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COVER SHEET

1 8 0 3 S.E.C. Registration Numer

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

(Company's Full Name)

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

S G T . E S G U E R R A A V E . Q U E Z O N C I T Y (Business Address: No. Street City / Town / Province)

Randolph T. Estrellado 415-2272Contact Person Company Telephone Number

1 7 - A 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

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document I.D. Cashier

S T A M P S

0 4 2 7

7,973

2 1 1 3

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SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A ANNUAL REPORT PURSUANT TO SECTION 17

OF THE SECURITIES REGULATION CODE AND SECTION 141 OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended December 31, 2005

2. SEC Identification Number 1803 3. BIR Tax Identification No. 301-000-406-761V 4. Exact name of issuer as specified in its charter: ABS-CBN BROADCASTING CORP. 5. Philippines 6. (SEC Use Only) Province, Country or other jurisdiction

of incorporation or organization Industry Classification Code:

7. ABS-CBN Broadcasting Centre Complex, Sgt. Esguerra Ave cor Mo Ignacia St., QC 1100 Address of principal office 8. (632) 924-41-01 to 22 / 415-2272 Issuer's telephone number, including area code 9. Not applicable Former name, former address, and former fiscal year, if changed since last report. 10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA Title of Each Class Number of Shares of Common Stock

Outstanding and Amount of Debt Outstanding

Common Stock, Php1.00 par value 779,583,312 Short-term & Long-term debt (current & non-current) Php6,275.8million 11. Are any or all of these securities listed on a Stock Exchange. Yes [ x ] No [ ] If yes, state the name of such stock exchange and the classes of securities listed therein: Philippine Stock Exchange Class A

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12. Check whether the issuer: (a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports); Yes [ x ] No [ ] (b) has been subject to such filing requirements for the past ninety (90) days. Yes [ x ] No [ ] 13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. Php3,583,530,829 (as of February 10, 2006)

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TABLE OF CONTENTS

PART I – BUSINESS AND GENERAL INFORMATION Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II -- OPERATIONAL AND FINANCIAL INFORMATION Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters Item 6. Management’s Discussion and Analysis or Plan of Operation Item 7. Financial Statements Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III – CONTROL AND COMPENSATION INFORMATION Item 9. Directors and Executive Officers of the Issuer Item 10. Executive Compensation Item 11. Security Ownership of Certain Beneficial Owners and Management Item 12. Certain Relationships and Related Transactions PART IV – CORPORATE GOVERNANCE Item 13. Corporate Governance PART V – EXHIBITS AND SCHEDULES Item 14. Exhibits and Reports on SEC Form 17-C Item 15. 2005 Annual Report to Security Holders SIGNATURES

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PART I - BUSINESS AND GENERAL INFORMATION Item 1. Business

Business Development ABS-CBN Broadcasting Corporation (“ABS-CBN” or the “Company”) traces its roots from Bolinao Electronic Corporation (“BEC”) which was established in 1946 as an assembler of radio transmitting equipment. In 1952, BEC changed its corporate name to Alto Broadcasting Corporation (“ABS”). On September 24, 1956, the Chronicle Broadcasting Network (“CBN”) which is owned by the Lopez family was organized. In 1957, ABS acquired CBN and on February 1, 1967, the corporate name was changed to ABS-CBN Broadcasting Corporation. With the imposition of martial law in September 1972, ABS-CBN’s operations ceased as the government took over the Company’s studios and equipment. ABS-CBN resumed commercial operations in February 1986 during the height of the EDSA revolution.

Core Business ABS-CBN is the largest integrated media and entertainment company in the Philippines. The Company is principally involved in television and radio broadcasting, as well as the production of television programming for domestic and international audiences and other related businesses. The Company’s congressional franchise, Republic Act No. 7966, which allows the Company to operate television and radio stations, was renewed on March 30, 1995 for 25 years. Its broadcasting operations cover the production of television and radio programs that serve its target audience’s needs for news, information and entertainment, and public service. The Company’s Very High Frequency (“VHF”) television network, which consists of its flagship station in Mega Manila, Channel 2, 23 other owned and operated television stations and ten affiliated stations, is the leading television network in the Philippines. The Company also operates Studio 23, the leading Ultra High Frequency (“UHF”) television network with 35 television stations. The two networks reach an estimated 97% and 50% of all television owning households in the Philippines, respectively. The Company's VHF network broadcasts a wide variety of entertainment and news programs nationwide to the mass market, primarily in Filipino. The Company's UHF network has in the past broadcast mostly English language programs imported from the United States, targeting more affluent viewers, but is now broadening the target audience for Studio 23 to include the mass market demographic segment. The Company is also one of the leading radio broadcasting companies, with 19 owned AM and FM radio stations and ten affiliated radio stations throughout the Philippines. The Company’s anchor radio stations in Manila, DZMM and DWRR, are the highest-rated stations in Mega Manila in the AM and FM bands, respectively. Its subsidiaries and associates are involved in the following related businesses: video/audio post production, content development and production, film production and distribution, audio recording and distribution, cable and satellite programming services, and telecommunication services overseas. Other activities of the subsidiaries include merchandising and licensing, internet services, publishing, money remittance, property management, and food and restaurant service. Gross revenues in 2005 amounted to P17,047 million of which 61% or P10,334 million came from airtime revenues; 25% or P4,248 million from sale of services; 9% or P1,619 from license fees; and 5% or P846 million from sale of goods. Sale of services refer to revenues derived from cable and satellite

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programming services, film production and distribution, interactive media, content development and programming services, post production, text messaging, etc. License fees, on the other hand, represent revenues from the initial phase of the migration of existing US DTH (direct to home) subscribers to DirecTV’s platform as well as take-up of new subscribers. In 21 July 2005, ABS-CBN and its subsidiary ABS-CBN International signed an affiliation agreement with DirecTV, one of the leading DTH system providers in the US. Under the deal, DirecTV will have the exclusive right to air The Filipino Channel (TFC) package on its DTH platform. In return, DirecTV will pay license fees to ABS-CBN based on the number of subscribers, new and existing, who will avail of the service during the migration period. Meanwhile, sale of goods refer to revenues arising from the sale of consumer products such as magazines, audio, video products, and phonecards. The Company operates in three major geographical areas. In the Philippines, its home country, the Company is involved in broadcasting, cable operation and other businesses. In the United States and other locations (which includes Middle East, Europe, Japan, Australia, and Asia Pacific), the Company operates its cable and satellite operations to bring television programming outside the Philippines. The Company’s activities outside the Philippines represent approximately 21%, 20% and 19% of total revenues in 2005, 2004 and 2003, respectively (see Note 4. Segment Information, in the notes to the financial statements).

Subsidiaries and Affiliates

Company Principal Activities

Year of Incorporation

Ownership Interest

Subsidiaries Continuing Operations ABS-CBN Center for Communication Arts, Inc. Educational/Training 1999 Non-stock ABS-CBN Middle East FC-LLZ Cable and satellite programming

services 2002

100.0(a) ABS-CBN Film Productions, Inc. (ABS-CBN Films) Movie production 2003 100.0 ABS-CBN Global Ltd. (ABS-CBN Global)(e) Holding company 2002 100.0 ABS-CBN Interactive, Inc. Services – Interactive Media 1999 100.0 ABS-CBN International, Inc. Cable and satellite programming

services 1979

98.0(a) ABS-CBN Publishing, Inc. Print Publishing 1992 100.0 Creative Programs, Inc. (CPI) Content development & programming

services 2000

100.0 E-Money Plus, Inc. Services – Money remittance 2000 100.0(a) Professional Services for Television & Radio, Inc. Services 1995 100.0 Sarimanok News Network, Inc. (SNN) Content development & programming

services 1998

100.0 Sky Films, Inc. (Skyfilms) Services – Film Distribution 2000 100.0 Star Recording, Inc. Audio & video production &

distribution 1995

100.0 Studio 23, Inc. (Studio 23) Content development & programming

services 2000

100.0 TV Food Chefs, Inc. Services - Restaurant & Food 2001 100.0 Roadrunner Network, Inc. (Roadrunner) Services - Post Production 1995(l) 98.9 Star Songs, Inc. Music Publishing 1996 100.0 ABS-CBN Middle East LLC Trading 2004 (i) ABS-CBN Australia Pty. Ltd. Cable & satellite programming services 2004 100.0(f) ABS-CBN Europe Ltd.(k) Cable & satellite programming services 2003 100.0(a)

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ABS-CBN Multi-Media, Inc. Digital electronic content distribution 2004 75.0(g) SkyGuide, Inc. Print Publishing 1998 50.0(h) Culinary Publications, Inc. Print Publishing 1996 70.0(h) ABS-CBN Integrated & Strategic Property Holdings, Inc.

Real estate 2003 100.0

Definition Records, Inc. Audio production & distribution 2001 100.0(j) Discontinuing Operations ABS-CBN Consumer Products, Inc. (b) Consumer products 1995 100.0 ABS-CBN Europe Societa Per Azioni (m) Services 2001 100.0 ABS-CBN Hong Kong, Ltd. (n) Services 2001 100.0 Cinemagica, Inc. (b) Services 1996 100.0 Shopping Network, Inc. (c) Consumer products 2001 100.0 Creative Creatures, Inc. (CCI) (d) Services 1995 100.0 Associates AMCARA Broadcasting Network, Inc. (Amcara) Services 1994 49.0 Star Cinema Productions, Inc. (Star Cinema) Movie production 1993 45.0 Sky Vision Corporation. (Sky Vision) Cable operation 1990 10.2 Beyond Cable Holdings, Inc. Holding Company 2001 7.0

(a)indirectly-owned through ABS-CBN Global (b)ceased commercial operations on December 31, 2002 (c)ceased commercial operations on December 31, 2001 (d)ceased commercial operations on October 31, 2003 (e)with a branch in the Philippines (f)indirectly-owned through ABS-CBN International (g)indirectly-owned through ABS-CBN Interactive, Inc. (h)indirectly-owned through ABS-CBN Publishing, Inc. (i)indirectly-owned through ABS-CBN Middle East FZ-LLC

(j)indirectly-owned through Star Recording, Inc. (50%) and ABS-CBN Interactive, Inc. (50%) (k)with a branch in Italy (l) merger approved in 2000 (m) liquidated in December 2003 (n) de-registered in 2003

Competition

There are currently 12 commercial television stations – those which derive the majority of their revenues from the sale of advertising and airtime – in Mega Manila (which includes Metro Manila and parts of Rizal, Laguna, Cavite and Bulacan), with seven on very high frequency (VHF) and five on ultra high frequency (UHF). The Company's television broadcasting networks compete for advertising revenues, the acquisition of popular programming and for the services of recognized talent and qualified personnel. The Company's television stations also compete with other advertising media, such as radio, newspapers, outdoor advertising and cable television channels, as well as with home video exhibition, the Internet and home computer usage. The Company principally competes with 12 commercial television stations in Mega Manila, including the channels of its major competitor, GMA, which owns and operates Channel 7 and provides programming for Channel 11 in Manila, and which is affiliated with 41 other stations outside of Manila. The major VHF broadcasting networks in the country and their corresponding Mega Manila channels are as follows:

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ABS-CBN Broadcasting Corp. -- Channel 2 National Broadcasting Network -- Channel 4 Associated Broadcasting Corp. -- Channel 5 GMA Network, Inc. -- Channel 7 Radio Philippine Network -- Channel 9 Zoe Broadcasting Corp. -- Channel 11 Intercontinental Broadcasting Corp. -- Channel 13 Channels 4, 9 and 13 are owned by the Philippine government, although the privatization of Channels 9 and 13 is currently in process. The principal UHF networks operating in the Philippines and their corresponding Mega Manila channels are as follows: ABS-CBN Broadcasting Corp. (Studio 23) -- Channel 23

Southern Broadcasting Network -- SBN 21 RJ Broadcasting -- RJTV 29 National Broadcasting Corp. (MTV Phils) -- Channel 41 Eagle Broadcasting -- Net 25 The Philippine television industry is dominated by ABS-CBN and GMA, which together accounted for more than 70% of the total audience share in recent years. The following table shows the television stations’ average ratings and share in Mega Manila for 2005 for the time block 6:00 a.m. to midnight.

OVERALL CHANNEL RATINGS AND RANKINGS

IN MEGA MANILA 01January – 31December 2005

6:00am-12:00mn

Rank

Channel

Rating (%) Audience Share (%)

2 ABS-CBN 13.9 34.1 1 GMA 18.6 45.7 4 ABC 1.0 2.5 5 Other VHF 1.9 4.6 3 Studio 23 1.2 3.0 6 Other UHF 0.4 1.1 7 Total Cable 3.7 9.2 Total Channel 40.7 100.0

Based on AGB Philippines Mega Manila Households Data

Programming The Company is a growing supplier of Filipino content for television and cable channels both in the Philippines and, increasingly, throughout the world. The Company faces competition for distribution of its programming from other producers of Filipino programming. The Company competes with other programming providers for channel space and compensation for carriage from cable television operators and other multi-channel distributors. For such program services, distributors select programming based on various considerations, including the prices charged for the programming and the quality, quantity and variety of programming. International Cable and Satellite Services The Company is the first media company in the Philippines which provided an international DTH and cable channel service through The Filipino Channel (TFC). The channel is targeted specifically at overseas

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Filipinos including Filipino immigrants and workers. In July 2005, ABS-CBN and its subsidiary ABS-CBN International signed an affiliation agreement with DirecTV, one of the leading direct to home (DTH) system providers in the US. Under the deal, DirecTV will have the exclusive right to air the TFC package on its direct to home platform. In return, DirecTV will pay license fees to ABS-CBN and to ABS-CBN International. The Company's DTH satellite subscription service in the U.S. presently competes with other satellite television and cable systems, national broadcast networks, and regional and local broadcast stations. In 2005, main competitor GMA-7 launched its own Filipino Channel in the US, Pinoy TV, which is also available via DTH and cable platforms. Magazine Publishing Each of the Company's magazine publications competes for readership and advertising revenues with other magazines of similar format and with other forms of print and non-print media. Competition for advertising is based on circulation levels, reader demographics and advertising rates. Movie Production and Distribution The production and distribution of feature films is a highly competitive business in the Philippines. ABS-CBN Films competes for the services of recognized creative talents (both artists and production staff) and for film rights to scripts, which are essential to the success of a movie. The Company likewise competes with other feature film producers, including other Filipino studios, smaller independent producers and major foreign studios such as Disney, Dreamworks, Fox, MGM, Sony, Universal and Warner Bros. Success in the Philippine movie business depends on the quality of the film, its distribution and marketing, and the public’s response to the movie which is difficult to predict. The number of films released by the Company's competitors in any given period may create an oversupply of product in the market, which may reduce the Company's share of gross box office admissions and make it more difficult for its films to succeed. ABS-CBN Films also competes with other forms of entertainment and leisure time activities such as DVDs, video cassettes and computer games. Internet and Interactive Services In connection with the Company's Internet services and other new interactive products including SMS and MMS, the Company faces competition from Internet service providers, and personal communication and telecommunications companies. Some of these companies are looking to develop their own SMS-related content and value-added services. Post-Production Services The post-production services business is also highly competitive. In addition to other post-production services companies, including one owned by GMA, television and movie studios themselves can also perform similar services in-house. These studios could devote substantially greater resources to the development of post-production services that compete with those provided by the Company. The Company also actively competes with certain industry participants that are niche players or specialized businesses. Cable Television Operations Sky Vision's cable operations directly compete for viewer attention and subscriptions with other providers of entertainment, news and information, including other cable television systems, broadcast television stations and DTH satellite companies. Cable television systems also face strong competition

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from all media for advertising revenues. Important competitive factors include fees charged for basic and premium services, the quantity, quality and variety of the programming offered, signal reception, customer service, and the effectiveness of marketing efforts.

Transactions with and/or dependence on related parties In the parent company financial statements, significant transactions of the Parent Company with its subsidiaries, associates, and a related party follow:

2005 2004 Expenses and charges paid by the Company

which are reimbursed by the subsidiaries and associates (see Notes 17 and 18) P=298,266 P=358,011

Interest income on convertible note (see Note 7) 230,855 112,841 Airtime revenue from Sky Films, ABS-CBN Films,

Manila North Tollways Corp. (MNTC) and Bayan Telecommunications Holdings, Inc. (Bayantel), a subsidiary of Lopez (see Note 19) 114,203 66,523

Technical facilities order charges for the use of the Company’s facilities (see Note 19) 104,306 163,304

Blocktime fees charged to Studio 23 for the use of the Company’s equipment (see Note 19) 14,927 16,500

Management and other service fees (see Note 19) 62,395 72,390 Rental charges of the Company for the use

of office space (see Note 19) 37,081 37,328

Other transactions with subsidiaries and associates include cash advances for working capital requirements.

Outstanding balances from the above transactions are reflected in the parent company balance sheets under the following accounts:

2005 2004 Trade and other receivables (see Note 5) P=358,041 P=190,957 Advances to subsidiaries and associates (see Note 7) 1,334,261 1,082,882 Trade and other payables (see Note 12) 1,197,956 470,277

In the consolidated financial statements, transactions of the Company with its associates and related parties follow:

2005 2004 Associates Interest on noncurrent receivable from Sky Vision P=261,161 P=112,841 License fees charged by CPI to Central, (a) PCC

and Home Cable 112,334 137,443 Blocktime fees paid by Studio 23 to Amcara (b) 60,816 68,000 Management and other service fees 604 412

2005 2004 Affiliates Expenses paid by Parent Company & subsidiaries to

Manila Electric Company (Meralco), Bayan Telecommunications Holding, Inc. (Bayantel) & other related parties P=432,346 P=364,527

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Termination cost charges of Bayantel, a subsidiary of Lopez, to ABS-CBN Global 286,549 232,140

Airtime revenue from Manila North Tollways Corp. (MNTC), Bayantel and Meralco, an associate of Lopez 61,273 30,162

Expenses and charges paid for by the Parent Company which are reimbursed by the concerned related parties 34,788 46,449

Rental charges of the Parent Company for the use of office space – 133

The related receivables and payables from related parties are as follows:

2005 2004 Due from associates P=150,929 P=161,741 Due from affiliates 95,769 102,139 Total P=246,698 P=263,880

Due to associates P=40,715 P=24,543 Due to affiliates 270,584 137,480 Total P=311,299 P=162,023

Lopez, Inc. (Ultimate Parent) The Company has no transaction with Lopez, Inc. for the years 2005 and 2004.

a. License Fees Charged by CPI to Central

CPI entered into a channel carriage agreement (Agreement) with Central for the airing of the cable channels (see Note 10) to the franchise areas of Central and its cable affiliates. The Agreement with Central is for a period of five years effective January 1, 2001, renewable upon mutual agreement. Under the terms of the Agreement, CPI receives license fees from Central and its cable affiliates computed based on agreed rates and on the number of subscribers of Central and its cable affiliates. As the owner of the said cable channels, CPI develops and produces its own shows and acquires program rights from various foreign and local suppliers.

b. Blocktime Fees Paid by Studio 23 to Amcara

Studio 23 owns the program rights being aired in UHF Channel 23 of Amcara. On July 1, 2000, it entered into a blocktime agreement with Amcara for its provincial operations.

Other transactions with associates include cash advances for working capital requirements.

Terms and Conditions of Transactions with Related Parties The sales to and purchases from related parties are made at normal market prices. Outstanding balances as of year-end are unsecured, interest free and settlement occurs in cash, except for the noncurrent receivables from SkyVision discussed in Note 8. For the years ended December 31, 2005 and 2004, the Company has not made any provision for doubtful accounts relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

As discussed in Note 15 of the FS, the Parent Company’s obligation under the Senior Credit Agreement (SCA) is jointly and severally guaranteed by its principal subsidiaries.

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Compensation of key management personnel of the Company

2005 2004 Compensation P=358,321 P=281,553 Pension benefit 32,128 20,640 Vacation leaves and sick leaves 3,920 4,472 Termination benefits 70,181 – P=464,550 P=306,665

Patents, trademarks, licenses, franchises, concessions, royalty

Republic Act No. 7966, approved on March 30, 1995, granted ABS-CBN the franchise to operate TV and radio broadcasting stations in the Philippines through microwave, satellite or whatever means including the use of new technologies in television and radio systems. The franchise is for a term of 25 years. ABS-CBN is required to secure from the National Telecommunications Commission (“NTC”) appropriate permits and licenses for its stations and any frequency in the TV or radio spectrum.

Agreements of labor contracts, including duration

ABS-CBN Management recognizes two labor unions, one for the supervisory employees and another for the rank and file employees. The collective bargaining agreement (CBA) for the supervisory union expired last 31 July 2005 while the CBA for the non-supervisory union expired last 10 December 2005. Negotiations with both Unions started last year which covered the economic and non-economic provisions for CBA cycle 2005-2010. Negotiations on the non-economic provisions of the CBA were successfully concluded last year and hopefully Management reaches an agreement with both Unions on the economic provisions within the year.

Licenses from foreign and local film and programs aired through the networks

ABS-CBN and its subsidiaries have licenses from foreign and local program and feature film owners to distribute the same through its networks. The licenses to distribute the foreign programs and foreign and local feature films grant ABS-CBN and its subsidiaries the right to distribute said programs and films on free TV, UHF, cable, and satellite TV in the Philippines and in territories wherein The Filipino Channel is distributed. These licenses for TV rights have an average term of two (2) to three (3) years. Such programs comprise approximately twenty five percent (25%) of the programming of ABS-CBN's Manila VHF Channel 2 and approximately thirty (30%) percent of the content of its Manila UHF Channel 23. ABS-CBN and its wholly-owned subsidiary, Sky Films, Inc., also have the license to distribute local and foreign feature films in the Philippines for theatrical, TV, and video distribution, with limited ancillary rights. The licenses for foreign films have an average term of ten (10) to fifteen (15) years.

Need for any governmental approval of principal products or services

The principal law governing the broadcasting industry is the 1936 Commonwealth Act. No. 146, as amended, otherwise known as the Public Service Act. This act seeks to protect the public against unreasonable charges and inefficient service by public utilities, including companies engaged in television and radio broadcasting as well as to prevent excessive competition. The 1987 Philippine Constitution provides that “ownership and management of mass media shall be limited to citizens of the Philippines, or to corporations, cooperatives or associations wholly-owned and managed by such citizens” (Section 11, Article XVI). As a result, the Company is highly regulated by the Philippine Government. The Company’s Congressional Franchise, renewed in 1995 for a term of 25 years, allows the Company to engage in the television and radio broadcasting business.

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The government departments and agencies that administer the laws governing the broadcasting industry and content are the National Telecommunications Commission (NTC), the Department of Transportation and Communication (DOTC), the Movie and Television Review and Classification Board (MTRCB), the Optical Media Board (OMB), and the Department of Labor and Employment. The NTC is the government agency which regulates the broadcasting industry. Among its specific functions is the granting of provisional authorities and certificates of public conveniences to own and operate a broadcasting station within the Philippines. The NTC also regulates the bandwidth allocation used by the different broadcasting companies through the grant of temporary permits and licenses to operate television and radio stations. The DOTC formulates general and specific policies on the broadcasting industry. Although the DOTC exercises supervision and control over the NTC, it does not have the power to review the acts and resolutions of the NTC. The MTRCB classifies television programs based on their content, including the showing of indecent and excessively violent scenes on television. The OMB issues permits to television stations or networks engaged in the exhibition and distribution of programs in video format. In addition to the restrictions imposed by the government agencies, a broadcaster must also follow rules and industry standards promulgated by the Kapisanan ng mga Brodkaster sa Pilipinas (KBP). The KBP is a trade organization consisting of television and radio operators. It formulates policies and guidelines for the operations of its members and enforces programming and advertising rules.

Costs and effect of compliance with environmental laws

Whenever required, the Company applies for and secures proper permits, clearances or exemptions from the Department of Environment and Natural Resources, Department of Health, Air Transportation Office, and other regulatory agencies, for the installation and operation of proposed broadcast stations nationwide. For the past three years, there were no costs related to the effect of compliance with environmental laws.

Employees

The number of employees and talents of the Parent Company was 3,317 and 3,684 as of December 31, 2005 and 2004, respectively. The number of employees and talents of the Parent Company and its subsidiaries (collectively referred to as the “Company”) was 5,509, 6,007 and 6,305 as of December 31, 2005, 2004 and 2003, respectively. The Company recognizes two labor unions, one for the supervisory employees and another for the rank and file employees. The collective bargaining agreement (CBA) for the supervisory union, which represents approximately 4% of total Parent Company employees expired last 31 July 2005 while the CBA for the non-supervisory union, which represents approximately 15% of total Parent Company employees expired last 10 December 2005. In July 2005, the Company implemented an employee reduction program or SSP (special separation package) in order to cut employee costs and improve efficiencies. Around 400 regular employees availed of the SSP. For the next 12 months, the Company considers its headcount to be adequate for its requirements and does not have any plans to significantly increase or decrease its headcount.

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Risks Relating to the Company The Company’s results of operations may be negatively affected by adverse economic conditions in the Philippines since its operations depend largely on its ability to sell airtime for advertising. Historically, the advertising industry, relative to other industries, has been particularly sensitive to the general condition of the economy. Consequently, the Company’s business may be affected by the economic condition of the country. Item 2. Properties The properties of the Company consist of production, broadcasting, transmission and office facilities, majority of which are owned by the Company. Broadcast operations are principally conducted in the 44,000 square meter ABS-CBN complex located at Sgt. Esguerra Avenue, Quezon City. The complex also houses the Company’s 650-foot transmitter tower and other broadcast facilities and equipment. The Company also owns a modern 15-story building located beside the existing ABS-CBN complex. The building houses the corporate offices of the Company and its subsidiaries engaged in related businesses. Aside from the corporate offices, the building also has three television soundstages, three sound recoding studios and other television production facilities. The building has a gross floor area of approximately 100,000 square meters and total office space of approximately 58,000 square meters. The ground floor is leased to various businesses including banks, retail stores, coffee shops and restaurants. The Company has received approval from the Philippine Economic Zone Authority to operate as an Information Technology Zone, enabling potential lessees to take advantage of the incentives and benefits under the Special Economic Zone Act of 1995. The Company also owns television broadcast and production facilities and other real estate properties in various parts of the Philippines, including local television and radio originating stations in Bacolod, Cebu, Davao, Dagupan, Naga, Legaspi, Zamboanga, General Santos, Cagayan de Oro and Iloilo. Other principal properties used in connection with the Company's operations include a training center and a technical operations center. The Company also owns the production and transmission equipment and facilities of its radio stations located both within and outside of Manila. With the Company having made substantial investments in upgrading its production, broadcasting and transmission equipment in recent years, the Company does not anticipate any major capital expenditures in the near future. On June 18, 2004, the Parent Company entered into a Senior Credit Agreement (SCA) with several foreign and local banks (Original Lenders) for a dual currency US$120 million syndicated term loan facility for the purpose of refinancing existing indebtedness incurred for the construction of the Eugenio Lopez, Jr. Communications Center, additional investment in the cable TV business and funding capital expenditures and working capital requirements. The Parent Company’s obligation under the SCA is secured and covered by a Mortgage Trust Indenture (MTI) which consists of substantially all of the Parent Company’s real property and moveable assets used in connection with its business and insurance proceeds related thereto. Further, the Parent Company’s obligation under the SCA is jointly and severally guaranteed by its principal subsidiaries.

The SCA contains provision regarding the maintenance of certain financial ratios and limiting, among others, the incurrence of additional debt, the payment of dividends, making investments, the issuing or selling the Parent Company’s capital stock or some of its subsidiaries, the selling or exchange of assets, creation of liens and effecting mergers.

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Local and Regional Properties ABS-CBN also owns real estate properties in various parts of the country. Originating stations have the capacity to produce and broadcast their own programs and to air advertising locally. Relay stations can only re-transmit broadcasts from originating stations. Affiliate stations are not owned by the Company. Rather, they are typically independently owned by local Filipino business people and are contracted to re-broadcast the Company’s originating signals during specified time blocks for negotiated fixed fees. The following table sets forth the location and use of ABS-CBN’s television and radio stations as of December 31, 2005:

VHF TV STATIONS

STATION CH STATION

TYPE Location

(Transmitter Site) 1 Manila 2 Originating Mo. Ignacia St., Diliman, QC 2 Cebu 3 Originating Mt. Busay, Cebu City 3 Bacolod 4 Originating Mt. Kanlandog, Murcia, Negros Occ. 4 Bukidnon 2 Originating Mt. Kitanglad, Bukidnon 5 Davao 4 Originating Shrine Hill, Matina, Davao City 6 General Santos 3 Originating Brgy. Lagao, Gen. Santos City 7 Zamboanga 3 Originating Zamboanga City 8 Naga 11 Originating Naga City 9 Tacloban 2 Originating Mt. Naga-naga, Tacloban City 10 Dumaguete 12 Originating Valencia, Negros Or. 11 Isabela 2 Originating Santiago City, Isabela 12 Tuguegarao 3 Relay**** Tuguegarao, Cagayan 13 Cotabato 5 Originating Cotabato City 14 Baguio 3 Originating Mt. Sto. Tomas, Benguet 15 Iligan 4 Originating Iligan City 16 Butuan 11 Originating Butuan City 17 Ilocos Norte 7 Originating San Nicolas, Ilocos Norte 18 Legaspi 4 Originating Mt. Bariw, Legaspi 19 Olongapo 12 Relay**** Upper Mabayuan, Olongapo City 20 Batangas 10 Relay**** Mt. Banoy, Batangas

21 Bohol 13 Relay Jagna, Bohol 22 Mt. Province 11 Relay Mt. Amuyao, Mt. Province 23 Zambales 13 Relay Mt. Bucao, Botolan, Zambales 24 Albay 10 Relay Tabaco,, Albay

25 Masbate Comm. Bctg. Co. 10 Affiliate Masbate, Masbate 26 MIT-RTVN 7 Affiliate Ozamis City 27 MIT-RTVN 9 Affiliate Mt. Palpalan, Pagadian City 28 St. Jude Thaddeus Inst. of Tech 12 Affiliate Surigao City 29 Sulu Tawi-Tawi Broadcasting

Corporation 10 Affiliate Jolo, Sulu

30 Our Lady’s Foundation 9 Affiliate Sorsogon, Sorsogon 31 Calbayog Comm. Bctg. Corp. 10 Affiliate Calbayog City, Western Samar 32 Palawan Bctg. Corp. 7 Affiliate Puerto Princesa, Palawan 33 Sumuroy Bctg. Corp. 7 Affiliate Catbalogan City, Northern Samar

UHF TV STATIONS

NO. STATION CH STATION TYPE

STATION LOCATION (Transmitter Site)

1 Manila** 23 Originating Metro Manila 2 Cebu 23 Relay Station Mt. Busay, Cebu City* 3 Davao 21 Relay Station Matina Hills, Davao City* 4 Dagupan 30 Originating Sto. Tomas, Benguet* 5 Naga 24 Relay Station Naga City*

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6 Batangas 36 Relay Station Mt. Banoy, Batangas* 7 Baguio** 32 Relay Station Mt. Sto. Tomas (Baguio)* 8 Ilocos Norte 23 Relay Station San Nicolas, Laoag* 9 Bacolod 22 Relay Station Bacolod City* 10 Iloilo** 38 Relay Station La Paz, Iloilo City* 11 Zamboanga 23 Relay Station Zamboanga City* 12 Gen. Santos 36 Relay Station General Santos City* 13 Tacloban*** 24 Relay Station Mt. Naga-Naga, Tacloban 14 Cagayan De Oro 23 Relay Station Cagayan de Oro City* 15 Dumaguete 24 Relay Station Mt. Palimpinon, Valencia, Negros Oriental* 16 Zambales 23 Relay Station Mt. Bucao, Botolan, Zambales* 17 Isabela (not operating) 23 Relay Station Santiago City* 18 Bohol*** 40 Relay Station Jagna, Bohol 19 Cotabato 24 Relay Station Marbel, S. Cotabato 20 Rizal*** 40 Relay Station Antipolo, Rizal 21 Legaspi*** 23 Relay Station Legaspi City 22 Olongapo 24 Relay Station Olongapo City* 23 Iligan (closed) 26 Relay Station Iligan City* 24 Butuan*** 22 Relay Station Butuan City 25 Cotabato*** 23 Relay Station N. Cotabato 26 Pagadian*** 24 Relay Station Pagadian City 27 Palawan 23 Relay Station P. Princesa, Palawan 28 Surigao*** 23 Relay Station Surigao City 29 Roxas City 21 Relay**** Roxas City 30 Quezon 22 Relay Station Baler, Aurora 31 Camarines Norte 23 Relay**** Daet, Camarines Norte 32 Kalibo 23 Relay**** Aklan 33 Dipolog 42 Relay**** Dipolog City 34 Lucena City 24 Relay**** Lucena City, Lucena 35 Lipa City 38 Relay Station Lipa City, Batangas 36 Tarlac** (closed as of Oct. 28,

2005) 34 Relay Station Tarlac City

37 San Fernando, Pampanga** 46 Sales Center San Fernando, Pampanga 38 Cabanatuan** (closed as of

Oct. 28, 2005) 30 Relay Station Cabanatuan, Nueva Ecija

* co-located with VHF TV Stations ; **owned by ABS-CBN;*** with pending application with the NTC,****with commercial insertion capability

FM STATIONS

STATION FREQ. MHz

CALL SIGN

STATION TYPE

LOCATION

1 Manila 101.9 DWRR Originating Lopez Center, Antipolo City 2 Cebu 97.1 DYLS Originating Mt. Busay, Cebu City 3 Bacolod 101.5 DYOO Originating Mt. Kanlandog, Murcia, Negros Occ. 4 Davao 101.1 DXRR Originating Shrine Hill, Matina, Davao City 5 Baguio 103.1 DZRR Originating Mt. Sto. Tomas, Benguet 6 Legaspi 93.9 DWRD Originating Mt. Bariw, Legaspi 7 Naga 93.5 DWAC Originating Naga City 8 Laoag 95.5 DWEL Originating San Nicolas, Ilocos Norte 9 Dagupan 94.3 DWEC Originating Dagupan City 10 Iloilo 91.1 DYMC Originating Iloilo City 11 Tacloban 94.3 DYTC Originating Tacloban City 12 Cagayan De Oro 91.9 DXEC Originating Bulua, Cagayan de Oro City 13 Cotabato 95.1 DXPS Originating Cotabato City 14 Gen. Santos 92.7 DXBS Originating Lagao, Gen. Santos City 15 Zamboanga 98.7 DXFH Originating Zamboanga City

AM STATIONS

STATION

FREQ. KHz CALL SIGN

STATION TYPE

LOCATION

1 Manila 630 DZMM Originating Obando, Bulacan 2 Cebu 1512 DYAB Originating Pardo, Cebu City 3 Davao 1296 DXAB Originating Matina, Davao City

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Item 3. Legal Proceedings For the past five years, the Company is not a party in any legal proceedings which involves a claim for damages in an amount, exclusive of interest and cost, exceeding ten per cent (10%) of the current assets of the Company. Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. PART II - OPERATIONAL AND FINANCIAL INFORMATION Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters

The Company’s common shares have been listed on the Philippine Stock Exchange (PSE) since 1992. Its Philippine Deposit Receipts (PDRs) were listed in 1999. Common shares may be exchanged for Philippine Deposit Receipts, and vice-versa. The Company is the only broadcasting network listed on the PSE. The common shares (ABS) closed at Php10.75 while the Philippine Deposit Receipts (ABSP) closed at Php10.75 on February 10, 2006.

Dividends

The declaration and payment of dividends are subject to certain conditions under the Company’s existing Senior Credit Agreement (SCA) with creditor banks. Under the SCA, the Company may declare and pay dividends provided: (a) all payments (including pre-payments) due on said loan and premiums on insurance of assets are current and updated; (b) all financial covenants set forth therein are satisfied; (c) certain financial ratios are met and such payment will not result in the violation of the required financial ratios under the SCA; (d) no event of default as provided in the SCA shall exist or occur as a result of such payment; and (e) the total amount of the cash dividends does not exceed fifty percent (50%) of the Company’s net income after taxes for the fiscal year preceding the declaration.

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

ABS ABSP 2005 High Low High Low

First Quarter 18.75 15.25 18.75 14.75 Second Quarter 16.00 10.50 16.00 10.50 Third Quarter 14.75 10.25 14.75 10.25 Fourth Quarter 16.00 12.75 16.25 12.50

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2004 High Low High Low First Quarter 27.00 18.00 26.50 17.00 Second Quarter 25.50 19.00 26.00 18.75 Third Quarter 22.75 20.00 22.50 19.75 Fourth Quarter 24.00 18.00 24.25 17.75

The number of shareholders of record as of December 31, 2005 was 7,973. Common shares outstanding as of December 31, 2005 were 779,583,312.

Top 20 Stockholders as of December 31, 2005

As of December 31, 2005, the Top 20 stockholders of ABS-CBN own an aggregate of 752,536,723 or 96.53% 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 298,769,369 38.32% 3 Ching Tiong Keng Filipino Record 1,111,500 0.14% 4 ABS-CBN Foundation, Inc. Filipino Record 780,995 0.10% 5 Carlos Salinas, Sr. Filipino Record 736,200 0.09% 6 Eugenio L. Lopez III Filipino Record 578,190 0.07% 7 Letitia T. Dee Filipino Record 439,590 0.06% 8 Pua Yok Bing Filipino Record 407,100 0.05% 9 FG Holdings Filipino Record 386,270 0.05% 10 Meralco Foundation, Inc. Filipino Record 352,600 0.05% 11 Charlotte C. Cheng Filipino Record 340,000 0.04% 12 Cynthia D. Ching Filipino Record 337,500 0.04% 13 Phil. Communication Satellite Corp Filipino Record 325,500 0.04% 14 Century Securities Corp. Filipino Record 320,000 0.04% 15 Carmela Tiangco Filipino Record 301,395 0.04% 16 Cualoping Securities Corp. Filipino Record 281,200 0.04% 17 Federico M. Garcia Filipino Record 226,207 0.03% 18 James Ang Filipino Record 211,500 0.03% 19 La Suerte Cigar & Cigarette Factory Filipino Record 205,000 0.03% 20 Carlos C. Salinas Filipino Record 195,000 0.03% Sub-total Top 20 Stockholders 752,536,723 96.53% Others 27,046,589 3.47% TOTAL STOCKHOLDERS 779,583,312 100.00%

Employee Stock Option Plan

The Company had an employee stock option plan (ESOP) which covered 1,403,500 shares at 95% of offer price during the initial public offering. Collections were made in 48 semi-monthly installments without interest through payroll deductions. Shares offered under the Plan have been fully paid and issued since 1995.

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On March 29, 2000, the Board of Directors approved another ESOP covering 6,080,306 shares. In 2002, all the shares acquired by the Company covering this ESOP, were exercised by the employees. As of December 31, 2003 and 2002, there are no more outstanding ESOP. Item 6. Management’s Discussion and Analysis or Plan of Operation

The Management Discussion and Analysis of Financial Condition and the Results of Operation are attached hereto as Annex A.

Information on Independent Accountant and other Related Matters The principal accountants and external auditors of the Company is the accounting firm of Sycip, Gorres, Velayo & Company (SGV & Co.). The accounting firm of SGV & Co. has been the Company’s Independent Public Accountants for the last five (5) years. There was no event in the past five (5) years where SGV & Co. and the Company had any disagreement with regard to any matter relating to accounting principles or practices, financial statement disclosure or auditing scope or procedure.

SGV & Co. is being recommended for re-election at the scheduled Annual Stockholders’ Meeting.

Representatives of SGV & Co. for the current year and for the most recently completed fiscal year are expected to be present at the Annual Stockholders’ Meeting. They will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions. Pursuant to Memorandum Circular No. 8, Series of 2003 (Rotation of External Auditors), the company has not engaged with Maria Vivian C. Ruiz, partner of SGV & Co., for more than five years. Ms. Ruiz has been engaged by the Company since 2002 for the examination of the Company’s financial statements. The aggregate fees billed for each of the last two (2) fiscal years for professional services rendered by the external auditor are as follows:

2005 2004 Audit Fees 6,815,000 4,730,253 Tax Fees 0 1,295,140 All Other Fees* 3,000,000 290,333

*related to IFRS conversion The audit committee’s approval policies and procedures for the above services from Sycip, Gorres, Velayo & Co., the external auditors are discussed in Section 7 of the Company’s Manual of Corporate Governance filed with the Commission on September 2, 2002. Item 7. Financial Statements

The Statement of Management’s Responsibility for Financial Statements prepared in accordance with SRC Rule 68, as amended is attached hereto as Annex B.

The Audited Financial Statements as of 31 December 2005 prepared in accordance with SRC Rule 68, as amended and Rule 68.1 is attached hereto as Annex B. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There are no changes in and disagreements with accountants on accounting and financial disclosure during the two most recent fiscal years or subsequent interim period.

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PART III - CONTROL AND COMPENSATION INFORMATION Item 9. Directors and Executive Officers of the Issuer

Board of Directors Nominees for Election as Members of the Board of Directors The following are expected to be nominated as members of the Board of Directors for the ensuing year:

Eugenio L. Lopez III Augusto Almeda Lopez Maria Rosario Santos-Concio Oscar M. Lopez Presentacion L. Psinakis Manuel L. Lopez, Jr. Federico R. Lopez Peter D. Garrucho, Jr. Emily A. Abrera Cesar B. Bautista (Independent Director) Fr. Carmelo A. Caluag II, S.J. (Independent Director)

Except for Ms. Maria Rosario Santos-Concio, all of the above nominees are incumbent directors. The aforementioned nominees were formally nominated by a shareholder of the Company, Lopez Inc., through its Chairman, Mr. Oscar M. Lopez. The nominees will serve as directors of the Company for one year from date of election. The Company has adopted the SRC Rule 38 (Requirements on Nomination and Election of Independent Directors) and compliance therewith has been made. Below is a summary of the nominees’ qualifications: The following directors have held their current positions in their respective companies for more than 5 years unless otherwise indicated. Eugenio L. Lopez III, Filipino, age 54 Chairman & CEO, President & COO* (*as of 29 March 2006) Mr. Lopez was elected Chairman of the Company’s Board of Directors on December 10, 1997, when his father, the late Eugenio “Geny” Lopez, Jr., turned over the reins of the family-owned company to the younger Mr. Lopez, who had been President since 1993. He was also elected President and Chief Operating Officer of the Company on March 29, 2006. He joined ABS-CBN in 1986 as Finance Director before he became General Manager in 1988. He graduated with a Bachelor of Arts degree in Political Science from Bowdoin College. He has a Masters degree in Business Administration from Harvard Business School. He worked as General Manager of the MIS Group, Crocker National Bank in San Francisco, USA. Mr. Lopez is a recipient of various Philippine broadcasting industry awards. Mr. Lopez served as Director of the Company from 1986 to 1997 and as Chairman and CEO since 1997. Augusto Almeda-Lopez, Filipino, age 78 Vice-Chairman Mr. Augusto Almeda- Lopez joined the Company in 1962. He has served as Vice Chairman since April 26, 1989. He is an alumnus of De La Salle College and Ateneo de Manila, is a graduate of the University of the Philippines College of Law class 1952 and he finished an Advanced Management Program course at

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Harvard University in 1969. Mr. Almeda-Lopez is also the Vice-Chairman of First Philippine Holdings Corporation. He also serves as the Chairman of ACRIS Corporation and ADTEL, Inc. while he serves as a Director of various companies in the telecommunications, manufacturing, and service industries, namely First Philippine Industrial Corporation, First Gen Renewables, Inc., First Electro Dynamics Corporation, Philippine Electric Corporation, Bayan Telecommunications, Inc., and Sky Vision Corporation. Oscar M. Lopez, Filipino, age 76 Board Member Mr. Oscar M. Lopez has served as Director since 1966. He is concurrently the Chairman and CEO of Benpres Holdings Corporation, First Philippine Holdings Corporation, ABS-CBN Holdings, and the Chairman and President of Inaec Aviation Corporation. Furthermore, he is concurrently the Chairman of the following companies: Philippine Electric Corporation,, First Philippine Industrial Corporation, First Balfour, Inc., First Private Power Corporation, Bauang Private Power Corporation, FGP Corporation, First Gas Pipeline Corporation, First Gas Holdings Corporation, First Gas Power Corporation, First Gen Corporation, Securities Transfer Services, Inc., First Philippine Industrial Park, Inc., First Sumiden Circuits, Inc., First Sumiden Realty Inc., First Gen Renewable, Inc., First Electro Dynamics Corporation, First Philippine Union Fenosa Inc., First Philippine Lending Corporation, First Philippine Infrastructure Development Corp., Manila North Tollways Corporation, Tollways Management Corporation, Lopez, Inc., Bayan Telecommunications Inc., Bayan Telecommunications Holdings Corporation, Central CATV, Inc., Sky Vision Corporation, Griffin Sierra Tours, Inc., Seacrafts Management Services, Inc., and Knowledge Channel Foundation, Inc., He was a recipient of the Management Association of the Philippines Management Man of the Year Award for the year 2000 and was also one of the finalists for the Asia Business Leaders Award for the year 2004 given by CNBC and TNT International. On civics, Mr. Lopez is a member of the international board of Conservation International, and Chairman of both First Philippine Conservation, Inc. and the Ophthalmological Foundation of the Philippines. He is also a member of the Conference Board. He studied at Harvard College and graduated cum laude with a Bachelor of Arts Degree. He obtained his Masters degree in Public Administration at the Littauer School of Public Administration also at Harvard University. Presentacion L. Psinakis, Filipino, age 71 Board Member Ms. Psinakis has served as a Director of the Company since 1988. Ms. Psinakis is the founder and President of Griffin Sierra Travel, Inc. (formerly Sierra Tours, Inc.) since its inception in 1967. She is a member of the Board of Trustees of the Eugenio Lopez Foundation, Inc. and also serves as director of the following companies: Lopez Inc., Benpres Insurance Agency, ADTEL Inc., and Philippine Commercial Capital, Inc. She took a Bachelor of Arts course in St. Scholastica's College. Manuel L. Lopez, Jr., Filipino, age 39 Board Member Mr. Manuel Lopez, Jr. has served as a Director of the Company since 2000. He was Assistant Vice President for Affiliate Marketing for ABS-CBN International North America from 1993-1996. He then joined SkyCable and became a Director and later became Regional Director for Pilipino Cable Corporation from 1999 to 2001. He has been the Executive Vice-President of Benpres Insurance Agency, Inc. since 2003 up to the present. He graduated with a Bachelor of Science degree in Business Administration from the De La Salle University. Federico R. Lopez, Filipino, age 45 Board Member Mr. Federico R. Lopez has served as a Director of the Company since 1999. He is the President and COO of First Gen Corporation and all of the holding company's First Gas subsidiaries since 2002. He has also

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held the position of Vice President at First Philippine Holdings Corporation since 1994. He oversees the development, financing and implementation of its energy-related projects. Over the past ten years, Mr. Lopez has been involved in the financing and development of the Sta. Rita 1000 MW project as well as the 500 MW San Lorenzo Project. Mr. Lopez also sits as director of the Board of Manila North Tollways Corporation, Bauang Private Power Corporation, First Gen Renewables, Inc., First Philippine Industrial Corporation, ABS-CBN Bayan Foundation, Inc. and President of First Philippine Conservation, Inc. Mr. Lopez is also a trustee of the Asian Institute of Management and Hands On Manila Foundation. He graduated Cum Laude with a Bachelor of Arts degree in Economics and International Relations, from the University of Pennsylvania, USA. Peter D. Garrucho, Jr., Filipino, age 62 Board Member Mr. Garrucho has served as a Director of the Company since 1996. He is the Vice-Chairman and CEO of First Gen Corporation and Managing Director for Energy of First Philippine Holdings Corporation. He also serves as CEO of a number of First Gen’s power generation subsidiaries. On March 2000, he was given by Her Majesty, Queen Elizabeth, the award of an Honorary Officer of the Order of the British Empire (OBE). Mr. Garrucho has served in various Cabinet positions in the Philippine Government. He holds a Bachelor of Arts & a Bachelor of Science in Business Administration degree from De La Salle University and a Master of Business Administration degree from Stanford University. Emily A. Abrera, Filipino, age 59 Board Member Ms. Abrera replaced Mr. Manuel L. Lopez as director in 2005. Ms. Abrera was the Chairperson of McCann Erickson Philippines, Inc. from January 1999 to March 2004 when she retired. She was named McCann’s first Filipino President/Chief Executive Officer in January 1992, after many years as its Chief Creative Officer. Not only has she occupied key positions in the Advertising Board of the Philippines, Ms. Abrera received a “Lifetime Achievement Award” from the 4A’s Creative Guild in May 1999. She currently serves as Chairman of the Cultural Center of the Philippines and the Ramon Magsaysay Award Foundation. She is President of the Foundation for Communication Initiatives and a trustee of the Museo Pambata, Children’s Hour, Inc., Philippine Board on Books for Young People, and the Philippine Eagle Foundation. She is a founding member of the Women’s Business Council. Cesar B. Bautista, Filipino, age 68 Board Member, Independent Director Mr. Bautista was elected Director of the Company in January 2004. Mr. Bautista has returned from his post, as Ambassador to the Court of St. James’s from December 1998 to August 2003 and Special Envoy of the President to Europe starting February 2001. He was the Secretary of Trade and Industry during the presidency of Fidel V. Ramos (1996-1998) and was concurrently a member of the Monetary Board, and was Chairman of the APEC Economic Minister Meetings, National Development Co., Board of Investments and the Committee on National Museum Development. He was with Unilever for 33 years (1960-1993) where he became Chairman and CEO during the last 7 years. He is currently a director of Pilipinas Shell and Pacific Activated Carbon Corporation, an independent director of Bayan Telecommunications, Inc. and an advisory director of Unilever Phils. He is also the co-chair of the Presidential Task Force to Develop Service Industries representing the private sector. He is the Chairman of English Speaking Union and a member of the boards of the Institute of Corporate Directors, the Foundation for Global Concerns, and the IT Foundation. In 1998, he received the Most Outstanding Alumnus Award from the University of the Philippines and the Distinguished Alumnus Award from the Ohio State University. He was also named the Most Outstanding Professional In 1997. He was awarded the Presidential Order of Merit and the Order of Sikatuna, rank of Datu, for service to the country.

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Fr. Carmelo A. Caluag II, S.J., Filipino, age 47 Board Member, Independent Director Fr. Caluag has been an independent director since 2005. Fr. Caluag was Vice-President for University Development and Alumni Relations of the Ateneo de Manila University from 2000 to 2005. He also served as Trustee of the Ateneo de Manila University from 1998 to 2005, as well as trustee in Xavier School, Ateneo de Naga, Ateneo de Zamboanga, and various social and civic organizations. He also served as principal of the Ateneo de Manila High School, 1995-1998, headmaster of the Ateneo de Manila Grade School, 1998-1999, and the first director of the Basic Education Units of the Ateneo de Manila, 1998-2000. In 1986, he helped organize the Namfrel Marines and consequently founded Simbahang Lingkod ng Bayan, a church-based socio-political organization. He has also done consultancies for various schools, companies, and organizations and remains active in various socio-civic groups, especially in the field of education particularly teacher formation and youth leadership formation. Fr. Caluag obtained his undergraduate degree from the Ateneo de Manila University in 1980, having studied there also for his elementary and secondary education. He earned his masters in school administration from Fordham University, New York in 1994 and is an M.A. Candidate in Theology at the Loyola School of Theology. He is finishing a Doctoral Program in Leadership Studies at the Gonzaga University, Spokane, Washington. He was ordained a priest on April 17, 1993 and is in the process of applying for incardination in the Diocese of Imus. Maria Rosario Santos-Concio, Filipino, age 51 EVP & Channel Head of Channel 2* (*starting March 1, 2006)/ Board Member Nominee Also known as an actress and producer, Ms. Santos-Concio, as the Company’s Executive Vice President and Entertainment Group Head, is in charge of all Entertainment content in the television shows of the Company and its subsidiaries, as well as the films of Star Cinema/ABS-CBN Film Productions, Inc., ABS-CBN’s cinema production arm. Ms. Concio is also very visible in the Company as the host of the network’s longest-running drama anthology Maalaala Mo Kaya. Beginning March 2006, Ms. Concio will assume the newly-established position of EVP and Channel Head, Channel 2. Under this new position, Ms. Santos will be responsible for total channel programming, on-air operations, and overall revenue and profit delivery of Channel 2, which is the flagship of ABS-CBN. Ms. Santos-Concio began her career with the Company as a Television Production Consultant in 1987, which she joined after working as a line producer for BanCom, Audiovision, Vanguard Films, Regal Films and Vision Exponents. She also worked as a Film Production Manager for the Experimental Cinema of the Philippines. She has held her current position since December 1998. Ms. Santos-Concio was hailed as Best Actress in the 1978 Asian Film Festival for her work in Itim, and is the recipient of many cinema and broadcast industry-related awards over the years. Ms. Santos-Concio graduated Cum Laude from St. Paul’s College in Manila with a Communications Arts degree. Independent Directors of the Board The Company’s Independent Directors, Mr. Cesar B. Bautista, and Fr. Carmelo A. Caluag II, S.J. have at least one (1) share of the stock of the Company in their respective names, are both college graduates and possess integrity, probity and assiduousness. They are persons who, apart from their fees as directors of the Company, are independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with their exercise of independent judgment in carrying out their responsibilities as directors of the Company. Specifically, Mr. Bautista and Fr. Caluag: (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

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of its related companies or by any of its substantial shareholders within the last five (5) years; (v) are not retained as professional advisers by the Company, any of its related companies or any of its substantial shareholders within the last five (5) years, either personally or through their firms; (vi) have not engaged and do not engage in any transaction with the Company or with any of its related companies or with any of its substantial shareholders, whether by themselves or with other persons or through a firm of which they are partners or companies of which they are directors or substantial shareholders, other than transactions which are conducted at arms length and are immaterial; and (vii) do not own more than two percent of the shares of the Company and/or its related companies or any of its substantial shareholders. Mr. Bautista and Fr. Caluag 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 Angelita A. Ressa, Filipino, age 43 Head, News and Current Affairs Division Before joining ABS-CBN, Ms. Ressa worked for Cable News Network (CNN) for nearly two decades, first as Manila Bureau Chief in 1988, and as Jakarta Bureau Chief in 1995. She traveled extensively and reported from her base in Southeast Asia as well as India, Pakistan, China, South Korea, Japan, Australia and the United States. As CNN's lead investigative reporter in Asia, she specialized in investigating terrorist networks. Videotapes of her coverage of terrorism were found in what experts believe to be Osama bin Laden's private videotape collection in Afghanistan. She is the author of Seeds of Terror: An Eyewitness Account of Al-Qaeda's Newest Center of Operations in Southeast Asia, published by Simon & Schuster in 2003. Ms. Ressa graduated from Princeton University. She was awarded a Fulbright Fellowship to the Philippines in 1986, where she attended graduate school at the University of the Philippines. Among the awards she has received are the Overseas Press Club Award for Best Documentary, the National Headliner Award for Investigative Journalism, an Emmy nomination for Outstanding Investigative Journalism, the Asian Television Awards, the SAIS-Novartis International Journalism Award, and the TOYM. Ms. Ressa taught broadcasting principles at the University of the Philippines, and at Princeton University, she designed and taught a course on Politics and the Press in Southeast Asia. Ruben R. Jimenez, Filipino, age 54 Senior Vice-President Mr. Jimenez was appointed Senior Vice-President of the Engineering Division in October 2000. He joined the Company as the Managing Director of Video Post in 1987. As the group grew to include Audio-Post, Pre-Post, Cinevideo and Star Film Laboratories, he played a key role in forging the merger of these companies into RoadRunner Network Inc. and became its Chief Operating Officer from 1995 to the present. Mr. Jimenez graduated with a Bachelor of Arts degree in Sociology from the University of the Philippines. He has earned units in Master of Business Administration from the Ateneo de Manila University School of Business. Juan L. Manahan, Filipino, aged 59 Senior Vice President Mr. Manahan is currently the Senior Vice President for Talent Development and Management where for more than a decade he has spearheaded the highly successful artist search, development and management engine of the company. He has been the head of the Company’s Talent Development and Management since 1992, initially as a Director, but was promoted to Vice-President in 1996. He was appointed to his current position in 2003.

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He was tapped by then general manager, Mr. Federico M. Garcia, in 1986 to help re-launch the Company and has been instrumental in developing all types of shows for the network. Mr. Manahan graduated from the University of California at Berkeley in 1969 with an Art History Degree and had been a freelance television director working with all networks and producers for 15 years. His artistic eye and vision for the phenomenal has given rise to the biggest and brightest stars in the entertainment industry. He is also the network’s most respected director having been in the forefront of the Company’s top-rating shows and TV specials. Jose Ramon D. Olives, Filipino, age 43 Senior Vice-President Mr. Olives is the Senior Vice-President for Business Development and Special Projects since 2001. He has also held a concurrent position of Senior Vice President for Media Asset Management since 2002. Prior to his transfer to Business Development, he held the position of Senior Vice-President for the International Division, overseeing the operations of The Filipino Channel, the premier cable channel of the Company, in North America, Middle East, Japan and Australia. He is concurrently the Chief of Staff for the Office of the Chairman and the Office of the President. Mr. Olives joined the Company in 1987 as an assistant to the Administrative Director. He is also a board member of Sky Vision Corporation and sits on the executive committee of Beyond Cable, Inc. He has a Bachelor of Arts degree in Communication Research, magna cum laude, from the University of the Philippines. Ma. Socorro V. Vidanes, Filipino, age 44 Senior Vice-President Ms. Vidanes is the Senior Vice-President for Television and over-all in-charge of TV Production & Programming and has held this position since May 1, 2001. Prior to her current assignment, Ms. Vidanes held the position of Vice-President for Television from December 1996 to April 30, 2001. She has been with the Company since 1986, starting as an Associate Producer and has since then been involved in the production of all types of programs - talk shows, variety, reality, new genre, comedy and drama. Ms. Vidanes obtained her degree of Bachelor of Arts in Communication Arts from the Ateneo de Manila University. Rafael L. Lopez, Filipino age 49 Senior Vice President Mr. Lopez assumed the position of Senior Vice President and Chief Operations Officer of ABS-CBN Global Limited in July 2004. He concurrently serves as the Managing Director of ABS-CBN International in North America and has held this position since July 1998. He started as the Information Technology Head of ABS-CBN International in North America in 1994. Prior to this, he spent 12 years working as a systems analyst for Bell Atlantic. He graduated from the San Francisco State University with a Bachelor of Arts degree in Music. He also obtained a degree in computer programming from Control Data Institute and completed the Stanford Business Executive Program for Executives in August 2002. Ma. Lourdes N. Santos, Filipino, age 46 Senior Vice-President & Managing Director of ABS-CBN Film Productions, 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 Drama Division for the Company’s Entertainment Group in 2003. Ms. Santos graduated cum laude in B.S. Hotel and Restaurant Management at the University of Santo Tomas.

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Randolph T. Estrellado, Filipino, age 41 Vice-President and Chief Financial Officer Mr. Estrellado has been with the Lopez Group of Companies since 1996, starting as Assistant Vice-President for Treasury of International Communications Corporation, and later as Assistant Vice-President for Finance of its holding company, Benpres Holdings Corporation. He joined the Company as Assistant Vice-President for Finance in 1998 and was promoted to his current position in 2000. Mr. Estrellado obtained his Masters Degree in Business Administration from Harvard Business School in 1991. He obtained his degree of Bachelor of Science in Business Management, Honors Program, from Ateneo de Manila, graduating cum laude in 1986. Other members of the Company’s senior management team as of 31 January 2006 are as follows: Evelyn D. Raymundo Vice President Joaquin Enrico C. Santos Vice President Johnny C. Sy Vice President & Chief Information Officer Rolando P. Valdueza Vice President Mercedes L. Vargas Vice President Joanna G. Santos Vice President Carmencita A. Guerrero Vice President Olivia M. Lamasan Vice President Ma. Lourdes Lilia K. Espinosa Vice President Roldeo Theodore T. Endrinal Vice President Laurenti M. Dyogi Vice President Roberto G. Labayen Vice President Ma. Yolanda R. Alberto Vice President Raul Pedro G. Bulaong Vice President Luchi Cruz-Valdez Vice President Rosario Sofia S. Villa Vice President Peter S. Musngi Vice President Alden Alfonso M. Castañeda Vice President Vivian Y. Tin Vice President Mario Carlo P. Nepomuceno Vice President Philip Lamberto L. Berba Vice President Andrefanio D. Santos Vice President & Chief Legal Counsel Alfredo P. Bernardo Vice President

Leonardo P. Katigbak Vice President & Managing Director, Studio 23, Inc. & SkyFilms, Inc.

Ernesto L. Lopez President, ABS-CBN Publishing, Inc. Thelma Sioson San Juan General Manager, ABS-CBN Publishing, Inc. Luis Paolo M. Pineda Managing Director, ABS-CBN Interactive, Inc. Zenon D. Carlos Managing Director, ABS-CBN Telecoms Wilhelm O. Ick Managing Director, ABS-CBN Australia Edgardo B. Garcia Managing Director, ABS-CBN Middle East Rafael A. Jison Managing Director, ABS-CBN Europe Candido Q. Santico, Jr. Managing Director, E-Moneyplus, Inc. Olivia Finina G. de Jesus Managing Director, Creative Programs Inc. Arnedo C. Lucas Managing Director, Roadrunner Network, Inc. Eric John Hawthorne Assistant Managing Director, Roadrunner Network, Inc. Annabelle M. Regalado Managing Director, Star Recording, Inc. & Star Songs, Inc. Myrna D. Segismundo Managing Director, TV Food Chefs, Inc. Regina Paz L. Lopez Managing Director, ABS-CBN Foundation, Inc. Reno R. Rayel Executive Director, ABS-CBN Bayan Foundation, Inc.

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Family Relationships Mr. Oscar M. Lopez is the brother of Mr. Manuel M. Lopez and Mrs. Presentacion L. Psinakis. He is the uncle of Mr. Eugenio L. Lopez III and Mr. Manuel L. Lopez Jr., and the father of Federico R. Lopez. Significant Employees The company considers its entire work force as significant employees. Everyone is expected to work together as a team to achieve the company’s goals and objectives. Involvement of Directors and Officers in Certain Legal Proceedings For the past five years, the Company is not aware of any bankruptcy proceedings filed by or against any business of which a director, person nominated to become a director, executive officer, or control person of the Company is a party or of which any of their property is subject. For the past five years, the Company is not aware of any conviction by final judgment in a criminal proceeding, domestic or foreign, or being subject to a pending criminal proceeding, domestic or foreign, of any of its director, person nominated to become a director, executive officer, or control person. For the past five years, the Company is not aware of any order, judgment, or decree not subsequently reversed, superseded, or vacated, by any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending, or otherwise limiting the involvement of a director, person nominated to become a director, executive officer, or control person of the Company in any type of business, securities, commodities, or banking activities. For the past five years, the Company is not aware of any findings by a domestic or foreign court of competent jurisdiction (in a civil action), the Commission or comparable foreign body, or a domestic or foreign exchange or electronic marketplace or self regulatory organization, that any of its director, person nominated to become a director, executive officer, or control person has violated a securities or commodities law. Item 10. Executive Compensation Information as to the aggregate compensation paid or accrued during the last two fiscal years and to be paid in the ensuing fiscal year to the Company’s chief and five other most highly compensated executive officers follow:

SUMMARY COMPENSATION TABLE

Annual Compensation

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

Chief executive and 2006E 70,856,224 most highly compensated 2005 66,845,494 17,311,190 0 executive officers: 2004 60,169,460 15,042,365 0 Luis F. Alejandro* Ma. Rosario N. Santos-Concio

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Roldeo Theodore T. Endrinal Joaquin Enrico C. Santos Ma. Lourdes N. Santos All managers and up 2006E 555,667,350 0 0 as a group unnamed 2005 524,214,482 122,924,747 0

2004 662,613,077 161,534,641 0 *resigned as of March 15, 2006 The directors each receive per diems amounting to P5,000.00 for their attendance to board meetings. There are no other arrangements for compensation either by way of payments for committee participation or consulting contracts. There are currently no existing employment contracts with executive officers. There are no arrangements for compensation or payment to be received from the Company in the event of a resignation, retirement or termination of the executive officer’s employment or a change in control of the Company. There are no outstanding warrants or stock options held by the Company’s executives. Item 11. Security Ownership of Certain Beneficial Owners and Management Security Ownership of Certain Records and Beneficial Owners as of February 10, 2006:

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 cor Meralco Ave., Pasig City

Lopez, Inc. (Oscar M. Lopez,

Chairman, is authorized to vote on behalf of Lopez,

Inc.)

Filipino

446,231,607

57.2%

Common PCD Nominee Corporation G/F Makati Stock Exchange Bldg., Ayala Ave., Makati City (PCD Nominee Corporation 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

298,967,299

38.3%

Lopez, Inc. is the holding company of the Lopez family. It is owned by the respective holding companies of the families of Eugenio Lopez, Jr., Oscar M. Lopez, Presentacion L. Psinakis and Manuel M. Lopez. It has issued convertible notes covering the shares in the Company registered and beneficially owned by it in favor of Benpres Holdings Corporation. The Board of Directors of Lopez, Inc. has the power to decide how Lopez Inc.’s shares in ABS-CBN Broadcasting Corp. are to be voted. ABS-CBN Holdings Corp. is a participant of PCD. The 268,014,800 shares beneficially owned by ABS-CBN Holdings Corp. form part of the 298,967,299 shares registered in the name of PCD. ABS-CBN Holdings Corp. is owned 50% by Lopez, Inc. and 50% by Oscar M. Lopez, Manuel M. Lopez,

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Presentacion L. Psinakis, and Eugenio Lopez III. The shares in the Company registered and beneficially owned by it are covered by Philippine Deposit Receipts (PDR) which gives the holder thereof the right to delivery or sale of the underlying share. The PDRs are listed with the Philippine Stock Exchange. The Board of Directors of ABS-CBN Holdings Corporation has the power to decide how ABS-CBN Holdings Corporation’s shares in ABS-CBN Broadcasting Corp. are to be voted. Security Ownership of Management as of February 10, 2006: As of February 10, 2006, the Company’s directors and senior officers owned an aggregate of 1,286,527 shares of the Company, equivalent to 0.1650% 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 578,190 0.0742% Common Augusto Almeda-Lopez Vice-Chairman Direct Filipino 191,009 0.0245% Common Luis F. Alejandro President & COO** Direct Filipino 1 0.0000% 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 Manuel L. Lopez, Jr. Director Direct Filipino 1 0.0000% Common Peter D. Garrucho, Jr. Director Direct Filipino 150 0.0000% Common Emily A. Abrera Director Direct Filipino 1 0.0000% Common Cesar B. Bautista Independent Director Direct Filipino 4,320 0.0006% Common Carmelo A. Caluag II, S.J. Independent Director Direct Filipino 1 0.0000% Common Leonardo P. Katigbak VP & Managing

Director, Studio 23, Inc. Direct Filipino 58,204 0.0075%

Common Jose Ramon D. Olives Senior Vice President Direct Filipino 47,109 0.0060% Common Evelyn D. Raymundo Vice President Direct Filipino 41,076 0.0053% Common Joaquin Enrico C. Santos Vice President Direct Filipino 40,000 0.0051% Common Mario Carlo P.

Nepomuceno Vice President Direct Filipino 35,351 0.0045%

Common Olivia M. Lamasan Vice President Direct Filipino 25,060 0.0032% Common Regina Paz L. Lopez Managing Director, ABS-

CBN Foundation, Inc. Direct Filipino 22,095 0.0029%

Common Ma. Yolanda R. Alberto Vice President Direct Filipino 22,686 0.0029% Common Ernesto L. Lopez President, ABS-CBN

Publishing, Inc. Direct Filipino 21,653 0.0028%

Common Randolph T. Estrellado Vice President & CFO Direct Filipino 20,450 0.0026% Common Olivia Finina G. De Jesus Managing Director,

Creative Programs, Inc. Direct Filipino 20,000 0.0026%

Common Johnny C. Sy Vice President Direct Filipino 17,987 0.0023% Common Ruben R. Jimenez Senior Vice President Direct Filipino 17,500 0.0022% Common Thelma Sioson San-Juan Gen. Manager, ABS-CBN

Publishing, Inc. Direct Filipino 12,162 0.0016%

Common Rolando P. Valdueza Vice President Direct Filipino 11,800 0.0015% Common Ma. Socorro V. Vidanes Senior Vice President Direct Filipino 10,000 0.0013%

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Common Mercedes L. Vargas Vice President Direct Filipino 10,000 0.0013% Common Arnedo C. Lucas Managing Director,

Roadrunner Network, Inc

Direct Filipino 8,100 0.0010%

Common Eric John Hawthorne Assistant Managing Director, Roadrunner Network, Inc

Direct Filipino 5,172 0.0007%

Common Carmencita A. Guerrero Vice President Direct Filipino 4,000 0.0005% Common Raul Pedro G. Bulaong Vice President Direct Filipino 15 0.0000%

Security Ownership of all Directors and Officers 1,286,527 0.1650% * also President & COO as of March 29, 2006 ** resigned as of March 15, 2006

Changes in Control There have not been any arrangements that have resulted in a change in control of the Company during the period covered by this report. The Company is not aware of the existence of any voting trust arrangement among the shareholders. Item 12. Certain Relationships and Related Transactions Relationships and Related Transactions There had been no material transactions during the past two years, nor is any material transaction presently proposed, to which the Company was or is to be a party in which any director, executive officer of the Company, or security holder of more than 10% of the Company’s voting securities, any relative or spouse of any such director or executive officer or owner of more than 10% of the Company’s voting securities had or is to have direct or indirect material interest. Furthermore, there had been no material transactions during the past two years, nor is any material transaction presently proposed, between the Company and parties that fall outside the definition of “related parties” under SFAS/IAS No. 24, but with whom the registrants or its related parties have a relationship (e.g., former senior management of the Company or other parties who have some other former or current relationship with the Company) that enables the parties to negotiate terms of material transactions that may not be availed from other, more clearly independent parties on an arm's length basis. Parent Company Lopez, Inc. is the registered owner of 57.24% of the voting stock of the Company as of February 10, 2006. 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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PART IV – CORPORATE GOVERNANCE Item 13. Corporate Governance The evaluation system established by the company to measure or determine the level of compliance of the Board of Directors and top-level management can be found in Section 2 (Duties and Responsibilities of the Board), Section 3 (Nominations and Qualifications of the Board), and Section 13 (Monitoring and Assessment) of its Manual of Corporate Governance (the Manual) filed with the Commission on September 2, 2002. The company’s efforts to fully comply with the adopted leading practices on good corporate governance are as follows: (1) it has formed its Audit Committee and has elected its compliance officer, Mr. Alfredo P. Bernardo, whose duties and responsibilities ensure continuous improvement towards full compliance and; (2) it has also created policies regarding Penalties for Non-Compliance with the Manual. The scope of these efforts can be found in Section 1 (Compliance Officer), Section 5 (Audit Committee), and Section 14 (Penalties for Non-Compliance with the Manual) of the Company’s Manual. Based on the certification of compliance with the Company’s Manual filed with the Commission on February 23, 2005, there have been no deviations from the Company’s Manual in the past year. Furthermore, the Company’s Manual calls for the continuous assessment and evaluation of the Company’s corporate governance policies and procedures. Hence, the Company does not see a need for any further improvement in its corporate governance. PART V – EXHIBITS AND SCHEDULES Item 14. Exhibits and Reports on SEC Form 17-C For the past six months, the Company has filed the following SEC Form 17-C reports and financial statements:

Subject of 17-C Date Filed Item 9: Other Events – 2005 Audited Financial Statements March 31, 2006

& Management Discussion and Analysis of Financial Condition and Results of Operations for 2005

Item 9: Other Events – BOD approval of 2005 Audited Financial March 29, 2006

Statements and Election of Mr. Eugenio L. Lopez III as President and Chief Operating Officer

Item 4: Resignation, Removal, or Election of Registrant’s March 1, 2006

Directors or Officers

Item 4: Resignation, Removal, or Election of Registrant’s February 27, 2006 Directors or Officers

Item 9: Other Events – Notice of Annual Stockholders’ Meeting January 26, 2006 Item 9: Other Events – Resignation of Assistant Corporate December 15, 2005 Secretary and Election of New Assistant Corporate Secretary

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Financial Statements Date Filed

3Q2005 17-Q November 10, 2005

2Q2005 17-Q August 11, 2005

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ANNEX A MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR 2005 Revenues ABS-CBN Broadcasting Corp.’s (ABS-CBN) total revenues, consisting of gross airtime revenues, sale of services, license fees and sale of goods grew by 8% to P17,047 million in 2005, driven primarily by license fees from DirecTV and continued growth of ABS-CBN Global revenues.

Consolidated Amounts in million pesos 2005 2004 Variance Amount % Airtime revenues 10,334 11,086 (753) (7) Sale of services 4,248 3,930 318 8 License fees 1,619 0 1,619 na Sale of goods 846 755 91 12 Gross revenues 17,047 15,771 1,276 8

Consolidated gross airtime revenues dropped by 7% year on year (YoY) to P10,334 million from P11,086 million in 2004. In particular, parent airtime revenues which is composed of advertising revenues from TV-VHF (Channel 2), AM and FM radio, and the regional network, declined by 8% to P9,362 million as Channel 2 ratings in Mega Manila averaged a lower 14% in 2005 compared to 16% in 2004. The decline was partly offset by other platforms namely the UHF and cable channels which posted a 2% growth in airtime revenues.

Consolidated Amounts in million pesos 2005 2004 Variance Amount % Parent airtime revenues 9,362 10,134 (772) (8) Other platforms 971 952 19 2 Gross airtime revenues 10,334 11,086 (753) (7)

License fees amounting to P1,619 million were booked in 2005. These represent revenues from the initial phase of the migration of existing US DTH (direct to home) subscribers to DirecTV’s platform as well as take-up of new subscribers. In 21 July 2005, ABS-CBN and its subsidiary ABS-CBN International signed an affiliation agreement with DirecTV, one of the leading DTH system providers in the US. Under the deal, DirecTV will have the exclusive right to air The Filipino Channel (TFC) package on its DTH platform. In return, DirecTV will pay license fees to ABS-CBN based on the number of subscribers, new and existing, who will avail of the service during the migration period.

Sale of services, which refer to revenues derived from cable and satellite programming services, film production and distribution, interactive media, content development and programming services, post production, text messaging, etc., posted an 8% growth YoY to P4,248 million. ABS-CBN Global, which accounted for 74% of sale of services, posted a 12% growth to P3,131 million. Revenue growth was propelled by a 30% YoY increase in subscriber base, translating to 2.0 million viewers worldwide by end-2005.

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Amounts in million pesos 2005 2004 Variance Amount % ABS-CBN Global 3,131 2,785 346 12 Others 1,117 1,145 (28) (2) Total sale of services 4,248 3,930 318 8

Other subsidiaries’ sale of services declined by 2% due to ABS-CBN Films which registered a 15% drop in revenues. ABS-CBN Films released only five movies in 2005 namely Dreamboy, Can This Be Love?, Nasaan Ka Man, D’ Anothers, and Dubai as against seven films in 2004. This lower output also affected the corresponding video sales of Star Records. Sale of goods, which refer to revenues arising from the sale of consumer products such as magazines, audio, video, telecom products, etc., grew 12% to P846 million.

Amounts in million pesos 2005 2004 Variance Amount % ABS-CBN Global 501 414 87 21 Others 344 341 4 1 Total sale of goods 846 754 91 12

ABS-CBN Global’s sale of goods, which accounted for 59% of total, rose by 21% YoY to P501 million given higher merchandise sales of audio, video products, and phonecards to Filipinos abroad. Expenses Total expenses in 2005 rose by 12% to P16,563 million from P14,735 million a year ago on the back of higher cash operating expenses. These expenses, however, include non-recurring charges related to the migration of DTH subscribers in the US, as well as expenses related to the employee reduction program or SSP (special separation package). Without these non-recurring items, total expenses went up by only 3% YoY to P15,143 million.

Consolidated Amounts in million pesos 2005 2004 Variance Amount % Production cost 5,691 5,468 223 4 General and administrative 5,791 4,106 1,685 41 Cost of sales and services 2,374 2,384 (11) 0 Agency commission, incentives, & co-prod share 2,085 2,197 (112) (5) Other expenses 623 580 43 7 Total expenses 16,563 14,735 1,828 12

Operating expenses consisting of production cost, cost of sales and services, general and administrative expenses, and agency commission rose by 13% to P15,940 million on account of higher cash and non-cash operating expenses. Cash operating expenses went up by 13% while non-cash operating expenses primarily depreciation and amortization grew by 11%. If we strip out the non-recurring expenses mentioned earlier, total opex would have been up by only 3% to P14,520 million. Total production cost went up by 4% to P5,691 million. Excluding non-cash charges such as depreciation and film rights amortization, cash production cost rose by only 3% to P4,300 million. In 2005, ABS-CBN initiated major efforts to control production cost in light of declining revenues. For instance, the

36

Company reduced local production and replaced certain timeslots with foreign soap operas and cartoons. Some star-driven shows were also replaced with less expensive concept-driven programs starring new and lesser known talents.

Consolidated Amounts in million pesos 2005 2004 Variance Amount % Personnel expenses and talent fees 2,513 2,524 (11) 0 Facilities related expenses 840 716 124 17 Other program expenses 946 920 27 3 Sub-total -cash production cost 4,300 4,161 139 3 Non-cash production cost 1,391 1,308 83 6 Total production cost 5,691 5,468 223 4

Consolidated general and administrative expenses (GAEX) increased 41% YoY to P5,791 million, fueled primarily by the SSP that was implemented beginning July 2005. Excluding depreciation, amortization charges and provision for doubtful accounts, consolidated cash GAEX rose by 46% to P4,779 million.

Consolidated Amounts in million pesos 2005 2004 Variance Amount % Personnel expenses 2,449 1,680 769 46 Facilities related expenses 496 408 88 22 Contracted services 404 338 66 20 Taxes and licenses 151 169 (17) (10) Entertainment, amusement and recreation 119 128 (10) (8) Advertising and promotions 503 95 408 427 Other expenses 656 465 191 41 Sub-total -cash GAEX 4,779 3,284 1,495 46 Non-cash GAEX 1,012 822 190 23 Total GAEX 5,791 4,106 1,685 41

Parent cash GAEX went up by 61% YoY to P2,916 million, inclusive of non-recurring charges of P508 million representing marketing expenses to encourage migration to DirecTV as well as P576 million in SSP-related expenses. Around 400 employees or approximately 20% of ABS-CBN parent headcount availed of the SSP. Stripping-out these non-recurring charges, parent cash GAEX would have been flat compared to last year. Cash GAEX of the subsidiaries, on the other hand, increased by 28% driven primarily by ABS-CBN Global and the full year impact of its Australian operations. Cost of sales and services, which is the cost related to sale of services and sale of goods, was almost flat at P2,374 million. This compares to an 8% increase in sale of services and 12% increase in sale of goods.

Amount in million pesos 2005 2004 Variance Amount % ABS-CBN Global 1,453 1,480 (27) (2) Others 920 904 16 2 Total cost of sales and services 2,374 2,384 (11) 0

Non-cash operating expenses, composed primarily of depreciation and amortization, increased by 11% to P2,407 million mainly as a result of higher amortization costs. Film rights amortization was relatively

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lower, down by 7% to P827 million on the back of lower expiring titles. Total amortization costs, however, increased by 14% to P1,172 million due to accelerated amortization of deferred subsidies on the decoder boxes of existing DTH subscribers migrating to DirecTV’s platform. Excluding the one-time charge, total amortization charges declined by 11% YoY while total non-cash opex was flat. Depreciation expense, on the other hand, rose by 8% to P1,235 million due to the impact of new accounting standards specifically the componentization of fixed assets to major components. Operating Income As operating expenses rose higher compared to revenues, operating income decreased by 31% to P1,107 million from P1,616 million in 2004. Consequently, operating margin was lower at 6% as against 10% in 2004. Net Income Other expenses increased by 7% to P623 million, largely driven by higher equity in net losses of associates. Equity in net losses went up to P194 million from P47 million due to higher losses of Beyond Cable (BCI). BCI took an impairment loss on its redundant assets which stemmed from the merger of SkyCable and HomeCable. On the other hand, net finance costs, declined by 12% to P670 million as the Company’s average outstanding debt was lower during the year. Meanwhile, other income, which refers mostly to rental income increased by 7% YoY to P240 million. With expense growth of 12% outpacing revenue growth of 8%, income before income tax fell by 53% to P484 million from P1,036 million. After deducting taxes and minority interest, net income reached P288 million, 62% lower compared to last year. On the other hand, Earnings before interest, taxes, depreciation, and amortization (EBITDA) was down by 10% to P3,589 million with EBITDA margin lower at 21% from 25% the previous year. Balance Sheet Accounts ABS-CBN ended 2005 with consolidated assets of P24,796 million, up by 5% from end-2004 levels. Consolidated trade and other receivables increased by 29% to P4,668 million. In particular, net trade receivables increased by 24% to P3,773 million, translating to consolidated trade days sales outstanding (DSO) of 81-days as against 70-days in 2004. Driving the increase in DSO is the accrual of license fees related to the migration of DTH subscribers which are payable 60 days from installation in the new platform. Excluding the impact of license fees, consolidated trade DSO would have been 79-days. Other current assets increased by 39% to P826 million due primarily to production expenses of yet to be aired episodes of the Company’s programs. In 2005, the Company began the canning or advanced taping of some shows particularly soap operas such as Gulong ng Palad, Sa Piling Mo, and Panday 2 in order to cut location rentals as well as to maximize efficiencies from production planning. Meanwhile, current portion of interest-bearing loans and borrowings increased by 32% or P426 million as a result of reclassification from long-term to short-term in line with their maturity schedule. Consequently, non-current interest-bearing loans and borrowings dropped by roughly the same amount. Given an improvement in cash position, net debt to equity ratio declined to 34% from 41% in 2004. Consolidated capital expenditure and program rights acquisition amounted to P1,229 million, almost flat compared to 2004.

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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 36% to Php1,752 million from end-2004 due to minimal

investments and lower capital expenditure. • Trade and other receivables increased by 29% to P4,668 million. In particular, net trade receivables

increased by 24% to P3,773 million due to accrual of license fees related to the migration of DTH subscribers which are payable 60 days from installation in the new platform.

• Other current assets increased by 39% YoY to P826 million due primarily to production expenses of yet

to be aired episodes of the Company’s programs. In 2005, the Company began the canning or advanced taping of some shows in order to cut location rentals and maximize efficiencies from production planning.

• Investments in associates decreased by 81% to P44 million from end-2004 given higher equity in net

losses of associates. • Long-term receivables from related parties increased by 7% due to interest income from the receivables

from Beyond Cable. • Deferred tax assets went up to P294 million from P41 million due to increase in temporary tax

differences. • Other non-current assets reached P2,073 million, down 21% YoY due to the write-off of deferred

charges pertaining to the DTH subscribers which have migrated to DirecTV as of December 31, 2005. • Trade and other payables went up by 34% to P4,687 million from end-2004 due to an increase in

payables to suppliers. • Income tax payable increased to P28 million from end-2004 due to higher tax rate.

• Current portion of interest-bearing loans and borrowings increased by 32% or P426 million as a result

of reclassification from long-term to short-term. On the other hand, non-current interest-bearing loans and borrowings declined by 15% due to reclassification from long-term to short-term as well as some payments made on the long-term debt.

• The 42% increase in obligations for program rights-non current is due to extended credit terms given

by program suppliers.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR 2004 REVENUES ABS-CBN Broadcasting Corp.’s (ABS-CBN) total revenues, consisting of gross airtime, other broadcast related revenues and net sales and services, increased 7% to P15,560 million in 2004, driven primarily by robust revenue growth in net sales and services. Airtime Revenues and Other Broadcasting Revenues Consolidated gross airtime and other broadcasting related revenues reached P11,310 million in 2004, up slightly by 2% from the previous year.

Consolidated Gross Revenues Variance Amounts in million pesos 2004 2003 Php % Airtime revenues 11,086 10,858 228 2% Other broadcasting related 224 206 18 8% Total 11,310 11,064 246 2%

Parent airtime revenues, which consists of advertising revenues from TV-VHF (Channel 2), AM and FM radio, and the regional network, increased by 2% to Php10,134 million in 2004. Airtime revenues from Channel 2, which make up 93% of parent airtime revenues, grew by a similarly subdued 2% as commercial loading remained at 50% with the drop in Mega Manila ratings to 38% from 41% last year. Airtime revenues from subsidiaries recorded a 6% year-on-year (YoY) growth to Php952 million with all platforms registering growth in 2004. Studio 23’s airtime revenues increased by 4% to Php612 million during the year as its commercial loading improved to 10% from 9% in 2003. Other platforms consisting of airtime revenues of ABS-CBN Global, ABS-CBN News Channel and cable channels of Creative Programs Inc. likewise recorded revenue growth of 10% driven primarily by volume growth.

Consolidated Airtime Revenues Variance Amounts in million pesos 2004 2003 Php % Parent* 10,134 9,960 174 2% Studio 23 612 588 24 4% Other Platforms 340 310 30 10% Total Airtime 11,086 10,858 228 2%

*Net of eliminated airtime revenues from intercompany transactions Other broadcasting related revenues, consisting mainly of SMS or text-based revenue, amounted to Php224 million, 8% higher than last year. The growth in SMS revenues arose from the popularity of ring tone downloads connected with cable music channel Myx as well as from program promos such voting for a favorite contestant in Star Circle Quest or a desired ending in the soap opera Sana’y Wala Nang Wakas. Deductions as a ratio to airtime revenues and other broadcast related revenues remained at 18% in 2004, the same level as in 2003. Thus, consolidated net airtime and other broadcasting related revenues increased by a similar 2% to Php9,265 million.

40

Net Sales and Services In contrast, net sales and services, which include subscription fees, sale of inventories, and non-broadcast related revenues, grew double digit by 21% to Php4,310 million in 2004.

Net Sales and Services Variance Amounts in million pesos 2004 2003 Php % ABS-CBN Global 3,048 2,371 677 29% ABS-CBN Film Productions, Inc. 390 295 95 32% Creative Programs, Inc. 239 241 (2) -1% Other Subsidiaries 633 650 (17) -3% Total Net Sales and Services 4,310 3,557 753 21%

ABS-CBN Global continued to be the biggest contributor to net sales and services with its net revenues accounting for 71% of total net sales and services. ABS-CBN Global’s net sales and services increased by a vigorous 29% to Php3,048 million from the year ago. Bulk of ABS-CBN Global’s revenues came from subscription revenues of its cable and direct-to-home service with an estimated viewership base of 1.6 million worldwide by end 2004, up 22% from a year ago. To reach even more viewers, ABS-CBN Global launched its own DTH service in Australia last June 2004 where ABS-CBN’s channels were previously distributed by a third party DTH provider. ABS-CBN Films, contributing 9% to total net sales and services, registered a 33% growth YoY to Php390 million as, under the trade name Star Cinema, it produced several blockbuster movies in 2004. Top gross earning movies in 2004 include romance-drama films Milan and All My Life, and suspense-horror film Feng Shui. Aside from box office receipts, ABS-CBN Films also generated revenues from its share of video sales of its movies. The healthy growth of net sales and services lifted consolidated net revenues by 7% to Php13,575 million from Php12,641 million in 2003. EXPENSES Meanwhile, consolidated cost and operating expenses reached Php12,049 million, increasing by 16% from last year due primarily to cash operating expenses. Cash operating expenses, consisting of production cost, general and administrative expenses and cost of sales and services, increased by 19% to Php9,766 million driven largely by the growth in production cost and cost of sales and services.

Cash Operating Expenses Variance Amounts in million pesos 2004 2003 Php % Production cost 4,161 3,501 660 19% General and administrative 3,397 2,923 474 16% Cost of sales 2,209 1,817 392 22% Total Cash Operating Expenses 9,767 8,241 1,526 19%

Production cost, still the biggest cost item accounting for 35% of total operating expenses, reached Php4,161 million, increasing by 19% from the prior year. The rise in production cost was primarily because of the growth in personnel expenses and talent fees due to an increase in station produced shows in place of canned programs. Specifically, local programs replaced the Spanish telenovelas and animation programs being aired in the afternoon timeslot. Growth of production cost was also a result of the higher

41

cost involved in producing fantasy type soap operas such as Marina and Krystala due to the special effects required for this genre.

Production Cost Variance Amounts in million pesos 2004 2003 Php % Personnel expenses and talent fees 2,525 2,094 431 21% Facilities related expenses 716 652 64 10% Other program expenses 920 755 165 22% Total Production Cost 4,161 3,501 660 19%

Similarly, general and administrative expenses (gaex) grew double digit driven by higher personnel expenses and ABS-CBN Global’s entry into new territories. The increase in personnel cost was due to higher headcount, salary increases, separation costs, and pay out of incentives for prior year’s performance. In addition, ABS-CBN Global’s start-up operations in Europe and Australia contributed to the growth of taxes and licenses and advertising and promotions.

General and admin expenses Variance Amounts in million pesos 2004 2003 Php % Personnel expenses 1,644 1,375 269 20% Facilities related expenses 408 369 39 10% Contracted services 338 335 3 1% Taxes and licenses 169 136 33 24% Entertainment, amusement and recreation 128 111 17 15% Provision for doubtful accounts 164 179 (15) -8% Advertising and promotions 95 17 78 459% Other expenses 450 400 50 12% Total GAEX 3,397 2,923 474 16%

Cost of sales and services, the cost related to the net sales and services of subsidiaries, reached Php2,209 million in 2004, growing at the same pace as net sales and services. Cost of sales as a percentage to net sales was maintained at 51% as the improvement in ABS-CBN Global’s cost margin offset the increase in cost margins of the other subsidiaries.

Cost of Sales and Services Variance Amounts in million pesos 2004 2003 Php % ABS-CBN Global 1,474 1,234 240 19% ABS-CBN Films Prod'n 191 126 65 52% Creative Programs, Inc. 61 71 (10) -14% Other Subsidiaries 483 386 97 25% Total Cost of Sales and Services 2,209 1,817 392 22%

Non-cash operating expenses, consisting of depreciation and amortization, increased 6% YoY to Php2,283 million. The increase in non-cash operating expenses was due to an increase in amortization as depreciation expense decreased by 9% to Php1,146 million. Amortization grew by 28% to Php1,137 million as ABS-CBN adopted a more aggressive amortization policy particularly given the reduced number of movie nights in the program grid. Beginning 2004, the company opted to amortize the entire cost of film or program package once the primary film or program is aired. Typically, films or programs are sold as a package where strong titles are bundled with weaker titles.

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INCOME FROM OPERATIONS Consequently, income from operations stood at Php1,526 million in 2004, down by 32% from 2003 as operating expenses growth overtook total revenue growth. As a result of lower operating income in 2004, operating income margin was down to 11% from 18% in the previous year. OTHER EXPENSES Other expenses, net of other income, fell to Php483 million from Php584 million last year due to lower losses from equity in investee companies and higher miscellaneous income. Losses from equity in net earnings of investees were lower at Php47 million from Php115 million due to an improvement in Sky Vision Corporation’s (Sky Vision) net income of which the company currently owns 10%. Miscellaneous income, meanwhile, was up 60% to Php214 million primarily from higher space rental income which accounted for 36% of total miscellaneous income. These improvements in losses from equity in investees and in miscellaneous income offset the increase in net interest expense which grew 8% YoY to Php650 million due to higher debt level. NET INCOME and EBITDA Net income, therefore, amounted to Php758 million, 25% lower than the Php1,008 million in 2003. Resulting net income margin stood at 6% from 8% the previous year. EBITDA, or earnings before interest, taxes, depreciation and amortization, correspondingly declined by 10% to Php3,976 million in 2004 with EBITDA margin at 29% from 35% the prior year. BALANCE SHEET ACCOUNTS ABS-CBN ended the year with consolidated assets of Php23,652 million, 6% higher compared to the previous year. The increase can largely be attributed to an additional investment of US$30 million in Sky Vision in the form of a convertible note (classified as noncurrent receivable from Sky Vision in the balance sheet). This convertible note carries a 13% per cent interest per annum and will mature on June 30, 2006. Consolidated net trade receivables increased by 3% to Php3,414 million, translating to an average DSO of 91 days, an improvement from the 93 days DSO level in 2003. Parent net trade receivables, on the other hand, decreased by 9% to Php1,865 million, which translated to an average DSO of 86 days, also an improvement from the reported DSO level of 90 days in 2003. Long-term debt amounted to Php5,969 million while short term debt stood at Php467 million. In June 2004, the company signed a US$120 million senior credit agreement with several local and foreign banks, proceeds of which were used to pay down all existing loans of the company and used for additional investment in Beyond Cable. The foreign exchange exposure of the principal amount is fully hedged hence the company will not be exposed to foreign exchange risk other than on the interest. Factoring in ABS-CBN’s cash position of Php1,292 million, net debt to equity stood at 39%. In 2004, capital expenditure and program rights acquisition in 2004 amounted to Php1,240 million, slightly higher than last year’s Php1,201 million.

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MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR 2003 In 2003, ABS-CBN Broadcasting Corporation (ABS-CBN), reaped the benefits of an improved economic environment, coupled with a stronger and leaner organization focused on its core operations. As a result, ABS-CBN delivered double-digit revenue, earnings, and cash flow growth, despite a more competitive business environment. Furthermore, ABS-CBN’s efforts to focus on complementary businesses also bore fruit as this improved performance can be seen not only in the principal business of broadcasting, but in the remaining allied businesses of cable and satellite programming, motion picture production, and other content generation and distribution businesses. Airtime Revenues and Other Broadcasting Related Revenues Consolidated gross airtime and other broadcasting related revenues increased by 12% to Php11,064 million in 2003 from Php9,914 million in 2002 with growth primarily coming from airtime revenues.

Parent Company Consolidated Gross Revenues Variance Variance Amounts in Php mln 2003 2002 Php % 2003 2002 Php % Airtime revenues 10,021* 8,752 1,269 14% 10,858 9,519 1,339 14% Other broadcasting related 72 251 (180) - 72% 206 395 (188) - 48% Total 10,092 9,003 1,089 12% 11,064 9,914 1,150 12%

*Before elimination from intercompany transactions Consolidated airtime revenues increased by 14%, or Php1,339 million, to Php10,858 million on the back of the strong growth in advertising minutes, as the recovery in advertising spending in the second half of 2002 was sustained in 2003 amidst an improved economic outlook and stable consumer spending. Parent airtime revenues, which consists of advertising revenues from TV-VHF (Channel 2), AM and FM radio, and the regional network, increased by 14% to Php9,960 million from Php8,752 million in 2002. Airtime revenues from Channel 2 alone, which accounts for 93% of parent airtime revenues, grew by 15% as its commercial loading improved to 50% from 42% the previous year. Airtime revenues from subsidiaries increased by 17% to Php898 million with all platforms registering growth in 2003. Studio 23’s airtime revenues, which accounts for 5% of consolidated airtime revenues, increased by 15% to Php588 million in 2003 as its commercial loading also improved to 9% from 6%.

Consolidated Airtime Revenues Variance Amounts in Php mln 2003 2002 Php % Parent* 9,960 8,752 1,208 14% Studio 23 588 511 77 15% Other Platforms 310 256 53 21% Total Airtime 10,858 9,519 1,339 14%

*Net of eliminated airtime revenues from intercompany transactions Other broadcasting related revenues, on the other hand, decreased by 48% to Php206 million in 2003 from Php395 million in 2002, due to a drop in SMS related revenues. In the first quarter of 2003, the Philippine Amusement and Gaming Corp. (PAGCOR) raised concerns that television audience interaction via SMS

44

represented a form of gambling. As a result of this, the Company temporarily limited further development and promotion of new SMS or text based products and services. However, by the second half of 2003, SMS revenues had picked up as new mobile services such as downloadable logos, picture messages, wallpapers and ring tones were launched in order to harvest the ancillary business from the various programs of the Company. Deductions from airtime revenues increased by 8% to Php1,981 million from Php1,830 million in 2002. Deductions as a ratio to gross airtime revenues stood at 18% in 2003, lower than 2002 due to a slower increase in marketing expenses compared to gross airtime revenues. As a result, consolidated net airtime and other broadcasting related revenues increased by 12% to Php9,084 million from Php8,084 million in 2002. Net Sales and Services Net sales and services, which include subscription fees, sale of inventories, and non-broadcast related revenues, increased by 26% to Php3,557 million in 2003 from Php2,825 million in 2002. ABS-CBN Global’s net sales and services, which accounted for 67% of total net sales and services, increased by 24% to Php2,371 million in 2003 from Php1,918 million in 2002. Bulk of ABS-CBN Global’s revenues came from subscription revenues of its cable and direct-to-home service with an estimated viewership base of 1.3 million by end 2003, up 24% from a year ago. Of its total viewers, around 53% are located in North America. Furthermore, ABS-CBN Europe launched its services in December 2003. Aside from a healthy growth in subscribers, revenues also benefited from a 15% increase in DTH fees to US$23 as a fourth TV channel was included in the channel line up of DTH subscribers. The growth in subscribers and the increase in DTH fees were partially offset, however, by lower installation revenues as the Company reduced its prices to increase subscriber penetration rates so as to saturate the market prior to the entry of competition. ABS-CBN Film Productions, a 100% owned subsidiary, was established in the second quarter of 2003 to handle the Company’s movie production and distribution business. This contributed Php337 million or 9% to total net sales and services. Under the trade name Star Cinema, it released several blockbuster films in 2003 including Tanging Ina (No Ordinary Mom), which achieved an unprecedented first in Philippine box office history with gross ticket sales of over Php178 million. Creative Programs, Inc. (CPI) developer and producer of cable television channels, reported a 7% increase in net sales and services to Php241 million from Php225 million in the previous year. CPI benefited from the subscriber growth of ABS-CBN Global as Cinema One, the movie channel of CPI, is included in the channel line up of ABS-CBN Global. Wider circulation of ABS-CBN Publishing’s magazines as well as increased sales from Star Records also contributed to the growth in total net sales and services.

Net Sales and Services Variance Amounts in Php mln 2003 2002 Php % ABS-CBN Global 2,371 1,918 453 24% ABS-CBN Film Productions 337 0 337 100% Creative Programs, Inc. 241 225 17 7% ABS-CBN Publishing 178 174 4 2% Star Records 176 165 12 7%

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Other Subsidiaries 329 344 (15) -4% Total Net Sales and Services 3,632 2,825 807 29%

With strong growth of airtime revenues and net sales and services, consolidated net revenues increased by 16% to Php12,641 million from Php10,909 million in 2002. Cost and Operating Expenses Compared to net revenues, consolidated cost and operating expenses increased by a lower rate of 12% to Php10,386 million from Php9,273 million in 2002. Cash operating expenses, consisting of production cost, cost of sales and services, and general and administrative expenses, increased by 17% to Php8,364 million driven primarily by the growth in cost of sales and services of subsidiaries.

Cash Operating Expenses Variance Amounts in Php mln 2003 2002 Php % Production cost 3,501 3,083 418 14% Cost of sales and services 1,817 1,481 336 23% General and administrative 2,923 2,524 399 16% Total Cash Operating Expenses 8,241 7,088 1,153 16%

Production cost, the biggest cost item accounting for 34% of total operating expenses, increased by 14% to Php3,501 million from Php3,083 million in 2002. The increase in production cost was mainly due to a 17% increase in personnel expenses and talent fees as the Company further aired more station produced programs in response to increased competition in free to air TV. For example, movie nights were reduced from thrice a week to twice a week in 2003 as the weekend programming was reformatted to air more station produced programs in lieu of Filipino movies. In addition, more special programs and events were produced and aired in 2003 as ABS-CBN celebrated its 50th year in television. Cost of sales and services increased by 23% to Php1,817 million from Php1,481 million in 2002. Nonetheless, the growth in cost of sales and services was lower than the increase in net sales and services, reflecting the improved cost efficiencies of the Company’s major subsidiaries. ABS-CBN Global’s cost of sales, which accounted for 68% of total cost of sales, grew by 30% to Php1,234 million, slightly higher than the growth of its net sales and services. As mentioned earlier, as part of ABS-CBN Global’s strategy to increase subscriber penetration rates, it reduced margins on the installation and sale of set-top boxes to its customers.

Cost of Sales and Services Variance Amounts in Php mln 2003 2002 Php % ABS-CBN Global 1,234 948 286 30% ABS-CBN Film Productions 126 0 126 100% Creative Programs, Inc. 71 103 (32) -31% ABS-CBN Publishing 115 90 25 28% Star Records 82 79 2 3% Other Subsidiaries 188 260 (72) -28% Total Cost of Sales and Services 1,817 1,481 335 23%

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General and administrative expenses (GAEX) increased by 16% to Php2,923 million from Php2,524 million in 2002. The increase in GAEX was partly due to start up expenses for ABS-CBN Europe (TFC3). Personnel expenses, which accounts for 47% of total GAEX, increased by 24% to Php1,375 million from Php1,108 million as the Company paid out performance based incentives to its employees in line with improved operating results. Non-cash operating expenses, depreciation and amortization of program rights, decreased by 2% to Php2,146 million in 2003 from Php2,185 million in 2002. The decline in non-cash operating expenses was due to the 11% decrease in depreciation expense to Php1,260 million from Php1,420 million as a result of minimal capital expenditure in 2003. Amortization of program rights increased by 16% to Php885 million in 2003 from Php765 million in 2002. Parent company program rights amortization, which accounted for 58% of total amortization, increased by 21% to Php510 million as the Company aired newer and relatively more expensive cartoons and foreign programming, particularly Chinese and Korean dramas dubbed into Filipino such as the highly successful Taiwanese soap opera Meteor Garden. Income from Operations Income from operations increased by 38% to Php2,254 million in 2003 from Php1,636 million in 2002. With net revenues growing faster at 16% compared to operating expenses growing at 12%, operating margins improved to 18% in 2003 from 15% a year ago. Other Income (Expenses) Other expenses, net of other income, decreased by 25% to Php584 million from Php780 million due to lower interest expense and lower losses from equity in investee companies. Interest charges, net of interest income, decreased by 8% to Php655 million from Php710 million the previous year due to lower interest rates in 2003 compared to 2002. The decline in losses from equity in investee companies was due to an improvement in Sky Vision’s financial results of which the Company owns 10.2%. Net Income and EBITDA Net income before discontinuing operations amounted to Php1,010 million, which was 135% higher than the Php438 million in 2002. In 2003, losses from discontinued operations amounting to Php2 million was due to the sale of assets from the winding down of the various subsidiaries that were discontinued in the previous year. Net income after discontinuing operations surged by more than 500% to Php1,008 million from Php156 million in 2002. Assets ABS-CBN ended 2003 with total consolidated assets of Php22,203 million, an increase of 2% or Php465 million from 2002. Cash and cash equivalents amounted to Php1,580 million due to the improvement in operations and management of working capital. Total receivables–net increased by 11% to Php3,788 million which translated to an average days sales outstanding (DSO) of 90 days, an improvement from the 99 days DSO level in 2002. Similarly,

47

consolidated trade receivables increased by 6% to Php3,555 million resulting in a reduction of average trade DSO to 86 days from 94 days in 2002. Parent trade receivables, which grew by 4% to Php2,155 million, had an average DSO of 76 days, improving by 13 days from the reported DSO level of 89-days in the prior year. To account for the maturities within the next 12 months, current portion of long-term debt increased to Php2,116 million from Php484 million. Consequently, the movement from long-term debt to current portion resulted to a reduction in long-term debt to Php3,454 million from Php5,393 million. Net interest bearing debt in 2003 was down to Php4,210 million translating to a net debt-to-equity of 32% from 46% in 2002. Free Cash Flow Free cash flow, defined as cash from operating activities less cash used in investing activities, increased by 39% or Php583 million to Php2,065 million. The increase in free cash flow was driven by the Company’s continuing efforts to drive revenue growth, to optimize operating efficiencies, and to closely manage capital spending. Capital expenditure and program rights acquisition in 2003 amounted to Php1,558 million, Php105 million lower than 2002 spending of Php1,663 million. For 2004, the Company’s capital expenditure is estimated to be at the same level as in 2003.

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES Consolidated Financial Statements December 31, 2005 and 2004 and Report of Independent Auditors

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)

Randolph T. Estrellado 415-2272 (Contact Person) (Company Telephone Number)

1 2 3 1 A A C F S 0 4 2 7Month 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

7,973 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

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) December 31

2005

2004(As restated -

Note 2)ASSETS Current Assets Cash and cash equivalents (Notes 5 and 26) P=1,751,730 P=1,291,557 Trade and other receivables (Notes 3, 6, 8, 14, 24 and 26) 4,667,630 3,631,219 Derivative assets (Notes 2 and 26) 193,305 – Program rights - current (Notes 3, 10, 18 and 19) 799,040 782,960 Other current assets - net (Note 7) 826,395 593,854 Total Current Assets 8,238,100 6,299,590 Noncurrent Assets Investments in associates (Note 8) 44,233 237,884 Long-term receivables from related parties (Notes 3, 8 and 26) 2,341,683 2,190,913 Property and equipment at cost - net (Notes 3, 9, 15 and 24) 10,287,599 10,650,285 Noncurrent program rights and other intangible assets

(Notes 3, 10, 18 and 19) 1,516,558 1,547,486 Deferred tax assets (Notes 3 and 22) 294,147 41,491 Other noncurrent assets - net (Notes 3, 11 and 12) 2,073,246 2,619,326 Total Noncurrent Assets 16,557,466 17,287,385 P=24,795,566 P=23,586,975

LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Trade and other payables (Notes 3, 13, 14, 23 and 26) P=4,686,721 P=3,500,486 Income tax payable 28,150 13,633 Derivative liabilities (Notes 2 and 26) 103,912 – Obligations for program rights - current 360,624 374,101 Interest-bearing loans and borrowings - current

(Notes 9, 15, 24 and 26) 1,766,144 1,339,932 Total Current Liabilities 6,945,551 5,228,152 Noncurrent Liabilities Interest-bearing loans and borrowings - net of current portion

(Notes 9, 15, 24 and 26) 4,509,640 5,295,104 Obligations for program rights - net of current portion 61,778 43,498 Deferred tax liabilities - net (Note 22) – 17,632 Asset retirement obligation (Note 2) 1,698 – Total Noncurrent Liabilities 4,573,116 5,356,234

(Forward)

- 2 - December 31

2005

2004(As restated -

Note 2)Stockholders’ Equity Capital stock (Note 16) P=779,583 P=779,583 Capital paid in excess of par value 706,047 706,047 Cumulative translation adjustments 153,194 138,334 Retained earnings (Notes 2 and 16) 11,777,060 11,536,377 Philippine depositary receipts convertible

to common shares (Note 16) (200,000) (200,000) Total Stockholders’ Equity attributable

to Equity holders of Parent Company 13,215,884 12,960,341 Minority Interest 61,015 42,248 Total Stockholders’ Equity 13,276,899 13,002,589 P=24,795,566 P=23,586,975 See accompanying Notes to Consolidated Financial Statements.

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

2005

2004(As restated -

Note 2)

REVENUES Airtime revenues (Note 14) P=10,333,677 P=11,086,442 Sale of services (Notes 14 and 24) 4,248,144 3,930,321 License fees (Note 24) 1,619,367 – Sale of goods (Note 14) 845,888 754,569 17,047,076 15,771,332

EXPENSES (INCOME) General and administrative (Notes 14, 20, 23 and 24) 5,790,693 4,105,724 Production costs (Notes 14, 18, 23 and 24) 5,690,784 5,468,148 Cost of sales and services (Notes 14, 19, 23 and 24) 2,373,606 2,384,522 Agency commission, incentives

and co-producers’ share (Note 17) 2,084,747 2,196,662 Finance costs (Note 21) 1,001,990 910,730 Finance revenue (Note 21) (332,263) (152,897)Equity in net losses of associates (Note 8) 193,651 47,325 Foreign exchange loss - net 47,161 2,347 Other income (Notes 14, 21 and 24) (287,142) (227,143) 16,563,227 14,735,418

INCOME BEFORE INCOME TAX 483,849 1,035,914

PROVISION FOR INCOME TAX (Note 22) 189,364 274,740

NET INCOME 294,485 761,174

Attributable to: Equity holders of Parent Company (Note 27) P=287,744 P=750,755 Minority interest 6,741 10,419 P=294,485 P=761,174

EARNINGS PER SHARE (EPS) (Note 27)

Basic EPS P=0.374 P=0.976 See accompanying Notes to Consolidated Financial Statements.

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Amounts in Thousands Except Per Share Amounts) Attributed to equity holders of parent

CapitalStock

(Note 16)

Capitalin Excess of

Par Value

CumulativeTranslation

Adjustments(Note 26)

UnappropriatedRetainedEarnings

(As restated -Notes 2 and 16)

AppropriatedRetainedEarnings

PhilippineDepository

ReceiptsConvertible to

Common Shares(Note 16) Total

MinorityInterest Total Equity

At December 31, 2004, as previously reported P=779,583 P=706,047 P=138,334 P=3,629,483 P=8,300,000 (P=200,000) P=13,353,447 P=42,248 P=13,395,695

Effect of adoption of PAS 19 and 36 (Note 2) – – – (393,106) – – (393,106) – (393,106)

At December 31, 2004, as restated 779,583 706,047 138,334 3,236,377 8,300,000 (200,000) 12,960,341 42,248 13,002,589 Effect of adoption of PAS 39 – – 117,071 (47,061) – – 70,010 – 70,010 At January 1, 2005, as restated 779,583 706,047 255,405 3,189,316 8,300,000 (200,000) 13,030,351 42,248 13,072,599 Minority interest – – – – – – – 12,026 12,026 Cash flow hedges – – (52,603) – – – (52,603) – (52,603)Amortization of initial CTA – – (31,845) – – – (31,845) – (31,845)Translation adjustments during the year – – (17,763) – – – (17,763) – (17,763)Total income and expense for the year

recognized directly in equity – – (102,211) – – – (102,211) 12,026 (90,185)Net income – – 287,744 – – 287,744 6,741 294,485 Total income and expense for the year (102,211) 287,744 – – 185,533 18,767 204,300 At December 31, 2005 P=779,583 P=706,047 P=153,194 P=3,477,060 P=8,300,000 (P=200,000) P=13,215,884 P=61,015 P=13,276,899

At December 31, 2003, as previously reported P=779,583 P=706,047 P=130,251 P=3,370,470 P=8,300,000 (P=200,000) P=13,086,351 P=31,829 P=13,118,180

Effect of adoption of PAS 19 and 36 (Note 2) – – – (385,914) – – (385,914) – (385,914)

At December 31, 2003, as restated 779,583 706,047 130,251 2,984,556 8,300,000 (200,000) 12,700,437 31,829 12,732,266 Translation adjustments recognized

directly to equity – – 8,083 – – – 8,083 – 8,083 Net income for the year – – – 750,755 – – 750,755 10,419 761,174 Total income and expense for the year – – 8,083 750,755 – – 758,838 10,419 769,257 Cash dividends P=0.64 per share in 2004

(Note 16) – – – (498,934) – – (498,934) – (498,934)Balances at December 31, 2004 P=779,583 P=706,047 P=138,334 P=3,236,377 P=8,300,000 P=(200,000) P=12,960,341 P=42,248 P=13,002,589 See accompanying Notes to Consolidated Financial Statements.

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

2005

2004(As restated -

Note 2)CASH FLOWS FROM OPERATING ACTIVITIES Income from before income tax P=483,849 P=1,035,914 Adjustments for: - Depreciation (Note 9) 1,234,729 1,146,303 Interest expense (Note 21) 683,465 802,850 Amortization of: Program rights (Note 10) 827,318 887,138 Production and distribution (Note 10) 15,825 49,039 Deferred charges and debt issue cost (Notes 20 and 21) 432,177 200,389 Provisions for: Retirement expense (Note 23) 105,173 129,033 Doubtful accounts (Note 20) 159,520 164,045 Decline in value of marketable securities 4,625 918 Inventory obsolescence 1,200 4,002 Interest income (Note 21) (297,435) (152,897) Equity in net losses of investees 193,651 47,325 Curtailment gain (Note 23) (158,418) – Mark-to-market gain (Note 21) (34,453) – Unrealized foreign exchange gain (Note 21) (20,847) (940) Gain on sale of property and equipment (8,262) (292)Operating income before working capital changes 3,622,117 4,312,827 Decrease (increase) in: Receivables (1,198,013) 398,360 Program rights and other intangible assets (585,281) (467,561) Other current assets (225,066) (88,824)Increase (decrease) in: Trade and other payables 1,025,539 301,898 Obligations for program rights (243,879) (167,238)Cash generated from operations 2,395,417 4,289,462 Income tax paid (422,116) (431,653)Net cash provided by operating activities 1,973,301 3,857,809 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (639,040) (808,117)Increase in: Other non-current assets (325,596) (571,403) Long-term receivables from related parties – (2,073,849)Interest received 36,129 41,528 Proceeds from sale of property and equipment 25,468 26,771 Net cash used in investing activities (903,039) (3,385,070)(Forward)

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Years Ended December 31

2005

2004(As restated -

Note 2)

CASH FLOWS FROM FINANCING ACTIVITIES Interest and other financial charges paid (P=713,921) (P=815,695)Payments of: Long-term debt (481,381) (5,583,565) Bank loans (111,545) - Capital lease (74,819) (59,832) Cash and scrip dividends – (498,934)Proceeds from: Long-term debt 745,749 5,975,277 Bank loans – 246,366 Net cash used in financing activities (635,917) (736,383)

EFFECTS OF TRANSLATION ADJUSTMENTS TO CASH 25,828 (25,154)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 460,173 (288,798)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,291,557 1,580,355

CASH AND CASH EQUIVALENTS AT END OF YEAR P=1,751,730 P=1,291,557 See accompanying Notes to Consolidated Financial Statements.

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 television distribution and telecommunication services overseas, movie production, audio recording and distribution, video/audio post production, and film distribution. Other activities of the subsidiaries include merchandising, internet and mobile services and publishing.

The Parent Company is 57% owned by Lopez, Inc. (Lopez) (see Notes 14 and 16).

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

The accompanying financial statements were approved and authorized for issue by the Board of Directors (BOD) on March 29, 2006.

2. Summary of Significant Accounting Policies

Basis of Preparation The consolidated financial statements have been prepared in compliance with the accounting principles generally accepted in the Philippines as set forth in Philippine Financial Reporting Standards (PFRSs). These are the first consolidated financial statements prepared in compliance with PFRSs.

The Parent Company and its subsidiaries (collectively referred to as “the Company”) prepared its consolidated financial statements until December 31, 2004 in compliance with Statements of Financial Accounting Standards and Statements of Financial Accounting Standards/International Accounting Standards.

The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments and available-for-sale investments that are measured at fair value. The consolidated financial statements are presented in Philippine Pesos, which is the Company’s functional and presentation currency and all values are rounded to the nearest thousand (P=000) except when otherwise indicated.

Explanation of Transition to PFRSs As stated above, these are the Company’s first consolidated financial statements prepared in compliance with PFRSs. The Company applied PFRS 1, First-time adoption of PFRS, in preparing these financial statements, with January 1, 2004 as the date of transition.

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The transition to PFRSs resulted in certain changes to the Company’s previous accounting policies (referred to in the following tables and explanations as “previous GAAP”). The comparative figures for the 2004 consolidated financial statements were restated to reflect the changes in policies except those relating to financial instruments. The Company availed of the exemption under PFRS 1 and applied PAS 32 and PAS 39, the standards on financial instruments, from January 1, 2005. The cumulative effect of adopting these standards are credited to January 1, 2005 retained earnings.

The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the following new/revised standards effective for financial years beginning on or after January 1, 2005:

PAS 16, “Property, Plant and Equipment”; PAS 19, “Employee Benefits”; PAS 32, “Financial Instruments: Disclosure and Presentation”; PAS 39, “Financial Instruments: Recognition and Measurement”; and PFRS 3, “Business Combinations,” PAS 36 (revised) “Impairment of Assets” and

PAS 38 (revised) “Intangible Assets.”

An explanation of the effects of the adoption of PFRSs is set forth in the following tables and notes.

Reconciliation of assets, liabilities and stockholders’ equity at January 1, 2004, the date of transition to PFRS, and December 31, 2004, the end of the latest period presented using previous GAAP follows:

January 1, 2004 December 31, 2004

Notes Previous

GAAP

Effect of transition

to PFRS PFRS Previous

GAAP

Effect of transition to PFRS PFRS

ASSETS Current Assets Cash and cash equivalents P=1,580,355 P=– P=1,580,355 P=1,291,557 P=– P=1,291,557 Trade and other receivables

(see Note 29) 4,118,685 – 4,118,685 3,631,219 – 3,631,219 Program rights - current (see Note 29) 880,975 – 880,975 782,960 – 782,960 Other current assets (see Note 29) 508,681 – 508,681 593,854 – 593,854 Total Current Assets 7,088,696 – 7,088,696 6,299,590 – 6,299,590

Noncurrent Assets Investments in associates 286,007 (798) 285,209 238,517 (633) 237,884 Long-term receivables from related

parties (see Note 29) 2,190,913 – 2,190,913 Property and equipment at cost - net 10,909,767 – 10,909,767 10,650,285 – 10,650,285 Noncurrent program rights and other

intangible assets (see Note 29) 1,602,803 – 1,602,803 1,547,486 – 1,547,486 Other noncurrent assets (see Note 29) b,c 2,338,762 (83,800) 2,254,962 2,725,460 (64,643) 2,660,817 Total Noncurrent Assets 15,137,339 (84,598) 15,052,741 17,352,661 (65,276) 17,287,385 P=22,226,035 (P=84,598) P=22,141,437 P=23,652,251 (P=65,276) P=23,586,975

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January 1, 2004 December 31, 2004

Notes Previous

GAAP

Effect of transition

to PFRS PFRS Previous

GAAP

Effect of transition to PFRS PFRS

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities Trade and other payables (see Note 29) b P=2,534,492 P=429,624 P=2,964,116 P=3,034,915 P=465,571 P=3,500,486 Income tax payable 124,357 – 124,357 13,633 – 13,633 Interest-bearing loans

and borrowings - current 2,392,499 – 2,392,499 1,339,932 – 1,339,932 Obligations for program rights -

current (see Note 29) 258,960 – 258,960 374,101 – 374,101 Total Current Liabilities 5,310,308 429,624 5,739,932 4,762,581 465,571 5,228,152

Noncurrent Liabilities Interest-bearing loans and

borrowings - net of current portion 3,502,551 – 3,502,551 5,295,104 – 5,295,104 Obligations for program rights -

net of current portion (see Note 29) 10,593 – 10,593 43,498 – 43,498 Deferred tax liabilities - net b 165,183 (128,308) 36,875 155,373 (137,741) 17,632 Total Noncurrent Liabilities 3,678,327 (128,308) 3,550,019 5,493,975 (137,741) 5,356,234 Stockholders’ Equity Capital stock 779,583 – 779,583 779,583 – 779,583 Capital paid in excess of par value 706,047 – 706,047 706,047 – 706,047 Cumulative translation adjustments 130,251 – 130,251 138,334 – 138,334 Retained earnings c, d 11,670,470 (385,914) 11,284,556 11,929,483 (393,106) 11,536,377 Philippine deposit receipts convertible

to common shares (200,000) – (200,000) (200,000) – (200,000) Total Stockholders’ Equity

attributable to Equity holders of the Parent Company 13,086,351 (385,914) 12,700,437 13,353,447 (393,106) 12,960,341

Minority Interests 151,049 – 151,049 42,248 – 42,248 Total Stockholders’ Equity 13,237,400 (385,914) 12,851,486 13,395,695 (393,106) 13,002,589 P=22,226,035 (P=84,598) P=22,141,437 P=23,652,251 (P=65,276) P=23,586,975

Reconciliation of income and expenses for 2004 follows:

Notes Previous GAAP

Effect of transition to

PFRS PFRS

REVENUES (see Note 29) P=15,771,332 P=– P=15,771,332

EXPENSES (INCOME) Production costs 5,468,148 – 5,468,148 General and administrative (see Note 29) b, c 4,088,688 17,036 4,105,724 Cost of sales and services (see Note 29) 2,384,522 – 2,384,522 Agency commission, incentives and

co-producers’ share (see Note 29) 2,196,662 – 2,196,662 Finance costs (see Note 29) 910,730 – 910,730 Equity in net losses of associates 47,490 (165) 47,325 Foreign exchange loss - net 2,347 – 2,347 Finance revenue (152,897) – (152,897)Other income (227,143) – (227,143) 14,718,547 16,871 14,735,418

INCOME BEFORE INCOME TAX 1,052,785 (16,871) 1,035,914

PROVISION FOR INCOME TAX b, c 284,419 (9,679) 274,740

NET INCOME P=768,366 (P=7,192) P=761,174

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Notes Previous GAAP

Effect of transition to

PFRS PFRS Attributable to: Equity Holders of the Parent Company P=757,947 (P=7,192) P=750,755 Minority Interest 10,419 – 10,419

EARNINGS PER SHARE (EPS)

Basic EPS P=0.985 P=0.976

Notes to the Reconciliation of Equity at January 1 and December 31, 2004 and Net Income for 2004:

a. PAS 16, “Property, Plant and Equipment”

PAS 16 provides additional guidance and clarification on recognition and measurement of items of property, plant and equipment. It also provides that each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. This resulted to componentization of the Company’s building, which changed the estimated useful life of each significant item in the building account. The adjustment was taken in the consolidated financial statements prospectively and resulted to an increase in depreciation expense by P=65.56 million in 2005.

ABS-CBN International has recognized an asset retirement obligation (ARO) amounting to P=1.70 million in 2005. There are no other material ARO that should be recognized as of December 31, 2005.

b. PAS 19, “Employee Benefits”

Under previous GAAP, pension benefits were actuarially determined using the entry age normal method and past service cost and experience adjustments, amortized over the expected average remaining working lives of the covered employees. Under PFRS, pension benefits are determined using the projected unit credit method. Actuarial gains and losses that exceed a 10% “corridor” are amortized over the expected average remaining working lives of participating employees and vested past service cost, recognized immediately. In addition, the Company recognized other long-term employee benefits which were not recognized in prior years. The Company also availed of the voluntary exemption under PFRS 1. Accordingly, all actuarial gains or losses were recognized up to January 1, 2004. The change reduced retained earnings at January 1, 2004 by P=296.36 million; increased deferred tax asset included in “Other noncurrent assets - net” account by P=133.27 million; increased trade and other payables by P=429.60 million and increased personnel expenses included under the account “General and administrative expenses” by P=35.90 million and benefit from deferred income tax by P=9.68 million at December 31, 2004. Additional disclosures were also made providing information about the trends in the assets and liabilities in the defined benefit plan and the assumptions underlying the components of the defined benefit cost.

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c. PFRS 3, “Business Combinations,” PAS 36, “Impairment of Assets,” and PAS 38, “Intangible Assets”

PFRS 3 resulted in the cessation of the amortization of goodwill and a requirement for an annual test for goodwill impairment. Any resulting negative goodwill after performing reassessment will be credited to income. Moreover, pooling of interests in accounting for business combination will no longer be permitted. The adoption of PFRS 3 has resulted in the Company ceasing annual goodwill amortization and commencing testing for impairment at the cash-generating unit level annually (unless an event occurs during the year which requires the goodwill to be tested more frequently) from January 1, 2004. As a result, the Company recognized an impairment loss in its goodwill (included under “Other Noncurrent Assets”) on the January 1, 2004 amounting to P=88.76 million. The change decreased retained earnings as of January 1, 2004 by P=69.85 million and increase net income by P=18.91 million as of December 31, 2004 due to reversal of goodwill amortization in 2004.

Under previous GAAP, intangible assets were considered to have a finite useful life with a rebuttable presumption that life would not exceed ten years from the date when the asset was available for use. Under PFRS, some of the intangible assets are regarded to have an indefinite useful life when, based on an analysis of all the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Company. Accordingly, cable channels of Creative Programs, Inc (CPI) is considered to have an indefinite life and the useful life of the production and distribution business in the Middle East operations is changed from 10 to 25 years. Due to the change in the estimated useful life of the cable channels of CPI (from finite to indefinite), the carrying value of the cable channels as of January 1, 2005 is no longer amortized. Instead, it was tested for impairment. As of December 31, 2005, there was no impairment identified. On the other hand, the change in estimated useful life of the production and distribution business in the Middle East operations resulted to an adjustment in the consolidated financial statements prospectively and resulted a decrease in amortization expense by P=15.02 million in 2005.

Adoption of the above standards involved changes in accounting policies and the Company has accordingly restated its comparative consolidated financial statements retroactively in accordance with the transitional rules detailed in these standards. Required disclosures are included in the consolidated financial statements, as applicable. Reconciliation of the effects of these new standards, as it applies to the Company, on the Company’s stockholders’ equity as of December 31, 2004 and January 1, 2004 and net income for the year ended December 31, 2004 is presented below:

Increase (Decrease) Stockholders’ Equity Net Income

December 31,

2004 January 1,

2004 December 31,

2004 As previously reported P=13,353,447 P=13,086,351 P=757,947 Effect of changes in accounting policies: PAS 19 (322,625) (296,357) (26,268) PAS 36 (69,848) (88,759) 18,911 Restatement of investment

in associates (633) (798) 165 (393,106) (385,914) (7,192)As restated P=12,960,341 P=12,700,437 P=750,755

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d. PAS 32, “Financial Instruments: Disclosure and Presentation”

PAS 32 covers the disclosure and presentation of all financial instruments. The standard requires more comprehensive disclosures about a company’s financial instruments, whether recognized or unrecognized in the financial statements. New disclosure requirements include terms and conditions of financial instruments used, types of risks associated with both recognized and unrecognized financial instruments (market risk, price risk, credit risk, liquidity risk, and cash flow risk), fair value information of both recognized and unrecognized financial assets and financial liabilities, and financial risk management policies and objectives. The standard also requires financial instruments to be classified as liabilities or equity in accordance with their substance and not their legal form. New disclosure requirements were included as a result of the adoption of the new standard.

e. PAS 39, “Financial Instruments: Recognition and Measurement”

PAS 39 establishes the accounting and reporting standards for recognizing and measuring a company’s financial assets and financial liabilities. The standard requires a financial asset or financial liability to be recognized initially at fair value. Subsequent to initial recognition, a company should continue to measure financial assets at their fair values, except for loans and receivables and held-to-maturity investments, which are to be measured at cost or amortized cost using the effective interest rate method. Financial liabilities are subsequently measured at cost or amortized cost, except for liabilities classified as “at fair value through profit and loss” and derivatives which are measured at fair value. PAS 39 requires the use of discounted cash flow techniques in determining impairment loss when objective evidence at impairment exists for financial assets that accounted for at fair value through profit or loss.

PAS 39 also covers the accounting and reporting standards for derivative instruments. The standard has expanded the definition of a derivative instrument to include derivatives (derivative-like provisions) embedded in non-derivative contracts. Under the standard, every derivative instrument is recorded in the balance sheet as either an asset or a liability measured at its fair value. Derivatives that are not designated and do not qualify as hedges are adjusted to fair value through income. If the derivative is designated and qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in equity until the hedged item is recognized in earnings. A company must formally document, designate and assess the hedge effectiveness of derivative transactions that receive hedge accounting treatment.

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Adoption of this Standard has increased (decreased) the following accounts at January 1, 2005:

Notes Increase

(decrease) Other noncurrent assets a (P=255,261)Interest-bearing loans and borrowings -

net of current portion a (249,949)Derivative assets b 125,575 Cumulative translation adjustments (CTA) b 117,070 Trade and other receivables c (59,589)Obligations for program rights d (17,170)Deferred tax assets 14,545 Program rights and other intangibles b (22,838)Trade and other payables d (458)Retained earnings (47,061)

a. Implementation of the effective interest method resulted to a decrease of P=5.3 million in January 1, 2005 retained earnings; unamortized debt issued costs were reclassified from other noncurrent assets and presented as deduction from long-term debt.

b. The Company recognized the fair value of its derivatives (freestanding and embedded) as of January 1, 2005. The fair value of freestanding derivatives which qualified for hedge accounting under previous GAAP was reported in CTA. Embedded derivatives were bifurcated from program rights and license agreements.

c. The Company tested its trade and other receivable for impairment on January 1, 2005 resulting to additional impairment losses.

d. The Company discounted its long-term noninterest-bearing payables to comply with PAS 39’s requirement to record all financial instruments at fair value upon initial recognition. Subsequently, these were carried at amortized costs.

The Company made use of exemption provided by PFRS 1. As allowed by the Securities and Exchange Commission (SEC), the effect of adopting PAS 39 did not result in a restatement of prior period’s financial statements. The cumulative effect of adopting this standard was credited to the January 1, 2005 retained earnings.

Effect on the Consolidated Cash Flow Statement for 2004 There are no material differences between the consolidated cash flow statement prepared under PFRS and the cash flow statement under previous GAAP.

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Other Adopted PFRSs The Company has also adopted the following under PFRSs. Comparative presentation and disclosures have been amended as required by the standards. Adoption of these standards has no effect on equity at January 1 and December 31, 2004.

PAS 1, “Presentation of Financial Statements”; PAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors”; PAS 10, “Events after Balance Sheet Date”; PAS 24, “Related Party Disclosures”; PAS 27, “Consolidated and Separate Financial Statements”; and PAS 28, “Investments in Associates.”

Standards Not Yet Effective The Company did not early adopt the following Standards and amendments that have been approved but are not yet effective:

Amendments to PAS 19, Employee Benefits – Actuarial Gains and Losses, Group Plans and Disclosures — The revised disclosures from the amendments will be included in the Company’s consolidated financial statements when the amendments are adopted in 2006.

PFRS 6, Exploration for and Evaluation of Mineral Resources — This standard will take effect in 2006 but does not apply to the activities of the Company.

PFRS 7, Financial Instruments – Disclosures — The revised disclosures on financial instruments provided by this standard will be included in the Company’s consolidated financial statements when the standard is adopted in 2007.

Basis of Consolidation The consolidated financial statements comprise the financial statements of ABS-CBN Broadcasting Corporation and its subsidiaries as at December 31 each year (see Note 14). The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.

All intra-company balances, transactions, income and expenses and profits and losses resulting from intra-company transactions that are recognized in assets, are eliminated in full.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases.

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.

Trade and Other Receivables Trade receivables are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. Provision is made when there is objective evidence that the Company will not be able to collect the debts. Bad debts are written off when identified.

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

Property and Equipment Property and equipment, except land, are carried at cost (including capitalized interest), excluding day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of such property and equipment when that cost is incurred if the recognition criteria are met. Land is stated at cost less any impairment in value. Depreciation is computed on a straight line method over the property and equipment’s useful lives.

The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

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 statements of income in the year the asset is derecognized.

The asset’s residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each financial year end.

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.

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

The net present value of legal obligations associated with the retirement of an item of property and equipment that resulted from the acquisition, construction or development and the normal operations of property and equipment is recognized in the period in which it is incurred and a reasonable estimate of the obligation can be made.

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

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appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated statements of income in the expense category consistent with the function of the intangible asset.

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

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

Program rights Cable Channels - Creative Programs, Inc. (CPI)

Production and Distribution Business - Middle East operations

Useful lives Finite (license term or economic life whichever is shorter)

Indefinite (2004: Finite, 20 years)

Finite- 25 years (2004: Finite, 10 years)

Method used Amortized on the basis of program usage.

No amortization (2004: 10 years)

Amortized over the period of 25 years (2004: Amortized over the period of 10 years)

Impairment testing/ recoverable amount testing

To the extent that a given future expected benefit period is shorter than the initial Company estimates, the Company writes off the purchase price or the license fee sooner than anticipated.

Annually and more frequently when an indication of impairment exists.

The amortization method is reviewed at each financial year-end.

Current and noncurrent portion

Based on the estimated year of usage.

Not applicable. Not applicable.

In prior years, cable channels of CPI and production and distribution business of the Middle East were considered to have a finite useful life with a rebuttable presumption that life would not exceed ten years from the date when the asset was available for use.

The cable channels acquired by CPI has no definite life (see Note 10). 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. The change in the useful life assessment from finite to indefinite is accounted for prospectively.

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The production and distribution business acquired for the Middle East operations has a definite life of 25 years based on the terms of the Company’s sponsorship agreement with Arab Digital Distribution (ADD) (see Note 10). Based on the Company’s analysis of all the relevant factors, it is determined that the estimated useful life of such business should be 25 years. The change in the useful life from 10 years to 25 years is accounted for prospectively.

Investment in an Associate The Company’s investment in an associate is 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, the investment in an associate is carried in the balance sheets at cost plus post-acquisition changes in the Company’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized. 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 consolidated statements of income reflect the share of the results of operations of the associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share of any changes and discloses this, when applicable, in the consolidated statements of changes in equity. The reporting dates of the associate and the Company are identical and the associates’ accounting policies conform to those used by the Company for like transactions and events in similar circumstances.

Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

Foreign Currency Translation The consolidated financial statements are presented in Philippine Peso, which is the Company’s functional and presentation currency. Each entity in the Company determines its own functional currency and items included in the financial statements of each entity are measured using its functional currency. 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 rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statements of income with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognized in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in equity. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

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The functional currency of ABS-CBN International and ABS-CBN Middle East FZ-LLC is the United States Dollar while the functional currency of ABS-CBN Europe, Ltd is the Great Britain Pound. As at the reporting date, the balance sheets of these subsidiaries are translated into the presentation currency of the Company (the Philippine Peso) at the rate of exchange ruling at the balance sheet date and, their statements of income are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the consolidated statements of income.

Tax Credits Tax credits from government airtime sales availed under Presidential Decree No. 1362 are recognized in the books upon actual airing of government commercials and advertisements. This is included under “Other noncurrent assets - net” account in the consolidated balance sheets.

Deferred Charges Gain or loss on sale of decoders which has no stand alone value without the subscription revenues are aggregated and recognized ratably over the longer of subscription contract term or the estimated customer service life. These are presented as part of “Other noncurrent assets - net” account in the consolidated balance sheets. As explained in Note 24, the Parent Company and ABS-CBN International entered into an agreement with DirecTV, Inc. (DirecTV) whereby direct-to-home (DTH) subscribers of ABS-CBN International are expected to migrate to DirecTV in 2006. ABS-CBN International will continue to service its subscribers until February 28, 2006. Accordingly, the deferred charges related to the DTH subscribers of ABS-CBN International are written off as of December 31, 2005, since management is of the opinion that the corresponding future benefits from these assets, if any, are not material.

Impairment of Assets The Company assesses at each reporting date whether there is an indication that an asset 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 statements of income in those expense categories consistent with the function of the impaired asset.

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, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at

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revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Financial Assets and Financial Liabilities (Effective January 1, 2005) Financial assets and financial liabilities are recognized initially at fair value. Transaction costs are included in the initial measurement of all financial assets and liabilities, except for financial instruments which are measured at fair value through profit and loss.

The Company recognizes a financial asset or a financial liability in the balance sheets when it becomes a party to the contractual provisions of the instrument.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity net of any related income tax benefits. Financial instruments are offset when there is a legally enforceable right to offset and intention to settle either on a net basis or to realize the asset and settle the liability simultaneously.

Financial assets and financial liabilities are further classified into the following categories: financial asset or financial liability at fair value through profit or loss, loans and receivables, held-to-maturity, available-for-sale financial assets and other financial liabilities. The Company determines the classification at initial recognition and re-evaluates this designation at every reporting date, where appropriate.

a. Financial Assets or Financial Liabilities at Fair Value through Profit or Loss

A financial asset or financial liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the near term or upon initial recognition, it is designated by management at fair value through profit or loss. Derivatives are also categorized as held at fair value through profit or loss, except those derivatives designated and considered as effective hedging instruments. Assets or liabilities classified under this category are carried at fair value in the balance sheet. Changes in the fair value of such assets and liabilities are accounted for immediately in the consolidated statements of income.

The Company’s derivative instruments (including embedded derivatives) that are not accounted for as accounting hedges are classified under this category.

b. Held-to-Maturity Investments

Quoted nonderivative financial assets with fixed or determinable payments and fixed maturity are classified as held- to-maturity when the Company has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long-term investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initially recognized amount and the maturity amount. This calculation includes all fees and points paid or received

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between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortized cost, gains and losses are recognized in income when the investments are derecognized or impaired, as well as through the amortization process.

The Company has no held-to-maturity investments.

c. Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortized cost using the effective interest method. Gains and losses are recognized in income when the loans and receivables are derecognized or impaired, as well as through the amortization process.

This category includes the Company’s trade, intercompany and other receivables.

d. Available-for-Sale Financial Assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition, available-for sale financial assets are measured at fair value with gains or losses being recognized as a separate component of equity until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the consolidated statements of income.

The Company’s available-for-sale investments include investments in ordinary common shares.

The fair value of financial instruments that are actively traded in organized financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis and option pricing models.

Derivative Financial Instruments and Hedging

Effective January 1, 2005 The Company uses derivative financial instruments such as interest rate swaps and cross currency swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to net profit or loss for the year.

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For the purpose of hedge accounting, hedges are classified as:

fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability;

cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a forecast transaction; or

hedges of a net investment in a foreign operation.

A hedge of the foreign currency risk of a firm commitment is accounted for as a cash flow hedge.

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

Fair Value Hedges. Fair value hedges are hedges of the Company’s exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is remeasured at fair value and gains and losses from both are taken to profit or loss.

The Company has no derivatives that are designated or accounted for fair value hedges in 2005.

Cash Flow Hedges. Cash flow hedges are hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while the ineffective portion is recognized in profit or loss.

Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when 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 non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognized in equity are transferred to profit or loss. 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 profit or loss.

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In October 2005, the Company designated its outstanding interest rates and cross currency swaps of cash flow hedges.

The Company has no hedges of a net investment in 2005.

Prior to January 1, 2005 The Company enters into long-term foreign currency swap agreements to manage its foreign currency exposures relating to certain long-term foreign currency-denominated loans. Translation gains or losses on foreign currency swaps entered into as hedges are computed by multiplying the swap notional amounts by the difference between the spot exchange rate prevailing on balance sheet date and the spot exchange rate on the contract inception date (or the last reporting date). The resulting translation gains or losses are offset against the translation losses or gains on the underlying foreign currency-denominated liabilities.

The Company also enters into interest rates swaps to manage its interest rate exposures on underlying floating-rate loans. Swap costs accruing on foreign currency swaps and interest rate swaps that are currently due to or from the swap counterparties are charged to current operations. Mark-to-market values of the foreign currency swaps are not included in the determination of net income but are disclosed in the relevant note to these financial statements.

Hedges of a Net Investment. Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognized directly in equity while any gains or losses relating to the ineffective portion are recognized in profit or loss. On disposal of the foreign operation, the cumulative value of any such gains or losses recognized directly in equity is transferred to profit or loss.

Derecognition of Financial Assets and Liabilities (Effective January 1, 2005)

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.

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A financial liability is derecognized when the obligation under the liability is discharged or 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 profit or loss.

Impairment of Financial Assets (Effective January 1, 2005) The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognized in profit or loss.

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

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the income statement, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

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

Available-for-Sale Financial Assets. If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to the income statement. Reversals in respect of equity instruments classified as available-for-sale are not recognized in profit. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.

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Loans and Borrowings All loans and borrowings are initially recognized at fair value. After initial recognition, loans and borrowings are subsequently measured at amortized cost using the effective interest method.

Gains and losses are recognized in net profit or loss when the liabilities are derecognized as well as through the amortization process.

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 TFC channel is recognized in accordance with the Deal Memorandum, as discussed in Note 24.

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

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 payable and other payables” account in the consolidated balance sheets.

License fees earned from DirecTV is recognized upon migration of the DTH subscribers of ABS-CBN International to DirecTV. The additional license fees for each migrated subscriber that will remain for 14 consecutive months from the date of activation, will be recognized on the 14th month (see Note 24).

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.

Channel lease revenue (included under “Sale of services” account in the consolidated statements of income) is recognized as income on a straight-line basis over the lease term.

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Income related to the sale and installation of decoders of ABS-CBN Australia (included under “Sale of goods” account in the consolidated statements of income) which has no stand alone value without the subscription revenues are aggregated and recognized ratably over the longer of subscription contract term or the estimated customer service life.

Short-messaging-system/text-based revenues, sale of news materials and Company-produced programs are recognized upon delivery.

Rental income is recognized as income on a straight-line basis over the lease term. For income tax purposes, rental income is taxable based on the provisions of the lease contracts.

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.

Company as Lessee. 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 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 lease payments are recognized as an expense in the consolidated statements of income on a straight-line basis over the lease term.

Company as Lessor. 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 bases as rental income.

For income tax purposes, rental expense is deductible based on the provisions of the lease contracts.

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.

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Borrowing Costs Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds.

For income tax reporting purposes, interest is treated as a deductible expense during the period the interest is incurred.

Pension and Other Long-term Employee Benefits The Company has a funded defined benefit pension plans except for ABS-CBN International which has a defined contribution pension plan. The Company also agreed to provide certain unfunded long-term employee benefits to employees upon retirement. The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plans.

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

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

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

Deferred income tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred income tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) and unused tax losses, 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 and unused tax losses 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 or loss.

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

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

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

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

EPS Basic EPS amounts are calculated by dividing the net income attributed to equity holders of the Parent Company for the period attributable to common shareholders by the weighted average number of common shares outstanding during the period.

Contingencies Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed 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 when an inflow of economic benefits is probable.

Subsequent Events Post-year-end events that provide additional information about the Company’s position at the balance sheet date (adjusting events) are reflected in the consolidated financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material.

3. Management’s Use of Judgment and Estimates

The Company’s consolidated financial statements prepared under PFRSs require management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and related notes. In preparing the Company’s consolidated financial statements, the Company has made its best estimates and judgments of certain amounts, giving due consideration to materiality.

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The Company believes the following represent a summary of these significant estimates and judgments and related impact and associated risks in its consolidated financial statements:

Estimated useful lives. The useful life of each of the Company’s property and equipment and intangible assets with definite 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 definite life, estimated life is based on the life of agreement covering such intangibles. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of any property and equipment or intangible assets would increase the recorded expenses and decrease noncurrent assets.

Property and equipment, net of accumulated depreciation and amortization as of December 31, 2005 and 2004 amounted to P=10.29 billion and P=10.65 billion, respectively (see Note 9).

Production and distribution business - Middle East amounted to P=141.76 million and P=157.58 million as of December 31, 2005 and 2004, respectively (see Note 10).

Asset impairment. Philippine GAAP requires that an impairment review be performed when certain impairment indicators are present. In purchase accounting, estimation and judgment are used in the allocation of the purchase price to the fair market values of the assets and liabilities purchased. Likewise, determining the fair value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets.

While it is believed that the assumptions used in the estimation of fair values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations.

Noncurrent assets that are subjected to impairment testing when impairment indicators are present are as follows:

2005 2004 Program rights P=914,831 P=929,934 Cable channels - CPI 459,968 459,968 Long-term receivables from related parties 2,341,683 2,190,913 Property and equipment 10,287,599 10,650,285 Tax credits 1,767,484 1,809,118

No impairment loss for other long-lived assets was recognized in 2005 and 2004.

Impairment of goodwill. Goodwill is annually evaluated for impairment. This requires an estimation of the value in use of the cash-generating units to which the 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 unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

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The carrying amount of goodwill at December 31, 2005 and 2004 amounted to P=22,565 included under “Other noncurrent assets - net” account in the consolidated balance sheets (see Note 11).

No impairment loss was recognized in 2005 and 2004.

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=1.70 million as of December 31, 2005.

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 all or part of the deferred tax assets to be utilized.

Unrecognized deferred tax assets as of December 31, 2005 and 2004 amounted to P=291.70 million and P=523.04 million, respectively (see Note 22).

Financial assets and liabilities. PFRSs require that certain financial assets and liabilities (including derivative instruments) be carried at fair value, which requires the use of accounting estimates and judgment. While significant components of fair value measurement are determined using verifiable objective evidence (i.e. foreign exchange rates, interest rates, volatility rates), the timing and amount of changes in fair value would differ using a different valuation methodology. Any change in the fair values of financial assets and liabilities (including derivative instruments) directly affect profit or loss and stockholders’ equity.

The fair value of financial assets and liabilities are set out in Note 26.

Allowance for doubtful accounts and decline in value of inventory. The Company maintains an allowance for doubtful accounts and decline in value of inventory at a level considered adequate to provide for potentially uncollectible receivables and decline in value of inventories. The level of allowance is evaluated by management based on experience and other factors that may affect the recoverability of these assets. If there is an objective evidence that an impairment loss on trade and other 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. The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The allowance is established by charges to income in the form of provision for doubtful accounts and decline in value of inventory. The amount and timing of recorded expenses for any period would therefore differ based on the judgments or estimates made. An increase in provision for doubtful accounts and decline in value of inventory would increase the Company’s recorded expenses and decrease current assets.

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Provision for doubtful accounts amounted to P=159.52 million in 2005 and P=164.04 million in 2004 (see Note 20). Trade and other receivables, net of allowance for doubtful accounts, amounted to P=4.67 billion and P=3.63 billion as of December 31, 2005 and 2004, respectively (see Note 6). Allowance for doubtful accounts as of December 31, 2005 and 2004 amounted to P=599 million and P=475 million, respectively (see Note 6).

Provision for decline in value of inventory amounted to P=1.20 million and P=3.43 million in 2005 and 2004, respectively. Inventories, net of allowance for decline in value of inventory, amounted to P=141.52 million and P=130.52 million as of December 31, 2005 and 2004, respectively (see Note 7).

Pension cost. The determination of the obligation and cost for pension and other pension benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 23 and include among others, discount rate, expected return on plan assets and rate of compensation increase. In accordance with Philippine GAAP, actual results that differ from the Company’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While it is believed that the Company’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Company’s pension and other pension obligations.

Accrued pension and other long-term employee benefits amounted to P=511.21 million and P=710.86 million as of December 31, 2005 and 2004, respectively (see Note 13).

Unrecognized actuarial losses as of December 31, 2005 and 2004 amounted to P=33.60 million and P=46.36 million, respectively (see Note 23).

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 30).

4. Segment Information

Segment information is prepared on the following bases:

Business segments: for management purposes, the Company is organized into three business activities - broadcasting, cable and satellite, and other businesses. This segmentation is the basis upon which the Company reports its primary segment information. The broadcasting segment is principally the television and radio broadcasting activities which generates revenue from sale of national and regional advertising time. Cable and satellite business primarily develops and produces programs for cable television, including delivery of television programming outside the Philippines through its DTH satellite service, cable television channels and blocked time on television stations. Other businesses include movie production, consumer products and services.

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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 and Australia), the Company operates its cable and satellite operations to bring television programming outside the Philippines.

Inter-segment transactions: segment revenue, segment expenses and segment results include transfers among business segments and among geographical segments. Such transfers are accounted for at competitive market prices charged to unaffiliated customers for similar services. Those transfers are eliminated in consolidation.

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Business Segment Data The following tables present revenue and income information and certain asset and liability information regarding business segments for the years ended December 31, 2005 and 2004:

Broadcasting Cable and satellite Other Businesses Eliminations Consolidated

2005

2004(As restated -

see Note 2) 2005

2004(As restated -

see Note 2) 2005

2004(As restated -

see Note 2) 2005 2004 2005

2004(As restated -

see Note 2)Revenues External sales P=11,612,208 P=10,856,408 P=4,068,221 P=3,895,790 P=1,366,647 P=1,019,134 P=– P=– P=17,047,076 P=15,771,332Inter-segment sales 110,815 59,027 – 117,605 273,159 94,776 (383,974) (271,408) – – Total revenue P=11,723,023 P=10,915,435 P=4,068,221 P=4,013,395 P=1,639,806 P=1,113,910 (P=383,974) (P=271,408) P=17,047,076 P=15,771,332Results Segment result P=356,979 P=949,124 P=385,466 P=231,633 (P=538,785) P=89,459 P=903,586 P=346,060 P=1,107,246 P=1,616,276Equity in net earnings (losses) of associates 94,352 267,962 – – – – (288,003) (315,287) (193,651) (47,325)Other Income 469,311 498,525 746,489 17,231 23,056 46,801 (951,714) (335,414) 287,142 227,143Finance Revenue 294,799 138,222 32,545 8,226 4,955 6,449 (36) – 332,263 152,897Finance Cost (989,996) (911,843) (11,122) (67) (872) 1,180 – – (1,001,990) (910,730)Foreign exchange gain (loss) (9,606) (2,347) (29,905) – (7,650) – – – (47,161) (2,347)Income tax (11,995) (217,993) 62,465 (41,891) (239,834) (14,856) – – (189,364) (274,740)Net income (loss) P=203,844 P=721,650 P=1,185,938 P=215,132 P=(759,131) P=129,033 (P=336,167) (P=304,641) P=294,485 P=761,174Assets and Liabilities Segment assets P=20,694,815 P=20,027,343 P=1,642,458 P=3,695,695 P=3,976,767 P=1,124,338 (P=1,856,854) (P=1,539,776) P=24,457,186 P=23,307,600Investments in associates - at equity 2,487,992 2,606,705 – – – – (2,443,759) (2,368,821) 44,233 237,884Consolidated total assets P=23,182,807 P=22,634,048 P=1,642,458 P=3,695,695 P=3,976,767 P=1,124,338 (P=4,300,613) (P=3,908,597) P=24,501,419 P=23,545,484Segment liabilities P=3,920,127 P=2,861,139 P=2,402,669 P=1,842,427 P=814,048 P=845,996 (P=1,893,961) (P=1,617,844) P=5,242,883 P=3,931,718Other Segment Information Capital expenditures: Property and equipment P=651,185 P=752,196 P=223,346 P=147,517 P=14,718 P=13,587 P=– P=– P=889,249 P=913,300 Intangible assets 828,295 578,789 67,076 141,164 96,303 77,238 28,826 (14,346) 828,295 782,845Depreciation and amortization of program rights 1,761,354 1,762,888 201,534 176,649 99,159 98,229 – (4,325) 2,062,047 2,033,441Noncash expenses other than depreciation and

amortization of program rights 515,500 310,967 465,378 205,042 11,517 22,304 (292,391) – 700,004 538,313 Geographical Segment Data The following tables present revenue and expenditure and certain asset information regarding geographical segments for the years ended December 31, 2005 and 2004:

Philippines United States Others Eliminations Consolidated

2005

2004(As restated -

see Note 2) 2005

2004(As restated -

see Note 2) 2005

2004(As restated -

see Note 2) 2005

2004(As restated -

see Note 2) 2005

2004(As restated -

see Note 2)Revenue External sales P=13,202,093 P=12,654,058 P=2,919,411 P=2,779,571 P=925,572 P=337,703 P=– P=– P=17,047,076 P=15,771,332Inter-segment sales 383,975 271,408 – – – – (383,975) (271,408) – – Total revenue P=13,586,068 P=12,925,466 P=2,919,411 P=2,779,571 P=925,572 P=337,703 (P=383,974) (P=271,408) P=17,047,076 P=15,771,332Other Segment Information Segment assets P=25,769,513 P=22,000,305 P=1,863,083 P=1,911,374 P=1,169,437 P=3,541,769 (P=4,300,614) (P=3,907,964) P=24,501,419 P=23,545,484Capital expenditures: Property and equipment 707,714 806,731 170,079 65,065 11,456 41,504 – – 889,249 913,300 Intangible assets 799,469 745,160 – 6,039 – 45,992 28,826 (14,346) 828,295 782,845

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5. Cash and Cash Equivalents

2005 2004 Cash on hand and in banks P=1,284,690 P=1,100,145 Short-term placements 467,040 191,412 P=1,751,730 P=1,291,557

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

6. Trade and Other Receivables

2005 2004 Trade receivables (see Note 8) P=3,920,578 P=3,498,421 Receivable from DirecTV (see Note 24) 439,499 – Due from related parties (see Note 14) 246,698 263,880 Advances to suppliers 97,002 46,875 Other receivables 563,260 297,385 5,267,037 4,106,561 Less allowance for doubtful accounts (see Note 3) 599,407 475,342 P=4,667,630 P=3,631,219

Trade receivables are noninterest-bearing and are generally on 60-90 days’ terms.

For terms and conditions relating to receivables from related parties, refer to Note 14. 7. Other Current Assets

2005 2004 Prepaid taxes P=461,881 P=294,523 Inventories at net realizable value (see Note 3) 141,523 130,523 Short-term investments 24,233 – Prepaid expenses and others 198,758 168,808 P=826,395 P=593,854

Inventories consist mainly of materials and supplies of the Parent Company and records and other consumer products held for sale by subsidiaries. The cost of inventories in the consolidated financial statements amounted to P=170,487 and P=173,209 in 2005 and 2004, respectively.

Short-term investments consist of time deposits with original maturity of more than three months but less than one year.

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8. Investments in Associates

Details of investments in associates follow:

2005

2004(As restated -

see Note 2)AMCARA Broadcasting Network, Inc. (Amcara) P=44,233 P=43,682 Sky Vision Corporation (Sky Vision) - 194,202 P=44,233 P=237,884

Details of investments in associates are as follows:

Ownership Interest Company Place of Incorporation Principal Activities 2005 2004

Associates Amcara Philippines Services 49.0 49.0 Star Cinema Philippines Movie Production 45.0 45.0 Sky Vision Philippines Cable operation 10.2 10.2

2005

2004(As restated -

see Note 2)Acquisition costs P=541,292 P=541,292 Accumulated equity in net losses: Balance at beginning of year,

as previously reported (302,775) (255,285) Restatement of equity in net losses (633) (798) Balance at beginning of year, as restated (303,408) (256,083) Equity in net losses: As previously reported – (47,490) Equity in net losses during the year (193,651) – Restatement of equity in net loss – 165 Balance at end of year, as restated (497,059) (303,408) P=44,233 P=237,884

The carrying value of the investments exceeded the Company’s equity in net assets of the associates by P=194,202 as of December 31, 2004 in the consolidated financial statements.

Condensed financial information of the associates follows:

2005 2004 Current assets P=2,038,169 P=2,173,071 Noncurrent assets 6,494,213 6,957,074 Current liabilities 3,073,041 2,695,955 Noncurrent liabilities 6,012,886 6,896,593 Revenue 3,051,591 2,996,567 Cost and expenses 3,924,570 3,709,699 Operating loss (872,979) (713,132)Net loss (1,922,458) (624,895)

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Sky Vision a. On July 18, 2001, the Parent Company, along with Lopez and Benpres Holdings Corporation

(BHC) (collectively, the Benpres Group), signed a Master Consolidation Agreement (MCA) whereby they agreed with the Philippine Long Distance Telephone Company and Mediaquest Holdings, Inc. (collectively, the PLDT Group) to consolidate their respective ownership or otherwise their rights and interests in Sky Vision and Unilink Communications Corporation (Unilink) under a holding company to be established for that purpose. Beyond Cable Holdings, Inc. (Beyond) was incorporated on December 7, 2001 as the holding company. Sky Vision owns Central CATV, Inc. (Central) and Pilipino Cable Corporation (PCC), which in turn operate cable television systems in Metro Manila and key provincial areas under the tradenames “Sky Cable” and “Sun Cable.” Unilink owns The Philippine Home Cable Holdings, Inc. (Home), which operates cable television systems in Metro Manila and key provincial areas under the tradename “Home Cable.”

Pursuant to the MCA, the Benpres Group and the PLDT Groups shall, respectively, own 66.5% and 33.5% of Beyond upon the transfer of their respective ownership and rights and interests in Sky Vision and Unilink into Beyond. Although the original agreement envisions the transfers to be completed within six months from signing date, or by January 18, 2002, the Benpres Group and the PLDT Group agreed to extend this Closing date. On December 3, 2003, the Benpres and PLDT Groups, together with the PLDT Beneficial Trust Fund, executed an Amendment Agreement to the MCA whereby additional closing conditions were incorporated into the MCA and wherein the Closing Date was extended until such time the parties shall have completed all conditions precedent under the MCA and the Amendment Agreement, including the share transfers described above. The MCA also provides for the Benpres Group to sell 33.0% of Beyond to a strategic and/or financial investor. The sale of shares in Beyond is part of the Balance Sheet Management Plan of Benpres.

In a separate Memorandum of Agreement (Agreement) executed on April 8, 2004, the major stockholders of Home and Sky Vision have agreed to consolidate the ownership of their respective shares in Home and Sky Vision and to combine the operations, assets and liabilities of Home and the Central. Under the terms of the Agreement, the transfer of title to Home’s assets and liabilities including attendant risk and rewards, shall be retroactive to January 1, 2004. However, the Agreement allowed Home to continue its operations, and accordingly, full complimentary use of the property and equipment transferred to the Central, until December 31, 2004, after which Home will cease commercial operations. The valuation of the assets and liabilities of Home as of December 31, 2003 is used as the basis for determining the consideration for the transfer.

In relation to the consolidation discussed above, a competitor broadcasting company filed a case before National Telecommunications Commission (NTC) asking for NTC to declare as null and void the consolidation of the cable operating companies. On November 16, 2004, the NTC denied the motion for cease and desist order filed by the competitor broadcasting company. On November 30, 2004, the competitor broadcasting company filed a motion for consideration which is still pending with the NTC. It is the opinion of Sky Vision’s legal counsels that the case filed by the competitor broadcasting company is without legal basis.

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b. In November 2005, Sky Vision met with its creditors to request for an extension of the grace period on its long-term debt for another five (5) years, with principal amortization to start in 2011. The creditors have already formed a steering committee to address the request of Sky Vision. Negotiations are still on-going.

c. On June 30, 2004, Sky Vision and Central (“Issuer”) issued a convertible note (the “note”) to the Parent Company amounting to US$30,000 equivalent to P=1,577,195 as of December 31, 2005. The Parent Company’s long-term receivable from Sky Vision, including accrued interest receivable of P=343,696 and P=112,841 as of December 31, 2005 and 2004, respectively, is presented separately as “Long-term receivable from related parties” in the consolidated balance sheets. The note is subject to interest of 13% compounded annually and will mature on June 30, 2006. The principal and accrued interest as of maturity date shall be mandatorily converted, based on the prevailing U.S. Dollar to Philippine Peso exchange rate on Maturity Date, at a conversion price equivalent to a twenty percent (20%) discount of: (a) the market value of the Shares, in the event of a public offering of the Issuer before Maturity Date; (b) the valuation of the Shares by an independent third party appraiser that is a recognized banking firm, securities underwriter or one of the big three international accounting firms or their Philippine affiliate jointly appointed by the Benpres Group and PLDT Group pursuant to the MCA dated July 18, 2001 as amended or supplemented.

Prior to the issuance of the convertible note, Sky Vision, Central and Home had trade and advances payable to its shareholders in the Benpres Group and the PLDT Group, respectively. Upon receipt of the proceeds of the note, Sky Vision, Central and Home prioritized the servicing of its outstanding payables to third-party suppliers and creditors, as well as new payables due to CPI. As a result, these companies did not service payables to its existing shareholders outstanding as of June 30, 2004. Included in the amounts left unpaid were CPI's receivable from Central of around P=420,792. Subject to approval of its creditors, the Parent Company intends to include CPI's receivable in the above equity conversion in Sky Vision under the same terms of the note.

9. Property and Equipment at Cost - Net

December 31, 2005

Land andLand

Improvements Building and

Improvements

Television,Radio, Movieand Auxiliary

Equipment Other

Equipment Construction

in Progress Total At January 1, 2005 net

of accumulated depreciation P=291,008 P=8,356,900 P=1,219,179 P=692,455 P=90,743 P=10,650,285

Additions 3,835 157,908 149,192 243,040 335,274 889,249 Disposals – (3,083) (9,487) (4,636) – (17,206) Reclassifications 4,201 46,491 183,073 73,474 (307,239) – Depreciation charge

for the year (see Notes 18, 19 and 20) (1,100) (443,742) (486,425) (303,462) – (1,234,729)

At December 31, 2005 net of accumulated depreciation P=297,944 P=8,114,474 P=1,055,532 P=700,871 P=118,778 P=10,287,599

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Land andLand

Improvements Building and

Improvements

Television,Radio, Movieand Auxiliary

Equipment Other

Equipment Construction

in Progress Total At January 1, 2005 Cost P=297,904 P=9,585,198 P=5,296,294 P=2,969,740 P=90,743 P=18,239,879 Accumulated depreciation – (1,234,616) (4,069,106) (2,285,872) – (7,589,594)Reclassifications (6,896) 6,318 (8,009) 8,587 – – Net carrying amount P=291,008 P=8,356,900 P=1,219,179 P=692,455 P=90,743 P=10,650,285

At December 31, 2005 Cost P=305,940 P=9,778,788 P=5,530,811 P=3,201,128 P=118,778 P=18,935,445 Accumulated depreciation (7,996) (1,664,314) (4,475,279) (2,500,257) – (8,647,846)Net carrying amount P=297,944 P=8,114,474 P=1,055,532 P=700,871 P=118,778 P=10,287,599

December 31, 2004

Land andLand

Improvements Building and

Improvements

Television,Radio, Movieand Auxiliary

Equipment Other

Equipment Construction

in Progress Total At January 1, 2004 net

of accumulated depreciation P=292,776 P=8,533,073 P=1,231,972 P=680,729 P=171,217 P=10,909,767

Additions – 6,931 273,122 302,672 330,575 913,300 Disposals – (26,315) (1,352) 1,188 – (26,479) Reclassifications (1,768) 210,340 86,046 116,431 (411,049) – Depreciation charge for

the year (see Notes 18, 19 and 20) – (367,129) (370,609) (408,565) – (1,146,303)

At December 31, 2004 net of accumulated depreciation P=291,008 P=8,356,900 P=1,219,179 P=692,455 P=90,743 P=10,650,285

At January 1, 2004 Cost P=292,776 P=9,400,560 P=4,930,469 P=2,606,479 P=171,217 P=17,401,501 Accumulated depreciation – (867,487) (3,698,497) (1,925,750) – (6,491,734)Net carrying amount P=292,776 P=8,533,073 P=1,231,972 P=680,729 P=171,217 P=10,909,767

At December 31, 2004 Cost P=297,904 P=9,585,198 P=5,296,294 P=2,969,740 P=90,743 P=18,239,879 Accumulated depreciation – (1,234,616) (4,069,106) (2,285,872) – (7,589,594)Reclassifications (6,896) 6,318 (8,009) 8,587 – – Net carrying amount P=291,008 P=8,356,900 P=1,219,179 P=692,455 P=90,743 P=10,650,285

Property and equipment of the Parent Company with a carrying amount of P=9.5 billion and P=10 billion as of December 31, 2005 and 2004, respectively, was pledged as collateral to secure the Parent Company’s long-term debt (see Note 15).

Unamortized borrowing costs capitalized as part of property and equipment amounted to P=1,011,370 and P=1,050,167 as of December 31, 2005 and 2004, respectively. No borrowing cost was capitalized beginning 2002.

Property and equipment includes the following amounts where the Company is a lessee under a finance lease (see Note 24):

2005 2004 Cost - capitalized finance lease P=393,823 P=254,860 Accumulated depreciation (216,327) (135,206)Net book value P=177,496 P=119,654

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The useful lives of the Company’s assets are estimated as follows:

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

10. Noncurrent Program Rights and Other Intangible Assets

December 31, 2005

Program

Rights Cable

Channels - CPI

Production and Distribution

Business - Middle East Total

Balance at January 1, 2005 P=1,712,894 P=459,968 P=157,584 P=2,330,446 Additions 828,295 – – 828,295 Amortization and write-off

during the year (see Notes 18, 19 and 20) (827,318) – (15,825) (843,143)

Balance at December 31, 2005 1,713,871 459,968 141,759 2,315,598 Less current portion 799,040 – – 799,040 Noncurrent portion P=914,831 P=459,968 P=141,759 P=1,516,558

Costs and related accumulated amortization of other intangible assets is as follow:

Cable

Channels - CPI

Production and Distribution

Business - Middle East Total

At December 31, 2005 Cost P=574,960 P=212,358 P=787,318 Accumulated amortization (114,992) (70,599) (185,591)Net carrying amount P=459,968 P=141,759 P=601,727

December 31, 2004

Program

Rights Cable

Channels - CPI

Production and Distribution

Business - Middle East Total

Balance at January 1, 2004 P=1,817,187 P=488,716 P=177,875 P=2,483,778 Additions 782,845 – – 782,845 Amortization and write-off during

the year (Notes 18, 19 and 20) (887,138) (28,748) (20,291) (936,177)Balance at December 31, 2004 1,712,894 459,968 157,584 2,330,446 Less current portion 782,960 – – 782,960 Noncurrent portion P=929,934 P=459,968 P=157,584 P=1,547,486

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Costs and related accumulated amortization of other intangible assets is as follow:

Cable

Channels - CPI

Production and Distribution

Business - Middle East Total

At January 1, 2004 Cost P=574,960 P=212,358 P=787,318 Accumulated amortization (86,244) (34,483) (120,727)Net carrying amount P=488,716 P=177,875 P=666,591

December 31, 2004 Cost P=574,960 P=212,358 P=787,318 Accumulated amortization (114,992) (54,774) (169,766)Net carrying amount P=459,968 P=157,584 P=617,552

In prior years, cable channels and production and distribution business were considered to have a finite useful life with a rebuttable presumption that life would not exceed ten years from the date when the asset was available for use.

The cable channels, namely, Lifestyle Channel, Cinema One and Myx Channel, were acquired by CPI from Sky Vision in 2001. Based on the Company’s analysis of all the relevant factors, there is no foreseeable limit to the period over which this business is expected to generate net cash inflows for the Company. Due to the change in the estimated useful life of this business in the current year resulting in indefinite lives, the cost as at January 1, 2005 is no longer amortized.

Production and distribution business for the Middle East operations represents payments arising from the sponsorship agreement between ADD and ABS-CBN Middle East FZ-LLC. This agreement grants the Company the right to operate in the Middle East with ADD as sponsor. The estimated useful life was changed from 10 years to 25 years. The change in useful life was accounted for prospectively, resulting to a decrease in amortization expense of P=15 million in 2005.

11. Other Noncurrent Assets - Net

2005

2004(As restated -

see Note 2)Tax credits: With tax credit certificates (TCCs) P=1,767,484 P=1,809,118 Pending issuance of TCCs but supported by

telecast orders – 54,572 Available-for-sale investments (AFS) 30,931 34,104 Unamortized debt issue cost (see Note 15) – 291,160 Deferred charges and others (see Notes 3 and 12) 274,831 430,372 P=2,073,246 P=2,619,326

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Tax credits represent claims on the government arising from airing of government commercials and advertisements. Pursuant to Presidential Decree No. 1362, these will be collected in the form of TCCs which the Parent Company can use in paying for import duties and taxes on its broadcasting equipment. The Parent Company expects to utilize these tax credits within the next 10 years.

In view of the Deal Memorandum with DirecTV discussed in Note 24, the Company has written off the deferred charges amounting to P=335 million pertaining to the DTH subscribers as of December 31, 2005.

AFS are investments in ordinary shares and therefore have no fixed maturity date or coupon rate. AFS with a carrying value of P=13.85 million and P=17.59 million as of December 31, 2005 and 2004 respectively was pledged as part of the collateral to secure the Parent Company’s long-term debt (see Note 15).

12. Impairment Testing of Goodwill and Cable Channels

Cable channels of CPI amounted to P=459,968 as of December 31, 2005 and 2004 (see Note 10).

Goodwill in investment in a subsidiary included under “Other noncurrent assets - net” account in the consolidated balance sheets totaled P=22.5 million as of December 31, 2005 and 2004.

For the impairment test of goodwill and cable channels, the difference between the enterprise value of the subsidiary and the net book value or fair market value of its net assets was compared against the amount of goodwill. The enterprise value of the subsidiaries was determined using their cash flow projections which were based on financial budgets approved by the subsidiaries’ senior management covering a five-year period. The discount rate applied to the cash flow projections is 21.1% while cash flows beyond the 5-year period are extrapolated using a 5% perpetual growth rate that is based on projected long-term inflation rate of 3% and long-term real growth of 2%.

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

Gross revenues. On the average, gross revenues of the subsidiaries over the next five years were projected to grow in line with the economy or with nominal Gross Domestic Product (GDP). 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.

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Operating expenses. Cash expenses of the subsidiaries particularly employee costs and general and administrative expenses were projected to rise at an inflationary pace. On the other hand, production costs or cost of sales were forecasted to increase in line with revenue growth.

Gross margins. Increased efficiencies over the next five years are expected to result to some improvements in gross margins.

Discount rate. The discount rate or Weighted Average Cost of Capital (WACC) was based on the cost of debt and cost of equity of the Parent Company. The cost of equity was computed by adding the risk free rate (based on 5-year Forex Treasury Notes) and risk premium (based on the difference between 10-year US Treasury bonds and 10-year Philippine Peso bonds) multiplied to the equity beta of the Parent Company. On the other hand, the cost of debt, was computed based on the pre-tax weighted interest cost of the Parent Company’s loan.

13. Trade and Other Payables

2005

2004(As restated -

see Note 2)Trade P=1,723,043 P=886,643 Accrued production cost and other expenses 851,100 974,189 Accrued taxes 543,320 369,980 Accrued pension and other long-term employee

benefits (see Note 23) 511,213 710,855 Due to related parties (see Note 14) 311,299 162,023 Accrued interest 22,346 20,997 Other current liabilities 724,400 375,799 P=4,686,721 P=3,500,486

14. Related Party Disclosures

The consolidated financial statements include the financial statements of ABS CBN Broadcasting Corporation and the subsidiaries listed in the following table:

Place of Ownership Interest Company Incorporation Principal Activities 2005 2004 ABS-CBN Australia Pty. Ltd Victoria,

Australia Cable and satellite

programming services

100.0(a) 100.0(a)

ABS-CBN Center for Communication Arts, Inc. Philippines Educational/training 100.0(b) 100.0(b)

ABS-CBN Europe Ltd United Kingdom Cable and satellite programming services

100.0(a) 100.0(a)

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

Philippines Movie production 100.0 100.0

ABS-CBN Global Ltd. (ABS-CBN Global) (c) Cayman Islands Holding company 100.0 100.0 ABS-CBN Interactive, Inc. Philippines Services - interactive

media 100.0 100.0

ABS-CBN International California, USA Cable and satellite programming services

98.0(a) 98.0(a)

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Place of Ownership Interest Company Incorporation Principal Activities 2005 2004 ABS-CBN Middle East FZ-LLC * Dubai, UAE Cable and satellite

programming services

100.0(a) 100.0(a)

ABS-CBN Multimedia, Inc. Philippines Digital electronic content distribution

75.0(d) 75.0(d)

ABS-CBN Integrated and Strategic Property Holdings, Inc. (e)

Philippines Real estate 100.0 100.0

ABS-CBN Publishing, Inc. (f) Philippines Print publishing 100.0 100.0 Creative Programs, Inc. Philippines Content development

and programming services

100.0 100.0

E-Money Plus, Inc. Philippines Services – money remittance

100.0(a) 100.0(a)

Professional Services for Television & Radio, Inc. Philippines Services 100.0 100.0 Sarimanok News Network, Inc. (SNN) Philippines Content development

and programming services

100.0 100.0

Sky Films, Inc. (Sky Films) Philippines Services – film distribution

100.0 100.0

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

100.0 100.0

Studio 23, Inc. (Studio 23) Philippines Content development and programming services

100.0 100.0

TV Food Chefs Inc. Philippines Services - restaurant and food

100.0 100.0

Roadrunner Network, Inc. (Roadrunner) Philippines Services - post production

98.9 98.9

Star Songs, Inc. Philippines Music Publishing 100.0 100.0

(a) indirectly-owned through ABS-CBN Global (b) non-stock ownership interest

(c) with a branch in the Philippines

(d) indirectly-owned through ABS-CBN Interactive, Inc. (e) not yet started commercial operations (f) owns 50% interest in Sky Guide, Inc. and 70% interest in Culinary Publications, Inc. * ABS-CBN Middle East FZ-LLC owns ABS-CBN Middle East LLC

ABS-CBN Broadcasting Corporation is the ultimate Philippine parent entity and the ultimate parent company of the Company is Lopez, Inc.

The following table provides the total amount of transactions, which have been entered into with related parties:

Transactions of the Company with its associates and related parties follow:

2005 2004 Associates Interest on noncurrent receivable from Sky Vision P=261,161 P=112,841 License fees charged by CPI to Central, (a) PCC

and Home Cable 112,334 137,443 Blocktime fees paid by Studio 23 to Amcara (b) 60,816 68,000 Management and other service fees 604 412

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2005 2004 Affiliates Expenses paid by Parent Company & subsidiaries to

Manila Electric Company (Meralco), Bayan Telecommunications Holding, Inc. (Bayantel) & other related parties P=432,346 P=364,527

Termination cost charges of Bayantel, a subsidiary of Lopez, to ABS-CBN Global 286,549 232,140

Airtime revenue from Manila North Tollways Corp. (MNTC), Bayantel and Meralco, an associate of Lopez 61,273 30,162

Expenses and charges paid for by the Parent Company which are reimbursed by the concerned related parties 34,788 46,449

Rental charges of the Parent Company for the use of office space – 133

The related receivables and payables from related parties are as follows:

2005 2004 Due from associates P=150,929 P=161,741 Due from affiliates 95,769 102,139 Total P=246,698 P=263,880

Due to associates P=40,715 P=24,543 Due to affiliates 270,584 137,480 Total P=311,299 P=162,023

Lopez, Inc. (Ultimate Parent) The Company has no transaction with Lopez, Inc. for the years 2005 and 2004.

a. License Fees Charged by CPI to Central

CPI entered into a cable lease agreement (Agreement) with Central for the airing of the cable channels (see Note 10) to the franchise areas of Central and its cable affiliates. The Agreement with Central is for a period of five years effective January 1, 2001, renewable upon mutual agreement. Under the terms of the Agreement, CPI receives license fees from Central and its cable affiliates computed based on agreed rates and on the number of subscribers of Central and its cable affiliates. As the owner of the said cable channels, CPI develops and produces its own shows and acquires program rights from various foreign and local suppliers.

b. Blocktime Fees Paid by Studio 23 to Amcara

Studio 23 owns the program rights being aired in UHF Channel 23 of Amcara. On July 1, 2000, it entered into a blocktime agreement with Amcara for its provincial operations.

Other transactions with associates include cash advances for working capital requirements.

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Terms and Conditions of Transactions with Related Parties The sales to and purchases from related parties are made at normal market prices. Outstanding balances as of year-end are unsecured, interest free and settlement occurs in cash, except for the noncurrent receivables from SkyVision discussed in Note 8. For the years ended December 31, 2005 and 2004, the Company has not made any provision for doubtful accounts relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

As discussed in Note 15, the Parent Company’s obligation under the Senior Credit Agreement (SCA) is jointly and severally guaranteed by its principal subsidiaries.

Compensation of key management personnel of the Company

2005 2004 Compensation P=358,321 P=281,553 Pension benefit 32,128 20,640 Vacation leaves and sick leaves 3,920 4,472 Termination benefits 70,181 – P=464,550 P=306,665

15. Interest-Bearing Loans and Borrowings

EffectiveInterestRate % Maturity 2005 2004

Current: Bank loans 11.17% 355,398 P=355,398 P=466,943 Long-term debt under Senior Credit

Agreement (SCA) 13.01% 1,373,603 1,322,500 806,633 Obligations under capital lease

(see Note 24) 88,246 66,356 P=1,766,144 P=1,339,932

Noncurrent: Long-term debt under SCA (net of

transaction costs amounting to P=197,623 in 2005 12.87% 4,608,101 P=4,307,941 P=5,162,773

Obligations under capital lease (see Note 24) 201,699 132,331

P=4,509,640 P=5,295,104

Bank Loans This represents peso-denominated loans obtained from local banks which bear average annual interest rates of 11.17% in 2005 and 11.017% in 2004.

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Term Loan under the SCA On June 18, 2004, the Parent Company entered into a SCA with several foreign and local banks (Original Lenders) for a US$120 million dual currency syndicated term loan facility for the purpose of refinancing existing indebtedness incurred for the construction of the Eugenio Lopez, Jr. Communications Center, additional investment in the cable TV business and funding capital expenditures and working capital requirements. The SCA is classified in three (3) groups namely: Tranche A, a floating rate facility (3.5% + LIBOR) amounting to US$62 million; Tranche B, a floating rate facility (3.5% + MART1 T-bill) amounting to P=2,688 million; and, Tranche C, a fixed rate facility (3.5% + FXTN) amounting to P=560 million. Both Tranche A and Tranche B have a term of five years with 17 quarterly unequal payments and Tranche C has a term of four years with four annual unequal installments. These have all been availed of in March 2005. The Parent Company’s obligation under the SCA is secured and covered by a Mortgage Trust Indenture (MTI) which consists of substantially all of the Parent Company’s real property and moveable assets used in connection with its business and insurance proceeds related thereto. Further, the Parent Company’s obligation under the SCA is jointly and severally guaranteed by its principal subsidiaries.

The SCA contains provision regarding the maintenance of certain financial ratios and limiting, among others, the incurrence of additional debt, the payment of dividends, making investments, the issuing or selling the Parent Company’s capital stock or some of its subsidiaries, the selling or exchange of assets, creation of liens and effecting mergers. As of December 31, 2005, the Parent Company is in compliance with the provisions of the SCA.

As indicated in the SCA, all existing loans of the Parent Company outside the SCA were settled via proceeds of the term loan facility.

Details of the term loan under SCA using the effective interest rate method are as follows:

2005 Long-term debt under SCA Current portion P=1,322,500 Noncurrent portion 4,307,941 P=5,630,441

Transaction costs related to the SCA amounting to P=324 million were deducted from the face amount of the loan to get its net carrying value. This will be amortized over the life of the loan using the effective interest rate method of amortizing transaction cost detailed as follows:

Tranche A (USD) Tranche B (PHP) Tranche C (PHP) 2004 $353 P=14,526 P=3,331 2005 835 34,809 7,477 2006 774 33,353 7,339 2007 597 26,778 5,373 2008 353 16,440 2,805 2009 72 3,479 630 $2,984 P=129,385 P=26,955

As of December 31, 2005, P=126 million have been amortized and directly reported to profit and loss.

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Repayments of the term loan based on the face value of the SCA are scheduled as follows:

2006 P=1,373,603 2007 1,681,654 2008 1,827,275 2009 1,099,172 P=5,981,704

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 (see Notes 25 and 26).

16. Stockholders’ Equity

a. Capital Stock

Details of authorized and issued capital stock follow:

Number of

Shares Amount (In Thousands)

Authorized: Common shares - P=1 par value 1,500,000,000 P=1,500,000 Issued: Common shares 779,583,312 P=779,583

b. On April 24, 1998, BHC, then major stockholder of ABS-CBN, transferred all of its investments in ABS-CBN to Lopez, BHC’s parent company, in exchange for convertible and nonconvertible notes (Notes). The convertible notes can be exchanged by BHC for the ABS-CBN shares transferred. The Notes shall terminate on any earlier date if the convertible notes have been converted or when Lopez has satisfied its obligations with respect to all such convertible notes that have been properly converted. After the transfer, Lopez had all the voting rights associated with the shares.

c. On December 28, 1998, BHC sold a portion of the Notes to ABS-CBN for P=800,000, the equivalent market value of the underlying 40 million ABS-CBN shares.

On September 29, 1999, ABS-CBN Holdings Corporation (50% owned by Lopez) offered 132 million Philippine Depositary Receipts (PDRs) relating to 132 million ABS-CBN shares. Each PDR grants the holder, upon payment of the exercise price and subject to certain other conditions, the delivery of one ABS-CBN share or the sale of and delivery of the proceeds of such sale of one ABS-CBN share. The ABS-CBN shares are still subject to ownership restrictions on shares of corporations engaged in mass media and ABS-CBN may reject the transfer of shares to persons other than Philippine nationals. The PDRs may be exercised at any time from October 7, 1999 until the expiry date as defined in the terms of the offering. Any cash dividends or other cash distributions in respect of the underlying ABS-CBN shares shall be applied by ABS-CBN Holdings Corporation towards payment of operating expenses

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and any amounts remaining shall be distributed pro-rata among outstanding PDR holders. The PDRs were listed in the Philippine Stock Exchange on October 7, 1999.

The Notes held by ABS-CBN were amended to allow for conversion into shares or into PDRs. ABS-CBN converted P=200,000 of the Notes into PDRs underlying 10 million ABS-CBN shares and these are shown as “Philippine deposit receipts convertible to common shares” in the Stockholders’ Equity section of the balance sheets. The remaining P=600,000 of the Notes underlying 30 million ABS-CBN shares were converted into 30 million PDRs and these PDRs were included in the PDR offering described above.

d. On June 3, 2004, the BOD approved the declaration of cash dividend of P=0.64 per share to all stockholders of record as of July 26, 2004 payable on August 10, 2004.

e. 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=1,666,451 and P=1,605,713 as of December 31, 2005 and 2004, respectively.

17. Agency Commission, Incentives and Co-producers’ Share

2005 2004 Agency commission P=1,534,605 P=1,759,939 Incentives and co-producers’ share 550,142 436,723 P=2,084,747 P=2,196,662

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.

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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18. Production Costs

2005 2004 Personnel expenses and talent fees (see Note 23) P=2,513,203 P=2,524,568 Facilities related expenses (see Notes 14 and 24) 840,284 716,189 Amortization of program rights (see Notes 10) 711,354 766,407 Depreciation (see Note 9) 679,547 541,110 Other program expenses (see Note 14) 946,396 919,874 P=5,690,784 P=5,468,148

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.

19. Cost of Sales and Services

2005 2004 Facilities related expenses (see Notes 14 and 24) P=535,809 P=478,384 Termination costs (see Note 14) 404,600 451,233 Inventory cost 363,115 545,228 Personnel expenses (see Note 23) 167,972 209,200 Amortization of program rights (see Note 10) 115,964 120,731 Depreciation (see Note 9) 47,894 39,614 Other expenses (see Note 14) 738,252 540,132 P=2,373,606 P=2,384,522

20. General and Administrative Expenses

2005

2004(As restated -

see Note 2)Personnel expenses (see Note 23) P=2,448,961 P=1,680,197 Depreciation (see Note 9) 507,288 565,579 Advertising and promotions 503,475 95,448 Facilities related expenses (see Notes 14 and 24) 496,076 407,653 Contracted services 404,060 337,774 Amortization of deferred charges (see Note 10) 345,131 92,509 Provision for doubtful accounts (see Note 3) 159,520 164,045 Taxes and licenses 151,407 168,959 Entertainment, amusement and recreation 118,634 128,428 Other expenses (see Note 14) 656,141 465,132 P=5,790,693 P=4,105,724

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21. Other Income and Expenses

Other Income

2005 2004 Space rental (see Note 24) P=89,283 P=78,247 Management fees 40,314 59,592 Royalty income 11,450 17,576 Others 146,095 71,728 P=287,142 P=227,143

Finance Revenue

2005 2004 Interest income P=297,435 P=152,897 Mark-to-market gain (see Note 15) 34,828 – P=332,263 P=152,897

Finance Cost

2005 2004 Interest expense P=683,465 P=802,850 Hedge cost 218,845 – Amortization of debt issue costs (see Note 15) 87,046 107,880 Bank service charges 12,241 – Mark-to-market loss 393 – P=1,001,990 P=910,730

22. Income Tax

Significant components of deferred tax assets and liabilities are as follows:

Consolidated deferred tax assets - net of the Company follow:

2005 2004 Deferred tax assets - net: Capitalized interest, duties and taxes

(net of accumulated depreciation) (P=326,515) P=– Accrued retirement expense and other

long term benefits 176,036 11,070 Allowance for doubtful accounts 158,542 17,640 Customer’s deposit 135,456 – Reimbursable expenses 77,272 – Net operating loss carryover (NOLCO ) 11,528 5,254 Allowance for inventory obsolescence 10,384 3,538 Unrealized foreign exchange loss (8,045) (320) MCIT 5,185 4,309 Others 54,304 – P=294,147 P=41,491

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Deferred tax liabilities - net of the Parent Company in 2004 follow:

Deferred tax liabilities - net: Capitalized interest, duties and taxes

(net of accumulated depreciation)

(P=336,053) Accrued retirement expense and others 216,171 Allowance for doubtful accounts 60,187 Project development costs written off 45,483 Restatement of leases (3,883) Unrealized foreign exchange loss 463 (P=17,632)

The provision for income tax follows:

2005

2004(As restated -

see Note 2)Current P=436,633 P=320,929 Deferred (247,269) (46,189) P=189,364 P=274,740

The details of the unrecognized deductible temporary differences, NOLCO, and MCIT of the subsidiaries follow:

2005 2004 NOLCO P=201,652 P=285,884 Allowance for doubtful accounts 146,429 232,134 MCIT 908 2,355 Accrued retirement expense and others 5,253 2,669 P=354,242 P=523,042

Management believes that it is not probable that taxable income will be available against which temporary differences, NOLCO and MCIT will be utilized.

MCIT of the subsidiaries amounting to P=6,093 can be claimed as tax credit against future regular corporate income tax as follows:

Year Incurred Expiry Dates Amount 2003 December 31, 2006 P=1,245 2004 December 31, 2007 2,384 2005 December 31, 2008 2,464 P=6,093

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NOLCO of the subsidiaries amounting to P=234,589 can be claimed as deductions from regular corporate income tax as follows:

Year Incurred Expiry Dates Amount 2003 December 31, 2006 P=142,489 2004 December 31, 2007 49,644 2005 December 31, 2009 42,456 P=234,589

The reconciliation of income from continuing operations before income tax computed at the statutory tax rate to provision for income tax as shown in the consolidated statements of income is as follows:

2005 2004 Statutory tax rate 32% 32%Additions to (reduction in) income taxes resulting

from the tax effects of: Equity in net losses of investees 33 1 Interest income subject to final tax (19) (1) Unrecognized deferred tax assets (11) (1) Change in tax rate 3 – Nondeductible interest and others 1 (4) Effective tax rates 39% 27%

23. Pension and Other Long-Term Employee Benefits

The Company’s pension plan is composed of funded (Parent Company) and unfunded (Subsidiaries), noncontributory and actuarially computed pension plan except for ABS-CBN International (unfunded and contributory) covering substantially all of its employees. The benefits are based on years of service and compensation during the last year of employment.

The Company has also agreed to provide certain additional long-term employee benefits to all of its employees upon retirement. These benefits are unfunded.

In 2005, the Company implemented an Early Retirement Program. The employees availed this program from July to December 2005. Total retrenchment cost amounted to P=576.3 million, net of recognized curtailment gain of P=158.4 million.

The following table summarizes the components of consolidated net benefit expense (income) recognized in the statements of income and amounts recognized in the balance sheets of plan based on actuarial valuation dated December 31,2005:

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Net Benefit Expense (Income)

Pension Plan Other Long-term

Employee Benefits 2005 2004 2005 2004 Current service cost P=41,474 P=46,105 P=6,289 P=8,191 Interest cost 51,482 46,664 – – Expected return on plan assets (12,847) (12,658) – – Net actuarial gain recognized

during the year (351) – – 23,757 Curtailment gain (158,418) – – – Short-term normal cost – – 19,126 16,974 Net benefit expense/(income) (P=78,660) P=80,111 P=25,415 P=48,922

2005 2004 Actual return on Parent Company’s plan assets P=19,364 P=8,609

Benefit Liability

Pension Plan Other Long-term

Employee Benefits 2005 2004 2005 2004 Present value of obligation P=343,887 P=396,936 P=393,659 P=344,736 Fair value of plan assets (138,952) (126,105) – – 204,935 270,831 393,659 344,736 Unrecognized net actuarial losses 33,600 46,365 – – Total expense – – 25,415 48,923 Benefits paid (187) – (146,396) – Benefit liability P=238,535 P=317,196 P=272,678 P=393,659

Consolidated changes in the present value of the defined benefit obligation are as follows:

Pension Plan Other Long-term

Employee Benefits 2005 2004 2005 2004 Defined benefit obligation at

beginning of year P=396,936 P=398,667 P=393,659 P=344,736 Short term normal cost – – 19,126 16,973 Curtailment gains (146,005) – – – Interest cost 51,482 46,664 – – Current service cost 41,474 46,105 6,289 8,192 Benefits paid – (46,412) (146,396) (155)Actuarial (gains) losses on

obligation – (48,088) – 23,913 Defined benefit obligation at

end of year P=343,887 P=396,936 P=272,678 P=393,659

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Change in the fair value of plan assets of the Parent Company are as follows:

2005 2004 Fair value of plan assets at beginning of year P=126,105 P=126,582 Expected return on plan assets 12,847 12,658 Actual contributions – 35,000 Benefits paid – (46,412)Actuarial losses – (1,723)Fair value of plan assets at end of year P=138,952 P=126,105

The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

2005 2004 Investment in FXTN/FRTN 45.35% 35.22% Investment in bonds 21.93% 35.78% Short-term equity investment 17.53% 13.76%

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 in determining pension and sick and vacation leave benefit obligations for the Company’s plans are shown below:

2005 2004 Discount rate 13.54% 11.62% Expected rate of return on plan assets 10% 10% Future salary rate increase 6% 6%

24. 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 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.

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.

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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. As of December 31, 2005, license fee amounting to P=1.629 billion have been recognized in the consolidated financial statements. ABS-CBN International’s share in the subscription revenues earned from subscribers that have migrated to DirecTV amounted to P=93.1 million in 2005.

On January 17, 2006, the Parent Company and DirecTV agreed to amend the Memorandum entered in June 1, 2005 that include among others the extension of the migration period from February 2006 to August 2006.

Operating lease commitments - Company as Lessee a. The Parent Company and subsidiaries lease office facilities, space and satellite equipment.

Future minimum rentals payable under non-cancelable operating leases are as follows as of December 31:

2005 2004 Within one year P=291,921 P=361,373 After one year but not more than five years 1,184,726 1,078,456 After five years 626,252 571,139 P=2,102,899 P=2,010,968

Operating lease commitments - Company as Lessor b. 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 between 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 as of December 31:

2005 2004 Within one year P=117,854 P=30,740 After one year but not more than five years 171,297 118,524 After five years 11,257 21,548 P=300,408 P=170,812

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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:

2005 2004 Within one year P=118,984 P=87,979 After one year but not more than five years 233,287 161,806 Total minimum lease payments 352,271 249,785 Less amounts representing finance charges 62,326 51,098 Present value of minimum lease payments 289,945 198,687 Less current portion 88,246 66,356 P=201,699 P=132,331

25. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments, other than derivatives, comprise bank loans, finance leases and, and cash and short-term deposits. The main purpose of these financial instruments is to raise finance 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, cross currency swaps and currency forward contracts. The purpose is to manage the interest rate and currency risks arising from the Company’s operations and its sources of finance.

It is, and has been throughout the year under review, the Company’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Company’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The BOD reviews and agrees policies for managing each of these risks and they are summarized below. The Parent Company’s accounting policies in relation to derivatives are set out in Note 2.

Cash Flow Interest Rate Risk The Company’s exposure to the risk for changes in market interest rates relates primarily to the Company’s long- term debt obligations with a floating interest rate.

To manage this mix in a cost-efficient manner, the Company enters 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. At December 31, 2005, after taking into account the effect of interest rate swaps, approximately 45% of the Company’s borrowings are at a fixed rate of interest.

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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. Approximately 50% of these obligations are denominated in currencies other than the functional currency of the operating unit.

The Company enters into cross currency swaps, to manage this risk and eliminate the variability of cash flows due to changes in the fair value of the foreign-currency-denominated debt maturing more than 1 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.

Credit Risk The Company trades only with recognized, creditworthy third parties. Customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant.

With respect to credit risk arising from the other financial assets of the Company, which comprise cash and cash equivalents, available-for-sale financial assets and certain derivative instruments, 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.

Since the Company trades only with recognized third parties, there is no requirement for collateral.

Liquidity Risk The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and finance leases.

26. Financial Assets and Financial Liabilities

The following table sets forth the carrying values and estimated fair values of consolidated financial assets and liabilities recognized as of December 31, 2005. There are no material unrecognized financial assets and liabilities as of December 31, 2005.

Carrying Amount Fair Value Current financial assets: Cash and cash equivalents P=1,751,730 P=1,751,730 Trade and other receivables - net 4,667,630 4,667,630 Derivative assets 193,305 193,305 Total current financial assets 6,612,665 6,612,665 Noncurrent financial assets Available-for-sale investments 30,931 30,931 Long-term receivables from related parties 2,341,683 2,341,683 Total noncurrent financial assets 2,372,614 2,372,614 Total financial assets P=8,985,279 P=8,985,279

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Carrying Amount Fair Value Current financial liabilities: Trade and other payables P=4,686,721 P=4,686,721 Interest-bearing loans and borrowings 355,398 356,150 Derivative liabilities 103,912 103,912 Total current financial liabilities 5,146,031 5,146,783 Noncurrent financial liabilities Interest-bearing loans and borrowings 5,630,441 6,386,610 Total financial liabilities P=10,776,472 P=11,533,393

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:

Cash and cash equivalents, trade and other receivables and trade and other payables: Due to the short-term nature of transactions, the fair values of these instruments approximate the carrying amount as of balance sheet date.

Available-for-sale investments: The fair values were determined by reference to market bid quotes as of balance sheet date.

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.

Other variable rate loans The face value approximates fair value because of recent and frequent repricing based on market conditions.

Forward foreign exchange contracts and bifurcated foreign currency forwards: The fair values were determined using forward exchange market rates at the balance sheet date.

Interest Rate Risk The following table sets out the carrying amount, by maturity, of the Company’s consolidated financial instruments that are exposed to interest rate risk:

2005 Fixed Rate Within1 Year 1-2 years 2-3 Years 3-4 years 4-5 Years

Morethan 5 Years Total

90,727 152,739 172,053 63,731 – – 479,250

2005 Floating Rate Within1 Year 1-2 years 2-3 Years 3-4 years 4-5 Years

Morethan 5 Years Total

1,587,171 1,438,504 1,531,830 949,084 – – 5,506,589

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2004 Fixed Rate Within1 Year 1-2 years 2-3 Years 3-4 years 4-5 Years

Morethan 5 Years Total

– 152,758 150,574 169,970 63,073 – 536,375

2004 Floating Rate Within1 Year 1-2 years 2-3 Years 3-4 years 4-5 Years

Morethan 5 Years Total

1,107,672 1,039,414 1,283,787 1,369,673 849,761 – 5,650,307

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. 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.

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. The long-term principal-only currency swaps have an aggregate notional amount of US$54.6 million as of December 31, 2005 and a weighted average swap rate of P=56.01 to US$1. 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=1.3 billion, 5.125% on a notional amount P=203 million, 3-month PHIREF minus 2.9% on a notional amount P=1.7 billion and 3-month PHIREF minus 3.1% on a notional amount on P=264 million.

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. These USD interest rate swaps and PHP interest rate swaps have an aggregate outstanding notional amount of US$32 million and P=394 million as of December 31, 2005, respectively, with payments up to September 2006 and March 2008.

The terms of the USD and PHP interest rate swap agreements are as follows:

Outstanding Notional Amount Maturity Receive Pay US$31,620 2008 3-Month Libor + 3.5% 7.18% PHP445,984 2008 PHIREF + 3.5% 14.40%

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.

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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=52.6 million (P=34.19 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 statements 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 statements of income of P=48 million.

The Parent Company did not designate its PHP interest rate swap as an accounting hedge because the effectiveness tests show ineffective results. During the year, the mark-to-market gains recorded immediately in the consolidated statements of income amounted to P=15 million.

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. For the year ended December 31, 2005, the amortization of the initial CTA amounted to P=31 million and is recorded as a reduction in interest expense.

Embedded Derivatives. As of December 31, 2005, the Company has outstanding embedded foreign currency derivatives which were bifurcated from various non-financial contracts. The impact of these embedded derivatives is not significant.

As discussed in Note 8, the Parent Company has a receivables from Sky Vision that is convertible into the latter’s common share, which are not quoted in an active market. The conversion option embedded in the receivable is not separately accounted for as a financial asset at fair value through profit and loss. The entire receivable from Sky Vision is reported at cost subject to impairment.

27. EPS Computations

Basic EPS amounts are calculated by dividing the net income for the period attributable to common shareholders by the weighted average number of common shares outstanding during the period.

The following table presents information necessary to calculate EPS:

2005 2004 (a) Net income attributable to equity holders of

parent P=287,744 P=750,755

(b) Weighted average shares outstanding 769,583,312 769,583,312 Basic EPS: P=0.374 P=0.976

- 54 -

28. Note to Statements of Cash Flow

2005 2004 Noncash investing and financing activities: Acquisition of property and equipment

under capital lease P=166,077 P=82,244 Acquisition of program rights on account 265,852 315,284 Acquisition of property and equipment

on account 81,466 21,100 Acquisition of property and equipment as

settlement of trade receivables 44,280 – 29. Reclassifications

The following accounts in December 31, 2004 consolidated financial statements have been reclassified to conform to the 2005 presentation:

Nature Amount

Balance Sheet: Production and distribution business under “Other noncurrent

assets” to Program rights and other intangible assets P=617,552 Due from related parties to Trade and other receivables 262,435 CPI receivable from Sky Vision under “ Trade and other

receivables” to Long-term receivable from related parties 390,485 Advances to associates to Trade and other receivables 1,445 Program rights - current to Noncurrent program rights and other

intangible assets 125,595 Movie-in-progress under “Other current asset” account

to Program rights - current 35,572 Due to related parties to Trade and other payables 162,023 Obligations for program rights - net of current portion to

Obligations for program rights 124,094 Statement of Income: Other expenses under “General and administrative expenses” to

Other expenses “Cost of Sales” account 15,432 Amortization, previously shown as a separate line item to: Amortization of deferred charges under “General and

administrative expenses” 91,220 Amortization of Debt issue cost under “Finance Costs” 107,880 Depreciation previously shown as a separate line item, shown to: Production costs 541,110 Cost of sales and services 39,614 General and administrative expenses 565,579 Gross-up of Agency commission, incentives and co-producers’

share to Sale of services 150,913

- 55 -

30. 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=305,400 plus legal interest compounded quarterly and exemplary damages of P=100,000.

The BOD resolved on June 27, 1991 to declare as scrip dividends, in favor of all stockholders of record as of that date, whatever amount that may be recovered from the foregoing pending claims and the rentals subsequently settled in 1995. The scrip dividends were declared on March 29, 2000. In 2003, additional scrip dividends of P=13,290 were recognized for the said stockholders.

On April 28, 1995, the Parent Company and the government entered into a compromise settlement of rental claims from 1986 to 1992. The compromise agreement includes payment to the Parent Company of P=29,914 (net of the government’s counterclaim against the Parent Company of P=67,586) by way of tax credits or other forms of noncash settlement as full and final settlement of the rentals from 1986 to 1992. The TCCs were issued in 1998.

b. The Company has contingent liabilities with respect to claims and lawsuits filed by third parties. The events that transpired last February 4, 2006, which resulted in the death of 71 people and injury to about 200 others led the Company to shoulder the burial expenses of the dead and medical expenses of the injured, which did not result in any direct or contingent financial obligation that is material to the Company. As of March 29, 2006, 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.

Management, after consultations with outside legal counsels, is of the opinion that the eventual liability from these claims cannot be presently determine, if any, and an adverse judgment in any one cases will not materially affect its financial position and results of operations.

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)

Randolph T. Estrellado 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

7,973 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

*SGVMC207451*

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in Thousands) December 31

2005

2004 (As restated -

Note 2) ASSETS Current Assets Cash and cash equivalents (Notes 5 and 26) P=1,751,730 P=1,291,557 Trade and other receivables (Notes 3, 6, 8, 14, 24 and 26) 4,667,630 3,631,219 Derivative assets (Notes 2 and 26) 193,305 – Program rights - current (Notes 3, 10, 18 and 19) 799,040 782,960 Other current assets - net (Note 7) 826,395 593,854 Total Current Assets 8,238,100 6,299,590 Noncurrent Assets Investments in associates (Note 8) 44,233 237,884 Long-term receivables from related parties (Notes 3, 8 and 26) 2,341,683 2,190,913 Property and equipment at cost - net (Notes 3, 9, 15 and 24) 10,287,599 10,650,285 Noncurrent program rights and other intangible assets

(Notes 3, 10, 18 and 19) 1,516,558 1,547,486 Deferred tax assets (Notes 3 and 22) 294,147 41,491 Other noncurrent assets - net (Notes 3, 11 and 12) 2,073,246 2,619,326 Total Noncurrent Assets 16,557,466 17,287,385 P=24,795,566 P=23,586,975

LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Trade and other payables (Notes 3, 13, 14, 23 and 26) P=4,686,721 P=3,500,486 Income tax payable 28,150 13,633 Derivative liabilities (Notes 2 and 26) 103,912 – Obligations for program rights - current 360,624 374,101 Interest-bearing loans and borrowings - current

(Notes 9, 15, 24 and 26) 1,766,144 1,339,932 Total Current Liabilities 6,945,551 5,228,152 Noncurrent Liabilities Interest-bearing loans and borrowings - net of current portion

(Notes 9, 15, 24 and 26) 4,509,640 5,295,104 Obligations for program rights - net of current portion 61,778 43,498 Deferred tax liabilities - net (Note 22) – 17,632 Asset retirement obligation (Note 2) 1,698 – Total Noncurrent Liabilities 4,573,116 5,356,234

(Forward)

*SGVMC207451*

- 2 - December 31

2005

2004 (As restated -

Note 2) Stockholders’ Equity Capital stock (Note 16) P=779,583 P=779,583 Capital paid in excess of par value 706,047 706,047 Cumulative translation adjustments 153,194 138,334 Retained earnings (Notes 2 and 16) 11,777,060 11,536,377 Philippine depositary receipts convertible

to common shares (Note 16) (200,000) (200,000) Total Stockholders’ Equity attributable

to Equity holders of Parent Company 13,215,884 12,960,341 Minority Interest 61,015 42,248 Total Stockholders’ Equity 13,276,899 13,002,589 P=24,795,566 P=23,586,975 See accompanying Notes to Consolidated Financial Statements.

*SGVMC207451*

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

2005

2004 (As restated -

Note 2)

REVENUES Airtime revenues (Note 14) P=10,333,677 P=11,086,442 Sale of services (Notes 14 and 24) 4,248,144 3,930,321 License fees (Note 24) 1,619,367 – Sale of goods (Note 14) 845,888 754,569 17,047,076 15,771,332

EXPENSES (INCOME) General and administrative (Notes 14, 20, 23 and 24) 5,790,693 4,105,724 Production costs (Notes 14, 18, 23 and 24) 5,690,784 5,468,148 Cost of sales and services (Notes 14, 19, 23 and 24) 2,373,606 2,384,522 Agency commission, incentives

and co-producers’ share (Note 17) 2,084,747 2,196,662 Finance costs (Note 21) 1,001,990 910,730 Finance revenue (Note 21) (332,263) (152,897) Equity in net losses of associates (Note 8) 193,651 47,325 Foreign exchange loss - net 47,161 2,347 Other income (Notes 14, 21 and 24) (287,142) (227,143) 16,563,227 14,735,418

INCOME BEFORE INCOME TAX 483,849 1,035,914

PROVISION FOR INCOME TAX (Note 22) 189,364 274,740

NET INCOME 294,485 761,174

Attributable to: Equity holders of Parent Company (Note 27) P=287,744 P=750,755 Minority interest 6,741 10,419 P=294,485 P=761,174

EARNINGS PER SHARE (EPS) (Note 27)

Basic EPS P=0.374 P=0.976 See accompanying Notes to Consolidated Financial Statements.

*SGVMC207451*

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Amounts in Thousands Except Per Share Amounts) Attributed to equity holders of parent

Capital Stock

(Note 16)

Capital in Excess of

Par Value

Cumulative Translation

Adjustments (Note 26)

Unappropriated Retained Earnings

(As restated - Notes 2 and 16)

Appropriated Retained Earnings

Philippine Depository

Receipts Convertible to

Common Shares (Note 16) Total

Minority Interest Total Equity

At December 31, 2004, as previously reported P=779,583 P=706,047 P=138,334 P=3,629,483 P=8,300,000 (P=200,000) P=13,353,447 P=42,248 P=13,395,695

Effect of adoption of PAS 19 and 36 (Note 2) – – – (393,106) – – (393,106) – (393,106)

At December 31, 2004, as restated 779,583 706,047 138,334 3,236,377 8,300,000 (200,000) 12,960,341 42,248 13,002,589 Effect of adoption of PAS 39 – – 117,071 (47,061) – – 70,010 – 70,010 At January 1, 2005, as restated 779,583 706,047 255,405 3,189,316 8,300,000 (200,000) 13,030,351 42,248 13,072,599 Minority interest – – – – – – – 12,026 12,026 Cash flow hedges – – (52,603) – – – (52,603) – (52,603) Amortization of initial CTA – – (31,845) – – – (31,845) – (31,845) Translation adjustments during the year – – (17,763) – – – (17,763) – (17,763) Total income and expense for the year

recognized directly in equity – – (102,211) – – – (102,211) 12,026 (90,185) Net income – – 287,744 – – 287,744 6,741 294,485 Total income and expense for the year (102,211) 287,744 – – 185,533 18,767 204,300 At December 31, 2005 P=779,583 P=706,047 P=153,194 P=3,477,060 P=8,300,000 (P=200,000) P=13,215,884 P=61,015 P=13,276,899

At December 31, 2003, as previously reported P=779,583 P=706,047 P=130,251 P=3,370,470 P=8,300,000 (P=200,000) P=13,086,351 P=31,829 P=13,118,180

Effect of adoption of PAS 19 and 36 (Note 2) – – – (385,914) – – (385,914) – (385,914)

At December 31, 2003, as restated 779,583 706,047 130,251 2,984,556 8,300,000 (200,000) 12,700,437 31,829 12,732,266 Translation adjustments recognized

directly to equity – – 8,083 – – – 8,083 – 8,083 Net income for the year – – – 750,755 – – 750,755 10,419 761,174 Total income and expense for the year – – 8,083 750,755 – – 758,838 10,419 769,257 Cash dividends P=0.64 per share in 2004

(Note 16) – – – (498,934) – – (498,934) – (498,934) Balances at December 31, 2004 P=779,583 P=706,047 P=138,334 P=3,236,377 P=8,300,000 P=(200,000) P=12,960,341 P=42,248 P=13,002,589 See accompanying Notes to Consolidated Financial Statements.

*SGVMC207451*

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

2005

2004 (As restated -

Note 2) CASH FLOWS FROM OPERATING ACTIVITIES Income from before income tax P=483,849 P=1,035,914 Adjustments for: - Depreciation (Note 9) 1,234,729 1,146,303 Interest expense (Note 21) 683,465 802,850 Amortization of: Program rights (Note 10) 827,318 887,138 Production and distribution (Note 10) 15,825 49,039 Deferred charges and debt issue cost (Notes 20 and 21) 432,177 200,389 Provisions for: Retirement expense (Note 23) 105,173 129,033 Doubtful accounts (Note 20) 159,520 164,045 Decline in value of marketable securities 4,625 918 Inventory obsolescence 1,200 4,002 Interest income (Note 21) (297,435) (152,897) Equity in net losses of investees 193,651 47,325 Curtailment gain (Note 23) (158,418) – Mark-to-market gain (Note 21) (34,453) – Unrealized foreign exchange gain (Note 21) (20,847) (940) Gain on sale of property and equipment (8,262) (292) Operating income before working capital changes 3,622,117 4,312,827 Decrease (increase) in: Receivables (1,198,013) 398,360 Program rights and other intangible assets (585,281) (467,561) Other current assets (225,066) (88,824) Increase (decrease) in: Trade and other payables 1,025,539 301,898 Obligations for program rights (243,879) (167,238) Cash generated from operations 2,395,417 4,289,462 Income tax paid (422,116) (431,653) Net cash provided by operating activities 1,973,301 3,857,809 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (639,040) (808,117) Increase in: Other non-current assets (325,596) (571,403) Long-term receivables from related parties – (2,073,849) Interest received 36,129 41,528 Proceeds from sale of property and equipment 25,468 26,771 Net cash used in investing activities (903,039) (3,385,070) (Forward)

*SGVMC207451*

- 2 -

Years Ended December 31

2005

2004 (As restated -

Note 2)

CASH FLOWS FROM FINANCING ACTIVITIES Interest and other financial charges paid (P=713,921) (P=815,695) Payments of: Long-term debt (481,381) (5,583,565) Bank loans (111,545) - Capital lease (74,819) (59,832) Cash and scrip dividends – (498,934) Proceeds from: Long-term debt 745,749 5,975,277 Bank loans – 246,366 Net cash used in financing activities (635,917) (736,383)

EFFECTS OF TRANSLATION ADJUSTMENTS TO CASH 25,828 (25,154)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 460,173 (288,798)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,291,557 1,580,355

CASH AND CASH EQUIVALENTS AT END OF YEAR P=1,751,730 P=1,291,557 See accompanying Notes to Consolidated Financial Statements.

*SGVMC207451*

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 television distribution and telecommunication services overseas, movie production, audio recording and distribution, video/audio post production, and film distribution. Other activities of the subsidiaries include merchandising, internet and mobile services and publishing.

The Parent Company is 57% owned by Lopez, Inc. (Lopez) (see Notes 14 and 16).

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

The accompanying financial statements were approved and authorized for issue by the Board of Directors (BOD) on March 29, 2006.

2. Summary of Significant Accounting Policies

Basis of Preparation The consolidated financial statements have been prepared in compliance with the accounting principles generally accepted in the Philippines as set forth in Philippine Financial Reporting Standards (PFRSs). These are the first consolidated financial statements prepared in compliance with PFRSs.

The Parent Company and its subsidiaries (collectively referred to as “the Company”) prepared its consolidated financial statements until December 31, 2004 in compliance with Statements of Financial Accounting Standards and Statements of Financial Accounting Standards/International Accounting Standards.

The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments and available-for-sale investments that are measured at fair value. The consolidated financial statements are presented in Philippine Pesos, which is the Company’s functional and presentation currency and all values are rounded to the nearest thousand (P=000) except when otherwise indicated.

Explanation of Transition to PFRSs As stated above, these are the Company’s first consolidated financial statements prepared in compliance with PFRSs. The Company applied PFRS 1, First-time adoption of PFRS, in preparing these financial statements, with January 1, 2004 as the date of transition.

- 2 -

*SGVMC207451*

The transition to PFRSs resulted in certain changes to the Company’s previous accounting policies (referred to in the following tables and explanations as “previous GAAP”). The comparative figures for the 2004 consolidated financial statements were restated to reflect the changes in policies except those relating to financial instruments. The Company availed of the exemption under PFRS 1 and applied PAS 32 and PAS 39, the standards on financial instruments, from January 1, 2005. The cumulative effect of adopting these standards are credited to January 1, 2005 retained earnings.

The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the following new/revised standards effective for financial years beginning on or after January 1, 2005:

§ PAS 16, “Property, Plant and Equipment”; § PAS 19, “Employee Benefits”; § PAS 32, “Financial Instruments: Disclosure and Presentation”; § PAS 39, “Financial Instruments: Recognition and Measurement”; and § PFRS 3, “Business Combinations,” PAS 36 (revised) “Impairment of Assets” and

PAS 38 (revised) “Intangible Assets.”

An explanation of the effects of the adoption of PFRSs is set forth in the following tables and notes.

Reconciliation of assets, liabilities and stockholders’ equity at January 1, 2004, the date of transition to PFRS, and December 31, 2004, the end of the latest period presented using previous GAAP follows:

January 1, 2004 December 31, 2004

Notes Previous

GAAP

Effect of transition

to PFRS PFRS Previous

GAAP

Effect of transition to PFRS PFRS

ASSETS Current Assets Cash and cash equivalents P=1,580,355 P=– P=1,580,355 P=1,291,557 P=– P=1,291,557 Trade and other receivables

(see Note 29) 4,118,685 – 4,118,685 3,631,219 – 3,631,219 Program rights - current (see Note 29) 880,975 – 880,975 782,960 – 782,960 Other current assets (see Note 29) 508,681 – 508,681 593,854 – 593,854 Total Current Assets 7,088,696 – 7,088,696 6,299,590 – 6,299,590 Noncurrent Assets Investments in associates 286,007 (798) 285,209 238,517 (633) 237,884 Long-term receivables from related

parties (see Note 29) 2,190,913 – 2,190,913 Property and equipment at cost - net 10,909,767 – 10,909,767 10,650,285 – 10,650,285 Noncurrent program rights and other

intangible assets (see Note 29) 1,602,803 – 1,602,803 1,547,486 – 1,547,486 Other noncurrent assets (see Note 29) b,c 2,338,762 (83,800) 2,254,962 2,725,460 (64,643) 2,660,817 Total Noncurrent Assets 15,137,339 (84,598) 15,052,741 17,352,661 (65,276) 17,287,385 P=22,226,035 (P=84,598) P=22,141,437 P=23,652,251 (P=65,276) P=23,586,975

- 3 -

*SGVMC207451*

January 1, 2004 December 31, 2004

Notes Previous

GAAP

Effect of transition

to PFRS PFRS Previous

GAAP

Effect of transition to PFRS PFRS

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities Trade and other payables (see Note 29) b P=2,534,492 P=429,624 P=2,964,116 P=3,034,915 P=465,571 P=3,500,486 Income tax payable 124,357 – 124,357 13,633 – 13,633 Interest-bearing loans

and borrowings - current 2,392,499 – 2,392,499 1,339,932 – 1,339,932 Obligations for program rights -

current (see Note 29) 258,960 – 258,960 374,101 – 374,101 Total Current Liabilities 5,310,308 429,624 5,739,932 4,762,581 465,571 5,228,152 Noncurrent Liabilities Interest-bearing loans and

borrowings - net of current portion 3,502,551 – 3,502,551 5,295,104 – 5,295,104 Obligations for program rights -

net of current portion (see Note 29) 10,593 – 10,593 43,498 – 43,498 Deferred tax liabilities - net b 165,183 (128,308) 36,875 155,373 (137,741) 17,632 Total Noncurrent Liabilities 3,678,327 (128,308) 3,550,019 5,493,975 (137,741) 5,356,234 Stockholders’ Equity Capital stock 779,583 – 779,583 779,583 – 779,583 Capital paid in excess of par value 706,047 – 706,047 706,047 – 706,047 Cumulative translation adjustments 130,251 – 130,251 138,334 – 138,334 Retained earnings c, d 11,670,470 (385,914) 11,284,556 11,929,483 (393,106) 11,536,377 Philippine deposit receipts convertible

to common shares (200,000) – (200,000) (200,000) – (200,000) Total Stockholders’ Equity

attributable to Equity holders of the Parent Company 13,086,351 (385,914) 12,700,437 13,353,447 (393,106) 12,960,341

Minority Interests 151,049 – 151,049 42,248 – 42,248 Total Stockholders’ Equity 13,237,400 (385,914) 12,851,486 13,395,695 (393,106) 13,002,589 P=22,226,035 (P=84,598) P=22,141,437 P=23,652,251 (P=65,276) P=23,586,975

Reconciliation of income and expenses for 2004 follows:

Notes Previous GAAP

Effect of transition to

PFRS PFRS

REVENUES (see Note 29) P=15,771,332 P=– P=15,771,332

EXPENSES (INCOME) Production costs 5,468,148 – 5,468,148 General and administrative (see Note 29) b, c 4,088,688 17,036 4,105,724 Cost of sales and services (see Note 29) 2,384,522 – 2,384,522 Agency commission, incentives and

co-producers’ share (see Note 29) 2,196,662 – 2,196,662 Finance costs (see Note 29) 910,730 – 910,730 Equity in net losses of associates 47,490 (165) 47,325 Foreign exchange loss - net 2,347 – 2,347 Finance revenue (152,897) – (152,897) Other income (227,143) – (227,143) 14,718,547 16,871 14,735,418

INCOME BEFORE INCOME TAX 1,052,785 (16,871) 1,035,914

PROVISION FOR INCOME TAX b, c 284,419 (9,679) 274,740

NET INCOME P=768,366 (P=7,192) P=761,174

- 4 -

*SGVMC207451*

Notes Previous GAAP

Effect of transition to

PFRS PFRS Attributable to: Equity Holders of the Parent Company P=757,947 (P=7,192) P=750,755 Minority Interest 10,419 – 10,419

EARNINGS PER SHARE (EPS)

Basic EPS P=0.985 P=0.976

Notes to the Reconciliation of Equity at January 1 and December 31, 2004 and Net Income for 2004:

a. PAS 16, “Property, Plant and Equipment”

PAS 16 provides additional guidance and clarification on recognition and measurement of items of property, plant and equipment. It also provides that each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. This resulted to componentization of the Company’s building, which changed the estimated useful life of each significant item in the building account. The adjustment was taken in the consolidated financial statements prospectively and resulted to an increase in depreciation expense by P=65.56 million in 2005.

ABS-CBN International has recognized an asset retirement obligation (ARO) amounting to P=1.70 million in 2005. There are no other material ARO that should be recognized as of December 31, 2005.

b. PAS 19, “Employee Benefits”

Under previous GAAP, pension benefits were actuarially determined using the entry age normal method and past service cost and experience adjustments, amortized over the expected average remaining working lives of the covered employees. Under PFRS, pension benefits are determined using the projected unit credit method. Actuarial gains and losses that exceed a 10% “corridor” are amortized over the expected average remaining working lives of participating employees and vested past service cost, recognized immediately. In addition, the Company recognized other long-term employee benefits which were not recognized in prior years. The Company also availed of the voluntary exemption under PFRS 1. Accordingly, all actuarial gains or losses were recognized up to January 1, 2004. The change reduced retained earnings at January 1, 2004 by P=296.36 million; increased deferred tax asset included in “Other noncurrent assets - net” account by P=133.27 million; increased trade and other payables by P=429.60 million and increased personnel expenses included under the account “General and administrative expenses” by P=35.90 million and benefit from deferred income tax by P=9.68 million at December 31, 2004. Additional disclosures were also made providing information about the trends in the assets and liabilities in the defined benefit plan and the assumptions underlying the components of the defined benefit cost.

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*SGVMC207451*

c. PFRS 3, “Business Combinations,” PAS 36, “Impairment of Assets,” and PAS 38, “Intangible Assets”

PFRS 3 resulted in the cessation of the amortization of goodwill and a requirement for an annual test for goodwill impairment. Any resulting negative goodwill after performing reassessment will be credited to income. Moreover, pooling of interests in accounting for business combination will no longer be permitted. The adoption of PFRS 3 has resulted in the Company ceasing annual goodwill amortization and commencing testing for impairment at the cash-generating unit level annually (unless an event occurs during the year which requires the goodwill to be tested more frequently) from January 1, 2004. As a result, the Company recognized an impairment loss in its goodwill (included under “Other Noncurrent Assets”) on the January 1, 2004 amounting to P=88.76 million. The change decreased retained earnings as of January 1, 2004 by P=69.85 million and increase net income by P=18.91 million as of December 31, 2004 due to reversal of goodwill amortization in 2004.

Under previous GAAP, intangible assets were considered to have a finite useful life with a rebuttable presumption that life would not exceed ten years from the date when the asset was available for use. Under PFRS, some of the intangible assets are regarded to have an indefinite useful life when, based on an analysis of all the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Company. Accordingly, cable channels of Creative Programs, Inc (CPI) is considered to have an indefinite life and the useful life of the production and distribution business in the Middle East operations is changed from 10 to 25 years. Due to the change in the estimated useful life of the cable channels of CPI (from finite to indefinite), the carrying value of the cable channels as of January 1, 2005 is no longer amortized. Instead, it was tested for impairment. As of December 31, 2005, there was no impairment identified. On the other hand, the change in estimated useful life of the production and distribution business in the Middle East operations resulted to an adjustment in the consolidated financial statements prospectively and resulted a decrease in amortization expense by P=15.02 million in 2005.

Adoption of the above standards involved changes in accounting policies and the Company has accordingly restated its comparative consolidated financial statements retroactively in accordance with the transitional rules detailed in these standards. Required disclosures are included in the consolidated financial statements, as applicable. Reconciliation of the effects of these new standards, as it applies to the Company, on the Company’s stockholders’ equity as of December 31, 2004 and January 1, 2004 and net income for the year ended December 31, 2004 is presented below:

Increase (Decrease) Stockholders’ Equity Net Income

December 31,

2004 January 1,

2004 December 31,

2004 As previously reported P=13,353,447 P=13,086,351 P=757,947 Effect of changes in accounting policies: PAS 19 (322,625) (296,357) (26,268) PAS 36 (69,848) (88,759) 18,911 Restatement of investment

in associates (633) (798) 165 (393,106) (385,914) (7,192) As restated P=12,960,341 P=12,700,437 P=750,755

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d. PAS 32, “Financial Instruments: Disclosure and Presentation”

PAS 32 covers the disclosure and presentation of all financial instruments. The standard requires more comprehensive disclosures about a company’s financial instruments, whether recognized or unrecognized in the financial statements. New disclosure requirements include terms and conditions of financial instruments used, types of risks associated with both recognized and unrecognized financial instruments (market risk, price risk, credit risk, liquidity risk, and cash flow risk), fair value information of both recognized and unrecognized financial assets and financial liabilities, and financial risk management policies and objectives. The standard also requires financial instruments to be classified as liabilities or equity in accordance with their substance and not their legal form. New disclosure requirements were included as a result of the adoption of the new standard.

e. PAS 39, “Financial Instruments: Recognition and Measurement”

PAS 39 establishes the accounting and reporting standards for recognizing and measuring a company’s financial assets and financial liabilities. The standard requires a financial asset or financial liability to be recognized initially at fair value. Subsequent to initial recognition, a company should continue to measure financial assets at their fair values, except for loans and receivables and held-to-maturity investments, which are to be measured at cost or amortized cost using the effective interest rate method. Financial liabilities are subsequently measured at cost or amortized cost, except for liabilities classified as “at fair value through profit and loss” and derivatives which are measured at fair value. PAS 39 requires the use of discounted cash flow techniques in determining impairment loss when objective evidence at impairment exists for financial assets that accounted for at fair value through profit or loss.

PAS 39 also covers the accounting and reporting standards for derivative instruments. The standard has expanded the definition of a derivative instrument to include derivatives (derivative-like provisions) embedded in non-derivative contracts. Under the standard, every derivative instrument is recorded in the balance sheet as either an asset or a liability measured at its fair value. Derivatives that are not designated and do not qualify as hedges are adjusted to fair value through income. If the derivative is designated and qualifies as a hedge, depending on the nature of the hedge, changes in the fair value of derivatives are either offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings, or recognized in equity until the hedged item is recognized in earnings. A company must formally document, designate and assess the hedge effectiveness of derivative transactions that receive hedge accounting treatment.

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Adoption of this Standard has increased (decreased) the following accounts at January 1, 2005:

Notes Increase

(decrease) Other noncurrent assets a (P=255,261) Interest-bearing loans and borrowings -

net of current portion a (249,949) Derivative assets b 125,575 Cumulative translation adjustments (CTA) b 117,070 Trade and other receivables c (59,589) Obligations for program rights d (17,170) Deferred tax assets 14,545 Program rights and other intangibles b (22,838) Trade and other payables d (458) Retained earnings (47,061)

a. Implementation of the effective interest method resulted to a decrease of P=5.3 million in January 1, 2005 retained earnings; unamortized debt issued costs were reclassified from other noncurrent assets and presented as deduction from long-term debt.

b. The Company recognized the fair value of its derivatives (freestanding and embedded) as of January 1, 2005. The fair value of freestanding derivatives which qualified for hedge accounting under previous GAAP was reported in CTA. Embedded derivatives were bifurcated from program rights and license agreements.

c. The Company tested its trade and other receivable for impairment on January 1, 2005 resulting to additional impairment losses.

d. The Company discounted its long-term noninterest-bearing payables to comply with PAS 39’s requirement to record all financial instruments at fair value upon initial recognition. Subsequently, these were carried at amortized costs.

The Company made use of exemption provided by PFRS 1. As allowed by the Securities and Exchange Commission (SEC), the effect of adopting PAS 39 did not result in a restatement of prior period’s financial statements. The cumulative effect of adopting this standard was credited to the January 1, 2005 retained earnings.

Effect on the Consolidated Cash Flow Statement for 2004 There are no material differences between the consolidated cash flow statement prepared under PFRS and the cash flow statement under previous GAAP.

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Other Adopted PFRSs The Company has also adopted the following under PFRSs. Comparative presentation and disclosures have been amended as required by the standards. Adoption of these standards has no effect on equity at January 1 and December 31, 2004.

§ PAS 1, “Presentation of Financial Statements”; § PAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors”; § PAS 10, “Events after Balance Sheet Date”; § PAS 24, “Related Party Disclosures”; § PAS 27, “Consolidated and Separate Financial Statements”; and § PAS 28, “Investments in Associates.”

Standards Not Yet Effective The Company did not early adopt the following Standards and amendments that have been approved but are not yet effective:

§ Amendments to PAS 19, Employee Benefits – Actuarial Gains and Losses, Group Plans and Disclosures — The revised disclosures from the amendments will be included in the Company’s consolidated financial statements when the amendments are adopted in 2006.

§ PFRS 6, Exploration for and Evaluation of Mineral Resources — This standard will take effect in 2006 but does not apply to the activities of the Company.

§ PFRS 7, Financial Instruments – Disclosures — The revised disclosures on financial instruments provided by this standard will be included in the Company’s consolidated financial statements when the standard is adopted in 2007.

Basis of Consolidation The consolidated financial statements comprise the financial statements of ABS-CBN Broadcasting Corporation and its subsidiaries as at December 31 each year (see Note 14). The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies.

All intra-company balances, transactions, income and expenses and profits and losses resulting from intra-company transactions that are recognized in assets, are eliminated in full.

Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases.

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.

Trade and Other Receivables Trade receivables are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. Provision is made when there is objective evidence that the Company will not be able to collect the debts. Bad debts are written off when identified.

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

Property and Equipment Property and equipment, except land, are carried at cost (including capitalized interest), excluding day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of such property and equipment when that cost is incurred if the recognition criteria are met. Land is stated at cost less any impairment in value. Depreciation is computed on a straight line method over the property and equipment’s useful lives.

The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

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 statements of income in the year the asset is derecognized.

The asset’s residual values, useful lives and methods are reviewed, and adjusted if appropriate, at each financial year end.

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.

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

The net present value of legal obligations associated with the retirement of an item of property and equipment that resulted from the acquisition, construction or development and the normal operations of property and equipment is recognized in the period in which it is incurred and a reasonable estimate of the obligation can be made.

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

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appropriate, and treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the consolidated statements of income in the expense category consistent with the function of the intangible asset.

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

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

Program rights Cable Channels - Creative Programs, Inc. (CPI)

Production and Distribution Business - Middle East operations

Useful lives Finite (license term or economic life whichever is shorter)

Indefinite (2004: Finite, 20 years)

Finite- 25 years (2004: Finite, 10 years)

Method used Amortized on the basis of program usage.

No amortization (2004: 10 years)

Amortized over the period of 25 years (2004: Amortized over the period of 10 years)

Impairment testing/ recoverable amount testing

To the extent that a given future expected benefit period is shorter than the initial Company estimates, the Company writes off the purchase price or the license fee sooner than anticipated.

Annually and more frequently when an indication of impairment exists.

The amortization method is reviewed at each financial year-end.

Current and noncurrent portion

Based on the estimated year of usage.

Not applicable. Not applicable.

In prior years, cable channels of CPI and production and distribution business of the Middle East were considered to have a finite useful life with a rebuttable presumption that life would not exceed ten years from the date when the asset was available for use.

The cable channels acquired by CPI has no definite life (see Note 10). 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. The change in the useful life assessment from finite to indefinite is accounted for prospectively.

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The production and distribution business acquired for the Middle East operations has a definite life of 25 years based on the terms of the Company’s sponsorship agreement with Arab Digital Distribution (ADD) (see Note 10). Based on the Company’s analysis of all the relevant factors, it is determined that the estimated useful life of such business should be 25 years. The change in the useful life from 10 years to 25 years is accounted for prospectively.

Investment in an Associate The Company’s investment in an associate is 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, the investment in an associate is carried in the balance sheets at cost plus post-acquisition changes in the Company’s share of net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized. 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 consolidated statements of income reflect the share of the results of operations of the associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share of any changes and discloses this, when applicable, in the consolidated statements of changes in equity. The reporting dates of the associate and the Company are identical and the associates’ accounting policies conform to those used by the Company for like transactions and events in similar circumstances.

Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

Foreign Currency Translation The consolidated financial statements are presented in Philippine Peso, which is the Company’s functional and presentation currency. Each entity in the Company determines its own functional currency and items included in the financial statements of each entity are measured using its functional currency. 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 rate of exchange ruling at the balance sheet date. All differences are taken to the consolidated statements of income with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognized in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also dealt with in equity. Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Nonmonetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

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The functional currency of ABS-CBN International and ABS-CBN Middle East FZ-LLC is the United States Dollar while the functional currency of ABS-CBN Europe, Ltd is the Great Britain Pound. As at the reporting date, the balance sheets of these subsidiaries are translated into the presentation currency of the Company (the Philippine Peso) at the rate of exchange ruling at the balance sheet date and, their statements of income are translated at the weighted average exchange rates for the year. The exchange differences arising on the translation are taken directly to a separate component of equity. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is recognized in the consolidated statements of income.

Tax Credits Tax credits from government airtime sales availed under Presidential Decree No. 1362 are recognized in the books upon actual airing of government commercials and advertisements. This is included under “Other noncurrent assets - net” account in the consolidated balance sheets.

Deferred Charges Gain or loss on sale of decoders which has no stand alone value without the subscription revenues are aggregated and recognized ratably over the longer of subscription contract term or the estimated customer service life. These are presented as part of “Other noncurrent assets - net” account in the consolidated balance sheets. As explained in Note 24, the Parent Company and ABS-CBN International entered into an agreement with DirecTV, Inc. (DirecTV) whereby direct-to-home (DTH) subscribers of ABS-CBN International are expected to migrate to DirecTV in 2006. ABS-CBN International will continue to service its subscribers until February 28, 2006. Accordingly, the deferred charges related to the DTH subscribers of ABS-CBN International are written off as of December 31, 2005, since management is of the opinion that the corresponding future benefits from these assets, if any, are not material.

Impairment of Assets The Company assesses at each reporting date whether there is an indication that an asset 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 statements of income in those expense categories consistent with the function of the impaired asset.

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, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at

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revalued amount, in which case the reversal is treated as a revaluation increase. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining useful life.

Financial Assets and Financial Liabilities (Effective January 1, 2005) Financial assets and financial liabilities are recognized initially at fair value. Transaction costs are included in the initial measurement of all financial assets and liabilities, except for financial instruments which are measured at fair value through profit and loss.

The Company recognizes a financial asset or a financial liability in the balance sheets when it becomes a party to the contractual provisions of the instrument.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity net of any related income tax benefits. Financial instruments are offset when there is a legally enforceable right to offset and intention to settle either on a net basis or to realize the asset and settle the liability simultaneously.

Financial assets and financial liabilities are further classified into the following categories: financial asset or financial liability at fair value through profit or loss, loans and receivables, held-to-maturity, available-for-sale financial assets and other financial liabilities. The Company determines the classification at initial recognition and re-evaluates this designation at every reporting date, where appropriate.

a. Financial Assets or Financial Liabilities at Fair Value through Profit or Loss

A financial asset or financial liability is classified in this category if acquired principally for the purpose of selling or repurchasing in the near term or upon initial recognition, it is designated by management at fair value through profit or loss. Derivatives are also categorized as held at fair value through profit or loss, except those derivatives designated and considered as effective hedging instruments. Assets or liabilities classified under this category are carried at fair value in the balance sheet. Changes in the fair value of such assets and liabilities are accounted for immediately in the consolidated statements of income.

The Company’s derivative instruments (including embedded derivatives) that are not accounted for as accounting hedges are classified under this category.

b. Held-to-Maturity Investments

Quoted nonderivative financial assets with fixed or determinable payments and fixed maturity are classified as held- to-maturity when the Company has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long-term investments that are intended to be held-to-maturity, such as bonds, are subsequently measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initially recognized amount and the maturity amount. This calculation includes all fees and points paid or received

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between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortized cost, gains and losses are recognized in income when the investments are derecognized or impaired, as well as through the amortization process.

The Company has no held-to-maturity investments.

c. Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortized cost using the effective interest method. Gains and losses are recognized in income when the loans and receivables are derecognized or impaired, as well as through the amortization process.

This category includes the Company’s trade, intercompany and other receivables.

d. Available-for-Sale Financial Assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified in any of the three preceding categories. After initial recognition, available-for sale financial assets are measured at fair value with gains or losses being recognized as a separate component of equity until the investment is derecognized or until the investment is determined to be impaired at which time the cumulative gain or loss previously reported in equity is included in the consolidated statements of income.

The Company’s available-for-sale investments include investments in ordinary common shares.

The fair value of financial instruments that are actively traded in organized financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions; reference to the current market value of another instrument, which is substantially the same; discounted cash flow analysis and option pricing models.

Derivative Financial Instruments and Hedging Effective January 1, 2005. The Company uses derivative financial instruments such as interest rate swaps and cross currency swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

Any gains or losses arising from changes in fair value on derivatives that do not qualify for hedge accounting are taken directly to net profit or loss for the year.

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For the purpose of hedge accounting, hedges are classified as:

§ fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability;

§ cash flow hedges when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a forecast transaction; or

§ hedges of a net investment in a foreign operation.

A hedge of the foreign currency risk of a firm commitment is accounted for as a cash flow hedge.

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

Fair Value Hedges. Fair value hedges are hedges of the Company’s exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is remeasured at fair value and gains and losses from both are taken to profit or loss.

The Company has no derivatives that are designated or accounted for fair value hedges in 2005.

Cash Flow Hedges. Cash flow hedges are hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while the ineffective portion is recognized in profit or loss.

Amounts taken to equity are transferred to the income statement when the hedged transaction affects profit or loss, such as when 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 non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction is no longer expected to occur, amounts previously recognized in equity are transferred to profit or loss. 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 profit or loss.

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In October 2005, the Company designated its outstanding interest rates and cross currency swaps of cash flow hedges.

The Company has no hedges of a net investment in 2005.

Prior to January 1, 2005 The Company enters into long-term foreign currency swap agreements to manage its foreign currency exposures relating to certain long-term foreign currency-denominated loans. Translation gains or losses on foreign currency swaps entered into as hedges are computed by multiplying the swap notional amounts by the difference between the spot exchange rate prevailing on balance sheet date and the spot exchange rate on the contract inception date (or the last reporting date). The resulting translation gains or losses are offset against the translation losses or gains on the underlying foreign currency-denominated liabilities.

The Company also enters into interest rates swaps to manage its interest rate exposures on underlying floating-rate loans. Swap costs accruing on foreign currency swaps and interest rate swaps that are currently due to or from the swap counterparties are charged to current operations. Mark-to-market values of the foreign currency swaps are not included in the determination of net income but are disclosed in the relevant note to these financial statements.

Hedges of a Net Investment. Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognized directly in equity while any gains or losses relating to the ineffective portion are recognized in profit or loss. On disposal of the foreign operation, the cumulative value of any such gains or losses recognized directly in equity is transferred to profit or loss.

Derecognition of Financial Assets and Liabilities (Effective January 1, 2005)

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.

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A financial liability is derecognized when the obligation under the liability is discharged or 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 profit or loss.

Impairment of Financial Assets (Effective January 1, 2005) The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

Assets Carried at Amortized Cost. If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of the loss shall be recognized in profit or loss.

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

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the income statement, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

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

Available-for-Sale Financial Assets. If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to the income statement. Reversals in respect of equity instruments classified as available-for-sale are not recognized in profit. Reversals of impairment losses on debt instruments are reversed through profit or loss, if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.

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Loans and Borrowings All loans and borrowings are initially recognized at fair value. After initial recognition, loans and borrowings are subsequently measured at amortized cost using the effective interest method.

Gains and losses are recognized in net profit or loss when the liabilities are derecognized as well as through the amortization process.

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 TFC channel is recognized in accordance with the Deal Memorandum, as discussed in Note 24.

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

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 payable and other payables” account in the consolidated balance sheets.

License fees earned from DirecTV is recognized upon migration of the DTH subscribers of ABS-CBN International to DirecTV. The additional license fees for each migrated subscriber that will remain for 14 consecutive months from the date of activation, will be recognized on the 14th month (see Note 24).

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.

Channel lease revenue (included under “Sale of services” account in the consolidated statements of income) is recognized as income on a straight-line basis over the lease term.

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Income related to the sale and installation of decoders of ABS-CBN Australia (included under “Sale of goods” account in the consolidated statements of income) which has no stand alone value without the subscription revenues are aggregated and recognized ratably over the longer of subscription contract term or the estimated customer service life.

Short-messaging-system/text-based revenues, sale of news materials and Company-produced programs are recognized upon delivery.

Rental income is recognized as income on a straight-line basis over the lease term. For income tax purposes, rental income is taxable based on the provisions of the lease contracts.

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.

Company as Lessee. 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 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 lease payments are recognized as an expense in the consolidated statements of income on a straight-line basis over the lease term.

Company as Lessor. 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 bases as rental income.

For income tax purposes, rental expense is deductible based on the provisions of the lease contracts.

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.

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Borrowing Costs Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recorded. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds.

For income tax reporting purposes, interest is treated as a deductible expense during the period the interest is incurred.

Pension and Other Long-term Employee Benefits The Company has a funded defined benefit pension plans except for ABS-CBN International which has a defined contribution pension plan. The Company also agreed to provide certain unfunded long-term employee benefits to employees upon retirement. The cost of providing benefits under the defined benefit plans is determined separately for each plan using the projected unit credit method. Actuarial gains and losses are recognized as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plans.

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

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

Income Tax

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

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

Deferred income tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred income tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) and unused tax losses, to the extent that it is probable that taxable profit will be

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available against which the deductible temporary differences and carryforward benefits of unused tax credits and unused tax losses 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 or loss.

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

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

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

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

EPS Basic EPS amounts are calculated by dividing the net income attributed to equity holders of the Parent Company for the period attributable to common shareholders by the weighted average number of common shares outstanding during the period.

Contingencies Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed 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 when an inflow of economic benefits is probable.

Subsequent Events Post-year-end events that provide additional information about the Company’s position at the balance sheet date (adjusting events) are reflected in the consolidated financial statements. Post-year-end events that are not adjusting events are disclosed in the notes when material.

3. Management’s Use of Judgment and Estimates

The Company’s consolidated financial statements prepared under PFRSs require management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and related notes. In preparing the Company’s consolidated financial statements, the Company has made its best estimates and judgments of certain amounts, giving due consideration to materiality.

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The Company believes the following represent a summary of these significant estimates and judgments and related impact and associated risks in its consolidated financial statements:

Estimated useful lives. The useful life of each of the Company’s property and equipment and intangible assets with definite 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 definite life, estimated life is based on the life of agreement covering such intangibles. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of any property and equipment or intangible assets would increase the recorded expenses and decrease noncurrent assets.

Property and equipment, net of accumulated depreciation and amortization as of December 31, 2005 and 2004 amounted to P=10.29 billion and P=10.65 billion, respectively (see Note 9).

Production and distribution business - Middle East amounted to P=141.76 million and P=157.58 million as of December 31, 2005 and 2004, respectively (see Note 10).

Asset impairment. Philippine GAAP requires that an impairment review be performed when certain impairment indicators are present. In purchase accounting, estimation and judgment are used in the allocation of the purchase price to the fair market values of the assets and liabilities purchased. Likewise, determining the fair value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets.

While it is believed that the assumptions used in the estimation of fair values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations.

Noncurrent assets that are subjected to impairment testing when impairment indicators are present are as follows:

2005 2004 Program rights P=914,831 P=929,934 Cable channels - CPI 459,968 459,968 Long-term receivables from related parties 2,341,683 2,190,913 Property and equipment 10,287,599 10,650,285 Tax credits 1,767,484 1,809,118

No impairment loss for other long-lived assets was recognized in 2005 and 2004.

Impairment of goodwill. Goodwill is annually evaluated for impairment. This requires an estimation of the value in use of the cash-generating units to which the 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 unit and also to choose a suitable discount rate in order to calculate the present value of those cash flows.

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The carrying amount of goodwill at December 31, 2005 and 2004 amounted to P=22,565 included under “Other noncurrent assets - net” account in the consolidated balance sheets (see Note 11).

No impairment loss was recognized in 2005 and 2004.

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=1.70 million as of December 31, 2005.

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 all or part of the deferred tax assets to be utilized.

Unrecognized deferred tax assets as of December 31, 2005 and 2004 amounted to P=291.70 million and P=523.04 million, respectively (see Note 22).

Financial assets and liabilities. PFRSs require that certain financial assets and liabilities (including derivative instruments) be carried at fair value, which requires the use of accounting estimates and judgment. While significant components of fair value measurement are determined using verifiable objective evidence (i.e. foreign exchange rates, interest rates, volatility rates), the timing and amount of changes in fair value would differ using a different valuation methodology. Any change in the fair values of financial assets and liabilities (including derivative instruments) directly affect profit or loss and stockholders’ equity.

The fair value of financial assets and liabilities are set out in Note 26.

Allowance for doubtful accounts and decline in value of inventory. The Company maintains an allowance for doubtful accounts and decline in value of inventory at a level considered adequate to provide for potentially uncollectible receivables and decline in value of inventories. The level of allowance is evaluated by management based on experience and other factors that may affect the recoverability of these assets. If there is an objective evidence that an impairment loss on trade and other 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. The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The allowance is established by charges to income in the form of provision for doubtful accounts and decline in value of inventory. The amount and timing of recorded expenses for any period would therefore differ based on the judgments or estimates made. An increase in provision for doubtful accounts and decline in value of inventory would increase the Company’s recorded expenses and decrease current assets.

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Provision for doubtful accounts amounted to P=159.52 million in 2005 and P=164.04 million in 2004 (see Note 20). Trade and other receivables, net of allowance for doubtful accounts, amounted to P=4.67 billion and P=3.63 billion as of December 31, 2005 and 2004, respectively (see Note 6). Allowance for doubtful accounts as of December 31, 2005 and 2004 amounted to P=599 million and P=475 million, respectively (see Note 6).

Provision for decline in value of inventory amounted to P=1.20 million and P=3.43 million in 2005 and 2004, respectively. Inventories, net of allowance for decline in value of inventory, amounted to P=141.52 million and P=130.52 million as of December 31, 2005 and 2004, respectively (see Note 7).

Pension cost. The determination of the obligation and cost for pension and other pension benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described in Note 23 and include among others, discount rate, expected return on plan assets and rate of compensation increase. In accordance with Philippine GAAP, actual results that differ from the Company’s assumptions are accumulated and amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods. While it is believed that the Company’s assumptions are reasonable and appropriate, significant differences in actual experience or significant changes in assumptions may materially affect the Company’s pension and other pension obligations.

Accrued pension and other long-term employee benefits amounted to P=511.21 million and P=710.86 million as of December 31, 2005 and 2004, respectively (see Note 13).

Unrecognized actuarial losses as of December 31, 2005 and 2004 amounted to P=33.60 million and P=46.36 million, respectively (see Note 23).

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 30).

4. Segment Information

Segment information is prepared on the following bases:

Business segments: for management purposes, the Company is organized into three business activities - broadcasting, cable and satellite, and other businesses. This segmentation is the basis upon which the Company reports its primary segment information. The broadcasting segment is principally the television and radio broadcasting activities which generates revenue from sale of national and regional advertising time. Cable and satellite business primarily develops and produces programs for cable television, including delivery of television programming outside the Philippines through its DTH satellite service, cable television channels and blocked time on television stations. Other businesses include movie production, consumer products and services.

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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 and Australia), the Company operates its cable and satellite operations to bring television programming outside the Philippines.

Inter-segment transactions: segment revenue, segment expenses and segment results include transfers among business segments and among geographical segments. Such transfers are accounted for at competitive market prices charged to unaffiliated customers for similar services. Those transfers are eliminated in consolidation.

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Business Segment Data The following tables present revenue and income information and certain asset and liability information regarding business segments for the years ended December 31, 2005 and 2004:

Broadcasting Cable and satellite Other Businesses Eliminations Consolidated

2005

2004 (As restated -

see Note 2) 2005

2004 (As restated -

see Note 2) 2005

2004 (As restated -

see Note 2) 2005 2004 2005

2004 (As restated -

see Note 2) Revenues External sales P=11,612,208 P=10,856,408 P=4,068,221 P=3,895,790 P=1,366,647 P=1,019,134 P=– P=– P=17,047,076 P=15,771,332 Inter-segment sales 110,815 59,027 – 117,605 273,159 94,776 (383,974) (271,408) – – Total revenue P=11,723,023 P=10,915,435 P=4,068,221 P=4,013,395 P=1,639,806 P=1,113,910 (P=383,974) (P=271,408) P=17,047,076 P=15,771,332 Results Segment result P=356,979 P=949,124 P=385,466 P=231,633 (P=538,785) P=89,459 P=903,586 P=346,060 P=1,107,246 P=1,616,276 Equity in net earnings (losses) of associates 94,352 267,962 – – – – (288,003) (315,287) (193,651) (47,325) Other Income 469,311 498,525 746,489 17,231 23,056 46,801 (951,714) (335,414) 287,142 227,143 Finance Revenue 294,799 138,222 32,545 8,226 4,955 6,449 (36) – 332,263 152,897 Finance Cost (989,996) (911,843) (11,122) (67) (872) 1,180 – – (1,001,990) (910,730) Foreign exchange gain (loss) (9,606) (2,347) (29,905) – (7,650) – – – (47,161) (2,347) Income tax (11,995) (217,993) 62,465 (41,891) (239,834) (14,856) – – (189,364) (274,740) Net income (loss) P=203,844 P=721,650 P=1,185,938 P=215,132 (P=759,130) P=129,033 (P=336,167) (P=304,641) P=294,485 P=761,174 Assets and Liabilities Segment assets P=20,694,815 P=20,027,343 P=1,642,458 P=3,695,695 P=3,976,767 P=1,124,338 (P=1,856,854) (P=1,539,776) P=24,457,186 P=23,307,600 Investments in associates - at equity 2,487,992 2,606,705 – – – – (2,443,759) (2,368,821) 44,233 237,884 Consolidated total assets P=23,182,807 P=22,634,048 P=1,642,458 P=3,695,695 P=3,976,767 P=1,124,338 (P=4,300,613) (P=3,908,597) P=24,501,419 P=23,545,484 Segment liabilities P=3,920,127 P=2,861,139 P=2,402,669 P=1,842,427 P=814,048 P=845,996 (P=1,893,961) (P=1,617,844) P=5,242,883 P=3,931,718 Other Segment Information Capital expenditures: Property and equipment P=651,185 P=752,196 P=223,346 P=147,517 P=14,718 P=13,587 P=– P=– P=889,249 P=913,300 Intangible assets 636,090 578,789 67,076 141,164 96,303 77,238 28,826 (14,346) 828,295 782,845 Depreciation and amortization of program rights 1,761,354 1,762,888 201,534 176,649 99,159 98,229 – (4,325) 2,062,047 2,033,441 Noncash expenses other than depreciation and

amortization of program rights 515,500 310,967 465,378 205,042 11,517 22,304 (292,391) – 700,004 538,313 Geographical Segment Data The following tables present revenue and expenditure and certain asset information regarding geographical segments for the years ended December 31, 2005 and 2004:

Philippines United States Others Eliminations Consolidated

2005

2004 (As restated -

see Note 2) 2005

2004 (As restated -

see Note 2) 2005

2004 (As restated -

see Note 2) 2005

2004 (As restated -

see Note 2) 2005

2004 (As restated -

see Note 2) Revenue External sales P=13,202,093 P=12,654,058 P=2,919,411 P=2,779,571 P=925,572 P=337,703 P=– P=– P=17,047,076 P=15,771,332 Inter-segment sales 383,975 271,408 – – – – (383,975) (271,408) – – Total revenue P=13,586,068 P=12,925,466 P=2,919,411 P=2,779,571 P=925,572 P=337,703 (P=383,975) (P=271,408) P=17,047,076 P=15,771,332 Other Segment Information Segment assets P=25,769,513 P=22,000,305 P=1,863,083 P=1,911,374 P=1,169,437 P=3,541,769 (P=4,300,614) (P=3,907,964) P=24,501,419 P=23,545,484 Capital expenditures: Property and equipment 707,714 806,731 170,079 65,065 11,456 41,504 – – 889,249 913,300 Intangible assets 799,469 745,160 – 6,039 – 45,992 28,826 (14,346) 828,295 782,845

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5. Cash and Cash Equivalents

2005 2004 Cash on hand and in banks P=1,284,690 P=1,100,145 Short-term placements 467,040 191,412 P=1,751,730 P=1,291,557

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

6. Trade and Other Receivables

2005 2004 Trade receivables (see Note 8) P=3,920,578 P=3,498,421 Receivable from DirecTV (see Note 24) 439,499 – Due from related parties (see Note 14) 246,698 263,880 Advances to suppliers 97,002 46,875 Other receivables 563,260 297,385 5,267,037 4,106,561 Less allowance for doubtful accounts (see Note 3) 599,407 475,342 P=4,667,630 P=3,631,219

Trade receivables are noninterest-bearing and are generally on 60-90 days’ terms.

For terms and conditions relating to receivables from related parties, refer to Note 14. 7. Other Current Assets

2005 2004 Prepaid taxes P=461,881 P=294,523 Inventories at net realizable value (see Note 3) 141,523 130,523 Short-term investments 24,233 – Prepaid expenses and others 198,758 168,808 P=826,395 P=593,854

Inventories consist mainly of materials and supplies of the Parent Company and records and other consumer products held for sale by subsidiaries. The cost of inventories in the consolidated financial statements amounted to P=170,487 and P=173,209 in 2005 and 2004, respectively.

Short-term investments consist of time deposits with original maturity of more than three months but less than one year.

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8. Investments in Associates

Investments in associates consist of the following:

2005

2004 (As restated -

see Note 2) AMCARA Broadcasting Network, Inc. (Amcara) P=44,233 P=43,682 Sky Vision Corporation (Sky Vision) - 194,202 P=44,233 P=237,884

Details of investments in associates are as follows:

Ownership Interest Company Place of Incorporation Principal Activities 2005 2004

Associates Amcara Philippines Services 49.0 49.0 Star Cinema Philippines Movie Production 45.0 45.0 Sky Vision Philippines Cable operation 10.2 10.2

2005

2004 (As restated -

see Note 2) Acquisition costs P=541,292 P=541,292 Accumulated equity in net losses: Balance at beginning of year,

as previously reported (302,775) (255,285) Restatement of equity in net losses (633) (798) Balance at beginning of year, as restated (303,408) (256,083) Equity in net losses: As previously reported – (47,490) Equity in net losses during the year (193,651) – Restatement of equity in net loss – 165 Balance at end of year, as restated (497,059) (303,408) P=44,233 P=237,884

The carrying value of the investments exceeded the Company’s equity in net assets of the associates by P=194,202 as of December 31, 2004 in the consolidated financial statements.

Condensed financial information of the associates follows:

2005 2004 Current assets P=2,038,169 P=2,173,071 Noncurrent assets 6,494,213 6,957,074 Current liabilities 3,073,041 2,695,955 Noncurrent liabilities 6,012,886 6,896,593 Revenue 3,051,591 2,996,567 Cost and expenses 3,924,570 3,709,699 Operating loss (872,979) (713,132) Net loss (1,922,458) (624,895)

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Sky Vision a. On July 18, 2001, the Parent Company, along with Lopez and Benpres Holdings Corporation

(BHC) (collectively, the Benpres Group), signed a Master Consolidation Agreement (MCA) whereby they agreed with the Philippine Long Distance Telephone Company and Mediaquest Holdings, Inc. (collectively, the PLDT Group) to consolidate their respective ownership or otherwise their rights and interests in Sky Vision and Unilink Communications Corporation (Unilink) under a holding company to be established for that purpose. Beyond Cable Holdings, Inc. (Beyond) was incorporated on December 7, 2001 as the holding company. Sky Vision owns Central CATV, Inc. (Central) and Pilipino Cable Corporation (PCC), which in turn operate cable television systems in Metro Manila and key provincial areas under the tradenames “Sky Cable” and “Sun Cable.” Unilink owns The Philippine Home Cable Holdings, Inc. (Home), which operates cable television systems in Metro Manila and key provincial areas under the tradename “Home Cable.”

Pursuant to the MCA, the Benpres Group and the PLDT Groups shall, respectively, own 66.5% and 33.5% of Beyond upon the transfer of their respective ownership and rights and interests in Sky Vision and Unilink into Beyond. Although the original agreement envisions the transfers to be completed within six months from signing date, or by January 18, 2002, the Benpres Group and the PLDT Group agreed to extend this Closing date. On December 3, 2003, the Benpres and PLDT Groups, together with the PLDT Beneficial Trust Fund, executed an Amendment Agreement to the MCA whereby additional closing conditions were incorporated into the MCA and wherein the Closing Date was extended until such time the parties shall have completed all conditions precedent under the MCA and the Amendment Agreement, including the share transfers described above. The MCA also provides for the Benpres Group to sell 33.0% of Beyond to a strategic and/or financial investor. The sale of shares in Beyond is part of the Balance Sheet Management Plan of Benpres.

In a separate Memorandum of Agreement (Agreement) executed on April 8, 2004, the major stockholders of Home and Sky Vision have agreed to consolidate the ownership of their respective shares in Home and Sky Vision and to combine the operations, assets and liabilities of Home and the Central. Under the terms of the Agreement, the transfer of title to Home’s assets and liabilities including attendant risk and rewards, shall be retroactive to January 1, 2004. However, the Agreement allowed Home to continue its operations, and accordingly, full complimentary use of the property and equipment transferred to the Central, until December 31, 2004, after which Home will cease commercial operations. The valuation of the assets and liabilities of Home as of December 31, 2003 is used as the basis for determining the consideration for the transfer.

In relation to the consolidation discussed above, a competitor broadcasting company filed a case before National Telecommunications Commission (NTC) asking for NTC to declare as null and void the consolidation of the cable operating companies. On November 16, 2004, the NTC denied the motion for cease and desist order filed by the competitor broadcasting company. On November 30, 2004, the competitor broadcasting company filed a motion for consideration which is still pending with the NTC. It is the opinion of Sky Vision’s legal counsels that the case filed by the competitor broadcasting company is without legal basis.

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b. In November 2005, Sky Vision met with its creditors to request for an extension of the grace period on its long-term debt for another five (5) years, with principal amortization to start in 2011. The creditors have already formed a steering committee to address the request of Sky Vision. Negotiations are still on-going.

c. On June 30, 2004, Sky Vision and Central (“Issuer”) issued a convertible note (the “note”) to the Parent Company amounting to US$30,000 equivalent to P=1,577,195 as of December 31, 2005. The Parent Company’s long-term receivable from Sky Vision, including accrued interest receivable of P=343,696 and P=112,841 as of December 31, 2005 and 2004, respectively, is presented separately as “Long-term receivable from related parties” in the consolidated balance sheets. The note is subject to interest of 13% compounded annually and will mature on June 30, 2006. The principal and accrued interest as of maturity date shall be mandatorily converted, based on the prevailing U.S. Dollar to Philippine Peso exchange rate on Maturity Date, at a conversion price equivalent to a twenty percent (20%) discount of: (a) the market value of the Shares, in the event of a public offering of the Issuer before Maturity Date; (b) the valuation of the Shares by an independent third party appraiser that is a recognized banking firm, securities underwriter or one of the big three international accounting firms or their Philippine affiliate jointly appointed by the Benpres Group and PLDT Group pursuant to the MCA dated July 18, 2001 as amended or supplemented.

Prior to the issuance of the convertible note, Sky Vision, Central and Home had trade and advances payable to its shareholders in the Benpres Group and the PLDT Group, respectively. Upon receipt of the proceeds of the note, Sky Vision, Central and Home prioritized the servicing of its outstanding payables to third-party suppliers and creditors, as well as new payables due to CPI. As a result, these companies did not service payables to its existing shareholders outstanding as of June 30, 2004. Included in the amounts left unpaid were CPI's receivable from Central of around P=420,792. Subject to approval of its creditors, the Parent Company intends to include CPI's receivable in the above equity conversion in Sky Vision under the same terms of the note.

9. Property and Equipment at Cost - Net

December 31, 2005

Land and Land

Improvements Building and

Improvements

Television, Radio, Movie and Auxiliary

Equipment Other

Equipment Construction

in Progress Total At January 1, 2005 net

of accumulated depreciation P=291,008 P=8,356,900 P=1,219,179 P=692,455 P=90,743 P=10,650,285

Additions 3,835 157,908 149,192 243,040 335,274 889,249 Disposals – (3,083) (9,487) (4,636) – (17,206) Reclassifications 4,201 46,491 183,073 73,474 (307,239) – Depreciation charge

for the year (see Notes 18, 19 and 20) (1,100) (443,742) (486,425) (303,462) – (1,234,729)

At December 31, 2005 net of accumulated depreciation P=297,944 P=8,114,474 P=1,055,532 P=700,871 P=118,778 P=10,287,599

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Land and Land

Improvements Building and

Improvements

Television, Radio, Movie and Auxiliary

Equipment Other

Equipment Construction

in Progress Total At January 1, 2005 Cost P=297,904 P=9,585,198 P=5,296,294 P=2,969,740 P=90,743 P=18,239,879 Accumulated depreciation – (1,234,616) (4,069,106) (2,285,872) – (7,589,594) Reclassifications (6,896) 6,318 (8,009) 8,587 – – Net carrying amount P=291,008 P=8,356,900 P=1,219,179 P=692,455 P=90,743 P=10,650,285

At December 31, 2005 Cost P=305,940 P=9,778,788 P=5,530,811 P=3,201,128 P=118,778 P=18,935,445 Accumulated depreciation (7,996) (1,664,314) (4,475,279) (2,500,257) – (8,647,846) Net carrying amount P=297,944 P=8,114,474 P=1,055,532 P=700,871 P=118,778 P=10,287,599

December 31, 2004

Land and Land

Improvements Building and

Improvements

Television, Radio, Movie and Auxiliary

Equipment Other

Equipment Construction

in Progress Total At January 1, 2004 net

of accumulated depreciation P=292,776 P=8,533,073 P=1,231,972 P=680,729 P=171,217 P=10,909,767

Additions – 6,931 273,122 302,672 330,575 913,300 Disposals – (26,315) (1,352) 1,188 – (26,479) Reclassifications (1,768) 210,340 86,046 116,431 (411,049) – Depreciation charge for

the year (see Notes 18, 19 and 20) – (367,129) (370,609) (408,565) – (1,146,303)

At December 31, 2004 net of accumulated depreciation P=291,008 P=8,356,900 P=1,219,179 P=692,455 P=90,743 P=10,650,285

At January 1, 2004 Cost P=292,776 P=9,400,560 P=4,930,469 P=2,606,479 P=171,217 P=17,401,501 Accumulated depreciation – (867,487) (3,698,497) (1,925,750) – (6,491,734) Net carrying amount P=292,776 P=8,533,073 P=1,231,972 P=680,729 P=171,217 P=10,909,767

At December 31, 2004 Cost P=297,904 P=9,585,198 P=5,296,294 P=2,969,740 P=90,743 P=18,239,879 Accumulated depreciation – (1,234,616) (4,069,106) (2,285,872) – (7,589,594) Reclassifications (6,896) 6,318 (8,009) 8,587 – – Net carrying amount P=291,008 P=8,356,900 P=1,219,179 P=692,455 P=90,743 P=10,650,285

Property and equipment of the Parent Company with a carrying amount of P=9.5 billion and P=10 billion as of December 31, 2005 and 2004, respectively, was pledged as collateral to secure the Parent Company’s long-term debt (see Note 15).

Unamortized borrowing costs capitalized as part of property and equipment amounted to P=1,011,370 and P=1,050,167 as of December 31, 2005 and 2004, respectively. No borrowing cost was capitalized beginning 2002.

Property and equipment includes the following amounts where the Company is a lessee under a finance lease (see Note 24):

2005 2004 Cost - capitalized finance lease P=393,823 P=254,860 Accumulated depreciation (216,327) (135,206) Net book value P=177,496 P=119,654

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The useful lives of the Company’s assets are estimated as follows:

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

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

10. Noncurrent Program Rights and Other Intangible Assets

December 31, 2005

Program

Rights Cable

Channels - CPI

Production and Distribution

Business - Middle East Total

Balance at January 1, 2005 P=1,712,894 P=459,968 P=157,584 P=2,330,446 Additions 828,295 – – 828,295 Amortization and write-off

during the year (see Notes 18, 19 and 20) (827,318) – (15,825) (843,143)

Balance at December 31, 2005 1,713,871 459,968 141,759 2,315,598 Less current portion 799,040 – – 799,040 Noncurrent portion P=914,831 P=459,968 P=141,759 P=1,516,558

Costs and related accumulated amortization of other intangible assets is as follow:

Cable

Channels - CPI

Production and Distribution

Business - Middle East Total

At December 31, 2005 Cost P=574,960 P=212,358 P=787,318 Accumulated amortization (114,992) (70,599) (185,591) Net carrying amount P=459,968 P=141,759 P=601,727

December 31, 2004

Program

Rights Cable

Channels - CPI

Production and Distribution

Business - Middle East Total

Balance at January 1, 2004 P=1,817,187 P=488,716 P=177,875 P=2,483,778 Additions 782,845 – – 782,845 Amortization and write-off during

the year (Notes 18, 19 and 20) (887,138) (28,748) (20,291) (936,177) Balance at December 31, 2004 1,712,894 459,968 157,584 2,330,446 Less current portion 782,960 – – 782,960 Noncurrent portion P=929,934 P=459,968 P=157,584 P=1,547,486

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Costs and related accumulated amortization of other intangible assets is as follow:

Cable

Channels - CPI

Production and Distribution

Business - Middle East Total

At January 1, 2004 Cost P=574,960 P=212,358 P=787,318 Accumulated amortization (86,244) (34,483) (120,727) Net carrying amount P=488,716 P=177,875 P=666,591

December 31, 2004 Cost P=574,960 P=212,358 P=787,318 Accumulated amortization (114,992) (54,774) (169,766) Net carrying amount P=459,968 P=157,584 P=617,552

In prior years, cable channels and production and distribution business were considered to have a finite useful life with a rebuttable presumption that life would not exceed ten years from the date when the asset was available for use.

The cable channels, namely, Lifestyle Channel, Cinema One and Myx Channel, were acquired by CPI from Sky Vision in 2001. Based on the Company’s analysis of all the relevant factors, there is no foreseeable limit to the period over which this business is expected to generate net cash inflows for the Company. Due to the change in the estimated useful life of this business in the current year resulting in indefinite lives, the cost as at January 1, 2005 is no longer amortized.

Production and distribution business for the Middle East operations represents payments arising from the sponsorship agreement between ADD and ABS-CBN Middle East FZ-LLC. This agreement grants the Company the right to operate in the Middle East with ADD as sponsor. The estimated useful life was changed from 10 years to 25 years. The change in useful life was accounted for prospectively, resulting to a decrease in amortization expense of P=15 million in 2005.

11. Other Noncurrent Assets - Net

2005

2004 (As restated -

see Note 2) Tax credits: With tax credit certificates (TCCs) P=1,767,484 P=1,809,118 Pending issuance of TCCs but supported by

telecast orders – 54,572 Available-for-sale investments (AFS) 30,931 34,104 Unamortized debt issue cost (see Note 15) – 291,160 Deferred charges and others (see Notes 3 and 12) 274,831 430,372 P=2,073,246 P=2,619,326

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Tax credits represent claims on the government arising from airing of government commercials and advertisements. Pursuant to Presidential Decree No. 1362, these will be collected in the form of TCCs which the Parent Company can use in paying for import duties and taxes on its broadcasting equipment. The Parent Company expects to utilize these tax credits within the next 10 years.

In view of the Deal Memorandum with DirecTV discussed in Note 24, the Company has written off the deferred charges amounting to P=335 million pertaining to the DTH subscribers as of December 31, 2005.

AFS are investments in ordinary shares and therefore have no fixed maturity date or coupon rate. AFS with a carrying value of P=13.85 million and P=17.59 million as of December 31, 2005 and 2004 respectively was pledged as part of the collateral to secure the Parent Company’s long-term debt (see Note 15).

12. Impairment Testing of Goodwill and Cable Channels

Cable channels of CPI amounted to P=459,968 as of December 31, 2005 and 2004 (see Note 10).

Goodwill in investment in a subsidiary included under “Other noncurrent assets - net” account in the consolidated balance sheets totaled P=22.5 million as of December 31, 2005 and 2004.

For the impairment test of goodwill and cable channels, the difference between the enterprise value of the subsidiary and the net book value or fair market value of its net assets was compared against the amount of goodwill. The enterprise value of the subsidiaries was determined using their cash flow projections which were based on financial budgets approved by the subsidiaries’ senior management covering a five-year period. The discount rate applied to the cash flow projections is 21.1% while cash flows beyond the 5-year period are extrapolated using a 5% perpetual growth rate that is based on projected long-term inflation rate of 3% and long-term real growth of 2%.

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

Gross revenues. On the average, gross revenues of the subsidiaries over the next five years were projected to grow in line with the economy or with nominal Gross Domestic Product (GDP). 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.

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Operating expenses. Cash expenses of the subsidiaries particularly employee costs and general and administrative expenses were projected to rise at an inflationary pace. On the other hand, production costs or cost of sales were forecasted to increase in line with revenue growth.

Gross margins. Increased efficiencies over the next five years are expected to result to some improvements in gross margins.

Discount rate. The discount rate or Weighted Average Cost of Capital (WACC) was based on the cost of debt and cost of equity of the Parent Company. The cost of equity was computed by adding the risk free rate (based on 5-year Forex Treasury Notes) and risk premium (based on the difference between 10-year US Treasury bonds and 10-year Philippine Peso bonds) multiplied to the equity beta of the Parent Company. On the other hand, the cost of debt, was computed based on the pre-tax weighted interest cost of the Parent Company’s loan.

13. Trade and Other Payables

2005

2004 (As restated -

see Note 2) Trade P=1,723,043 P=886,643 Accrued production cost and other expenses 851,100 974,189 Accrued taxes 543,320 369,980 Accrued pension and other long-term employee

benefits (see Note 23) 511,213 710,855 Due to related parties (see Note 14) 311,299 162,023 Accrued interest 22,346 20,997 Other current liabilities 724,400 375,799 P=4,686,721 P=3,500,486

14. Related Party Disclosures

The consolidated financial statements include the financial statements of ABS CBN Broadcasting Corporation and the subsidiaries listed in the following table:

Place of Ownership Interest Company Incorporation Principal Activities 2005 2004 ABS-CBN Australia Pty. Ltd Victoria,

Australia Cable and satellite

programming services

100.0(a) 100.0(a)

ABS-CBN Center for Communication Arts, Inc. Philippines Educational/training 100.0(b) 100.0(b) ABS-CBN Europe Ltd United Kingdom Cable and satellite

programming services

100.0(a) 100.0(a)

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

Philippines Movie production 100.0 100.0

ABS-CBN Global Ltd. (ABS-CBN Global) (c) Cayman Islands Holding company 100.0 100.0 ABS-CBN Interactive, Inc. Philippines Services - interactive

media 100.0 100.0

ABS-CBN International California, USA Cable and satellite programming services

98.0(a) 98.0(a)

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Place of Ownership Interest Company Incorporation Principal Activities 2005 2004 ABS-CBN Middle East FZ-LLC * Dubai, UAE Cable and satellite

programming services

100.0(a) 100.0(a)

ABS-CBN Multimedia, Inc. Philippines Digital electronic content distribution

75.0(d) 75.0(d)

ABS-CBN Integrated and Strategic Property Holdings, Inc. (e)

Philippines Real estate 100.0 100.0

ABS-CBN Publishing, Inc. (f) Philippines Print publishing 100.0 100.0 Creative Programs, Inc. Philippines Content development

and programming services

100.0 100.0

E-Money Plus, Inc. Philippines Services – money remittance

100.0(a) 100.0(a)

Professional Services for Television & Radio, Inc. Philippines Services 100.0 100.0 Sarimanok News Network, Inc. (SNN) Philippines Content development

and programming services

100.0 100.0

Sky Films, Inc. (Sky Films) Philippines Services – film distribution

100.0 100.0

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

100.0 100.0

Studio 23, Inc. (Studio 23) Philippines Content development and programming services

100.0 100.0

TV Food Chefs Inc. Philippines Services - restaurant and food

100.0 100.0

Roadrunner Network, Inc. (Roadrunner) Philippines Services - post production

98.9 98.9

Star Songs, Inc. Philippines Music Publishing 100.0 100.0

(a) indirectly-owned through ABS-CBN Global (b) non-stock ownership interest

(c) with a branch in the Philippines

(d) indirectly-owned through ABS-CBN Interactive, Inc. (e) not yet started commercial operations (f) owns 50% interest in Sky Guide, Inc. and 70% interest in Culinary Publications, Inc. * ABS-CBN Middle East FZ-LLC owns ABS-CBN Middle East LLC

ABS-CBN Broadcasting Corporation is the ultimate Philippine parent entity and the ultimate parent company of the Company is Lopez, Inc.

The following table provides the total amount of transactions, which have been entered into with related parties:

Transactions of the Company with its associates and related parties follow:

2005 2004 Associates Interest on noncurrent receivable from Sky Vision P=261,161 P=112,841 License fees charged by CPI to Central, (a) PCC

and Home Cable 112,334 137,443 Blocktime fees paid by Studio 23 to Amcara (b) 60,816 68,000 Management and other service fees 604 412

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2005 2004 Affiliates Expenses paid by Parent Company & subsidiaries to

Manila Electric Company (Meralco), Bayan Telecommunications Holding, Inc. (Bayantel) & other related parties P=432,346 P=364,527

Termination cost charges of Bayantel, a subsidiary of Lopez, to ABS-CBN Global 286,549 232,140

Airtime revenue from Manila North Tollways Corp. (MNTC), Bayantel and Meralco, an associate of Lopez 61,273 30,162

Expenses and charges paid for by the Parent Company which are reimbursed by the concerned related parties 34,788 46,449

Rental charges of the Parent Company for the use of office space – 133

The related receivables and payables from related parties are as follows:

2005 2004 Due from associates P=150,929 P=161,741 Due from affiliates 95,769 102,139 Total P=246,698 P=263,880

Due to associates P=40,715 P=24,543 Due to affiliates 270,584 137,480 Total P=311,299 P=162,023

Lopez, Inc. (Ultimate Parent) The Company has no transaction with Lopez, Inc. for the years 2005 and 2004.

a. License Fees Charged by CPI to Central

CPI entered into a cable lease agreement (Agreement) with Central for the airing of the cable channels (see Note 10) to the franchise areas of Central and its cable affiliates. The Agreement with Central is for a period of five years effective January 1, 2001, renewable upon mutual agreement. Under the terms of the Agreement, CPI receives license fees from Central and its cable affiliates computed based on agreed rates and on the number of subscribers of Central and its cable affiliates. As the owner of the said cable channels, CPI develops and produces its own shows and acquires program rights from various foreign and local suppliers.

b. Blocktime Fees Paid by Studio 23 to Amcara

Studio 23 owns the program rights being aired in UHF Channel 23 of Amcara. On July 1, 2000, it entered into a blocktime agreement with Amcara for its provincial operations.

Other transactions with associates include cash advances for working capital requirements.

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Terms and Conditions of Transactions with Related Parties The sales to and purchases from related parties are made at normal market prices. Outstanding balances as of year-end are unsecured, interest free and settlement occurs in cash, except for the noncurrent receivables from SkyVision discussed in Note 8. For the years ended December 31, 2005 and 2004, the Company has not made any provision for doubtful accounts relating to amounts owed by related parties. This assessment is undertaken each financial year through examining the financial position of the related party and the market in which the related party operates.

As discussed in Note 15, the Parent Company’s obligation under the Senior Credit Agreement (SCA) is jointly and severally guaranteed by its principal subsidiaries.

Compensation of key management personnel of the Company

2005 2004 Compensation P=358,321 P=281,553 Pension benefit 32,128 20,640 Vacation leaves and sick leaves 3,920 4,472 Termination benefits 70,181 – P=464,550 P=306,665

15. Interest-Bearing Loans and Borrowings

Effective Interest Rate % Maturity 2005 2004

Current: Bank loans 11.17% 355,398 P=355,398 P=466,943 Long-term debt under Senior Credit

Agreement (SCA) 13.01% 1,373,603 1,322,500 806,633 Obligations under capital lease

(see Note 24) 88,246 66,356 P=1,766,144 P=1,339,932

Noncurrent: Long-term debt under SCA (net of

transaction costs amounting to P=197,623 in 2005 12.87% 4,608,101 P=4,307,941 P=5,162,773

Obligations under capital lease (see Note 24) 201,699 132,331

P=4,509,640 P=5,295,104

Bank Loans This represents peso-denominated loans obtained from local banks which bear average annual interest rates of 11.17% in 2005 and 11.017% in 2004.

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Term Loan under the SCA On June 18, 2004, the Parent Company entered into a SCA with several foreign and local banks (Original Lenders) for a US$120 million dual currency syndicated term loan facility for the purpose of refinancing existing indebtedness incurred for the construction of the Eugenio Lopez, Jr. Communications Center, additional investment in the cable TV business and funding capital expenditures and working capital requirements. The SCA is classified in three (3) groups namely: Tranche A, a floating rate facility (3.5% + LIBOR) amounting to US$62 million; Tranche B, a floating rate facility (3.5% + MART1 T-bill) amounting to P=2,688 million; and, Tranche C, a fixed rate facility (3.5% + FXTN) amounting to P=560 million. Both Tranche A and Tranche B have a term of five years with 17 quarterly unequal payments and Tranche C has a term of four years with four annual unequal installments. These have all been availed of in March 2005. The Parent Company’s obligation under the SCA is secured and covered by a Mortgage Trust Indenture (MTI) which consists of substantially all of the Parent Company’s real property and moveable assets used in connection with its business and insurance proceeds related thereto. Further, the Parent Company’s obligation under the SCA is jointly and severally guaranteed by its principal subsidiaries.

The SCA contains provision regarding the maintenance of certain financial ratios and limiting, among others, the incurrence of additional debt, the payment of dividends, making investments, the issuing or selling the Parent Company’s capital stock or some of its subsidiaries, the selling or exchange of assets, creation of liens and effecting mergers. As of December 31, 2005, the Parent Company is in compliance with the provisions of the SCA.

As indicated in the SCA, all existing loans of the Parent Company outside the SCA were settled via proceeds of the term loan facility.

Details of the term loan under SCA using the effective interest rate method are as follows:

2005 Long-term debt under SCA Current portion P=1,322,500 Noncurrent portion 4,307,941 P=5,630,441

Transaction costs related to the SCA amounting to P=324 million were deducted from the face amount of the loan to get its net carrying value. This will be amortized over the life of the loan using the effective interest rate method of amortizing transaction cost detailed as follows:

Tranche A (USD) Tranche B (PHP) Tranche C (PHP) 2004 $353 P=14,526 P=3,331 2005 835 34,809 7,477 2006 774 33,353 7,339 2007 597 26,778 5,373 2008 353 16,440 2,805 2009 72 3,479 630 $2,984 P=129,385 P=26,955

As of December 31, 2005, P=126 million have been amortized and directly reported to profit and loss.

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Repayments of the term loan based on the face value of the SCA are scheduled as follows:

2006 P=1,373,603 2007 1,681,654 2008 1,827,275 2009 1,099,172 P=5,981,704

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 (see Notes 25 and 26).

16. Stockholders’ Equity

a. Capital Stock

Details of authorized and issued capital stock follow:

Number of

Shares Amount (In Thousands)

Authorized: Common shares - P=1 par value 1,500,000,000 P=1,500,000 Issued: Common shares 779,583,312 P=779,583

b. On April 24, 1998, BHC, then major stockholder of ABS-CBN, transferred all of its investments in ABS-CBN to Lopez, BHC’s parent company, in exchange for convertible and nonconvertible notes (Notes). The convertible notes can be exchanged by BHC for the ABS-CBN shares transferred. The Notes shall terminate on any earlier date if the convertible notes have been converted or when Lopez has satisfied its obligations with respect to all such convertible notes that have been properly converted. After the transfer, Lopez had all the voting rights associated with the shares.

c. On December 28, 1998, BHC sold a portion of the Notes to ABS-CBN for P=800,000, the equivalent market value of the underlying 40 million ABS-CBN shares.

On September 29, 1999, ABS-CBN Holdings Corporation (50% owned by Lopez) offered 132 million Philippine Depositary Receipts (PDRs) relating to 132 million ABS-CBN shares. Each PDR grants the holder, upon payment of the exercise price and subject to certain other conditions, the delivery of one ABS-CBN share or the sale of and delivery of the proceeds of such sale of one ABS-CBN share. The ABS-CBN shares are still subject to ownership restrictions on shares of corporations engaged in mass media and ABS-CBN may reject the transfer of shares to persons other than Philippine nationals. The PDRs may be exercised at any time from October 7, 1999 until the expiry date as defined in the terms of the offering. Any cash dividends or other cash distributions in respect of the underlying ABS-CBN shares shall be applied by ABS-CBN Holdings Corporation towards payment of operating expenses

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*SGVMC207451*

and any amounts remaining shall be distributed pro-rata among outstanding PDR holders. The PDRs were listed in the Philippine Stock Exchange on October 7, 1999.

The Notes held by ABS-CBN were amended to allow for conversion into shares or into PDRs. ABS-CBN converted P=200,000 of the Notes into PDRs underlying 10 million ABS-CBN shares and these are shown as “Philippine deposit receipts convertible to common shares” in the Stockholders’ Equity section of the balance sheets. The remaining P=600,000 of the Notes underlying 30 million ABS-CBN shares were converted into 30 million PDRs and these PDRs were included in the PDR offering described above.

d. On June 3, 2004, the BOD approved the declaration of cash dividend of P=0.64 per share to all stockholders of record as of July 26, 2004 payable on August 10, 2004.

e. 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=1,666,451 and P=1,605,713 as of December 31, 2005 and 2004, respectively.

17. Agency Commission, Incentives and Co-producers’ Share

2005 2004 Agency commission P=1,534,605 P=1,759,939 Incentives and co-producers’ share 550,142 436,723 P=2,084,747 P=2,196,662

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.

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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18. Production Costs

2005 2004 Personnel expenses and talent fees (see Note 23) P=2,513,203 P=2,524,568 Facilities related expenses (see Notes 14 and 24) 840,284 716,189 Amortization of program rights (see Notes 10) 711,354 766,407 Depreciation (see Note 9) 679,547 541,110 Other program expenses (see Note 14) 946,396 919,874 P=5,690,784 P=5,468,148

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.

19. Cost of Sales and Services

2005 2004 Facilities related expenses (see Notes 14 and 24) P=535,809 P=478,384 Termination costs (see Note 14) 404,600 451,233 Inventory cost 363,115 545,228 Personnel expenses (see Note 23) 167,972 209,200 Amortization of program rights (see Note 10) 115,964 120,731 Depreciation (see Note 9) 47,894 39,614 Other expenses (see Note 14) 738,252 540,132 P=2,373,606 P=2,384,522

20. General and Administrative Expenses

2005

2004 (As restated -

see Note 2) Personnel expenses (see Note 23) P=2,448,961 P=1,680,197 Depreciation (see Note 9) 507,288 565,579 Advertising and promotions 503,475 95,448 Facilities related expenses (see Notes 14 and 24) 496,076 407,653 Contracted services 404,060 337,774 Amortization of deferred charges (see Note 10) 345,131 92,509 Provision for doubtful accounts (see Note 3) 159,520 164,045 Taxes and licenses 151,407 168,959 Entertainment, amusement and recreation 118,634 128,428 Other expenses (see Note 14) 656,141 465,132 P=5,790,693 P=4,105,724

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21. Other Income and Expenses

Other Income

2005 2004 Space rental (see Note 24) P=89,283 P=78,247 Management fees 40,314 59,592 Royalty income 11,450 17,576 Others 146,095 71,728 P=287,142 P=227,143

Finance Revenue

2005 2004 Interest income P=297,435 P=152,897 Mark-to-market gain (see Note 15) 34,828 – P=332,263 P=152,897

Finance Cost

2005 2004 Interest expense P=683,465 P=802,850 Hedge cost 218,845 – Amortization of debt issue costs (see Note 15) 87,046 107,880 Bank service charges 12,241 – Mark-to-market loss 393 – P=1,001,990 P=910,730

22. Income Tax

Significant components of deferred tax assets and liabilities are as follows:

Consolidated deferred tax assets - net of the Company follow:

2005 2004 Deferred tax assets - net: Capitalized interest, duties and taxes

(net of accumulated depreciation) (P=326,515) P=– Accrued retirement expense and other

long term benefits 176,036 11,070 Allowance for doubtful accounts 158,542 17,640 Customer’s deposit 135,456 – Reimbursable expenses 77,272 – Net operating loss carryover (NOLCO ) 11,528 5,254 Allowance for inventory obsolescence 10,384 3,538 Unrealized foreign exchange loss (8,045) (320) MCIT 5,185 4,309 Others 54,304 – P=294,147 P=41,491

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Deferred tax liabilities - net of the Parent Company in 2004 follow:

Deferred tax liabilities - net: Capitalized interest, duties and taxes

(net of accumulated depreciation)

(P=336,053) Accrued retirement expense and others 216,171 Allowance for doubtful accounts 60,187 Project development costs written off 45,483 Restatement of leases (3,883) Unrealized foreign exchange loss 463 (P=17,632)

The provision for income tax follows:

2005

2004 (As restated -

see Note 2) Current P=436,633 P=320,929 Deferred (247,269) (46,189) P=189,364 P=274,740

The details of the unrecognized deductible temporary differences, NOLCO, and MCIT of the subsidiaries follow:

2005 2004 NOLCO P=201,652 P=285,884 Allowance for doubtful accounts 146,429 232,134 MCIT 908 2,355 Accrued retirement expense and others 5,253 2,669 P=354,242 P=523,042

Management believes that it is not probable that taxable income will be available against which temporary differences, NOLCO and MCIT will be utilized.

MCIT of the subsidiaries amounting to P=6,093 can be claimed as tax credit against future regular corporate income tax as follows:

Year Incurred Expiry Dates Amount 2003 December 31, 2006 P=1,245 2004 December 31, 2007 2,384 2005 December 31, 2008 2,464 P=6,093

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NOLCO of the subsidiaries amounting to P=234,589 can be claimed as deductions from regular corporate income tax as follows:

Year Incurred Expiry Dates Amount 2003 December 31, 2006 P=142,489 2004 December 31, 2007 49,644 2005 December 31, 2009 42,456 P=234,589

The reconciliation of income from continuing operations before income tax computed at the statutory tax rate to provision for income tax as shown in the consolidated statements of income is as follows:

2005 2004 Statutory tax rate 32% 32% Additions to (reduction in) income taxes resulting

from the tax effects of: Equity in net losses of investees 33 1 Interest income subject to final tax (19) (1) Unrecognized deferred tax assets (11) (1) Change in tax rate 3 – Nondeductible interest and others 1 (4) Effective tax rates 39% 27%

23. Pension and Other Long-Term Employee Benefits

The Company’s pension plan is composed of funded (Parent Company) and unfunded (Subsidiaries), noncontributory and actuarially computed pension plan except for ABS-CBN International (unfunded and contributory) covering substantially all of its employees. The benefits are based on years of service and compensation during the last year of employment.

The Company has also agreed to provide certain additional long-term employee benefits to all of its employees upon retirement. These benefits are unfunded.

In 2005, the Company implemented an Early Retirement Program. The employees availed this program from July to December 2005. Total retrenchment cost amounted to P=576.3 million, net of recognized curtailment gain of P=158.4 million.

The following table summarizes the components of consolidated net benefit expense (income) recognized in the statements of income and amounts recognized in the balance sheets of plan based on actuarial valuation dated December 31,2005:

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Net Benefit Expense (Income)

Pension Plan Other Long-term

Employee Benefits 2005 2004 2005 2004 Current service cost P=41,474 P=46,105 P=6,289 P=8,191 Interest cost 51,482 46,664 – – Expected return on plan assets (12,847) (12,658) – – Net actuarial gain recognized

during the year (351) – – 23,757 Curtailment gain (158,418) – – – Short-term normal cost – – 19,126 16,974 Net benefit expense/(income) (P=78,660) P=80,111 P=25,415 P=48,922

2005 2004 Actual return on Parent Company’s plan assets P=19,364 P=8,609

Benefit Liability

Pension Plan Other Long-term

Employee Benefits 2005 2004 2005 2004 Present value of obligation P=343,887 P=396,936 P=393,659 P=344,736 Fair value of plan assets (138,952) (126,105) – – 204,935 270,831 393,659 344,736 Unrecognized net actuarial losses 33,600 46,365 – – Total expense – – 25,415 48,923 Benefits paid – – (146,396) – Benefit liability P=238,535 P=317,196 P=272,678 P=393,659

Consolidated changes in the present value of the defined benefit obligation are as follows:

Pension Plan Other Long-term

Employee Benefits 2005 2004 2005 2004 Defined benefit obligation at

beginning of year P=396,936 P=398,667 P=393,659 P=344,736 Short term normal cost – – 19,126 16,973 Curtailment gains (146,005) – – – Interest cost 51,482 46,664 – – Current service cost 41,474 46,105 6,289 8,192 Benefits paid – (46,412) (146,396) (155) Actuarial (gains) losses on

obligation – (48,088) – 23,913 Defined benefit obligation at

end of year P=343,887 P=396,936 P=272,678 P=393,659

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Change in the fair value of plan assets of the Parent Company are as follows:

2005 2004 Fair value of plan assets at beginning of year P=126,105 P=126,582 Expected return on plan assets 12,847 12,658 Actual contributions – 35,000 Benefits paid – (46,412) Actuarial losses – (1,723) Fair value of plan assets at end of year P=138,952 P=126,105

The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:

2005 2004 Investment in FXTN/FRTN 45.35% 35.22% Investment in bonds 21.93% 35.78% Short-term equity investment 17.53% 13.76%

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 in determining pension and sick and vacation leave benefit obligations for the Company’s plans are shown below:

2005 2004 Discount rate 13.54% 11.62% Expected rate of return on plan assets 10% 10% Future salary rate increase 6% 6%

24. 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 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.

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.

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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. As of December 31, 2005, license fee amounting to P=1.629 billion have been recognized in the consolidated financial statements. ABS-CBN International’s share in the subscription revenues earned from subscribers that have migrated to DirecTV amounted to P=93.1 million in 2005.

On January 17, 2006, the Parent Company and DirecTV agreed to amend the Memorandum entered in June 1, 2005 that include among others the extension of the migration period from February 2006 to August 2006.

Operating lease commitments - Company as Lessee a. The Parent Company and subsidiaries lease office facilities, space and satellite equipment.

Future minimum rentals payable under non-cancelable operating leases are as follows as of December 31:

2005 2004 Within one year P=291,921 P=361,373 After one year but not more than five years 1,184,726 1,078,456 After five years 626,252 571,139 P=2,102,899 P=2,010,968

Operating lease commitments - Company as Lessor b. 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 between 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 as of December 31:

2005 2004 Within one year P=117,854 P=30,740 After one year but not more than five years 171,297 118,524 After five years 11,257 21,548 P=300,408 P=170,812

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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:

2005 2004 Within one year P=118,984 P=87,979 After one year but not more than five years 233,287 161,806 Total minimum lease payments 352,271 249,785 Less amounts representing finance charges 62,326 51,098 Present value of minimum lease payments 289,945 198,687 Less current portion 88,246 66,356 P=201,699 P=132,331

25. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments, other than derivatives, comprise bank loans, finance leases and, and cash and short-term deposits. The main purpose of these financial instruments is to raise finance 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, cross currency swaps and currency forward contracts. The purpose is to manage the interest rate and currency risks arising from the Company’s operations and its sources of finance.

It is, and has been throughout the year under review, the Company’s policy that no trading in financial instruments shall be undertaken.

The main risks arising from the Company’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The BOD reviews and agrees policies for managing each of these risks and they are summarized below. The Parent Company’s accounting policies in relation to derivatives are set out in Note 2.

Cash Flow Interest Rate Risk The Company’s exposure to the risk for changes in market interest rates relates primarily to the Company’s long- term debt obligations with a floating interest rate.

To manage this mix in a cost-efficient manner, the Company enters 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. At December 31, 2005, after taking into account the effect of interest rate swaps, approximately 45% of the Company’s borrowings are at a fixed rate of interest.

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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. Approximately 50% of these obligations are denominated in currencies other than the functional currency of the operating unit.

The Company enters into cross currency swaps, to manage this risk and eliminate the variability of cash flows due to changes in the fair value of the foreign-currency-denominated debt maturing more than 1 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.

Credit Risk The Company trades only with recognized, creditworthy third parties. Customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Company’s exposure to bad debts is not significant.

With respect to credit risk arising from the other financial assets of the Company, which comprise cash and cash equivalents, available-for-sale financial assets and certain derivative instruments, 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.

Since the Company trades only with recognized third parties, there is no requirement for collateral.

Liquidity Risk The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and finance leases.

26. Financial Assets and Financial Liabilities

The following table sets forth the carrying values and estimated fair values of consolidated financial assets and liabilities recognized as of December 31, 2005. There are no material unrecognized financial assets and liabilities as of December 31, 2005.

Carrying Amount Fair Value Current financial assets: Cash and cash equivalents P=1,751,730 P=1,751,730 Trade and other receivables - net 4,667,630 4,667,630 Derivative assets 193,305 193,305 Total current financial assets 6,612,665 6,612,665 Noncurrent financial assets Available-for-sale investments 30,931 30,931 Long-term receivables from related parties 2,341,683 2,341,683 Total noncurrent financial assets 2,372,614 2,372,614 Total financial assets P=8,985,279 P=8,985,279

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Carrying Amount Fair Value Current financial liabilities: Trade and other payables P=4,686,721 P=4,686,721 Interest-bearing loans and borrowings 355,398 356,150 Derivative liabilities 103,912 103,912 Total current financial liabilities 5,146,031 5,146,783 Noncurrent financial liabilities Interest-bearing loans and borrowings 5,630,441 6,386,610 Total financial liabilities P=10,776,472 P=11,533,393

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate such value:

Cash and cash equivalents, trade and other receivables and trade and other payables: Due to the short-term nature of transactions, the fair values of these instruments approximate the carrying amount as of balance sheet date.

Available-for-sale investments: The fair values were determined by reference to market bid quotes as of balance sheet date.

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.

Other variable rate loans The face value approximates fair value because of recent and frequent repricing based on market conditions.

Forward foreign exchange contracts and bifurcated foreign currency forwards: The fair values were determined using forward exchange market rates at the balance sheet date.

Interest Rate Risk The following table sets out the carrying amount, by maturity, of the Company’s consolidated financial instruments that are exposed to interest rate risk:

2005 Fixed Rate Within 1 Year 1-2 years 2-3 Years 3-4 years 4-5 Years

More than 5 Years Total

90,727 152,739 172,053 63,731 – – 479,250

2005 Floating Rate Within 1 Year 1-2 years 2-3 Years 3-4 years 4-5 Years

More than 5 Years Total

1,587,171 1,438,504 1,531,830 949,084 – – 5,506,589

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2004 Fixed Rate Within 1 Year 1-2 years 2-3 Years 3-4 years 4-5 Years

More than 5 Years Total

– 152,758 150,574 169,970 63,073 – 536,375

2004 Floating Rate Within 1 Year 1-2 years 2-3 Years 3-4 years 4-5 Years

More than 5 Years Total

1,107,672 1,039,414 1,283,787 1,369,673 849,761 – 5,650,307

Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. 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.

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. The long-term principal-only currency swaps have an aggregate notional amount of US$54.6 million as of December 31, 2005 and a weighted average swap rate of P=56.01 to US$1. 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=1.3 billion, 5.125% on a notional amount P=203 million, 3-month PHIREF minus 2.9% on a notional amount P=1.7 billion and 3-month PHIREF minus 3.1% on a notional amount on P=264 million.

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. These USD interest rate swaps and PHP interest rate swaps have an aggregate outstanding notional amount of US$32 million and P=394 million as of December 31, 2005, respectively, with payments up to September 2006 and March 2008.

The terms of the USD and PHP interest rate swap agreements are as follows:

Outstanding Notional Amount Maturity Receive Pay US$31,620 2008 3-Month Libor + 3.5% 7.18% PHP445,984 2008 PHIREF + 3.5% 14.40%

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.

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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=52.6 million (P=34.19 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 statements 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 statements of income of P=48 million.

The Parent Company did not designate its PHP interest rate swap as an accounting hedge because the effectiveness tests show ineffective results. During the year, the mark-to-market gains recorded immediately in the consolidated statements of income amounted to P=15 million.

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. For the year ended December 31, 2005, the amortization of the initial CTA amounted to P=31 million and is recorded as a reduction in interest expense.

Embedded Derivatives. As of December 31, 2005, the Company has outstanding embedded foreign currency derivatives which were bifurcated from various non-financial contracts. The impact of these embedded derivatives is not significant.

As discussed in Note 8, the Parent Company has a receivables from Sky Vision that is convertible into the latter’s common share, which are not quoted in an active market. The conversion option embedded in the receivable is not separately accounted for as a financial asset at fair value through profit and loss. The entire receivable from Sky Vision is reported at cost subject to impairment.

27. EPS Computations

Basic EPS amounts are calculated by dividing the net income for the period attributable to common shareholders by the weighted average number of common shares outstanding during the period.

The following table presents information necessary to calculate EPS:

2005 2004 (a) Net income attributable to equity holders of

parent P=287,744 P=750,755

(b) Weighted average shares outstanding 769,583,312 769,583,312 Basic EPS: P=0.374 P=0.976

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28. Note to Statements of Cash Flow

2005 2004 Noncash investing and financing activities: Acquisition of property and equipment

under capital lease P=166,077 P=82,244 Acquisition of program rights on account 265,852 315,284 Acquisition of property and equipment

on account 81,466 21,100 Acquisition of property and equipment as

settlement of trade receivables 44,280 – 29. Reclassifications

The following accounts in December 31, 2004 consolidated financial statements have been reclassified to conform to the 2005 presentation:

Nature Amount

Balance Sheet: Production and distribution business under “Other noncurrent

assets” to Program rights and other intangible assets P=617,552 Due from related parties to Trade and other receivables 262,435 CPI receivable from Sky Vision under “ Trade and other

receivables” to Long-term receivable from related parties 390,485 Advances to associates to Trade and other receivables 1,445 Program rights - current to Noncurrent program rights and other

intangible assets 125,595 Movie-in-progress under “Other current asset” account

to Program rights - current 35,572 Due to related parties to Trade and other payables 162,023 Obligations for program rights - net of current portion to

Obligations for program rights 124,094 Statement of Income: Other expenses under “General and administrative expenses” to

Other expenses “Cost of Sales” account 15,432 Amortization, previously shown as a separate line item to: Amortization of deferred charges under “General and

administrative expenses” 91,220 Amortization of Debt issue cost under “Finance Costs” 107,880 Depreciation previously shown as a separate line item, shown to: Production costs 541,110 Cost of sales and services 39,614 General and administrative expenses 565,579 Gross-up of Agency commission, incentives and co-producers’

share to Sale of services 150,913

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30. 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=305,400 plus legal interest compounded quarterly and exemplary damages of P=100,000.

The BOD resolved on June 27, 1991 to declare as scrip dividends, in favor of all stockholders of record as of that date, whatever amount that may be recovered from the foregoing pending claims and the rentals subsequently settled in 1995. The scrip dividends were declared on March 29, 2000. In 2003, additional scrip dividends of P=13,290 were recognized for the said stockholders.

On April 28, 1995, the Parent Company and the government entered into a compromise settlement of rental claims from 1986 to 1992. The compromise agreement includes payment to the Parent Company of P=29,914 (net of the government’s counterclaim against the Parent Company of P=67,586) by way of tax credits or other forms of noncash settlement as full and final settlement of the rentals from 1986 to 1992. The TCCs were issued in 1998.

b. The Company has contingent liabilities with respect to claims and lawsuits filed by third parties. The events that transpired last February 4, 2006, which resulted in the death of 71 people and injury to about 200 others led the Company to shoulder the burial expenses of the dead and medical expenses of the injured, which did not result in any direct or contingent financial obligation that is material to the Company. As of March 29, 2006, 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.

Management, after consultations with outside legal counsels, is of the opinion that the eventual liability from these claims cannot be presently determine, if any, and an adverse judgment in any one cases will not materially affect its financial position and results of operations.