter, totalling P1.45 billion were brought about by a tighter rein on the production process and better production scheduling. Altogether, these efforts yielded savings of P81 million in cash production costs, or a 7% decrease from the first quarter last year. Cash production costs are comprised of personnel expenses and talent fees, facilities-related and other program expenses. Personnel expenses and talent fees were reduced by P38 million or 6% year-on-year and combined savings of P42 million were derived from facilities-related and other program expenses in the first quarter.

39

Consolidated


1Q09 1Q08

Amount %

Personnel expenses and talent fees 637 676 (38) (6)


Other program expenses 213 231 (18) (8)

Sub-total: Cash production costs 1,105 1,186 (81) (7)

Non-cash production cost 348 330 18 5

Total production cost 1,453 1,514 (63) (4)

Total cost of sales and services from core businesses in the first quarter amounted to P842 million, a P108 million or 15% increase from a year ago. As ABS-CBN Global’s direct sales grew, its cost of sales and services went up by 5% in US dollar terms with higher production costs, marketing expenses, license fees and telecom termination charges. Bandwidth costs in Canada and Japan nearly tripled as the number of subscriptions to IPTV services increased. Foreign exchange translation adjustments brought the increase higher to 22% in peso terms, to P518 million. Program acquisition rights expenses for cable channels accounted for most of the balance of the increase in cost of sales. The cost of sales contribution of Skycable in the first quarter amounted to P308 million, bringing total cost of sales and services to P1.15 billion, a P417 million or 57% year-on-year increase.

Consolidated


1Q09 1Q08

Amount %

ABS-CBN Global 518 426 92 22

Other subsidiaries 325 308 17 6

Total cost of sales and services of core businesses 842 734 108 15

Add: SkyCable cost of sales and services 308 308 100

Total Cost of Sales and Services 1,151 734 417 57

Operating expenses of core businesses — or General and Administrative Expenses (GAEX) — rose slightly, by 5% or P54 million to P1.17 billion in the first quarter. Cash GAEX of core businesses for the period posted a 3% or P25 million increase to P995 million, while non-cash GAEX is up P29 million, or 20%, to P175 million. Employee costs went up by P64 million or 13% due in large part to negotiated increases with the Company’s two labor unions and the translation effect of the US dollar-denominated employee costs of ABS-CBN Global. This was offset by a combined total of P51 million in reduced spending in advertising and promotions, taxes and licenses, facilities-related and other expenses.

40

Consolidated


1Q09 1Q08

Amount %

Personnel expenses 574 510 64 13




Taxes and licenses 42 47 (5) (11)


Other expenses 104 143 ( 39) (27)

Sub-total, Cash GAEX of core businesses 995 970 25 3

Non-cash GAEX of core businesses 175 146 29 20

Total GAEX from core businesses 1,170 1,116 54 5

Add: SkyCable GAEX 541 541 100

Total GAEX 1,711 1,116 595 53

Skycable’s GAEX added P541 million to consolidated GAEX in the first quarter, bringing total GAEX to P1.71 billion for a 53% growth year-on-year. Cash GAEX including Skycable totals P1.34 billion or a 38% increase year-on-year for the three-month period, while non-cash GAEX of P368 million is 152% higher than in the first quarter last year. Net Income and EBITDA

Net income attributable to shareholders of parent company for the first quarter of 2009 amounted to P191 million, 21% lower than the net income of P242 million in the first quarter of 2008. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the first three months of the year reached P1.35 billion, or 31% better than EBITDA in the first quarter of 2008, translating to an EBITDA margin of 26% versus 24% last year. Balance Sheet Accounts Total consolidated assets increased by 4% from P32.8 billion at 31 December 2008 to P34 billion as at 31 March 2009. Cash and cash equivalents of P3 billion is 19% higher than the year-end 2008 balance of P2.52 billion due to aggressive cash collection. Consolidated trade and other receivables stood at P5.38 billion, or 7% higher than at the end of 2008, due to an increase in Sale of Services. Days sales outstanding for the period is 73 days, two days less than the 75 days as at 31 December 2008. Total interest-bearing loans increased by about P380 million from the year-end 2008 balance to P9.1 billion at the end of the first quarter due to additional short-term borrowings to fund capital expenditures. In January 2009, the Company drew P400 million from the P2 billion facility it signed on September 30, 2008.

41

Shareholder’s equity stands at P15.34 billion, a P191 million or 1% increase over the value at the end of 2008. The company’s net debt-to-equity ratio decreased slightly to 0.40x at the end of the first quarter versus 0.41x at the end of December 2008.

* * * *

42

2009 2008

March December

Unaudited Audited

ASSETS

Current Assets

Cash and cash equivalents 3,009,510 2,524,254

Trade and other receivables 5,385,709 5,040,139

Derivative assets - 16,223

Program rights and other intangible assets - current 1,371,662 1,439,876

Other current assets 1,367,407 1,099,747

Total Current Assets 11,134,289 10,120,240

Noncurrent Assets

Property and equipment at cost - net 14,723,329 14,735,554

Noncurrent program rights and other intangible assets 2,140,445 2,170,856

Goodwill 1,902,647 1,906,211

Deferred tax assets 596,766 603,191

Other noncurrent assets - net 3,529,708 3,299,621

Total Non Current Assets 22,892,896 22,715,433

34,027,184 32,835,673

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Trade and other payables 6,107,884 5,642,073

Income tax payable 621,769 489,963

Obligations for program rights - current 1,146,321 1,063,365

Interest-bearing loans and borrowings - current 1,052,950 1,131,783

Total Current Liabilities 8,928,923 8,327,184

Noncurrent Liabilities

Interest-bearing loans and borrowings - net of current portion 8,041,132 7,582,621

Obligations for program rights - net of current portion 118,517 151,994

Deferred tax liabilities - net 650,972 632,600

Accrued pension obligation 733,948 791,936

Asset retirement obligation 15,927 17,787

Other noncurrent liabilities - net 199,813 184,149

Total Noncurrent Liabilities 9,760,310 9,361,087

Stockholders' Equity

Capital Stock - P1 par value

Authorized - 1,500,000,000 shares

Issued - 779,583,312 shares 779,583 779,583

Capital paid in excess of par value 725,276 725,276

Cumulative translation adjustments (156,374) (169,514)

Retained earnings 14,312,668 14,121,335

Philippine depositary receipts convertible to common shares (376,324) (376,324)

Total Stockholers' Equity attributable to Equity holders of Parent Company 15,284,829 15,080,356

Minority Interest 53,123 67,046

Total Stockholders' Equity 15,337,951 15,147,402 34,027,184 32,835,673

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

March 31, 2009 and December 31, 2008

(In Thousands, Except Par Value and Number of Shares)

43

2009 2008

REVENUES

Airtime revenues 2,763,629 2,832,404

Sale of services 2,414,883 1,266,176

Sale of goods 109,723 167,108

5,288,235 4,265,687

EXPENSES (INCOME)

General and administrative 1,710,873 1,115,747

Production costs 1,452,638 1,514,447

Cost of sales and services 1,150,793 733,903

Agency commission, incentives and co-producers' share 512,216 551,736

Finance costs 243,678 126,996

Finance revenue (36,679) (42,805)

Equity in net losses of associates (0) (4,587)

Foreign exchange (gain) loss - net 32,215 (20,689)

Other income (113,979) (96,771)

4,951,755 3,877,977

INCOME BEFORE INCOME TAX 336,480 387,710

PROVISION FOR INCOME TAX 147,316 144,416 NET INCOME 189,164 243,294

Attributable to :

Equity holders of Parent Company 191,333 241,526

Minority Interest (2,169) 1,768

189,164 243,294

EBITDA 1,351,838 1,030,469

EARNINGS PER SHARE (EPS)

Basic EPS 0.249 0.314


Consolidated Statement of Income and Expenses

For the period ended March 31

(Unaudited)

(In Thousands)

For the period ended

March 31

44

Excess of Philippine

Acquisition Depository

Capital Cumulative Cost over the Unappropriated Appropriated Receipts

Capital in Excess of Translation Carrying Value Retained Retained Convertible to Minority TotalStock Par Value Adjustments of Minority Int Earnings Earnings Common Shares Total Interest Equity

At January 1, 2009 779,583 725,276 (169,514) - 5,821,335 8,300,000 (376,324) 15,080,356 67,046 15,147,402

Prior period adjustments - - - - - - - - - -

At January 1, 2009, as restated 779,583 725,276 (169,514) - 5,821,335 8,300,000 (376,324) 15,080,356 67,046 15,147,402

Increase in Minority Interest - - - - - - - - (11,754) (11,754)

Cash flow hedges - - - - - - - - - -

Amortization of initial CTA - - - - - - - - - -

Cash dividend declared - - - - - - - - - -

Translation adjustments during the year - - (923) - - - - (923) - (923)

Unrealized fair value gain on available-for-sale investment - - 14,063 - - - - 14,063 - 14,063

Total income and expense for the year recognized directly in equity - - 13,140 - - - - 13,140 (11,754) 1,386

Net income - - - - 191,333 - - 191,333 (2,169) 189,164

Total income and expense for the year - - 13,140 - 191,333 - - 204,473 (13,923) 190,550

Issuance/ Receipt of treasury shares - - - - - - - - - -

At March 31, 2009 779,583 725,276 (156,374) - 6,012,668 8,300,000 (376,324) 15,284,829 53,123 15,337,952

At January 1, 2008 779,583 725,276 (257,861) - 5,052,202 8,300,000 (323,967) 14,275,233 45,894 14,321,127

Prior period adjustment - - - - - - - - - -

At January 1, 2008, as restated 779,583 725,276 (257,861) - 5,052,202 8,300,000 (323,967) 14,275,233 45,894 14,321,127

Decrease in Minority Interest - - - - - - - - (4,922) (4,922)

Cash flow hedges - - - - - - - - - -

Amortization of initial CTA - - - - - - - - - -

Cash dividend declared - - - - - - - - - -

Translation adjustments during the year - - 271,671 - - - - 271,671 - 271,671

Unrealized fair value gain on available-for-sale investment - - 1,278 - - - - 1,278 1,278

Total income and expense for the year recognized directly in equity - - 272,949 - - - - 272,949 (4,922) 268,027

Net income - - - - 241,526 - - 241,526 1,768 243,294

Total income and expense for the year - - 272,949 - 241,526 - - 514,475 (3,154) 511,321

Issuance/ Receipt of treasury shares - - - - - - (7,600) (7,600) (7,600) At March 31, 2008 779,583 725,276 15,088 - 5,293,728 8,300,000 (331,567) 14,782,108 42,739 14,824,847

Attributed to equity holders of parent


Consolidated Statements of Changes in Stockholders' Equity

March 31, 2009 and March 31, 2008

(In Thousands, Except Per Share Amounts)

45

2009 2008

CASH FLOWS FROM OPERATING ACTIVITIES

Income from before income tax 336,480 387,710

Adjustments for :

Depreciation 552,716 319,569

Interest expense 230,615 118,597

Amortization of :

Program rights and other intangibles 261,512 246,094

Debt issue cost 6,897 5,632

Deferred charges - -

Provisions for :

Retirement expense 47,817 40,089

Other employee benefit 25,587 18,465

Doubtful accounts 36,712 20,235

Inventory obsolescence 300 300

Interest income (36,679) (42,805)

Equity in net losses of investees (0) (4,587)

Mark to market (gain) loss 826 -

Unrealized foreign exhange (gain) loss 29,846 (25,907)

Gain on sale of property and equipment - -

Operating income before working capital changes 1,492,629 1,083,391

Decrease (increase) in :

Trade and other receivables (382,751) 10,654

Program rights and other intangible assets (14,052) (236,105) Other current assets (286,549) (669,173)

Increase (decrease) in :

Trade and other payables 452,986 456,883

Obligations for program rights (99,357) (83,001)

Payment of accrued pension obligation (105,804) (37,125)

Cash generated from operations 1,057,103 525,525

Income tax paid 23,551 423,292

Net cash provided by operating activities 1,080,654 948,817

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to property and equipment (541,628) (218,793)

Decrease (increase) in :

Other non-current assets (206,802) (427,061)

Long-term receivables from a related party (0) (10,605)

Interest received 37,148 42,819

Proceeds from sale of property and equipment - 3,684

Net cash used in investing activities (711,282) (609,954)

CASH FLOWS FROM FINANCING ACTIVITIES

Payments of :

Long-term debt 29,686 (0)

Interest and other financial charges (217,148) (110,998)

Bank loans - -

Capital lease (72,243) (79,616)

Cash dividends - -

Proceeds from :

Bank loans - -

Long-term debt 400,000 -

Cash received from settlement of derivatives 0 -

Net cash used in financing activities 140,295 (190,614)

EFFECTS OF EXCHANGE RATE & TRANSLATION ADJUSTMENTS ON CASH (24,411) 265,132

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 485,256 413,381

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,524,254 2,145,778 CASH AND CASH EQUIVALENTS AT END OF YEAR 3,009,510 2,559,159

(In Thousands)

For the period ended

March 31


CONSOLIDATED CASH FLOW STATEMENTS

For the period ended March 31

(Unaudited)

46


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands Unless Otherwise Specified)

1. Summary of Significant Accounting Policies

Basis of Preparation The consolidated financial statements of ABS-CBN and all its subsidiaries (collectively referred to as “the Company”) have been prepared on a historical cost basis, except for derivative financial instruments and available-for-sale (AFS) investments that have been measured at fair value.

The consolidated financial statements are presented in Philippine Peso, which is the functional and presentation currency of the Parent Company. All values are rounded to the nearest thousand, except when otherwise indicated.

Statement of Compliance

The consolidated financial statements of the Company have been prepared in compliance with Philippine Financial Reporting Standards (PFRS) issued by the Philippine Financial Reporting Standards Council.

Changes in Accounting Policies

Amended PFRS and Philippine Interpretations. The Company has adopted the following Philippine Interpretations which became effective January 1, 2008 and amendments to existing standards which became effective July 1, 2008:

� Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions

This interpretation requires arrangements whereby an employee is granted rights to an entity’s equity instruments to be accounted for as an equity-settled scheme by the entity even if (a) the entity chooses or is required to buy those equity instruments (e.g., treasury shares) from another party, or (b) the shareholder(s) of the entity provide the equity instruments needed. It also provides guidance on how subsidiaries, in their separate financial statements, account for such schemes when their employees receive rights to the equity instruments of the parent. This interpretation did not have an impact to the Company as it currently does not have any stock option plan.

� Philippine Interpretation IFRIC 12, Service Concession Arrangements

This interpretation applies to service concession operators and explains how to account for the obligations undertaken and rights received in service concession arrangements. This interpretation did not have an impact to the Company as it has no service concession arrangements.

� Philippine IFRIC 14, Philippine Accounting Standards (PAS) 19 - The Limit on a Defined

Benefit Asset, Minimum Funding Requirements and their Interaction

47

This interpretation provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recognized as an asset under PAS 19, Employee

Benefits. This interpretation did not have an impact to the Company as all defined benefit schemes are currently not fully funded.

� Amendments to PAS 39, Financial Instruments: Recognition and Measurement, and PFRS 7, Financial Instruments: Disclosures - Reclassification of Financial Assets

The amendments allow reclassification of certain held-for-trading investments to either held-to-maturity (HTM), loans and receivables or AFS financial instruments and certain AFS to loans and receivables. The Company does not have investments eligible for reclassification under the amendments.

Voluntary Change in Accounting for Acquisition of Minority Interest. In 2008, the Company changed its accounting for acquisition of minority interest from entity concept method to parent entity extension method to be aligned with the accounting policy of Benpres Holdings Corporation (Benpres), its intermediate holding company. Under parent entity extension method, the difference between the fair value of the consideration and the net book value of the net assets acquired is presented as goodwill. The change was accounted for retrospectively and the 2007 consolidated financial statements have been restated. The change resulted in the increase and decrease in the “Goodwill” and “Excess of acquisition cost over the carrying value of minority interests”, a separate component of equity, respectively, by P=20 million. There was no impact on the consolidated net income for the years ended December 31, 2007 and 2006.

Basis of Consolidation The consolidated financial statements include the financial statements of the Parent Company and its subsidiaries. Control is normally evidenced when the Parent Company owns, either directly or indirectly, more than 50% of the voting rights of an entity’s capital stock.

Following is a list of the subsidiaries or companies, which ABS-CBN controls as of March 31, 2009, December 31, 2008 and 2007:

Place of Functional Ownership Interest

Company Incorporation Principal Activities Currency 2009 2008 2007

ABS-CBN Global Ltd.

(ABS-CBN Global) (a) (l)

Cayman Islands Holding company United States Dollar

(USD) 100.0 100.0 100.0

ABS-CBN International (b) (l) California, USA Cable and satellite

programming services

USD 98.0 98.0 98.0

ABS-CBN Australia Pty. Ltd. (ABS-CBN Australia) (b) (l)

Victoria, Australia Cable and satellite programming services

Australian Dollar (AUD)

100.0 100.0 100.0

ABS-CBN Telecom North America, Inc.) (b) (l)

California, USA Telecommunications USD 100.0 100.0 100.0

The Filipino Channel Canada,

ULC (ABS-CBN Canada)(b) (c) (l)

Canada Cable and satellite


Canadian Dollar

(CAD) 100.0 100.0 100.0

ABS-CBN Europe Ltd.

(ABS-CBN Europe) (b) (d) (l)

United Kingdom Cable and satellite


Great Britain Pound

(GBP) 100.0 100.0 100.0

ABS-CBN Japan, Inc. (ABS-CBN Japan) (b) (e) (l) (m)

Japan Cable and satellite programming services

Japanese Yen (JPY) 100.0 100.0 100.0

ABS-CBN Middle East FZ-LLC (ABS-CBN Middle East) (b) (l)

Dubai, UAE Cable and satellite programming services

USD 100.0 100.0 100.0

ABS-CBN Middle

East LLC (b) (l)

Dubai, UAE Trading USD 100.0 100.0 100.0

48



E-Money Plus, Inc. (b) Philippines Services – money remittance


ABS-CBN Center for Communication Arts, Inc. (f)

Philippines Educational/training Philippine Peso 100.0 100.0 100.0

ABS-CBN Film Productions, Inc.

(ABS-CBN Films)

Philippines Movie production Philippine Peso 100.0 100.0 100.0

ABS-CBN Interactive, Inc. (ABS-CBN Interactive)

Philippines Services – interactive media


ABS-CBN Multimedia, Inc. (ABS-CBN Multimedia) (see Note 11) (g)

Philippines Digital electronic content distribution



Philippines Real estate Philippine Peso 100.0 100.0 100.0

ABS-CBN Publishing, Inc. (ABS-CBN Publishing)

Philippines Print publishing Philippine Peso 100.0 100.0 100.0

Culinary Publications, Inc. (h) Philippines Print publishing Philippine Peso 70.0 70.0 70.0 Creative Programs, Inc. (CPI) Philippines Content development and



Philippines Services - production Philippine Peso 100.0 100.0 100.0

Sarimanok News Network, Inc. Philippines Content development and



Sky Films, Inc. (i) Philippines Services - film distribution

Philippine Peso – – 100.0

Star Recording, Inc. Philippines Audio and video production and distribution


Star Songs, Inc. Philippines Music publishing Philippine Peso 100.0 100.0 100.0 Studio 23, Inc. (Studio 23) Philippines Content development and


TV Food Chefs, Inc. Philippines Services - restaurant and food


Roadrunner Network, Inc.

(Roadrunner)

Philippines Services - post production Philippine Peso 98.9 98.9 98.9

Sky Cable Corporation (Sky Cable) (see Note 4)

Philippines Cable television services Philippine Peso 65.3 65.3 –

Bright Moon Cable Networks, Inc. (j)


Cavite Cable Corporation (j) Philippines Cable television services Philippine Peso 65.3 65.3 –

Cepsil Consultancy and Management Corporation (j)


HM Cable Networks, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 –

HM CATV, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 – Hotel Interactive Systems, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 – Isla Cable TV, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 –

Satellite Cable TV, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 – Sunvision Cable, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 – Sun Cable Holdings,

Incorporated (SCHI) (j)


Tarlac Cable Television Network, Inc. (j)


JMY Advantage Corporation (j) Philippines Cable television services Philippine Peso 62.0 62.0 – Suburban Cable Network, Inc. (j) Philippines Cable television services Philippine Peso 60.7 60.7 – Discovery Cable, Inc. (j) Philippines Cable television services Philippine Peso 45.7 45.7 –

Home-Lipa Cable, Inc. (j) Philippines Cable television services Philippine Peso 39.2 39.2 – Pilipino Cable Corporation

(PCC) (j) (k) Philippines Cable television services Philippine Peso 65.3 65.3 –

Bisaya Cable Television

Network, Inc. (j)


Moonsat Cable Television, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 – Sun Cable Systems Davao, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 –

Telemondial Holdings, Inc. (THI) (j) (k)


49



First Ilocandia CATV, Inc. (j) Philippines Cable television services Philippine Peso 59.4 59.4 – Mactan CATV Network, Inc. (j) Philippines Cable television services Philippine Peso 59.4 59.4 –

Pacific CATV, Inc. (Pacific) (j) Philippines Cable television services Philippine Peso 59.4 59.4 – Cebu Cable Television, Inc. (j) Philippines Cable television services Philippine Peso 41.8 41.8 – Davao Cableworld Network,

Inc. (j)


(a) With a branch in the Philippines

(b)Through ABS-CBN Global

(c) Incorporated and started commercial operations in 2007

(d) With a branch in Italy

(e) Incorporated in 2006 and started commercial operations in 2007

(f) Nonstock ownership interest

(g ) Through ABS-CBN Interactive

(h) Through ABS-CBN Publishing

(i) Merged with ABS-CBN Films in 2007

(j) Through Sky Cable

(k) Subsidiary of SCHI

(l) Considered as foreign subsidiaries

(m) Subsidiary of ABS-CBN Europe

The financial statements of the subsidiaries are prepared for the same reporting quarter as the Parent Company, using consistent accounting policies. All significant intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognized in assets and liabilities, are eliminated in full on consolidation. Unrealized gains and losses are eliminated unless costs cannot be recovered. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. Control is achieved when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Consolidation of subsidiaries ceases when control is transferred out of the Company. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of income from the date of acquisition or up to the date of disposal, as appropriate.

As a result of the conversion of the convertible note in Sky Cable in 2008, the related accounts of Sky Cable and subsidiaries have been included in the 2008 consolidated financial statements effective March 15, 2008 (see Note 2).

Minority Interests Minority interests represent the portion of profit or loss and net assets not held by the Company and are presented separately in the consolidated statement of income and within the equity section of the consolidated balance sheet, separately from equity attributable to equity holders of the Parent Company. This includes the equity interests in ABS-CBN International, Culinary Publications, Inc., Roadrunner and Sky Cable and its subsidiaries.

Acquisition of minority interest is accounted for using the parent entity extension method, whereby, the difference between the fair value of the consideration and net book value of the share in the net assets acquired is presented as goodwill.

The proportionate amount of the fair values of identifiable assets and liabilities upon acquisition of a consolidated subsidiary and any subsequent changes in equity of a consolidated subsidiary attributable to a minority shareholder’s interest are shown separately as “Minority interests” in the consolidated balance sheet. A minority shareholder’s interest in

50

the results of operations of a subsidiary is shown as “Minority interests” in the consolidated statement of income. Any losses applicable to a minority shareholder in a consolidated subsidiary in excess of the minority shareholder’s equity in the subsidiary are charged against the minority interest to the extent that the minority shareholder has binding obligation to, and is able to, make good of the losses.

Business Combination and Goodwill Business combinations are accounted for using the purchase accounting method. This involves recognizing identifiable assets (including previously unrecognized intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value.

Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Company’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash-generating units or group of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Company are assigned to those units or groups of units. Each unit or group of units to which goodwill is allocated represents the lowest level within the Company at which goodwill is monitored for internal management purposes. Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation in determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative translation adjustments and goodwill is recognized in the consolidated statement of income.

Goodwill on investments in associates is included in the carrying amount of the related investments.

Functional and Presentation Currency The consolidated financial statements are presented in Philippine Peso, which is ABS-CBN’s functional and presentation currency. Each entity determines its own functional currency, which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to that entity, and items included in the financial statements of each entity are measured using that functional currency.

The functional currency of all the subsidiaries, except foreign subsidiaries, is the Philippine Peso. The functional currencies of the foreign subsidiaries are disclosed under the Basis of Consolidation section. As of reporting date, the assets and liabilities of foreign subsidiaries are translated into the presentation currency of the Company (the Philippine Peso) at the rate of exchange ruling at balance sheet date and, their statements of income are translated at the

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weighted average exchange rates for the quarter. The exchange differences arising on the translation are taken directly to “Cumulative translation adjustments” account within the equity section of the consolidated balance sheet. Upon disposal of any of these foreign subsidiaries, the deferred cumulative amount recognized in equity relating to that particular foreign entity will be recognized in the consolidated statement of income.

Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and that are subject to an insignificant risk of change in value.

Financial Instruments

Date of Recognition. Financial instruments are recognized in the consolidated balance sheet when the Company becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized using the trade date. Derivatives are recognized on trade date basis.

Initial Recognition of Financial Instruments. All financial instruments are initially recognized at fair value. The initial measurement of financial instruments includes transaction costs, except for securities at fair value through profit or loss (FVPL). The Company classifies its financial assets in the following categories: financial assets at FVPL, HTM investments, loans and receivables and AFS investments. Financial liabilities are classified as either financial liabilities at FVPL or other financial liabilities at amortized cost. The classification depends on the purpose for which the investments were acquired and whether they are quoted in an active market. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

Determination of Fair Value. The fair value of financial instruments traded in organized financial markets is determined by reference to quoted market bid prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs, that are active at the close of business at balance sheet date. When current bid and asking prices are not available, the price of the most recent transaction is used since it provides evidence of current fair value as long as there has not been significant change in economic circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Such techniques include using reference to similar instruments for which observable prices exist, discounted cash flows analyses, and other relevant valuation models.

Day 1 Profit. Where the transaction price in a non-active market is different to the fair value from other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 profit) in the consolidated statement of income. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in the

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consolidated statement of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the “Day 1” profit amount.

Financial Assets and Liabilities at FVPL. Financial assets and liabilities at FVPL include financial assets and liabilities held for trading and financial assets and liabilities designated upon initial recognition as at FVPL. Financial assets and liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term.

Derivatives are also classified under financial assets or liabilities at FVPL, unless they are designated as hedging instruments in an effective hedge.

Financial assets or liabilities may be designated by management at initial recognition as at FVPL if any of the following criteria are met:

� The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on them on a different basis;

� The assets and liabilities are part of a group of financial assets, liabilities or both which

are managed and their performance are evaluated on a fair value basis in accordance with a documented risk management strategy; or

� The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis that it would not be separately recorded.

Financial assets or liabilities at FVPL are recorded in the consolidated balance sheet at fair value. Subsequent changes in fair value are recognized directly in the consolidated statement of income. Interest earned or incurred is recorded as interest income or expense, respectively, while dividend income is recorded as other income according to the terms of the contract, or when the right of payment has been established.

The Company’s embedded derivative instruments are classified under this category.

Loans and Receivables. Loans and receivables are nonderivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as at FVPL, designated as AFS financial assets or HTM investments. After initial measurement, loans and receivables are subsequently carried at amortized cost using the effective interest rate method, less any allowance for impairment. Gains and losses are recognized in the consolidated statement income when the loans and receivables are derecognized or impaired, as well as through the amortization process.

Loans and receivables are included in current assets if maturity is within 12 months from balance sheet date. Otherwise, these are classified as noncurrent assets.

This category includes the Company’s cash and cash equivalents, trade and other receivables, and long-term receivables from related parties.

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HTM Investments. Quoted nonderivative financial assets with fixed or determinable payments and fixed maturities are classified as HTM investments when the Company’s management has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this category. After initial measurement, HTM investments are measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between the initially recognized amount and the maturity amount, less allowance for impairment. This calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts.

Gains and losses are recognized in the consolidated statement of income when the investments are derecognized or impaired, as well as through the amortization process.

The Company has no HTM investments as of March 31, 2009 and December 31, 2008.

AFS Financial Assets. AFS financial assets are those nonderivative financial assets that are designated as AFS or are not classified in any of the three preceding categories. After initial measurement, AFS financial assets are measured at fair value, with unrealized gains or losses being recognized as a separate component of equity until the investment is derecognized or determined to be impaired, at which time the cumulative gain or loss previously reported in equity account is included in the consolidated statement of income.

AFS financial assets are included in current assets if management intends to sell these financial assets within 12 months from balance sheet date. Otherwise, these are classified as noncurrent assets.

The Company’s AFS financial assets include investments in ordinary common shares.

Other Financial Liabilities. Financial liabilities are classified in this category if these are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings.

Other financial liabilities are initially recognized at fair value of the consideration received, less directly attributable transaction costs. After initial recognition, other financial liabilities are subsequently measured at amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any related issue costs, discount or premium. Gains and losses are recognized in the consolidated statement of income when the liabilities are derecognized, as well as through the amortization process.

Expenditures incurred in connection with availments of long-term debt are deferred and amortized using effective interest rate method over the term of the loans. Debt issue costs are netted against the related long-term debt allocated correspondingly to the current and noncurrent portion.

Classified under other financial liabilities are trade and other payables, interest-bearing loans and borrowings, obligations for program rights and customers’ deposits.

Derivative Financial Instruments and Hedge Accounting

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The Company uses derivative financial instruments such as interest rate swaps and cross currency swaps to hedge its risks associated with interest rate and foreign currency fluctuations.

Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. The fair value of interest swaps and cross currency swaps is determined by reference to market values for similar instruments. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to the consolidated statement of income for the current year as mark-to-market gain or loss.

For the purpose of hedge accounting, derivatives can be designated as cash flow hedges or fair value hedges, depending on the type of risk exposure. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Cash Flow Hedges. Cash flow hedges are hedges of the exposures to variability in cash flows that are attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect the consolidated statement of income. Changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are recognized directly in equity, while any hedge ineffectiveness is recognized immediately in the consolidated statement of income.

Amounts taken to equity are transferred to the consolidated statement of income when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale or purchase occurs. Where the hedged item is the cost of a nonfinancial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the nonfinancial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognized in equity are transferred to the consolidated statement of income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in equity remain in equity until the forecast transaction occurs. If the related transaction is not expected to occur, the amount is taken to the consolidated statement of income.

The Company’s interest rates and cross currency swaps designated as cash flow hedges were terminated in 2007 as a result of the prepayment of the underlying obligation. There are no outstanding cash flow hedges as of March 31, 2009.

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The Company has no derivatives that are designated or accounted for as fair value hedges as of March 31, 2009 and December 31, 2008.

Embedded Derivatives An embedded derivative is separated from the host contract and accounted for as derivative if all the following conditions are met: (a) the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristic of the host contract; (b) a separate instrument with the same terms as the embedded derivative would meet the definition of the derivative; and (c) the hybrid or combined instrument is not measured at FVPL.

The Company assesses whether embedded derivatives are required to be separated from host contracts when the Company first becomes party to the contract. Re-assessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Impairment of Financial Assets The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

Loans and Receivables. For loans and receivables carried at amortized cost, the Company first assesses whether an objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

If there is an objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition).

The carrying amount of the asset is reduced either directly or through use of an allowance account and the amount of the loss is recognized in the consolidated statement of income. Interest income continues to be accrued on the reduced carrying amount based on the original effective interest rate of the asset. If in case the receivable has proven to have no realistic prospect of future recovery, any allowance provided for such receivable is written off against the carrying value of the impaired receivable.

If in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is recognized in the consolidated statement of income. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of

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income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

A provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are derecognized when they are assessed as uncollectible.

Likewise, for other receivables, it was also established that accounts outstanding for less than a year should have no provision for impairment but accounts outstanding over a year should have a 100% provision, which was arrived at after assessing individually significant balances. Provision for individually non-significant balances was made on a portfolio or group basis after performing the regular review of the age and status of the individual accounts and portfolio/group of accounts relative to historical collections, changes in payment terms and other factors that may affect ability to collect payments.

Assets Carried at Cost. If there is an objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

AFS Financial Assets. For AFS investments, the Company assesses at each balance sheet date whether there is objective evidence that a financial asset or group of financial assets is impaired.

In case of equity investments classified as AFS, impairment indications would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the consolidated statement of income, is removed from equity and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income. Increases in fair value after impairment are recognized directly in equity.

Derecognition of Financial Assets and Liabilities Financial Assets. A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized where:

� the rights to receive cash flows from the asset have expired;

� the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or

� the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither

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transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of income. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated balance sheet.

Inventories Inventories, included under “Other current assets” account in the consolidated balance sheet, are valued at the lower of cost or net realizable value. Cost is determined on the weighted average method. Net realizable value of inventories that are for sale is the selling price in the ordinary course of business, less the cost of marketing and distribution. Net realizable value of inventories not held for sale is the current replacement cost. Unrealizable inventories are written off.

Preproduction Expenses Preproduction expenses, included under “Other current assets” account in the consolidated balance sheet, represent costs incurred prior to the airing of the programs or episodes. These costs include talent fees of artists and production staff and other costs directly attributable to production of programs. These are charged to expense upon airing of the related program or episodes. Costs related to previously taped episodes determined not to be aired are charged to expense.

Property and Equipment Property and equipment, except land, are carried at cost (including capitalized interest), excluding the costs of day-to-day servicing, less accumulated depreciation, amortization and impairment in value. Such cost includes the cost of replacing part of such property and equipment when that cost is incurred if the recognition criteria are met. Land is stated at cost,

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which includes initial purchase price and other cost directly attributable in bringing such asset to its working condition, less any impairment in value.

Subscriber’s initial installation costs, including materials, labor and overhead costs are capitalized as distribution equipment (included in the “Television, radio, movie and auxiliary equipment” account) and depreciated over a period no longer than the depreciation period of the distribution equipment. The costs of subsequent disconnection and reconnection are charged to current operations. Unissued spare parts and supplies represent major spare parts that can be used only in connection with the distribution equipment. Unissued spare parts and supplies are not depreciated but tested for impairment until become available for use. These are included in the “Other equipment” account.

When each major inspection is performed, its cost is recognized in the carrying amount of the property and equipment as a replacement if the recognition criteria are satisfied.

Depreciation and amortization are computed on a straight-line method over the useful lives of property and equipment. The property and equipment’s residual values, useful lives and method of depreciation and amortization are reviewed, and adjusted if appropriate, at each financial year-end.

Construction in progress represents equipment under installation and building under construction and is stated at cost which includes cost of construction and other direct costs. Construction in progress is not depreciated until such time that the relevant assets are completed and become available for operational use.

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of income in the year the asset is derecognized.

Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization in the case of intangible assets with finite lives, and any accumulated losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and method for an intangible asset with a finite useful life is reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The amortization on intangible assets with finite lives is recognized in the consolidated statement of income in the expense category consistent with the function of the intangible asset.

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Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangibles are not amortized. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.

A summary of the policies applied to the Company’s acquired intangible assets is as follows:

Intangible Asset Useful Lives

Amortization

Method Used

Impairment

Testing/

Recoverable

Amount Testing

Current and

Noncurrent

Portion

Program Rights Finite (license term or economic life, whichever is shorter)

Amortized on the basis of program usage, except for CPI, which is amortized on a straight-line method over the license term or economic life, whichever is shorter.

If the remaining expected benefit period is shorter than the Company’s initial estimates, the Company accelerates amortization of the purchase price or license fee.

Based on the estimated year of usage except CPI, which is based on license term.

Story, Music and Publication Rights

Finite (useful economic benefit)

Amortized on the basis of the useful economic life.



Movie In-Process Finite No amortization, recognized as expense upon showing

If the unamortized film cost is less than the fair value of the film, the asset is written down to its recoverable amount.


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Intangible Asset Useful Lives

Amortization

Method Used

Impairment

Testing/

Recoverable

Amount Testing

Current and

Noncurrent

Portion

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.


Current.

Cable Channels - CPI

Indefinite No amortization. Annually and more frequently when an indication of impairment exists.

Noncurrent.

Production and Distribution Business - Middle East

Finite - 25 years Amortized on a straight-line basis over the period of 25 years.


Noncurrent.

Customer relationships acquired in a business combination (see Note 2) is amortized on a straight-line basis over the estimated customer service life ranging from three to fifteen years.

Investment Properties Investment properties, except land, are measured at cost, including transaction costs, less accumulated depreciation and any impairment in value. The carrying amount includes the cost of replacing part of an existing investment property at the time the cost is incurred if the recognition criteria are met, and excludes day-to-day servicing of an investment property. Land is stated at cost less any impairment in value.

Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale.

For a transfer from investment property to owner-occupied property or inventories, the cost of property for subsequent accounting is its carrying value at the date of change in use. If the property occupied by the Company as an owner-occupied property becomes an investment

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property, the Company accounts for such property in accordance with the policy stated under “Property and Equipment” up to the date of change in use.

Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the statement of operations in the year of retirement or disposal.

These are included under “Other noncurrent assets” account in the consolidated balance sheet.

Investments in Associates The Company’s investments in associates, included as part of “Other noncurrent assets” account in the consolidated balance sheet, are accounted for under the equity method of accounting. An associate is an entity over which the Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.

Under the equity method, investment in associates is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Company’s share in net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized. The consolidated statement of income reflects the share on the results of operations of an associate. When ABS-CBN’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, ABS-CBN’s does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share in any changes and discloses this, when applicable, in the consolidated statement of changes in equity. The reporting dates of the associates and the Company are identical and the associates’ accounting policies conform to those used by the Company for like transactions and events in similar circumstances. Unrealized intercompany profits arising from the transactions with the associate are eliminated.

Tax Credits Tax credits from government airtime sales availed under Presidential Decree (PD) No. 1362 are recognized in the books upon actual airing of government commercials and advertisements. These are included under “Other noncurrent assets” account in the consolidated balance sheet.

Impairment of Nonfinancial Assets The Company assesses at each reporting date whether there is an indication that property and equipment, noncurrent program rights and other intangible assets with finite lives, and tax credits may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use,

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the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset.

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income. After such a reversal, the depreciation and amortization are adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

The following criteria are also applied in assessing impairment of specific nonfinancial assets:

Goodwil and Cable Channels. Goodwill and cable channels are reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill and cable channels by assessing the recoverable amount of the cash-generating units, to which the goodwill and cable channels relates. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount of the cash-generating unit (or group of cash-generating units) to which the goodwill and cable channels has been allocated, an impairment loss is recognized in the consolidated statement of income. Impairment losses relating to goodwill cannot be reversed for subsequent increases in its recoverable amount in future periods. The Company performs its annual impairment test of goodwill and cable channels as of December 31 of each year.

Investments in Associates. After application of the equity method, the Company determines whether it is necessary to recognize any additional impairment loss with respect to the Company’s net investment in the associate. The Company determines at each balance sheet date whether there is any objective evidence that the investments in associates are impaired. If this is the case, the Company calculates the amount of impairment as being the difference between the fair value of the associate and the acquisition cost and recognizes the amount in the consolidated statement of income.

Revenue Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the Company and the amount of the revenue can be measured reliably.

Airtime revenue is recognized as income on the dates the advertisements are aired. The fair values of barter transactions are included in airtime revenue and the related accounts. These transactions represent advertising time exchanged for program materials, merchandise or service.

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Sale of services include:

a. Subscription fees which are recognized as follows:

DTH Subscribers and Cable Operators. Subscription fees are recognized under the accrual basis in accordance with the terms of the agreements.

Share in DirecTV Subscription Revenue. Subscription revenue from subscribers of DirecTV who subscribe to the “The Filipino Channel” is recognized in accordance with the Deal Memorandum.

Subscription Revenue from ABS-CBN Now. Subscription revenue from online streaming services of Filipino-oriented content and programming is received in advance (included as “Deferred revenue” under “Trade and other payables” account in the consolidated balance sheet) and is deferred and recognized as revenue over the period during which the service is performed.

Cable Subscribers. Subscription fees are recognized under the accrual basis in accordance with the terms of the agreements. Subscription fees billed or collected in advance are deferred and shown as “Deferred revenue” under “Trade and other payables” account in the consolidated balance sheet and recognized as revenue when service is rendered.

b. Telecommunications revenue which is recognized when earned. These are stated net of the share of the other telecommunications carriers, if any, under existing correspondence and interconnection agreements. Interconnection fees and charges are based on agreed rates with the other telecommunications carriers.

Income from prepaid phone cards are realized based on actual usage hours or expiration of the unused value of the card, whichever comes earlier. Income from prepaid card sales for which the related services have not been rendered as of balance sheet date, is presented as “Other current liabilities” under “Trade and other payables” account in the consolidated balance sheet.

c. Channel lease revenue which is recognized as income on a straight-line basis over the

lease term.

d. Income from film exhibition which is recognized, net of theater shares, on the dates the films are shown.

e. Income from TV rights and cable rights which are recognized on the dates the films are permitted to be publicly shown as stipulated in the agreement.

f. Pay-per-view fees are recognized on the date the movies or special programs are viewed.

Sale of goods is recognized when delivery has taken place and transfer of risks and rewards has been completed. These are stated net of sales discounts, returns and allowances.

Income and related costs pertaining to the sale and installation of decoders and set-top boxes which has no stand alone value without the subscription revenue are aggregated and

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recognized ratably over the longer of subscription contract term or the estimated customer service life.

Short-messaging-system/text-based revenue, sale of news materials and Company-produced programs included under “Sale of services” account in the consolidated statement of income are recognized upon delivery.

Royalty income, included as part of “Sale of services” account in the consolidated statement of income, is recognized upon rendering of service based on the terms of the agreement and is reduced to the extent of the share of the composers or co-publishers of the songs produced for original sound recording.

Installation/reconnection/disconnection fees (shown as part of “Other income” account in the consolidated statement of income) are recognized when the services are rendered.

Management fees, included as part of “Other income” account in the consolidated statement of income, are recognized based on the terms of the management agreement.

Rental income is recognized as income on a straight-line basis over the lease term.

Interest income is recognized on a time proportion basis that reflects the effective yield on the asset.

Dividends are recognized when the shareholders’ right to receive payment is established. Channel License Fees Channel license fees included under “Cost of sales and services” account in the consolidated statement of income are charged to operations in the year these fees are incurred.

Leases The determination whether an arrangement is, or contains a lease is based on the substance of the arrangement at the inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies:

a. there is a change in contractual terms, other than a renewal or extension of the agreement;

b. a renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term;

c. there is a change in the determination of whether the fulfillment is dependent on a specified asset; or

d. there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios a, c or d and the date of renewal or extension period for scenario b.

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Finance Leases. Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the inception of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against the consolidated statement of income.

Capitalized leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term.

Operating Leases. Leases where the Company retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income.

Operating lease payments are recognized as expense in the consolidated statement of income on a straight-line basis over the lease term. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

Customers’ Deposits Customers’ deposits, included as part of “Other noncurrent liabilities” account in the consolidated balance sheet, are initially recognized at fair value. The discount is recognized as deferred revenue and amortized over the estimated remaining term of the deposit using the effective interest rate method.

Asset Retirement Obligation The net present value of legal obligations associated with the retirement of an item of property and equipment that resulted from the acquisition, construction or development and the normal operations of property and equipment is recognized in the period in which it is incurred and a reasonable estimate of the obligation can be made. This is included as part of “Other noncurrent liabilities” account in the consolidated balance sheet.

Borrowing Costs Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds.

Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset until such time that the assets are substantially ready for their intended use or sale, which

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necessarily take a substantial period of time. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred and ceases when the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized in the consolidated statement of income.

Pension Costs The Company’s pension plans are funded (Parent Company and Sky Cable) and unfunded (other subsidiaries) defined benefit pension plans, except for ABS-CBN International, which has a defined contribution pension plan. The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plans. The past service cost is recognized as an expense on a straight-line basis over the average period until the benefits become vested. If the benefits are already vested immediately following the introduction of, or changes to, a pension plan, past service cost is recognized immediately.

The defined benefit liability is the aggregate of the present value of the defined benefit obligation and actuarial gains and losses not recognized, reduced by past service cost not yet recognized and the fair value of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plans.

For ABS-CBN International, the defined contribution pension plan is composed of the contribution of ABS-CBN International or employee (or both) to the employee’s individual account. These contributions generally are invested on behalf of the employee through American Funds. Employees ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. The value of each account will fluctuate due to changes in the value of investments.

Income Taxes

Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at balance sheet date.

Deferred Tax. Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

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Deferred income tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred income tax assets are recognized for all deductible temporary differences and carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) over the regular corporate income tax and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and carryforward benefits of unused tax credits from excess MCIT and unused NOLCO can be utilized. Deferred income tax, however, is not recognized when it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit.

Deferred income tax liabilities are not provided on nontaxable temporary differences associated with investments in domestic subsidiaries and associates. With respect to investments in other subsidiaries and associates, deferred income tax liabilities are recognized except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are measured at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred income tax to be recovered.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at balance sheet date.

Income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated statement of income.

Deferred income tax assets and liabilities are offset, if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Foreign Currency-denominated Transactions Transactions in foreign currencies are initially recorded in the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing exchange rate at balance sheet date. All differences are taken to the consolidated statement of income. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Dividends on Common Shares of the Parent Company Dividends on common shares are recognized as liability and deducted from equity when approved by the shareholders of the Parent Company. Dividends for the year that are approved after balance sheet date are dealt with as an event after balance sheet date.

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Earnings Per Share (EPS) attributable to the Equity Holders of the Parent Company Basic EPS amounts are calculated by dividing the net income attributable to equity holders of the Parent Company for the year over the weighted average number of common shares outstanding during the year, with retroactive adjustments for any stock dividends and stock split.

Diluted EPS amounts are computed in the same manner, adjusted for the dilutive effect of any potential common shares. As the Company has no dilutive potential common shares outstanding, basic and diluted EPS are stated at the same amount.

Contingencies Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable. Events after Balance Sheet Date Any event after balance sheet date that provides additional information about the Company’s financial position at balance sheet date (adjusting events) are reflected in the consolidated financial statements. Events after balance sheet date that are not adjusting events are disclosed in the notes to consolidated financial statements when material.

Segment Reporting For management purposes, the Company’s operating businesses are organized and managed separately into three business activities. Such business segments are the bases upon which the Company reports its primary segment information. The Company operates in three geographical area where it derives its revenue. Financial information on segment reporting is presented in Note 9, Segment Information.

Future Changes in Accounting Policies The Company did not early adopt the following standards and Philippine Interpretations that have been approved but are not yet effective.

Effective in 2009

� PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Cost of an

Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective January 1, 2009)

The amended PFRS 1 allows an entity, in its separate financial statements, to determine the cost of investments in subsidiaries, jointly controlled entities or associates (in its opening PFRS financial statements) as one of the following amounts: a) cost determined in accordance with PAS 27; b) at the fair value of the investment at the date of transition to PFRS, determined in accordance with PAS 39; or c) previous carrying amount (as determined under generally accepted accounting principles) of the investment at the date of transition to PFRS. The new requirements will not have a significant impact on the consolidated financial statements.

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� Amendments to PFRS 2, Share-based Payments - Vesting Condition and Cancellations

(effective January 1, 2009)

This standard restricts the definition of “vesting condition” to a condition that includes an explicit or implicit requirement to provide services. Any other conditions are non-vesting conditions, which have to be taken into account to determine the fair value of the equity instruments granted. In the case that an award does not vest as the result of a failure to meet a non-vesting condition that is within the control of either the entity or the counterparty, this must be accounted for as cancellation. The Company has not entered into share-based payment schemes with non-vesting conditions attached and, therefore, does not expect significant impact on its consolidated financial statements.

� PFRS 8, Operating Segments (effective January 1, 2009)

PFRS 8 will replace PAS 14, Segment Reporting, and adopts a full management approach to reporting segment information. The information reported would be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. Such information may be different from that reported in the consolidated balance sheet and consolidated statement of income and the Company will provide explanations and reconciliations of the differences. This standard is only applicable to an entity that has debt or equity instruments that are traded in a public market or that files (or is in the process of filing) its financial statements with a securities commission or similar party. The Company will assess the impact of this standard to its current manner of reporting segment information.

� PAS 23, Borrowing Costs (effective January 1, 2009)

The standard requires capitalization of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. In accordance with the transitional requirements in the standard, the Company will adopt this as a prospective change. The Company assessed that adoption of this amendment will have no significant impact on its consolidated financial statements.

� Amendments to PAS 1, Presentation of Financial Statements (effective January 1, 2009)

The amended standard requires that the statement of changes in equity includes only transactions with owners and all non-owner changes are presented in equity as a single line with details included in a separate statement. The standard also introduces a new statement of comprehensive income that combines all items of income and expense recognized in profit or loss together with “other comprehensive income.” The revisions specify what is included in other comprehensive income, such as gains and losses on AFS investments, actuarial gains and losses on defined benefit pension plans and changes in the asset revaluation reserve. Entities can choose to present all items in one statement or to present two linked statements, a separate statement of income and statement of comprehensive income. The Company will apply the amended standard in 2009. The Company is still evaluating whether it will have one or two statements.

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� Amendments to PAS 27, Consolidated and Separate Financial Statements - Cost of an

Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective January 1, 2009)

The changes are in respect of the holding companies separate financial statements including (a) the deletion of ‘cost method’, making the distinction between pre- and post-acquisition profits no longer required; and (b) in cases of reorganizations where a new parent is inserted above an existing parent of the group (subject to meeting specific requirements), the cost of the subsidiary is the previous carrying amount of its share of equity items in the subsidiary rather than its fair value. All dividends will be recognized in profit or loss. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. The Company is currently evaluating the impact of the changes in accounting policies when it adopts the foregoing amendments on January 1, 2009.

� Amendments to PAS 32, Financial Instruments: Presentation, and PAS 1, Presentation of

Financial Statements - Puttable Financial Instruments and Obligations Arising on

Liquidation (effective January 1, 2009)

These amendments specify, among others, that puttable financial instruments will be classified as equity if they have all of the following specified features: (a) the instrument entitles the holder to require the entity to repurchase or redeem the instrument (either on an ongoing basis or on liquidation) for a pro rata share of the entity’s net assets, (b) the instrument is in the most subordinate class of instruments, with no priority over other claims to the assets of the entity on liquidation, (c) all instruments in the subordinate class have identical features, (d) the instrument does not include any contractual obligation to pay cash or financial assets other than the holder’s right to a pro rata share of the entity’s net assets, and (e) the total expected cash flows attributable to the instrument over its life are based substantially on the profit or loss, a change in recognized net assets, or a change in the fair value of the recognized and unrecognized net assets of the entity over the life of the instrument. The Company assessed that adoption of this amendment will have no significant impact on its consolidated financial statements.

� Philippine Interpretation IFRIC 13, Customer Loyalty Programmes (effective July 1, 2008)

This interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and realized in income over the period that the award credits are redeemed or expire. The Company is still evaluating the impact of adoption of this interpretation on its consolidated financial statements.

� Philippine Interpretation IFRIC 16, Hedges of a Net Investment in a Foreign Operation (effective October 1, 2008)

This interpretation provides guidance on identifying foreign currency risks that qualify for hedge accounting in the hedge of net investment; where within the group the hedging instrument can be held in the hedge of a net investment; and how an entity should

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determine the amount of foreign currency gains or losses, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. The Company assessed that adoption of this interpretation will have no significant impact on its consolidated financial statements.

Improvements to PFRS. In May 2008, the International Accounting Standards Board issued its first omnibus of amendments to certain standards, primarily with a view to removing inconsistencies and clarifying wording. The Company has not yet adopted the following relevant amendments and anticipates that these changes will have no material effect on the consolidated financial statements.

� PFRS 5, Non-current Assets Held for Sale and Discontinued Operations

When a subsidiary is held for sale, all of its assets and liabilities will be classified as held for sale under PFRS 5, even when the entity retains a non-controlling interest in the subsidiary after the sale.

� PAS 1, Presentation of Financial Statements

Assets and liabilities classified as held for trading in accordance with PAS 39, Financial

Instruments: Recognition and Measurement, are not automatically classified as current in the balance sheet.

� PAS 16, Property, Plant and Equipment

The amendment replaces the term “net selling price” with ”fair value less costs to sell” to be consistent with PFRS 5, Non-current Assets Held for Sale and Discontinued

Operations, and PAS 36, Impairment of Assets.

Items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental, are transferred to inventory when rental ceases and they are held for sale. Proceeds of such sales are subsequently shown as revenue. Cash payments on initial recognition of such items, the cash receipts from rents and subsequent sales are all shown as cash flows from operating activities.

� PAS 19, Employee Benefits

This revises the definition of ‘past service costs’ to include reductions in benefits related to past services (‘negative past service costs’) and to exclude reductions in benefits related to future services that arise from plan amendments. Amendments to plans that result in a reduction in benefits related to future services are accounted for as a curtailment.

This also revises the definition of ‘return on plan assets’ to exclude plan administration costs if they have already been included in the actuarial assumptions used to measure the defined benefit obligation and the definition of ‘short-term’ and ‘other long-term’ employee benefits to focus on the point in time at which the liability is due to be settled and deletes the reference to the recognition of contingent liabilities to ensure consistency with PAS 37, Provisions, Contingent Liabilities and Contingent Assets.

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� PAS 23, Borrowing Costs

This revises the definition of borrowing costs to consolidate the types of items that are considered components of “borrowing costs,” i.e., components of the interest expense calculated using the effective interest rate method.

� PAS 28, Investments in Associates

If an associate is accounted for at fair value in accordance with PAS 39, only the requirement of PAS 28 to disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or repayment of loans applies. An investment in an associate is a single asset for the purpose of conducting the impairment test. Therefore, any impairment test is not separately allocated to the goodwill included in the investment balance.

� PAS 31, Interests in Joint Ventures

If a joint venture is accounted for at fair value, in accordance with PAS 39, only the requirements of PAS 31 to disclose the commitments of the venturer and the joint venture, as well as summary financial information about the assets, liabilities, income and expense will apply.

� PAS 36, Impairment of Assets

When discounted cash flows are used to estimate “fair value less cost to sell” additional disclosure is required about the discount rate, consistent with disclosures required when the discounted cash flows are used to estimate “value in use”.

� PAS 38, Intangible Assets

Expenditure on advertising and promotional activities is recognized as an expense when the Company either has the right to access the goods or has received the services. Advertising and promotional activities now specifically include mail order catalogues.

This deletes references to there being rarely, if ever, persuasive evidence to support an amortization method for finite life intangible assets that results in a lower amount of accumulated amortization than under the straight-line method, thereby effectively allowing the use of the unit of production method.

� PAS 39, Financial Instruments: Recognition and Measurement

Changes in circumstances relating to derivatives - specifically derivatives designated or de-designated as hedging instruments after initial recognition are not reclassifications. When financial assets are reclassified as a result of an insurance company changing its accounting policy in accordance with paragraph 45 of PFRS 4, Insurance Contracts, this is a change in circumstance, not a reclassification.

This removes the reference to a ‘segment’ when determining whether an instrument qualifies as a hedge and requires use of the revised effective interest rate (rather than the

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original effective interest rate) when re-measuring a debt instrument on the cessation of fair value hedge accounting.

� PAS 40, Investment Properties

This revises the scope (and the scope of PAS 16, Property, Plant and Equipment) to include property that is being constructed or developed for future use as an investment property. Where an entity is unable to determine the fair value of an investment property under construction, but expects to be able to determine its fair value on completion, the investment under construction will be measured at cost until such time as fair value can be determined or construction is complete.

Effective 2010

� PFRS 3 (Revised), Business Combinations, and PAS 27 (Revised), Consolidated and

Separate Financial Statements (effective July 1, 2009)

The revised standards will supersede the existing PFRS 3 and PAS 27, respectively, with earlier application permitted. PFRS 3 (Revised) introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognized, the reported results in the period in which an acquisition occurs, and future reported results. PAS 27 (Revised) requires that a change in the ownership interest of a subsidiary is accounted for as an equity transaction. Therefore, such change will have no impact on goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes introduced by PFRS 3 (Revised) must be applied prospectively while PAS 27 (Revised) must be applied retrospectively subject to certain exceptions. These will affect future acquisitions and transactions with minority interest.

� Amendment to PAS 39, Financial Instruments: Recognition and Measurement -Eligible

Hedged Items (effective July 1, 2009)

This addresses only the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. The Company assessed that adoption of this amendment will have no significant impact on its consolidated financial statements.

Effective 2012

� Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate

(effective January 1, 2012)

This interpretation covers accounting for revenue and associated expenses by entities that undertake the construction of real estate directly or through subcontractors. The Company assessed that adoption of this interpretation will have no significant impact on its consolidated financial statements.

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2. Business Combination and Acquisitions

a. Conversion of Note and Advances

On June 30, 2004, Sky Vision Corporation (Sky Vision) and Sky Cable (“Issuer”) issued a convertible note (“the Note”) to the Parent Company amounting to US$30.0 million (P=1,581 million). The amount for conversion also includes advances of the Parent Company to Sky Cable amounting to P=459 million and accrued interest receivable of P=459 million. As December 31, 2007, the Note, including advances and interest, amounted to P=2,499 million (see Note 16).

The Note was subject to interest of 13.0% compounded annually and matured on June 30, 2006. The principal and accrued interest as of maturity date is mandatorily converted into common shares of the Issuer, based on the prevailing USD to Philippine Peso exchange rate on maturity date, at a conversion price equivalent to a 20% discount of: (a) the market value of the shares, in the event of a public offering of the Issuer before maturity date; (b) the valuation of the shares by an independent third party appraiser that is a recognized banking firm, securities underwriter or one of the big three international accounting firms or their Philippine affiliate jointly appointed by Lopez, Inc. and Benpres (collectively referred to as Benpres Group) and Philippine Long Distance Telephone Company and Mediaquest Holdings, Inc. (collectively referred to as PLDT Group) pursuant to the Master Consolidation Agreement dated July 18, 2001, as amended or supplemented.

The Note does not specifically state that interest shall accrue after June 30, 2006 in the event that the Note is not converted for any reason. Thus, no interest was charged after June 30, 2006. Interest income amounted to P=115 million in 2006. As of December 31, 2007, the conversion price of the Note had not yet been determined. Based on the provisions of the Note, the conversion of the Note cannot be completed without the determination of the conversion price, which in turn depends on the valuation of Sky Cable by an independent third party. Thus, the Parent Company did not convert the Note at that time without such valuation. The conversion date was effectively extended.

On May 20, 2008, the Benpres Group and the PLDT Group acknowledged the fairness and reasonableness of the valuation for Sky Cable effective March 15, 2008. Based on this final valuation of Sky Cable, the Parent Company’s convertible note of P=2,499 million, including advances and interest of P=918 million, has an equivalent subscription to 269,645,828 Sky Cable shares, representing 65.3% effective interest in Sky Cable. Consequently, for financial reporting purposes, effective March 15, 2008, Sky Cable is considered as a subsidiary of the Parent Company with a 65.3% effective interest.

On December 8, 2008, the Parent Company and Sky Vision entered into an Assignment Agreement, where the Parent Company assigned the Note in Sky Cable to Sky Vision in consideration of Philippine Depository Receipts (PDRs) to be issued by Sky Vision upon approval by the Securities and Exchange Commission (SEC) of the increase in the authorized capital stock of Sky Cable. The PDRs are convertible into the underlying Sky Cable shares discussed in the foregoing. Pursuant to this Assignment Agreement, Sky

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Vision is contractually bound to issue the PDRs to the Parent Company upon the issuance of the underlying Sky Cable shares to Sky Vision. Effectively, the economic interest over the underlying Sky Cable shares still remains with the Parent Company. However, Sky Vision is the legal owner of the subscription to the 65.3% effective interest in Sky Cable.

The PDR will grant the Parent Company the right, upon payment of the exercise price and subject to certain other conditions, the delivery of Sky Cable shares or the sale of and delivery of the proceeds of such sale of Sky Cable shares. The PDR may be exercised at any time by the Parent Company, thus, providing potential voting rights to the Parent Company. Any cash dividends or other cash distributions in respect of the underlying Sky Cable shares shall be distributed to the Parent Company.

The voting rights will remain with Sky Vision as legal owner. However, by virtue of the PDR, the Parent Company has economic benefits over the underlying Sky Cable shares and voting rights upon exercise of the PDRs.

As of March 31, 2009, the PDRs of Sky Vision have not yet been issued to the Parent Company pending approval by the SEC of the increase in the authorized capital stock of Sky Cable. The conversion of Note is considered as a business combination and accounted for using purchase method. Accordingly, the consideration of P=2,499 million was allocated to the identifiable assets and liabilities based on the fair values at conversion date. The fair values of the identifiable assets and liabilities of Sky Cable at the date of conversion and the corresponding carrying amounts immediately before the acquisition were:

Fair Value Recognized on

Acquisition Carrying Value

Cash and cash equivalents P=836,657 P=836,657 Trade and other receivables 393,921 393,921 Prepaid expenses and other current assets 603,186 603,186 Property and equipment 4,959,816 3,547,717 Customer relationships 607,166 – Other noncurrent assets 1,378,030 1,469,630 Trade and other current liabilities (2,562,550) (2,562,550) Long-term debt (2,919,270) (2,919,270) Due to related parties (674,582) (674,582) Deferred tax liability (614,965) – Other noncurrent liabilities (213,451) (213,451)

Net assets 1,793,958 P=481,258

Acquired ownership interest 65.3%

Net assets acquired 1,171,275 Goodwill arising on acquisition 1,327,696

Consideration P=2,498,971

There is no cash outflow on the acquisition.

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From the date of conversion of Note, Sky Cable has contributed P=29 million to the net income of the Company. If the combination had taken place at the beginning of the year, the net income for the Company would have been P=1,441 million and revenue would have been P=25,868 million.


On March 2, 2009, by virtue of a separate Assignment Agreement, ABS-CBN assigned the P=1,798 million loan to Sky Vision. As a consideration for the assignment, Sky Vision agreed to issue ABS-CBN PDRs which shall be convertible into Sky Cable shares. The terms of the agreement are similar to the Assignment Agreement discussed in the foregoing.

b. Acquisition of PCC

On May 23, 2008, Sky Cable, through Sky Vision, acquired the minority interest in PCC from SCHI for a cash payment of P=1,248 million and an assumption of liability of THI of P=106 million. SCHI owns THI, which in turn owns the remaining 45.5% equity of PCC. Consequently, as of December 31, 2008, PCC became a wholly owned subsidiary of Sky Cable. The difference between the fair value of the consideration transferred and liability assumed and the carrying value of the minority interest in PCC, amounting to P=558 million, is recognized as goodwill.

3. Seasonality or Cyclicality of Interim Operations

The Company’s operations are not generally affected by any seasonality or cyclicality.

4. Nature and Amount of Changes of Estimates

The effect of changes in estimates or amounts reported in prior interim periods do not have a material effect in the current interim period.

5. Repayments of Debt

Repayments of long-term debt are scheduled as follows:

2009 257,566

2010 109,465

2011 440,113

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2012 3,926,002

2013 to 2028 3,729,703

Total 8,462,849

6. Dividends Paid

On March 25, 2009, the BOD approved the declaration of cash dividend of P=0.90 per share or an aggregate amount of P=701 million to all stockholders of record as of May 5, 2009 payable on or before May 29, 2009. On March 26, 2008, the BOD approved the declaration of cash dividend of P=0.825 per share or an aggregate amount of P=643 million to all stockholders of record as of April 30, 2008 payable on or before May 27, 2008. On March 28, 2007, the BOD approved the declaration of cash dividend of P=0.45 per share or an aggregate amount of P=351 million to all stockholders of record as of April 20, 2007 payable on May 15, 2007.

7. Earnings Per Share Computation

Basic EPS amounts are calculated by dividing the net income attributable to equity holders of the Parent Company for the year over the weighted average number of common shares outstanding during the period. Weighted average shares outstanding are 767,390,563.

8. Material Events

A. Any known trends, demands, commitments, events or uncertainties that will have a

material impact on the issuer's liquidity.

In June 2004, the Company successfully signed a syndicated loan for US$120 million to refinance the Company’s existing debts and to fund further investments in cable television operations. The new loan is secured by the Company’s real property and certain equipment and other assets and will be guaranteed by certain of the Company’s subsidiaries. On January 11, 2007, the Parent Company signed a commitment letter with ABN Amro Bank N.V., BPI Capital Corporation and ING Bank N.V. (together, the Mandated Lead Arrangers) to arrange and underwrite on a firm commitment basis the refinancing/ restructuring of the existing long-term loan. Consequently, the execution copies of the agreement amending the SCA facility was signed on March 27, 2007. The major amendments to the existing agreement that were agreed upon with the mandated lead arrangers are as follows:

a. There will be an additional amount that will be available for drawdown amounting to US$5 million. Once effected, total outstanding loan will be around P=4.44 billion, P=270 million more than the P=4.17 billion that is currently outstanding;

b. The Tranche B and C will have bullet repayment schemes maturing in March 2012 while maintaining the original structure of the Tranche A facility with a final

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due date of until June 2009. Interest payments will continue to be paid on a quarterly basis;

c. The applicable margins added to the benchmark interest rates will be reduced from 3.50% to an average of about 2.20%;

d. Except for the Quezon City Broadcast Complex and certain broadcast machinery and equipment contained therein, all other assets will be removed from the Mortgage Trust Indenture and will no longer form part of the security package;

e. Certain mandatory prepayment provisions will be removed;

f. The Parent Company financial ratio requirement will be removed, while maintaining a financial ratio requirement on a consolidated basis but at more relaxed thresholds;

g. The Company will be allowed to make interest bearing advances and guarantees to Sky Vision of up to P=400 million;

h. The Company will be allowed to convert into equity outstanding advances amounting to US$30 million including interest and 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 following provisions:

a. Allow the Company to incur additional unsecured financial indebtedness; and

b. Increase the amount of support that the Company can extend to Sky Vision and/or Sky Cable; and

The amendment of the SCA facility substantially modified the terms of Tranche C. Accordingly, this resulted in the derecognition of the original liability and recognition of a new liability. Loss on derecognition, included as part of “Other income” account in the consolidated statement of income, amounted to P=16 million (P=11 million, net of tax) in 2007 (see Note 25).

On December 19, 2007, the relevant parties to the SCA facility executed the Second Amendment Agreement. The amendments centered mainly on the removal of the pro-rata requirement in cases of prepayment.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).

On September 18, 2007, the Company successfully signed a syndicated loan for P854 million with the previous lenders of the Sky Cable, namely, United Coconut Planters Bank, Bank of the Philippine Islands, Mega International Commercial Bank Co., Ltd., Olga Vendivel and Wise Capital Investment & Trust Company, Inc. with Banco De Oro – EPCI, Inc. acting as the facility agent. The loan is unsecured and

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unsubordinated with a fixed coupon of 2% with a final maturity of September 18, 2014.

On September 20, 2007, the Company successfully signed a syndicated loan for P800 million with ING Bank N.V. and Mizuho Corporate Bank, Ltd., Manila Branch with Mizuho Corporate Bank, Ltd., Manila Branch acting as the facility agent. The money will be used to fund the purchase of Sky Cable debt. On the same day, the Company withdrew the amount of P662 million to fully settle a total of P945 million Sky Cable loan. The loan is unsecured and unsubordinated with interest rate of 3mPHIBOR plus 2.75% per annum with a final maturity of September 20, 2012.

On September 20, 2007, Sky Cable issued two Promissory Notes to ABS-CBN Broadcasting Corporation in the aggregate amount of P=1,798 million. As a consequence, ABS-CBN Broadcasting Corporation becomes the eventual lender on record of Sky Cable due the loans that were absorbed by it. This loan currently pays monthly interest at 3mPDST-F plus 1% with a final maturity of June 30, 2011. Sky Cable has a pending proposal to restructure certain terms and conditions and extend maturity until 2016.

On February 21, 2008, ABS-CBN and the remaining third party creditors of Sky Cable approved the amendment of the Sky Cable Debt under a Facility Agreement. The amendment mainly focused on the extension of the repayment period from December 2011 to September 2016 and pertained to certain terms and conditions related to the term loan agreement.

As of September 30, 2008, total loan to fund the purchase of Sky Cable debt amounted to P=1,516 million and total notes receivable from Sky Cable amounted to P=1,798 million. On August 15, 2008, the Company successfully signed a P1,000 million loan facility with Security Bank Corporation jointly arranged by BPI Capital Corp and SB Capital Investment Corp. The funds will be used for capital expenditure and general corporate purposes. This was fully drawn on August 27, 2008. The new loan is unsecured and unsubordinated and guaranteed by certain of the Company’s subsidiaries. The loan interest rate is 3mPDSTF plus 2.15% per annum with a final maturity of August 27, 2013 On September 30, 2008, the Company successfully signed a P2,000 million loan facility with BPI Bank of the Philippine Islands Asset Management and Trust Group as Investment Manager for ALFM Peso Bond Fund, Inc., Bank of the Philippine Islands Asset Management and Trust Group as Trustee for various Trust Accounts, The Philippine American Life and General Insurance Company and The Insular Life Assurance Company, Ltd., as Fixed Loan Lenders and Allied Banking Corporation and Allied Savings Bank as Variable Loan Lenders. This was jointly arranged by BPI Capital Corp and SB Capital Investment Corp. The funds will be used for capital expenditure and general corporate purposes. The loan facility is unsecured and unsubordinated and guaranteed by certain of the Company’s subsidiaries.

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On October 30, 2008, the Company availed P1,000 million from the Fixed Loan Lenders with fixed loan interest rate of 7yrPDSTF plus 1.5% per annum. This loan will have a final maturity of October 30, 2015. On September 30, 2008, the Company signed the Combined Facility Agreement with Security Bank Corporation, lender of the facility agreement executed on August 15, 2008, BPI Bank of the Philippine Islands Asset Management and Trust Group as Investment Manager for ALFM Peso Bond Fund, Inc., Bank of the Philippine Islands Asset Management and Trust Group as Trustee for various Trust Accounts, The Philippine American Life and General Insurance Company and The Insular Life Assurance Company, Ltd., as Fixed Loan Lenders and Allied Banking Corporation and Allied Savings Bank as Variable Loan Lenders, all lenders of the facility agreement executed on September 30, 2008, together with BPI Capital Corp and SB Capital Investment Corp acting as joint arrangers of both facilities. The agreement shall combine both loan facilities in all material respects to be administered by BPI Asset Management and Trust Group acting as facility agent.

B. Any material commitments for capital expenditures, the general purpose of such commitments and the expected sources of funds for such expenditures.

For 2009, ABS-CBN Broadcasting Corp. expects to invest approximately P=2.4 billion for capital expenditure and acquisition of film and program rights. This funding requirement will be financed through internally generated funds.

C. Any known trends, events or uncertainties that have had or that are reasonably

expected to have a material favorable or unfavorable impact on net sales/revenues/income from continuing operations.

ABS-CBN Broadcasting Corp.’s results of operations depend largely on the ability to sell airtime for advertising. The company’s business may be affected by the general condition of the economy of the Philippines.

D. Any event that will trigger direct or contingent financial obligation that is material to

the company, including any default or acceleration of an obligation.

The Senior Credit Agreement dated 18 June 2004, amended and restated on March 27, 2007, September 14, 2007 and December 19, 2007, between the Company and several creditor banks contains customary events of default which may trigger material financial obligations on the part of the Company, such as, non-payment of financial obligations, breach of material provisions and covenants, cancellation of the Company’s key licenses, insolvency, cessation of business, expropriation, issuance of final judgment against the Company involving a significant amount, material adverse change in the operations and structure of the Company.

The Company has contingent liabilities with respect to claims filed by third parties. The events that transpired last February 4, 2006, which resulted in the death of 71 people and injury to about 1,000 others led the Company to shoulder the burial expenses of the dead and medical expenses of the injured, which did not result in any direct or contingent financial obligation that is material to the Company. The

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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 31, 2009, the claims in connection with the events of February 4, 2006 are still pending and remain contingent liabilities. While the funeral and medical expenses have all been shouldered by the Company, there still exist claims for compensation for the deaths and injuries upon evaluation of these claims, the amount of which have not been declared and cannot be determined with certainty at this time. Management is nevertheless of the opinion that should there be any adverse judgment based on these claims, this will not materially affect the Company’s financial position and results of operations.

On May 23, 2008, ABS-CBN guaranteed a long term loan of Sky Vision Corporation from Banco de Oro in the principal amount of P600 million. ABS-CBN also advanced the amount of P300 million to Sky Vision Corporation.

On September 10, 2008, the guarantee provided by ABS-CBN on the P600 m loan of Sky Vision Corporation from Banco de Oro was fully extinguished when the loan was prepaid. The money used to prepay the loan came from additional advances by ABS-CBN. This makes total cash outlay made to Sky Vision from May 23, 2008 to September 10, 2008 amount to P900 million.

E. Any significant elements of income or loss that did not arise from the issuer’s

continuing operations.

As of March 31, 2009, there are no significant elements of income that did not arise from the Company’s continuing operations.

F. Any seasonal aspects that had a material effect on the financial condition or results of

operations.

There were no seasonal aspects that had a material effect on the financial condition or results of operations for the interim period.

G. Any material events that were unusual because of their nature, size or incidents affecting assets, liabilities, equity, net income, or cash flows

On 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 and DirecTV may engage in ABS-CBN International. All costs under any mutually agreed marketing plans shall be shared equally between DirecTV and ABS-CBN International.

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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 subscribers who becomes an activated subscriber during the migration period (from June 2005 to February 2006); and

b. An additional license fee for each activated subscriber who becomes an activated subscriber during the migration period that 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 TFC 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 that includes among others the extension of the migration period from February 2006 to August 2006.

Starting January 1, 2008, no license fee has been recognized as a result of end of the migration period.

On May 23, 2008, ABS-CBN guaranteed a short term loan of Sky Vision Corporation from Banco de Oro in the principal amount of P600 million. ABS-CBN also advanced the amount of P300 million to Sky Vision Corporation.

In May 2008, the Benpres Group and the PLDT Group acknowledged the fairness and reasonableness of the valuation for Sky Cable. Based on this final valuation, the convertible note amounting to P=2,499.0 million, including the advances from Unilink of P=386.2 million, was converted into deposits for future stock subscriptions to 311,314,045 shares effective March 15, 2008.

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As of March 31, 2009, the conversion has not materialized and actual conversion has not taken place.

H. Any material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period.

There are no known material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period.

9. Segment Information

Segment information is prepared on the following bases:

Business segments

For management purposes, the Company is organized into three business activities - broadcasting, cable and satellite, and other businesses. This segmentation is the basis upon which the Company reports its primary segment information. The broadcasting segment is principally the television and radio broadcasting activities which generates revenue from sale of national and regional advertising time. Cable and satellite business primarily develops and produces programs for cable television, including delivery of television programming outside the Philippines through its DTH satellite service, cable television channels and blocked time on television stations. In 2008, as a result of the conversion of the Note in Sky Cable (see Note 2), the cable and satellite business includes cable television services of Sky Cable and its subsidiaries in Metro Manila and in certain provincial areas in the Philippines. Other businesses include movie production, consumer products and services.

Geographical segments Although the Company is organized into three business activities, they operate in three major geographical areas. In the Philippines, its home country, the Company is involved in broadcasting, cable operations and other businesses. In the United States and other locations (which includes Middle East, Europe, Australia, Japan and Canada), the Company operates its cable and satellite operations to bring television programming outside the Philippines.

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Inter-segment transactions Segment revenue, segment expenses and segment results include transfers among business segments and among geographical segments. Such transfers are accounted for at competitive market prices charged to unaffiliated customers for similar services. Those transfers are eliminated in consolidation.

Financial information on business segments and geographical segments is presented in Exhibit 2.

10. Changes in Composition of Issuer

There are no changes in the composition of the Issuer since the last balance sheet date.

11. Changes in Contingent Liabilities or Assets

There are no changes in contingent liabilities or contingent assets since the last balance sheet date.

12. Material Contingencies

There are no contingent liabilities, events or transactions that will materially affect the company’s financial position and results of operations.

13. Property, Plant and Equipment

(See Exhibit 3)

14. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Transactions with Related Parties In addition to the related party transactions discussed in Notes 2, significant transactions of the Company with its associates and related parties follow:

March 2009 March 2008 Associates Interest on noncurrent receivable from Sky Vision P=0 P=29,683 License fees charged by CPI to Sky Cable(a), PCC

and Home Cable 21,926 27,150 Blocktime fees paid by Studio 23 to Amcara 0 10,931 Blocktime fees paid by ABS-CBN to Amcara 5,700 0 Management and other service fees by ABS-CBN to

Amcara 206 206

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March 2009 March 2008 Affiliates Expenses paid by Parent Company & subsidiaries to

Manila Electric Company (Meralco), Bayan Telecommunications Holding, Inc. (Bayantel)& other related parties P=83,982 P=73,075

Termination cost charges of Bayantel, a subsidiary of Lopez, to ABS-CBN Global 24,220 61,650

Airtime revenue from Manila North Tollways Corp. (MNTC) (b), Bayantel and Meralco, an associate of Lopez 7,257 19,343

Expenses and charges paid for by the Parent Company which are reimbursed by the concerned related parties 11,625 22,518

Management and other service fees by ABS-CBN to Bayantel 5,377

(a) Effective March 15, 2008, Sky Cable became a subsidiary of ABS-CBN (see Note 5).

(b) Disposed of in November 2008.

The related receivables from and payables to related parties, presented under “Trade and other receivables” and “Trade and other payables” accounts, respectively, in the consolidated balance sheet, are as follows:

March 2009 December 2008

Due from associates P= 1,343 P= 1,326 Due from affiliates 121,586 122,577

Total P=122,929 P=123,903

Due to associates P=278,552 P=328,981 Due to affiliates 322,062 468,994

Total P=600,613 P=797,975

a. License Fees Charged by CPI to Sky Cable

CPI has an existing cable lease agreement (Agreement) with Sky Cable for the airing of the cable channels to the franchise areas of Sky Cable and its cable affiliates. The initial Agreement with Sky Cable is for a period of five years effective January 1, 2001, renewable on a yearly basis upon mutual consent of both parties. Said Agreement was renewed for one year in 2006 and 2007 and under negotiation for 2008. Under the terms of the Agreement, CPI receives license fees from Sky Cable and its cable affiliates computed based on agreed percentage of subscription revenue of Sky Cable and its cable affiliates. As the owner of the said cable channels, CPI develops and produces its own shows and acquires program rights from various foreign and local suppliers.

b. Management Fees Charged to Amcara

The Parent Company renders management services to Amcara through designated employees.

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c. Blocktime Fees Paid by the Parent Company and Studio 23 to Amcara

The Parent Company and Studio 23 own the program rights being aired in UHF Channel 23 of Amcara. The Parent Company and Studio 23 has an existing blocktime agreement with Amcara for its provincial operations.

d. Other transactions with associates include cash advances for working capital requirements.

Terms and Conditions of Transactions with Related Parties The sales to and purchases from related parties are made at normal market prices. Outstanding balances as of quarter-end are unsecured, interest-free and settlement occurs in cash, except for the long-term receivables from Sky Cable. For the period ended March 31, 2009 and December 31, 2008, the Company has not made any provision for doubtful accounts relating to amounts owed by related parties. This assessment is undertaken each financial year by examining the financial position of the related party and the market in which the related party operates.

Certain obligations of the Parent Company are jointly and severally guaranteed by its principal subsidiaries.

Compensation of Key Management Personnel of the Company

March 2009 March 2008

Compensation P=161,936 P=126,509 Pension benefit 18,420 12,566 Vacation leaves and sick leaves 21,585 20,035 Termination benefits 43 65

P=201,984 P=159,175

15. Investments in Associates

The Company’s investments in associates, included as part of “Other noncurrent assets” account in the consolidated balance sheet, are accounted for under the equity method of accounting. An associate is an entity in which the Company has significant influence and which is neither a subsidiary nor a joint venture.

Under the equity method, investment in associates is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Company’s share in net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized. The consolidated statement of income reflects the share on the results of operations of an associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share in any changes and discloses this, when applicable, in the consolidated statement of changes in equity. The reporting dates of the associates and the Company are identical and the associates’ accounting policies conform to those used by the Company for like transactions and events in similar circumstances.

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The detailed carrying values of investments which are carried under the equity method follow:


Amcara P= 43,301 P= 43,301

16. Long-term Receivables from Related Parties

In 2007, this account consists of the following:

Convertible note (see Note 4) P=2,498,971 Long-term receivables 1,434,314

3,933,285 Less accumulated equity in net losses of Sky Vision 40,049

P=3,893,236

On September 20, 2007, related to the acquisition by the Parent Company of about 66% of Sky Cable Debt from third party creditors, Sky Cable issued two Promissory Notes to the Parent Company in the aggregate amount of P=1,798 million. As a consequence, the Parent Company became the eventual lender on record of Sky Cable due to the loans that it absorbed. The loan pays monthly interest at 3mPDST-F plus 1% with a final maturity of September 2016, as amended on February 21, 2008. The Promissory Notes are further governed by the terms and conditions of the Facility Agreement dated July 2, 2004. Interest income amounted to P=13 million and P=25 million in 2008 and 2007.

This amount of support of the Company to Sky Cable was in compliant with the Senior Credit Agreement (SCA) and the First Amendment Agreement dated September 14, 2007, which increased previous threshold of P=400 million aggregated advances and guarantees to P=2,250 million.

In 2007, the long-term receivables from Sky Cable were recorded at fair value amounting to P=1,434 million. Unamortized receivable discount amounted to P=364 million as of December 31, 2007. Accretion of receivable, included as part of interest income, amounted to P=9 million and P=10 million in 2008 and 2007, respectively.

In December 2008, the Parent Company purchased additional Sky Cable Debt for a consideration of P=103 million or 55% of the principal amount of P=188 million. The receivable from Sky Cable pays monthly interest at 3mPDST-F plus 1% with final maturity on September 2016.

In 2008, upon consolidation of Sky Cable to ABS-CBN, the long-term receivables from Sky Cable totaling P=1,537 million were eliminated and the difference between the carrying value of Sky Cable’s debt and the carrying value of ABS-CBN’s long-term receivables from Sky Cable amounting P=309 million was recognized as gain.

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17. Equity

a. Capital Stock

Details of authorized and issued capital stock follow:


Number of

Shares Amount

Number of Shares Amount

(In Thousands) (In Thousands)

Authorized - Common shares - P=1 par

value 1,500,000,000 P=1,500,000 1,500,000,000 P=1,500,000

Issued - Common shares 779,583,312 P=779,583 779,583,312 P=779,583

b. Unappropriated retained earnings available for dividend distribution is adjusted to exclude the Parent Company’s accumulated equity in net losses of subsidiaries and associates amounting to P=1,124 million and P=1,244 million as of March 31, 2009 and December 31, 2008, respectively

On March 25, 2009, the BOD approved the declaration of cash dividend of P=0.90 per share or an aggregate amount of P=701 million to all stockholders of record as of May 5, 2009 payable on May 29, 2009.

On March 26, 2008, the BOD approved the declaration of cash dividend of P=0.825 per share or an aggregate amount of P=643 million to all stockholders of record as of April 30, 2008 payable on May 27, 2008.

On March 28, 2007, the BOD approved the declaration of cash dividend of 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.

c. Philippine Depository Receipts (PDRs) convertible to common shares


Number of

Shares Amount

Number of Shares Amount

(In Thousands) (In Thousands)

Balance at beginning of year 15,776,742 P=376,324 12,778,120 P=323,867

Acquisition during the year 0 0 2,998,622 52,357

Issuance during the year 0 0 0 0

Balance at end of period/year 15,776,742 P=376,324 15,776,742 P=376,324

This account represents ABS-CBN PDRs held by the Parent Company which are convertible into ABS-CBN shares. These PDRs were listed in the Philippine Stock Exchange on October 7, 1999. Each PDR grants the holders, upon payment of the exercise price and

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subject to certain other conditions, the delivery of one ABS-CBN share or the sale of and delivery of the proceeds of such sale of one ABS-CBN share. The ABS-CBN shares are still subject to ownership restrictions on shares of corporations engaged in mass media and ABS-CBN may reject the transfer of shares to persons other than Philippine nationals. The PDRs may be exercised at any time from October 7, 1999 until the expiry date as defined in the terms of the offering. Any cash dividends or other cash distributions in respect of the underlying ABS-CBN shares shall be applied by ABS-CBN Holdings Corporation, issuer of PDRs, towards payment of operating expenses and any amounts remaining shall be distributed pro-rata among outstanding PDR holders.

In 2008, the Parent Company acquired 2,998,622 PDRs and common shares for P=52 million. In 2007, the Parent Company acquired 5,595,790 PDRs 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. The PDRs issued were based on quoted prices at the time of issuance.

18. Agency Commission, Incentives and Co-producers’ Share


Agency commission P=379,501 P= 394,489 Incentives and co-producers’ share 132,714 123,549

P=512,216 P= 518,038

19. Production Costs


Personnel expenses and talent fees P=637,357 P=675,531 Facilities related expenses 254,792 278,583 Amortization of program rights 144,556 161,461 Depreciation 203,323 168,066 Other program expenses 212,711 230,805

P=1,452,638 P=1,514,447

20. Cost of Sales and Services


Facilities related expenses P= 218,055 P=145,708 Termination costs 49,545 56,279 Inventory cost 43,754 70,608 Personnel expenses 89,128 65,408 Amortization of program rights 90,417 81,901 Depreciation 5,924 5,799 Other expenses 653,970 308,199

P=1,150,793 P=733,903

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21. General and Administrative Expenses


Personnel expenses P=755,369 P=510,155 Depreciation 343,469 145,703 Advertising and promotions 38,751 23,545 Facilities related expenses 141,406 107,382 Contracted services 189,653 108,006 Provision for doubtful accounts 36,712 20,235 Taxes and licenses 53,622 46,907 Entertainment, amusement and recreation 31,496 30,836 Amortization of goodwill/deferred charges 24,667 172 Other expenses 95,728 122,804

P=1,710,873 P=1,115,747

22. Other Income and Expenses

Other Income


Space rental P=25,220 P= 23,384 Management fees 5,378 5,478 Royalty income 8,164 6,247 Other 76,043 61,660 Mark to market (loss) gain – net (826) 0

P=113,979 P=96,771

Finance Revenue


Interest income P= 36,679 P= 42,805

Finance Cost


Interest expense P=230,615 P= 118,597 Amortization of debt issue costs 6,897 5,632 Bank service charges 6,166 2,767

P=243,678 P=126,996

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23. Financial Assets and Liabilities

The following table sets forth the carrying values and estimated fair values of consolidated financial assets and liabilities recognized as of March 31, 2009. There are no material unrecognized financial assets and liabilities as of March 31, 2009.


Financial Assets Cash and cash equivalents P=3,009,510 P=3,009,510 Trade and other receivables – net 4,869,963 4,869,963 Available-for-sale investments 66,600 66,600 Long-term receivables from related parties 0 0

Total financial assets P=7,946,073 P=7,946,073


Financial Liabilities Trade and other payables P=5,631,444 P=5,631,444 Interest-bearing loans and borrowings 9,094,082 9,785,975

Total financial liabilities P=14,725,526 P=15,417,419

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:

Cash and Cash Equivalents, Trade and Other Receivables and Trade and OtherPayables: Due to the short-term nature of transactions, the fair values of these instruments approximate the carrying amount as of balance sheet date.

Derivative Assets. The fair values were determined using forward exchange market rates as of balance sheet date.

Available-for-Sale Investments. The fair values of publicly-traded instruments were determined by reference to market bid quotes as of balance sheet date. Investments in unquoted equity securities for which no reliable basis for fair value measurement is available are carried at cost, net of impairment.

Long-term Receivables from Related Parties. The receivable from Sky Cable, which is subjected to monthly repricing, is not discounted since it approximates fair value.

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Interest-bearing loans and borrowings: Fair value was computed based on the following:

Debt Type Fair Value Assumptions

Term loan Estimated fair value is based on the discounted value of future cash flows using the applicable risk free rates for similar types of loans adjusted for credit risk. The interest rates used to discount the future cash flows have ranged from 4.3% to 5.4% for those that are dollar-denominated and from 4.4% to 12.5% for those that are peso-denominated.

Other variable rate loans The face value approximates fair value because of recent and frequent repricing (i.e., 3 months) based on market conditions.

Obligations for Program Rights. Estimated fair value is based on the discounted value of future cash flows using the applicable risk-free rates for similar types of loans adjusted for credit risk.

Customers’ Deposits. The fair values were calculated by discounting the expected future cashflows at prevailing credit adjusted MART1 interest ranging from 5.6% to 11.5% as of balance sheet date.

Derivative Instruments Cross Currency Swaps. In 2004, the Parent Company entered into long-term cross currency swaps that hedge 100% of the Tranche A Principal against foreign exchange risk. Under these agreements, the Parent Company effectively swaps the principal amount of certain US dollar-denominated 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=393 million to unwind the hedges. Cumulative Translation Adjustment (CTA) amounting to P=232 million previously recorded in equity were recognized in the 2007 consolidated statement of income.

Interest Rate Swaps. To manage the interest rate exposure from the floating rate loans, the Company also entered into USD interest rate swaps and PHP interest rate swaps which effectively swap certain floating rate loans into fixed-rate loans. In 2007, the USD interest rate swaps have been terminated as a result of the prepayment of the outstanding loan obligations under Tranche A of the SCA facility. The Company received a total of US$12,000 (P=0.5 million) as net settlement

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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.

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 P=316 million gain on the swap differentials), while the USD interest rate swap accounted for mark-to-market gains in the consolidated statement of income of P=48 million.

The effective net mark-to-market losses that have been deferred in equity for these cash flow hedges amounted to P=249 million (P=162 million, net of tax) in 2006.

As previously discussed, in December 2007, the Company terminated all outstanding cross currency swap and interest rate swap contracts as a result of the prepayment of all the outstanding Tranche A loan of the SCA facility. The net mark-to-market losses amounting to P=277 million previously recorded in equity were recognized in the 2007 consolidated statement of income. 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.

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.

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In 2007, movements in the CTA related to derivative instruments are as follows:

Balance at beginning of year (P=160,986) Amounts taken to equity 24,874 Reversal of tax effect (86,685) Amounts transferred to profit and loss: Due to the termination of hedged item

and related cross currency swap 232,335 Due to the termination of hedged item

and related interest rate swap 44,359 Amortization of initial CTA (53,897)

Balance at end of year P=–

Embedded Derivatives. As of December 31, 2008 and 2007, the Parent Company has outstanding embedded foreign currency derivatives which were bifurcated from various non-financial contracts. The impact of these embedded derivatives is not significant.

Sky Cable bifurcated embedded derivatives from its various nonfinancial contracts. These are denominated in USD which is not the functional currency of Sky Cable or its counterparty. The total notional amount as of December 31, 2008 amounted to $0.7 million. The fair value of the embedded derivative assets as of December 31, 2008 amounted to P=16 million. The net movements in fair value changes of the Company’s derivative instruments as of December 31, 2008 and 2007 are as follows:

2008 2007

Balance at beginning of year P=– (P=345,482) Effect of business combination 33,043 – Net changes in fair value of derivatives: Not designated as accounting hedges (216) – Designated as accounting hedges – (47,124)

32,827 (392,606) Less fair value of settled instruments (16,604) (392,606)

Balance at end of year P=16,223 P=–

The Company is not exposed to material financial risks that would materially impact its financial condition and results of operations.

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24. Causes for Material Changes in the Financial Statements

Balance Sheet (March 31, 2009 vs December 31, 2008)

• Cash and cash equivalents increased by 19% to P=3,010 million due to aggressive cash collection.

• Trade and other receivables increased by 7% to P=5,386 million due to increase in Sales of Services.

• Combined program rights-current and non-current program rights and other intangible assets decreased by 3% to P=3,512 million due to slowdown in program rights acquisition.

• Goodwill arised from the acquisition of Sky Cable.

• Other current assets increased by 24% to P=1,367 million from end 2008 levels due to production expenses of yet to be aired episodes of the Company’s programs, prepaid taxes and expenses.

• Deferred tax assets declined to P=597 million from P=603 million due to decrease in temporary tax differences.

• Total interest-bearing loans and borrowings increased by 4% to P=9,094 million from P=8,714 million due to additional short-term borrowings to fund CAPEX.

• The change in income tax payable is the result of the ordinary course of business of the Company.

25. Other Notes to 3-month 2009 Operations and Financials

The key performance indicators that we monitor are the following:

YTD March 2009 YTD March 2008 Gross Revenues P= 5,288 million P= 4,266 million

Gross Airtime Revenues 2,764 million 2,832 million Sale of Services 2,415 million 1,266 million Sale of Goods 110 million 167 million

Operating Income 462 million 349 million Net Income 189 million 243 million

EBITDA 1,352 million 1,030 million EPS 0.249 0.314

As of March 31, 2009 As of December 31, 2008 Current Ratio 1.25x 1.22x Net debt-to-Equity 0.40x 0.41x Consolidated Trade DSO 73 days 75 days

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26. Note to Statements of Cash Flow

2009 2008

Noncash investing and financing activities: Acquisition of property and equipment

under capital lease P= 723 P=5,728 Acquisition of program rights on account 148,836 372

27. Reclassifications

The following accounts in the March 31, 2009 consolidated financial statements have been reclassified to conform to the 2008 consolidation and annual presentation:

Nature Amount

Statement of Income: Reclassification of Global’s General and Administrative Expense (GAEX) from Marketing to Cost of Sales (COS)

P=30,116

Reclassification of Global’s Commission and Incentive expense from COS to Revenue Deduction

33,699

Reclassification of amount eliminated in Star Record’s cost of inventory to Sale of Goods to conform with year-end consolidation

8,977 Reclassification of ABS-CBN’s Line Production Cost from Production Cost-Others to Production Cost-Personnel

11,978

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EXHIBIT 1

ABS - CBN BROADCASTING CORPORATION

AGING OF ACCOUNTS RECEIVABLE

AS OF MARCH 31, 2009

Less than 30 Days 30 Days and Over

Trade Receivables

Airtime 1,504,604 116,334 478,840 395,459 (253,694) 2,241,543

Subscription 457,322 84,376 481,447 87,993 (74,328) 1,036,809

Others 555,385 67,037 339,649 81,645 (82,033) 961,683

Nontrade Receivables 137,477 26,799 324,835 57,396 (39,508) 507,000

Total 2,654,788 294,547 1,624,771 622,492 (449,564) 4,747,035

Impaired Allowance Total

Neither Past Due nor

Impaired

PAST DUE ACCOUNTS

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EXHIBIT 2

ABS-CBN Broadcasting Corporation

Business Segment Data

In Thousands

2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

Revenues

External Sales 2,553,431 2,710,574 2,286,376 1,131,763 448,427 423,350 - - 5,288,235 4,265,687

Inter-segment sales 14,707 10,832 59,096 26,353 27,736 32,569 (101,539) (69,754) - -

Total Revenues 2,568,138 2,721,407 2,345,472 1,158,116 476,164 455,919 (101,539) (69,754) 5,288,235 4,265,687

Results

Segment Result 80,508 96,843 102,853 59,218 96,479 78,010 181,876 115,784 461,715 349,855

Equity in net earnings (losses) - - 0 4,587 - - - - 0 4,587

Other Income 182,615 147,046 17,191 2,437 28,430 18,879 (114,256) (71,591) 113,979 96,771

Finance Revenue 45,498 36,031 7,902 6,131 12,314 642 (29,035) - 36,679 42,805

Finance Cost (201,558) (123,091) (60,532) (3,470) (59) (435) 18,471 - (243,678) (126,996)

Foreign exchange gain (loss) (19,374) 17,448 (13,821) 2,524 980 716 - - (32,215) 20,689

Income Tax (18,688) (56,833) (62,079) (50,186) (48,177) (37,397) (18,372) - (147,316) (144,416) Net Income (Loss) 69,001 117,444 (8,486) 21,241 89,966 60,415 38,683 44,193 189,164 243,294

Assets and Liabilities

Segment Assets 21,493,307 21,182,134 13,902,270 5,388,048 2,279,029 3,019,807 (4,297,434) (2,326,216) 33,377,172 27,263,773

Investment in equity method associates 6,818,763 3,916,030 - - - - (6,765,516) (3,873,206) 53,247 42,825

Segment Liabilities 5,014,585 5,184,796 6,220,599 2,541,680 870,618 1,897,533 (3,161,623) (2,354,947) 8,944,179 7,269,062

Other Segment Information

Capital Expenditures :

Property and Equipment 245,035 129,083 294,756 74,005 53,602 20,270 - - 593,393 223,359

Intangible Assets 252,951 99,484 (57,561) 153,924 (34,107) (16,815) - - 161,283 236,593

Depreciation and amortization of program rights & other intangibles 446,454 419,635 352,440 131,960 15,103 15,210 231 - 814,228 566,805

Noncash expenses other than

depreciation and amortization of program rights 8,549 16,466 32,434 6,869 3,158 1,390 - - 44,140 24,725

CONSOLIDATED

For the period ended March 31 For the period ended March 31 For the period ended March 31 For the period ended March 31 For the period ended March 31

BROADCASTING CABLE AND SATELLITE OTHER BUSINESSES ELIMINATIONS

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EXHIBIT 3

ABS-CBN Broadcasting Corporation and Subsidiaries

Schedule of Property, Plant & Equipment Roll-Forward

As of March 31, 2009

Land and Building Television, Other Construction Equipment As of March 31 December 31

Land and Radio, Movie Equipment In Progress in Transit 2009 2008

Improvements Improvements and Auxiliary

Equipment

Cost: -

Balance at beginning of year 494,141 10,106,215 11,458,215 4,937,305 167,674 67,146 27,230,697 20,306,551

Additions - 4,573 318,669 218,415 51,736 - 593,393 2,225,896

Effect of business combination - - - - - - - 4,959,817

Disposals/retirements - - (66,460) (140,616) - - (207,075) (273,283)

Reclassifications - (1,329) 184,425 (183,096) - - - -

Translation adjustments - 2,072 4,185 (161,035) 1,705 (7,307) (160,380) 11,716

Balance as of March 31, 2009 494,141 10,111,530 11,899,034 4,670,975 221,115 59,840 27,456,634 27,230,697

Accumulated depreciation:

Balance at beginning of year 4,447 3,103,787 5,999,220 3,387,688 - - 12,495,143 10,839,436

Depreciation (127) 122,274 304,575 125,993 - - 552,716 1,841,737

Disposals/retirements - - (76,195) (85,633) - - (161,829) (200,984)

Reclassifications - (595) 99,222 (98,627) - - - -

Translation adjustments - 309 34,286 (187,319) - - (152,724) 14,953

Balance as of March 31, 2009 4,321 3,225,774 6,361,108 3,142,102 - - 12,733,305 12,495,143

Net book value 489,821 6,885,756 5,537,926 1,528,873 221,115 59,840 14,723,329 14,735,554

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ANNEX C

Market Price and Dividends and Description of the Business and Subsidiaries The Company’s common shares have been listed on the Philippine Stock Exchange (PSE) since 1992. Its Philippine Deposit Receipts (PDRs) were listed in 1999. Common shares may be exchanged for Philippine Deposit Receipts, and vice-versa. The common shares (ABS) closed at Php17.50 while the Philippine Deposit Receipts (ABSP) closed at Php17.00 on March 31, 2009. The common shares (ABS) closed at Php19.00 on May 20, 2009 while the Philippine Deposit Receipts (ABSP) closed at Php19.00 on May 20, 2009. Share price The following table shows the high and low prices in Philippine pesos of the Company’s shares in the Philippine Stock Exchange for the year 2007 and 2008 and 1st Quarter of 2009:

ABS ABSP 2009 High Low High Low First Quarter 17.50 12.00 17.00 12.50 2008 High Low High Low First Quarter 33.00 23.00 35.00 25.00 Second Quarter 26.00 17.00 29.00 19.00 Third Quarter 19.00 15.50 19.25 15.00 Fourth Quarter 16.75 13.50 16.50 12.00 2007 High Low High Low

First Quarter 26.50 18.75 26.00 18.75 Second Quarter 33.50 26.00 33.50 26.50 Third Quarter 37.50 29.50 39.00 29.50 Fourth Quarter 34.50 30.00 37.00 29.50

Dividend policy The declaration and payment of dividends are subject to certain conditions under the Company’s existing Senior Credit Agreement (SCA) with creditor banks. Under the SCA, the Company may declare and pay dividends provided: (a) all payments (including pre-payments) due on said loan and premiums on insurance of assets are current and updated; (b) all financial covenants set forth therein are satisfied; (c) certain financial ratios are met and such payment will not result in the violation of the required financial ratios under the SCA; (d) no event of default as provided in the SCA shall exist or occur as a result of such payment; and (e) the total amount of the cash dividends does not exceed 50% of the Company’s net income after taxes for the fiscal year preceding the declaration.

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Stock Dividend (Per Share) Percent Declaration Date Record Date Payment Date

No stock dividend since 1996

Cash Dividend (Per Share) Amount (in Pesos) Declaration Date Record Date Payment Date

Php0.60 March 28, 2001 April 25, 2001 May 25, 2001 Php0.00 -- -- -- Php0.00 -- -- -- Php0.64 July 21, 2004 July 24, 2004 August 10, 2004 Php0.45 March 28, 2007 April 20, 2007 May 15, 2007 Php0.825 March 26, 2008 April 30, 2008 May 27, 2008 Php0.90 March 25, 2009 May 5, 2009 May 29, 2009

Holders The number of shareholders of record as of April 15, 2009 was 6,848. Common shares outstanding as of

April 30, 2009 were 779,584,602. As of April 30, 2009, the Top 20 stockholders of ABS-CBN own an aggregate of 759,768,153 or 97.46% of outstanding common shares.

Rank Stockholder Citizenship Record /

Beneficial Number of Shares Held Percent

1 Lopez, Inc. Filipino Record 446,231,607 57.24%

2 PCD Nominee Corporation Filipino Record 307,286,092 39.42%

3 Ching Tiong Keng Filipino Record 859,500 0.11%

4 ABS-CBN Foundation, Inc. Filipino Record 780,995 0.10%

5 Eugenio Lopez III Filipino Record 651,191 0.08%

6 Carlos Salinas Sr. Filipino Record 490,800 0.06%

7 Creme Investment Corporation Filipino Record 417,486 0.05%

8 FG Holdings Filipino Record 386,270 0.05%

9 Charlotte C. Cheng Filipino Record 340,000 0.04%

10 Cynthia D. Ching Filipino Record 337,500 0.04%

11 Phil. Communication Satellite Corp. Filipino Record 325,500 0.04%

12 Tiong Keng Ching Filipino Record 252,000 0.03%

13 Federico M. Garcia Filipino Record 226,207 0.03%

14 La Suerte Cigar & Cigarette Factory Filipino Record 205,000 0.03%

15 Carlos C. Salinas Filipino Record 195,000 0.03%

16 Alberto G. Mendoza &/or Jeanie Mendoza

Filipino Record 168,250 0.02%

17 Mimi Chua Filipino Record 162,390 0.02%

18 Josephine Go Filipino Record 162,180 0.02%

19 Manuel M. Lopez Filipino Record 146,186 0.02%

20 Susana C. Fong Filipino Record 144,000 0.02%

Sub-total Top 20 Stockholders 759,768,153 97.46%

Others 19,816,449 2.54%

TOTAL STOCKHOLDERS 779,584,602 100.00%

No action relating to an acquisition, business combination or other reorganization, is being presented to the stockholders.

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Recent Sale of Securities Except for ordinary transactions of its listed securities through the Philippine Stock Exchange, there has been no sale of new securities for the past 5 years. Compliance with Leading Practice on Corporate Governance ABS-CBN recognizes the importance of corporate governance in enhancing the stakeholders’ interests in the Company and the Board of Directors commits itself to the principles of good corporate governance. The principles for corporate governance of ABS-CBN are contained in its Articles of Incorporation, By-laws, as amended, its Manual of Corporate Governance in compliance with SEC Memorandum Circular 2, Series of 2002 with a copy of the manual submitted to the Securities and Exchange Commission (“SEC”) in the same year. As an organization, ABS-CBN reaffirms its mission of being in the service of the Filipino, and espouses that there is no dichotomy between doing good business and practicing the right values. Through values cascading within the organization, the Company has identified the core values necessary to guide its leaders and employees in formulating and making business decisions, which in the end must always remain consistent with this mission and goal of service. ABS-CBN’s commitment to adhere to best corporate governance practices was recognized last April 22, 2009 by the Institute of Corporate Directors (“ICD”) in their Chairpersons’ Circle event by naming the Company as one of the top 15 highest-scoring companies and the only publicly-listed media organization to garner a score of 90% or higher in the 2008 Corporate Governance Scorecard, a survey of corporate governance practices among 172 publicly-listed companies in the country. ICD further cited that the top 15 companies were at par with corporate governance practices of companies in more advanced economies. The ICD conducted the survey in partnership with the Philippine Stock Exchange (“PSE”), the SEC, and the Ateneo School of Law. They judged publicly-listed companies based on a questionnaire that measured corporate governance practices which include shareholder rights, treatment of shareholders, the role of stakeholders, disclosure policies and transparency, and board responsibility. The SEC mandated the participation of publicly-listed companies in the survey. The ABS-CBN Board of Directors (the “Board”) represents the stakeholders’ interest in pursuing a successful business, including optimizing financial returns. The Board’s mission is to determine that the Corporation is managed in such a way to ensure this result while adhering to the laws and rules of jurisdictions in which it operates, observing the highest standards of corporate governance and observing high ethical norms. The Board establishes the overall goals, strategies and policies of the Company. The Board strives to regularly monitor the effectiveness of management’s decisions and the execution of the strategies. In addition to fulfilling its obligations for increased stockholder value, the Board has responsibility to the Company’s customers, employees, suppliers and the community. The Board consists of 11 members, elected by shareholders during the last Annual Stockholders’ Meeting on June 26, 2008. For the year 2008 to 2009, these directors are Eugenio Lopez III, Chairman and Chief Executive Officer; Augusto Almeda Lopez, Vice Chairman; Maria Rosario Santos-Concio, Oscar M. Lopez, Presentacion L. Psinakis, Federico R. Lopez, Federico M. Garcia, Angel S. Ong, Manuel L. Lopez, Jr., Justice Jose C. Vitug, and Pedro N. Dy-liacco. In compliance with the SEC’s requirement to have independent directors with no material relationship with the Company comprising at least 20% of the Board, three independent directors—Messrs. Garcia and Dy-liacco, and Justice Vitug—were elected.

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These directors are independent of management, and free from any relationship that may interfere with their judgment. Selection of Directors The Board itself is responsible, in fact as well as procedure, for screening its own members and in recommending them for election by the stockholders. The Chairman and Chief Executive Officer has direct input in the screening process. The final approval for the nominees as directors is determined by the full Board. In case of vacancies in the Board between annual stockholder meetings, the Board may elect directors to serve until the next annual meeting. Mix of Directors There is a mix of executive, non-executive and independent directors on the Board. Senior management executives other than the Chairman and Chief Executive Officer and the Chief Operating Officer attend Board meetings on a regular basis even though they are not members of the Board. On matters of corporate governance, while the Board assumes decisions will be made by the independent directors, input in any policy formulation and discussion from directors who are employees is welcome and expected unless the issue involves an actual conflict of interest with such directors. Criteria for Independence for Independent Directors The Board assesses the independence of each director and of each individual nominated for election to the Board as an independent director. As part of this analysis, the Board must review and conclude whether each nominee for independent director satisfies the requirements of the rules of the SEC, the by-laws and the Manual of Corporate Governance. Under the Manual of Corporate Governance, a independent directors (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 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 2 years, either personally or through their firms; (vi) have not engaged and do not engage in any transaction with the Company or with any of its related companies or with any of its substantial shareholders, whether by themselves or with other persons or through a firm of which they are partners or companies of which they are directors or substantial shareholders, other than transactions which are conducted at arms length and are immaterial; and (vii) do not own more than 2% of the shares of the Company and/or its related companies or any of its substantial shareholders. Mr. Garcia, Justice Vitug, and Mr. Dy-liacco do not possess any of the disqualifications enumerated under Section II (5) of the Code of Corporate Governance and Section II (D) of SEC Memorandum Circular No. 16, Series of 2002. Board Performance The Board regularly meets monthly, as much as possible, to review the performance of the Company and its subsidiaries, approve any pertinent plans, budgets, and financial statements, set guidelines for management, and discuss any various matters requiring Board attention and approval. Any member of the Board may ask management to give special reports and analysis on certain issues.

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From January 1, 2008 to December 31, 2008, the Board had 10 regular meetings. The record of attendance of the directors at the Board meetings met the requirements of the SEC of at least 50% attendance: Board Attendance to Meetings in 2008

Total No. of Board Meetings

No. of Board Meetings Attended

Percentage of Attendance

Attended Annual Stockholders’ Meeting? (Y/N)

Eugenio L. Lopez III 10 10 100% Y Ma. Rosario Santos-Concio 10 10 100% Y Oscar M. Lopez 10 8 80% Y Augusto Almeda Lopez 10 9 90% Y Presentacion L. Psinakis 10 6 60% Y Angel S. Ong 10 10 100% Y Federico R. Lopez 10 6 60% Y Manuel L. Lopez Jr.* 6 5 83% Y Federico M. Garcia 10 10 100% Y Justice Jose C. Vitug* 6 5 83% Y Pedro N. Dy-liacco* 6 5 83% Y

*Elected as of June 26, 2008

Board Committees Five board committees have been established to address any issues requiring the directors’ attention. The Programming Committee deliberates on the programming issues and strategies of the network, and is primarily a business strategy committee. It is composed of Federico M. Garcia, Ma. Rosario Santos-Concio and Pedro N. Dy-liacco. The Compensation Committee reviews any recommendations on incentive schemes and issuance of stock options to employees. It is composed of Augusto Almeda Lopez (Chairman), Justice Jose C. Vitug and Federico R. Lopez, and. The Succession Planning Committee ensures that there is a pipeline to key positions in the organization, and that there are ready replacements for any key positions that are suddenly vacated. It oversees the replacement planning table of the organization, and identifies successors and gaps in succession, as well as any measures needed to fill such gaps. It is composed of Angel S. Ong (Chairman), Pedro N. Dy-liacco and Augusto Almeda Lopez. The Compensation Committee for the Chairman and the Chief Executive Officer is composed of Augusto Almeda Lopez (Chairman), Federico M. Garcia, and Justice Jose C. Vitug. The Audit Committee reviews the financial reports and risks, examines internal control systems, oversees the audit process as well as the company’s compliance with laws, and evaluates the company’s business conduct. It is composed of Pedro N. Dy-liacco, Angel S. Ong and Augusto Almeda Lopez. The Audit Committee’s approval policies and procedures for the services from the external auditors, Sycip, Gorres, Velayo & Co., are discussed in Section 7 of the Company’s Manual of Corporate Governance filed with the SEC on September 2, 2002. Internal Audit The Internal Audit Division provides independent assurance and advisory services to the Company's Board of Directors through its Audit Committee by evaluating the adequacy, effectiveness and efficiency

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of the Company's internal control system, developing necessary recommendations for its improvement, and establishing an effective follow-up system on related implementation. The Group, which is composed of certified public accountants, three certified internal auditors and a certified information systems auditor, report to the Audit Committee. Regular audits of the Company and its Subsidiaries are conducted based on a 3-year audit cycle and an annual audit plan approved by the Audit Committee. Special audits are also undertaken as necessary. In 2008, the Internal Audit Division presented to the Audit Committee audit status updates, highlights and presentations on completed and on-going audit activities in accordance with the Audit Committee-approved internal audit plan. The Internal Audit division also worked closely with the Company's Investor Relations and Corporate Planning group in preparing the Company’s responses to the 2008 Corporate Governance Scorecard for publicly listed companies. Compliance Officer The Company has appointed a Compliance Officer who is tasked to ensure the Company’s observance of corporate governance best practices and provide recommendations to the Board for continuous improvement towards full compliance. The Compliance Officer also issues an annual certification on the compliance of the Board with the Company’s Corporate Governance Manual. For 2008, the Compliance Officer is Mr. Alfredo P. Bernardo, who is also Head of the Internal Audit division of the Company. Mr. Bernardo has submitted to the SEC a certification of the Board’s compliance to the Company’s Corporate Governance Manual last January 30, 2009. Code of Conduct The Company also has a Code of Conduct. The Code defines the behaviors that are acceptable or not acceptable within the organization. It details the offenses versus the company’s or the person’s property, the schedule of penalties for each offense according to its gravity, and the grievance process, and defines the roles of the different people involved in disciplinary action. The Code covers all directors, employees, consultants, product and service providers, and anyone who acts in the name of ABS-CBN. Assisting in the dissemination and implementation of this Code of Conduct is the Ethics Committee, which focuses on conflict-of-interest situations. The Committee helps make decisions and clarify stands in cases of personal or professional conflict, or in which the employee or the company stands to gain unfairly from an arrangement, relationship, or procedure. Essential to the idea of good and ethical conduct is the upholding of common corporate and individual values, which are disseminated through a process of values cascading. Risk Management ABS-CBN’s Board of Directors and management are mindful of the potential impact of various risks to the Company’s ability to deliver quality content across multiple platforms and consequently, as a result of its operations, value to shareholders. The Audit Committee of the Board of Directors provide oversight on Enterprise Risk Management to ensure that all relevant risks that may impact the Company’s businesses are properly identified, assessed and monitored, and that all necessary policies and control systems are in place to prevent or minimize the occurrence of those risks. Corporate strategy formulation and business decision-making always take into account potential risks and the steps and costs necessary to minimize, if not eliminate, such risks. As part of its stewardship

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responsibility and commitment to deliver optimum value to its stakeholders, ABS-CBN ensures that it has the proper control systems in place, and to the extent possible, adopted global best practices, to identify and assess, analyze and mitigate market, operating, financial, regulatory, community, reputational, and other risks. Disclosures and Financial Reporting ABS-CBN’s financial statements comply with Philippine Accounting Standards and Philippine Financial Reporting Standards that in turn conform with International Accounting Standards. The annual consolidated financial statements provide information on the financial condition and results of operations of the businesses of ABS-CBN and its subsidiaries. These financial statements include detailed information on the total assets, total liabilities and shareholders’ equity, revenues, costs and expenses, operating income and income before tax, net income attributable to shareholders of ABS-CBN and minority interest, earnings per share, and EBITDA. Business segment information is likewise provided for major business categories and include information such as revenues, operating and net income, assets and liabilities, capital expenditures and depreciation and amortization expenses. Dealings in Securities ABS-CBN requires all members of the Board of Directors and principal officers to report any purchase, sale or change in their shareholdings of the Company’s common shares or Philippine Depositary Receipts within 5 trading days, in compliance with the PSE’s requirement for such disclosure. Shareholder and Investor Relations ABS-CBN fully respects shareholder rights and complies with regulatory and legal requirements that enforce and ensure that such rights are respected. These requirements include due and proper notification for general meetings and provision of adequate, transparent and timely information due shareholders. As a publicly listed corporation, ABS-CBN is subject to reporting requirements prescribed by regulatory authorities, including the SEC and the PSE, among others. ABS-CBN is compliant in submitting timely structured and non-structured reports and disclosure filing required by the SEC and the PSE. To complement these disclosures, ABS-CBN’s Investor Relations group also holds regular analyst and press briefings coincident with its quarterly and annual report submissions that further explain, elaborate on and contextualize the Company’s operating performance and financial condition and results. ABS-CBN’s Chief Finance Officer, its Chief Research and Business Analysis Officer, and its Head of Investor Relations and Corporate Planning are always present at these investor, analyst and press briefings to address any questions that may be raised concerning the Company’s operating and financial results. In addition, ABS-CBN’s Chief Finance Officer, its Chief Research and Business Analysis Officer and its Head of Investor Relations and Corporate Planning, meet with representatives of institutional investors and investment funds upon request and at various investor conferences throughout the year for more intimate and detailed discussions about the Company’s businesses, operating and financial results, business prospects and long-term plans. Inquiries from institutional and individual investors received by regular or electronic mail are also duly acknowledged and addressed in a timely and transparent manner.

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ABS-CBN maintains an investor relations website that contains information on the history and businesses of the company, its Board of Directors and senior management executives, financial information and reports and disclosures filed with the SEC and the PSE, share price performance and dividend history, and investor relations contact information. ABS-CBN’s Investor Relations website may be found on http://ir.abs-cbn.com OTHER ITEMS Nature and Scope of the Business and Subsidiaries The following are the Company’s subsidiaries and affiliates:

Philippine Subsidiaries and Affiliates (Direct Wholly-Owned & Majority Owned)

Company Date of Incorporation

Principal Activities Ownership Interest

ABS-CBN Publishing, Inc. 03/09/92 Print publishing 100.0 Star Recording, Inc. (Star Records) 02/02/95 Audio and video production

and distribution 100.0


09/01/95 Services 100.0

Star Songs, Inc. 07/08/96 Music publishing 100.0 Sarimanok News Network, Inc. (SNN) 23/06/98 Content development and

programming services 100.0

ABS-CBN Interactive, Inc. 29/01/99 Services - interactive media 100.0 Creative Programs, Inc. 24/10/2000 Content development and

programming services 100.0

Studio 23, Inc. (Studio 23) 24/10/2000 Content development and programming services

100.0

TV Food Chefs, Inc. 23/01/01 Services -restaurant and food 100.0 ABS-CBN Film Productions, Inc. (ABS-CBN Films)

25/03/03 Movie production 100.0


09/10/03 Real estate 100.0

Roadrunner Network, Inc. (Roadrunner)

23/11/95 Services - post production 98.9

Sky Cable Corporation (Sky Cable) 06/06/90 Cable television services 65.3

Philippine Subsidiaries and Affiliates (Indirect Wholly-Owned & Majority Owned)



E-Money Plus, Inc. 07/08/2000 Services – money remittance 100.0 thru ABS-CBN Global Ltd.

ABS-CBN Multimedia, Inc. 25/08/04 Digital electronic content distribution

100.0 thru ABS-CBN Interactive, Inc.

Culinary Publications, Inc. 17/05/96 Print publishing 70.0 thru ABS- CBN Publishing, Inc.

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International subsidiaries Company Date of

Incorporation Principal Activities Ownership

Interest ABS-CBN International California, USA

22/03/79 Cable and satellite programming services

98.0 thru ABS-CBN Global, Ltd.

ABS-CBN Telecom North America, Inc.

California, USA 19/04/95

Cable and satellite programming services

100.0 thru ABS-CBN International

ABS-CBN Global Ltd. (with Branch Offices at the following countries:

1. Philippines 2. Taiwan)

Cayman Islands 03/01/02

Holding company 100.0

ABS-CBN Middle East LLC Dubai, UAE 29/04/02

Trading 100.0 thru ABS-CBN Middle East FZ-LLC

ABS-CBN Middle East FZ-LLC Dubai, UAE 29/04/02



ABS-CBN Europe Ltd. (with an Italian Branch Office)

United Kingdom 08/05/03



ABS-CBN Australia Pty. Ltd Victoria, Australia 18/05/04



ABS-CBN Japan, Inc. Japan 22/03/06



The Filipino Channel Canada ULC Alberta, Canada 08/03/07



Philippine affiliates



AMCARA Broadcasting Network, Inc.

12/04/94 Television and radio broadcasting

49.0 owned by ABS-CBN

Lopez, Inc. Holding company Parent of ABS-CBN Benpres Holdings Corporation (Benpres)

08/06/93 Holding company 56.22 owned by Lopez, Inc.

First Philippine Holdings Corporation (FPHC)


Bayan Telecommunications Holdings Corporation (BTHC)


Sky Vision Corporation (Sky Vision)

18/04/91 Investing in ventures related to cable television, cable communications, cable systems, television media and shopping networks, and film distribution

10.2 owned by ABS-CBN; 70.0 owned by Lopez, Inc.

Beyond Cable Holdings, Inc. 07/12/01 Holding company 7.0

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Non-stock corporations Company Date of

Incorporation Principal Activities

ABS-CBN Foundation, Inc. 05/07/89 Charitable institution ABS-CBN Center for Communication Arts, Inc.

10/06/99 Educational/training

ABS-CBN Bayan Foundation, Inc. 18/01/2000 Charitable institution 71 Dreams Foundation, Inc. 24/03/06 Charitable institution

Key Performance Indicators The key performance indicators are the following:

Variance In million pesos

2008 2007 Php %

Gross Revenues 22,307 19,940 2,366 12

Gross Airtime Revenues 13,511 13,605 (94) (1)

Sale of Services 8,283 5,298 2,985 56

Sale of Goods 513 489 23 5

Operating Income 2,206 2,384 (178) (7)

Net Income* 1,383 1,267 117 9

EBITDA** 6,108 5,056 1,052 21

EPS 1.803 1.648 0.155 9

Net debt-to-Equity 0.41 0.23

Consolidated Trade DSO 75 days 75 days *Net Income attributable to equity holders of Parent Company **Earnings before interest, taxes, depreciation and amortization

The following show the manner by which the above numbers are computed:

Gross revenues Airtime + sale of goods + sale of services + license fees

Operating income Gross revenues – (production costs + general and administrative expenses + cost of sales and services + agency commission, incentives and co-producers’ share)

Net income Gross revenues – total expenses – provision for income tax

EBITDA Operating income + non-cash expenses

EPS Net income attributable to equity holders of parent company/weighted shares outstanding

Net debt-to-equiy Interest-bearing loans and borrowings (current and non-current portions) – cash and cash equivalents/total equity

Consolidated Trade DSO Trade receivables/gross revenues x 365 days

Material Events A. Any known trends, demands, commitments, events or uncertainties that will have a material impact

on the issuer's liquidity.

-- In June 2004, the Company successfully signed a syndicated loan for US$120 million to refinance the Company’s existing debts and to fund further investments in cable television operations (the Senior Credit Agreement). The loan is secured by the Company’s real property and certain equipment and other assets and will be guaranteed by certain of the Company’s subsidiaries. In March 2007, the loan was restructured such that the principal amount has been reduced to US$85 million, with a longer maturity and other more favorable terms. In September 2007, the relevant parties to the syndicated loan executed a First Amendment to the loan, which centered on allowing

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the Company to incur additional unsecured debt. In December 2007, the relevant parties to the syndicated loan executed a Second Amendment to the loan. The amendment removed the pro rata provision in cases of prepayment paving the way for the company to prepay about US$27 million of debt on December 18, 2007. On September 18, 2007, the Company successfully signed a syndicated loan for P854 million with the previous lenders of Sky Cable, namely, United Coconut Planters Bank, Bank of the Philippine Islands, Mega International Commercial Bank Co., Ltd., Olga Vendivel and Wise Capital Investment & Trust Company, Inc., with Banco de Oro - EPCI, Inc. acting as the facility agent. The loan’s final maturity is on September 18, 2014. On September 20, 2007, the Company settled the P944 million Sky Cable loans in the amount of P662 million. To finance the settlement of the loans, the Company signed a syndicated loan for P800 million with ING Bank N.V. and Mizuho Corporate Bank, Ltd., Manila Branch with Mizuho Corporate Bank, Ltd., Manila Branch acting as the facility agent. The loan’s final maturity is on September 20, 2012. The total amount of money withdrawn is P662 million. On December 13, 2007, the Company together with Banco de Oro Universal Bank, signed a P1,350 million secured facility to refinance the entire Senior Credit Agreement, effectively extending the maturity from June 2009 to December 2012. On August 15, 2008, the Company successfully signed a P1,000 million loan facility with Security Bank jointly arranged by BPI Capital Corp and SB Capital Investment Corp. This was fully drawn on August 27, 2008. The funds are used for capital expenditures and general corporate purposes. The loan’s final maturity is on August 27, 2013. On September 30, 2008, the Company successfully signed a P2,000 million loan facility with BPI Bank of the Philippine Islands Asset Management and Trust Group as Investment Manager for ALFM Peso Bond Fund, Inc., Bank of the Philippine Islands Asset Management and Trust Group as Trustee for various Trust Accounts, The Philippine American Life and General Insurance Company and The Insular Life Assurance Company, Ltd., as Fixed Loan Lenders and Allied Banking Corporation and Allied Savings Bank as Variable Loan Lenders. This was jointly arranged by BPI Capital Corp. and SB Capital Investment Corp. The funds are used for capital expenditures and general corporate purposes. On October 30, 2008, the Company availed P1,000 million from the Fixed Loan Lenders with final maturity of October 30, 2015. On September 30, 2008, the Company signed the Combined Facility Agreement with the lender of the facility agreement executed on August 15, 2008 and the lenders of the facility agreement executed on September 30, 2008, together with BPI Capital Corp. and SB Capital Investment Corp. acting as joint arrangers of both facilities. The agreement shall combine both loan facilities in all material respects to be administered by BPI Asset Management and Trust Group acting as facility agent. The Company has US$5 million in short-term borrowings with the Royal Bank of Scotland Manila Branch. On August 19, 2008, ABS-CBN International, a wholly-owned subsidiary through ABS-CBN Global Limited, availed of a loan from Citibank North America amounting to US$1.05 million. The loan has a term of 15 years to be repaid based on a 20-year amortization.

B. Any material commitments for capital expenditures, the general purpose of such commitments and the expected sources of funds for such expenditures.

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-- For 2009, the Company expects to invest approximately P2.4 billion for capital expenditure and acquisition of film and program rights, P700 million higher than that of 2008. This funding requirement will be financed through internally generated funds and borrowings.

C. Any event that will trigger direct or contingent financial obligation that is material to the Company, including any default or acceleration of an obligation.

The Senior Credit Agreement dated June 18, 2004, and amended on March 2007, September 2007, and December 2007, as well as the loan facilities signed thereafter, between the Company and several creditor banks contain customary events of default which may trigger material financial obligations on the part of the Company, such as, non-payment of financial obligations, breach of material provisions and covenants, cancellation of the Company’s key licenses, insolvency, cessation of business, expropriation, issuance of final judgment against the Company involving a significant amount, material adverse change in the operations and structure of the Company.

D. All material off-balance sheet transaction, arrangement, obligation (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons created during the reporting period.

-- As of March 31, 2009, there are no material off-balance sheet transaction, obligation (including contingent obligations), and other relationships of the Company with unconsolidated entities or other persons created during the reporting period.

E. Any significant elements of income or loss that did not arise from the issuer’s continuing operations.

-- There were no significant elements of income or loss that did not arise from the Company’s continuing operations for the period.

F. Any seasonal aspects that had a material effect on the financial condition or results of operations.

-- There were no seasonal aspects that had a material effect on the financial condition or results of operations for the interim period.

G. Any material events that were unusual because of their nature, size or incidents affecting assets, liabilities, equity, net income, or cash flows

-- The Company and its subsidiary, ABS-CBN International, signed an affiliation agreement last 21 July 2005 with DirecTV, one of the leading direct to home (DTH) system providers in the United States of America (USA). Under the deal, DirecTV will have the exclusive right to air The Filipino Channel (TFC) package on its direct to home platform. In return, DirecTV will pay license fees to the Company based on the number of subscribers, new and existing, who will avail of the service during the migration period. Meanwhile, ABS-CBN International will have a 50% share of the subscription fees. License fees earned from DirecTV amounted to P548 million in 2007. The contract on license fee of ABS-CBN with DirecTV ended in October 2007. Furthermore, the Company implemented an employee reduction program or SSP (special separation package) beginning July 2005 in order to cut employee costs and improve efficiencies. About P576.0 million in non-recurring SSP related expenses were booked under general and administrative expenses in 2005. Approximately 20% of the Company headcount or four hundred employees availed of the SSP. For 2008, there have been no significant increases/decreases in headcount.

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H. Any material events subsequent to the end of the interim period that have not been reflected in the

financial statements for the period.

-- There were no material events subsequent to the end of the period that have not been reflected in the financial statements of the period.