cover sheet - abs-cbnluzon, because of flood damage to homes and power outages. but even with the...

13 November 2009

1 8 0 3

SEC Registration Number

(Company’s Full Name)

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

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

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

Q U E Z O N C I T Y

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

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

0 6 3 0 1 7 Q

Month Day (Form Type) Month Day

(Annual Meeting)

(Secondary License Type, If Applicable)

Dept. Requiring this Doc. Amended Articles Number/Section

Total Amount of Borrowings

6,728

Total No. of Stockholders Domestic Foreign

To be accomplished by SEC Personnel concerned

File Number LCU

Document ID Cashier

S T A M P S

Remarks: Please use BLACK ink for scanning purposes.

COVER SHEET

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

A N D S U B S I D I A R I E S

ABS-CBN BROADCASTING CORPORATION

SEC FORM 17-Q

QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES

REGULATION CODE AND SRC RULE 17(b)(2) THEREUNDER

1. For the fiscal year ended September 30, 2009

2. SEC Identification Number 1803 3. BIR Tax Identification No. VAT 000-406-761-000

4. Exact name of issuer as specified in its charter: ABS-CBN BROADCASTING CORPORATION

5. Philippines 6. (SEC Use Only)

Province, Country or other jurisdiction of

incorporation or organization

Industry Classification Code

7. ABS-CBN Broadcasting Center, Sgt. Esguerra st. cor Mo Ignacia St., Quezon City 1103

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, P=1.00 par value 779,584,602

Short-term & Long-term debt (current & non-current) P=9,041 million

11. Are any or all of these securities listed on a Stock Exchange.

Yes [x] No [ ]

If yes, state the name of such stock exchange and the classes of securities listed therein:

Philippine Stock Exchange Class A

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 [ ]

TABLE OF CONTENTS

PART I -- FINANCIAL INFORMATION

Item 1 Management’s Discussion and Analysis of Financial Condition and

Results of Operations

Item 2 Financial Statements

Consolidated Balance Sheets

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Financial Statements

PART II -- OTHER FINANCIAL INFORMATION

Exhibit 1 Aging of Accounts Receivable

Exhibit 2 Business Segment & Geographical Segment Results

Exhibit 3 Roll-forward of PPE

SIGNATURES

Management’s Discussion & Analysis of Financial Condition and Results of

Operations for the Nine Months ending September 30, 2009

For the period January to September 2009, ABS-CBN Broadcasting Corporation generated

consolidated revenues of P18.34 billion, an 11% year-on-year growth over the first nine

months of 2008.

The revenue diversification of the Company continues to improve as direct sales including

sales of services from Skycable grew 19% year-on-year to P7.67 billion, contributing 42%

to consolidated revenues. Airtime revenues of P10.68 billion contributed 58%, as it grew

5% year-on-year. (ABS-CBN’s comparative financial results include the contributions of

Skycable for three quarters of 2009 versus the 2nd and 3rd quarters of 2008.)

Direct sales from core businesses in the third quarter amounted to P1.79 billion, a 6% year-

on-year growth, bringing consolidated direct sales for the January to September period to

P5 billion, P305 million or 6% more than it was in the same period last year.

Consolidated direct sales for the third quarter including sales of services from Skycable

totalled P2.7 billion, for a 6% year-on-year growth. Skycable’s revenue contribution for the

nine-month period from subscription and other service revenues amounted to P2.65

billion, driven by strong growth in contributions from Skycable’s prepaid cable and

broadband service subscriptions.

The strong ratings and audience share performance of Channel 2 continued to sustain

airtime revenues in the third quarter, along with continued strong airtime revenue growth

and contribution share from ABS-CBN Global and cable channels. Airtime revenues of P3.96

billion in the third quarter raised consolidated airtime revenues for the nine-month period

to P10.68 billion.

Prudent operating and financial management enabled ABS-CBN to contain growth in total

expenses at single-digit rates.

Overall, production costs for the first nine months of 2009 of P4.65 billion are just P175

million or 4% higher than in the comparable period last year, even with an additional

locally-produced afternoon soap and late-evening entertainment news program.

Cost of sales from core businesses grew by only P20 million or 2% in the third quarter to

P1.1 billion, while Skycable’s cost of sales for the 3rd quarter is P317 million. Total cost of

sales and services for the January to September period, including Skycable’s cost of sales of

P939 million, amounted to P3.77 billion, an increase of P575 million or 18% year-on-year.

Consolidated General and Administrative Expenses (GAEX) of core businesses for the nine

months to September 2009 totaled P5.6 billion for the nine-month period, for a year-on-

year growth of 18%. Total GAEX of core businesses went up by P150 million or 12% in the

third quarter to P1.43 billion, primarily from higher personnel expenses as a result of

structural adjustments, CBA increases and non-recurring payouts. Skycable’s 3rd quarter

contribution to total GAEX amounted to P527 million.

Total group spending on CAPEX and film and program rights acquisition inclusive of

Skycable’s CAPEX reached a little over P2 billion, P381 million or 23% more than the

spending over the same nine-month period in 2008. Skycable’s self-funded CAPEX of P590

million over January to September period was used for the continuing conversion to digital

cable signal delivery within its service areas and for its broadband network.

ABS-CBN Broadcasting Corporation posted core net income of P1.4 billion for January to

September 2009, 16% higher than its net income of P1.2 billion for the same period in

2008, and exceeding its net income of P1.38 billion for the full year of 2008. Net of PFRS 3

adjustments relating to the consolidation of Skycable amounting to P50 million, the

reported net income of ABS-CBN comes to P1.35 billion, 12% more than its P1.2 billion net

income for the first nine months of 2008.

Third quarter EBITDA of P1.79 billion boosted EBITDA for the nine-month period to P5.16

billion. This translates into an EBITDA margin of 28%, and is 16% or P724 million more

than the EBITDA of P4.4 billion in the first nine months of 2008.

Revenues

For the period January to September 2009, ABS-CBN Broadcasting Corporation generated

consolidated revenues of P18.3 billion, an 11% year-on-year growth over the first nine

months of 2008.

Airtime revenues of P10.68 billion contributed 58% to consolidated revenues, while direct

sales reached P7.67 billion, contributing 42%. This is a three percentage-points

improvement from the 39% contribution share of direct sales in the same period in 2008.

Consolidated

Amounts in million Pesos Variance

9M09 9M08

Amount %

Airtime revenue 10,578 10,078 500 5

Direct Sales 5,021 4,716 305 6

Core Business 15,599 14,794 805 5

Add: SkyCable revenues 2,745 1,766 978 55

Consolidated revenues 18,344 16,560 1,783 11

Airtime Revenues

In the third quarter, ABS-CBN spiced up its afternoon weekday programming with a

combination of drama and comedy offerings. The Mexican telenovela Maria de Jesus, and

the Precious Hearts Romances instalment Ang Lalaking Nagmahal sa Akin continued to cater

to our core viewership, while Banana Split Daily Servings brought fresh fun and laughter to

a wider audience mix.

The new drama programs Katorse, Lovers in Paris, and Dahil May Isang Ikaw complemented

our already strong weekday primetime line-up that includes TV Patrol World, the widely

followed May Bukas Pa, and the entertainment news program Showbiz News Ngayon or

SNN.

This freshened program line-up enabled ABS-CBN to maintain its national ratings and

audience share leadership.

Based on figures from TNS National Urban Philippines TV ratings service, ABS-CBN kept its

total day ratings at the 18-points level from July to September, versus GMA’s 13-14 points.

This ratings lead of at least four points has been maintained even in October, despite the

dip in ratings for ABS-CBN to about 16.8 points. The typhoons Ondoy and Pepeng which

came in late September brought general total viewership levels lower, particularly in

Luzon, because of flood damage to homes and power outages.

But even with the dip in ratings caused by these two super-typhoons, ABS-CBN’s national

total day audience shares in the third quarter stayed at the 46-47 points level, maintaining

a double-digit lead over GMA7 of at least 11 percentage points.

Primetime ratings of Channel 2 stayed at the 30-points level with a 9-10 point lead over

GMA7 from July to September. In October though, primetime ratings also took a dip to 28

points, again as a result of the effect of the two typhoons on a significant number of

households.

Audience share of Channel 2’s primetime block continued to remain at the 50-51

percentage-points level from July to September.

Despite the ratings dip brought on by the effects of the two super-typhoons on viewership

levels, total day and primetime audience share levels of Channel 2 were sustained through

October.

According to TNS rankings, ABS-CBN programs held 17 of the top 20 programs in October

2009, with all of our primetime launches in the third quarter—Katorse, Lovers in Paris,

Dahil May Isang Ikaw, and Agimat: Ang Mga Alamat ni Ramon Revilla—in the top 10 and all

editions of the recently launched Pinoy Big Brother Double Up breaking into the top 20 list.

In October, ABS-CBN’s primetime programs held nine of the top 10 slots, led by TV Patrol

World, May Bukas Pa, Katorse, Lovers in Paris and Maalaala Mo Kaya in the top five.

The strong ratings and audience share performance of Channel 2 continued to sustain

airtime revenues in the third quarter, along with continued strong airtime revenue growth

and contribution share from ABS-CBN Global and our cable channels.

Airtime revenues of P3.96 billion in the third quarter, brought consolidated airtime

revenues for the nine-month period to P10.68 billion, reflecting a 5% year-on-year growth

over the first nine months of 2008.

Consolidated


9M09 9M08

Amount %

Parent airtime revenue 9,806 9,431 375 4

Other platforms 772 645 127 20

Gross airtime revenues 10,578 10,076 502 5

Add: SkyCable airtime revenues 100 53 47 89

Consolidated Gross airtime revenues 10,678 10,129 549 5

Direct Sales

Consolidated direct sales from core businesses in the third quarter amounted to P1.79

billion, a 6% year-on-year growth, bringing consolidated direct sales for the January to

September period to P5 billion, P305 million or 6% higher than it was in the same period

last year.

Consolidated


9M09 9M08

Amount %

ABS-CBN Global 3,783 3,451 332 10

Other subsidiaries 1,237 1,266 (29) -2

Total core business Direct Sales 5,021 4,716 305 6

Add: SkyCable sale of services 2,645 1,713 932 54

Total Direct Sales 7,666 6,429 1,237 19

ABS-CBN Global continued to deliver double-digit growth in the sale of both services and

goods. Its subscription revenues managed to grow by 15% year-on-year for the January to

September period, despite economic slowdown in most of its major markets. North

America and the Middle East posted continued double-digit growth in cable subscriptions.

ABS-CBN Film Productions, Inc. released three films during the quarter: the horror flick

Villa Estrella, the romance drama And I Love You So starring Sam Milby and Bea Alonzo, and

In My Life, a film that explores sensitive family and sexual relationships in a New York

setting. These three films pulled in a combined P282 million in box office receipts.

Consolidated direct sales in the first nine months including sales of services from Skycable

totalled P7.67 billion, for a 19% year-on-year growth.

Skycable’s revenue contribution for the nine-month period from subscription and other

service revenues amounted to P2.65 billion, an increase of P932 million or 54% from its

contribution in the same period in 2008, with prepaid subscriptions growing 47% year–

on-year, and its broadband service subscriptions rising 56% year-on-year, offsetting churn

from post-paid cable subscriptions.

Expenses

ABS-CBN continued to contain the increase in its expenses in core businesses to single-digit

levels. Overall growth in total expenses of core businesses in the first nine months which

reached P13.6 billion, was only 6% higher year-on-year.

Consolidated


9M09 9M08

Amount %

Production Cost 4,651 4,476 175 4

General and Administrative Expenses 3,983 3,721 262 7

Cost of Sales and Services 2,835 2,665 170 6

Agency commission, incentives &

Co-prod share 1,898 1,924 (31) -1

Other expenses (income) 274 54 220 407

Total Expenses from core businesses 13,641 12,839 802 6

Add: Skycable expenses 2,661 1,655 1,006 61

Total Expenses 16,302 14,494 1,808 12

Consolidating Skycable’s contributions to total expenses of P2.66 billion for the first nine

months of this year, total expenses go up to P16.3 billion, or a 12% increase over last year’s

P14.5 billion. Of the P2.66 billion expense contribution of Skycable, P2.1 billion are cash

expenses.

Production costs for the first nine months of 2009 of P4.65 billion are 4% higher than in the

comparable period last year, with a P175 million increase due to an additional locally-

produced afternoon soap and a late-evening entertainment news program.

Cash production costs went up by only P86 million or 2% to P3.59 billion in the first nine

months of 2009. Non-cash production costs went up by 9% to P1 billion due to additional

depreciation expenses arising from continuing investments in the upgrade of production

and broadcast equipment.

Consolidated


9M09 9M08

Amount %

Personnel expenses and talent fees 2,078 1,955 123 6

Facilities-related expenses 840 827 13 2

Other program expenses 671 721 (50) -7

Sub-total: Cash production costs 3,589 3,503 86 2

Non-cash production cost 1,062 974 88 9

Total production cost 4,651 4,477 174 4

Total cost of sales and services from core businesses including ABS-CBN Global reached

P2.84 billion in the nine months to September 2009, a 6% year-on-year increase. Cost of

sales from core businesses grew by only P20 million or 2% in the third quarter to P1.1

billion.

ABS-CBN Global accounted for three-fifths of cost of sales in the nine-month period but for

only one third of the increase. Content costs and marketing expenses were the main cost

drivers for ABS-CBN Global, while for other subsidiaries, the main cost drivers were

amortisation of film and program rights for our cable channels.

Consolidated


9M09 9M08

Amount %

ABS-CBN Global 1,631 1,575 56 4

Other subsidiaries 1,204 1,090 114 10

Total cost of sales and services 2,835 2,665 170 6

Add: SkyCable cost of sales and services 939 534 405 76

Total Cost of Sales and Services 3,774 3,199 575 18

With the inclusion of Skycable’s cost of sales of P939 million for the January to September

period, total cost of sales and services for the first nine months of 2009 amounted to P3.77

billion, an increase of P575 million or 18% year-on-year.

Skycable’s cost of sales for the 3rd quarter is P317 million.

General and Administrative Expenses (GAEX) of core businesses for the nine months to

September 2009 totaled P3.98 billion, P262 million or 7% higher than in the same period

last year. Total GAEX of core businesses went up by P150 million or 12% in the third

quarter to P1.43 billion.

Cash GAEX of P3.4 billion for the first nine months to September is P184 million or 6%

greater than it was in the same period last year, from higher personnel expenses mainly as

a result of structural adjustments, CBA increases and non-recurring payouts. Non-cash

GAEX of P541 million is slightly up by P78 million.

Consolidated


9M09 9M08

Amount %

Personnel expenses 1,939 1,709 230 13

Advertising and promotions 92 82 10 12

Facilities-related expenses 332 356 (24) -7

Contracted services 425 371 54 15

Taxes and licenses 137 141 (4) -3

Entertainment, amusement and recreation 110 98 12 12

Other expenses 407 500 (93) -19

Sub-total, Cash GAEX of core businesses 3,442 3,258 184 6

Non-cash GAEX of core businesses 541 463 78 17

Total GAEX from core businesses 3,983 3,721 262 7

Add: SkyCable GAEX 1,614 1,010 604 60

Total GAEX 5,596 4,731 866 18

Skycable’s 3rd quarter contribution to total GAEX amounted to P527 million. Counting

Skycable’s additional operating expenses of P1.6 billion for the first nine months of 2009,

consolidated GAEX amounts to P5.6 billion for the nine-month period, for a year-on-year

growth of 18%.

Net Income

Before PFRS 3 adjustments relating to the consolidation of Skycable, net income

attributable to shareholders for the first nine months of 2009 reached P1.4 billion, which

surpasses the Company’s full-year 2008 net income of P1.38 billion and registers a 16%

year-on-year growth.

However, after removing the PFRS 3 adjustments of P50 million, net income would be

P1.35 billion, which is 12% or P148 million better than the P1.2 billion net income in the

similar period in 2008.

Third quarter earnings before interest, taxes, depreciation and amortization (EBITDA) of

P1.79 billion boosted EBITDA for the nine-month period to P5.16 billion. This translates

into an EBITDA margin of 28%, and is 16% or P724 million more than the EBITDA of P4.4

billion in the first nine months of 2008.

Capital Expenditures and Film Rights Acquisition

Cash capital expenditures (CAPEX) and film and program rights acquisitions for January to

September 2009 reached P1.46 billion, 4% or P62 million more than the spending in the

same period in 2008.

Cash CAPEX of core businesses of P997 million for the first nine months of the year is the

same level of spending as it was in the same period last year, while film and program rights

acquisition in the same period amounted to P462 million, 15% or P61 million greater than

the amount spent from January to September 2008.

Including Skycable’s self-funded CAPEX of P590 million for the first nine months of the

year, total CAPEX for January to September 2009 reached P1.59 billion, P320 million or

25% more than the spending in the same period last year.

Overall, for the period January to September 2009, total group spending on CAPEX and film

rights including Skycable reached a little over P2 billion, P381 million or 23% more than

the spending over the same nine-month period in 2008.

Balance Sheet Accounts

Our balance sheet further improved in the third quarter.

As at September 30, 2009, total consolidated assets increased by P2.36 billion to P35.2

billion, an improvement of 7% over its year-end 2008 level of P32.8 billion.

Cash and cash equivalents of P3.31 billion are P787 million or 31% higher than the year-

end 2008 balance of P2.5 billion.

Consolidated trade and other receivables of P5.69 billion is P1.1 billion or 24% more than

at the end of 2008, as trade receivables increased by P481 million or 9% in the third

quarter.

Days sales outstanding for the period is 86 days, 11 days longer than the 75 days as at

December 31, 2008.

Total interest-bearing loans went down by P472 million in the third quarter to P9 billion,

which is just P326 million or 4% higher than the year-end 2008 balance of P8.7 billion. The

reduction came from about P400 million in short-term borrowings that were paid down, as

well as decreased working capital requirements.

Shareholder’s equity stands at P15.79 billion, a P643 million or 4% increase over the value

at the end of 2008.

The company’s net debt-to-equity ratio improved slightly to 0.36x versus 0.41x as at

December 31, 2008 and 0.40x as at June 30, 2009.

* * * *

2009 2008

September December

Unaudited Audited

ASSETS

Current Assets

Cash and cash equivalents 3,311,406 2,524,254

Trade and other receivables 6,212,557 5,040,139

Derivative assets - 16,223

Program rights and other intangible assets - current 742,111 1,439,876

Other current assets 1,402,009 1,099,747

Total Current Assets 11,668,083 10,120,240

Noncurrent Assets

Property and equipment at cost - net 14,611,426 14,735,554

Noncurrent program rights and other intangible assets 2,604,558 2,170,856

Goodwill 1,905,035 1,906,211

Deferred tax assets 549,224 603,191

Other noncurrent assets - net 3,859,961 3,299,621

Total Non Current Assets 23,530,204 22,715,433

35,198,287 32,835,673

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Trade and other payables 7,500,605 5,642,073

Income tax payable 230,461 489,963

Obligations for program rights - current 1,072,619 1,063,365

Interest-bearing loans and borrowings - current 652,228 1,131,783

Total Current Liabilities 9,455,912 8,327,184

Noncurrent Liabilities

Interest-bearing loans and borrowings - net of current portion 8,388,484 7,582,621

Obligations for program rights - net of current portion - 151,994

Deferred tax liabilities - net 659,300 632,600

Accrued pension obligation 680,155 791,936

Asset retirement obligation 15,617 17,787

Other noncurrent liabilities - net 208,261 184,149

Total Noncurrent Liabilities 9,951,817 9,361,087

Stockholders' Equity

Capital Stock - P1 par value

Authorized - 1,500,000,000 shares

Issued - 779,583,312 shares 779,583 779,583

Capital paid in excess of par value 725,276 725,276

Cumulative translation adjustments (101,670) (169,514)

Retained earnings 14,782,977 14,121,335

Philippine depositary receipts convertible to common shares (510,060) (376,324)

Total Stockholers' Equity attributable to Equity holders of Parent Company 15,676,105 15,080,356

Minority Interest 114,452 67,046

Total Stockholders' Equity 15,790,558 15,147,402

35,198,287 32,835,673

ABS-CBN BROADCASTING CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

September 30, 2009 and December 31, 2008

(In Thousands, Except Par Value and Number of Shares)

2009 2008 2009 2008

REVENUES

Airtime revenues 3,958,782 3,765,847 10,678,021 10,130,549

Sale of services 2,591,556 2,382,912 7,332,779 5,998,147

License fees - - - -

Sale of goods 107,240 157,222 332,724 431,274

6,657,578 6,305,981 18,343,524 16,559,970

EXPENSES (INCOME)

General and administrative 1,956,338 1,798,272 5,596,263 4,730,595

Production costs 1,712,171 1,526,968 4,650,770 4,476,146

Cost of sales and services 1,409,306 1,350,165 3,774,008 3,198,815

Agency commission, incentives and co-producers' share 688,816 709,606 1,897,938 1,923,893

Finance costs 223,580 202,415 700,007 503,774

Finance revenue (26,429) (15,517) (78,602) (78,293)

Equity in net losses of associates 88 (0) 146 (5,064)

Foreign exchange (gain) loss - net (18,393) 82,759 38,240 78,623

Other income (58,644) (145,536) (276,742) (334,803)

5,886,833 5,509,132 16,302,029 14,493,686

INCOME BEFORE INCOME TAX 770,745 796,849 2,041,495 2,066,284

PROVISION FOR INCOME TAX 209,058 346,610 650,460 839,665

NET INCOME 561,687 450,240 1,391,035 1,226,619

Net Income Attributable to :

Equity holders of Parent Company 536,354 447,111 1,349,070 1,200,630

Minority Interest 25,333 3,128 41,965 25,989 561,687 450,240 1,391,035 1,226,619

EBITDA 1,789,184 1,756,620 5,157,753 4,433,447

EARNINGS PER SHARE (EPS)

Basic EPS 0.700 0.582 1.760 1.563

For the quarter ended For the period ended

September 30 September 30

(In Thousands)


Consolidated Statement of Income and Expenses

For the period ended September 30

(Unaudited)

2009 2008 2009 2008

NET INCOME 561,687 450,240 1,391,035 1,226,619

OTHER COMPREHENSIVE INCOME

Unrealized gain (loss) on available-for-sale investments 15,853 10,483 56,507 (12,017) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 577,540 460,723 1,447,542 1,214,602

Comprehensive Income Attributable to :

Equity holders of Parent Company 552,207 457,594 1,405,577 1,188,613

Minority Interest 25,333 3,128 41,965 25,989 577,540 460,723 1,447,542 1,214,602



(In Thousands)


Consolidated Statement of Comprehensive Income


(Unaudited)

Philippine

Depository

Capital Cumulative Unappropriated Appropriated Receipts

Capital in Excess of Translation Retained Retained Convertible to Minority Total

Stock Par Value Adjustments Earnings Earnings Common Shares Total Interest Equity

At January 1, 2009 779,583 725,276 (169,514) 5,821,335 8,300,000 (376,324) 15,080,356 67,046 15,147,402

Prior period adjustments - - - - - - - - -

At January 1, 2009, as restated 779,583 725,276 (169,514) 5,821,335 8,300,000 (376,324) 15,080,356 67,046 15,147,402

Increase (Decrease) in Minority Interest - - - - - - - 5,441 5,441

Cash flow hedges - - - - - - - - -

Amortization of initial CTA - - - - - - - - -

Cash dividend declared - - - (687,427) - - (687,427) - (687,427)

Translation adjustments during the year - - 11,337 - - - 11,337 - 11,337

Unrealized fair value gain on available-for-sale investment - - 56,507 - - - 56,507 - 56,507

Total income and expense for the year recognized directly in equity - - 67,844 (687,427) - - (619,583) 5,441 (614,142)

Net income - - - 1,349,070 - - 1,349,070 41,965 1,391,035

Total income and expense for the year - - 67,844 661,643 - - 729,487 47,406 776,893

Issuance/ Receipt of treasury shares - - - - - (133,737) (133,737) - (133,737)

At September 30, 2009 779,583 725,276 (101,670) 6,482,978 8,300,000 (510,061) 15,676,106 114,452 15,790,558

At January 1, 2008 779,583 725,276 (257,861) 5,052,202 8,300,000 (323,967) 14,275,233 45,894 14,321,127

Prior period adjustment - - - - - - - - -

At January 1, 2008, as restated 779,583 725,276 (257,861) 5,052,202 8,300,000 (323,967) 14,275,233 45,894 14,321,127

Increase (Decrease) in Minority Interest - - - - - - - 134,937 134,937

Cash flow hedges - - - - - - - - -

Amortization of initial CTA - - - - - - - - -

Cash dividend declared - - - (643,156) - - (643,156) - (643,156)

Translation adjustments during the year - - 265,526 - - - 265,526 - 265,526

Unrealized fair value gain on available-for-sale investment - - (12,017) - - - (12,017) (12,017)

Total income and expense for the year recognized directly in equity - - 253,509 (643,156) - - (389,647) 134,937 (254,710)

Net income - - - 1,200,630 - - 1,200,630 25,989 1,226,619

Total income and expense for the year - - 253,509 557,474 - - 810,983 160,926 971,909

Issuance/ Receipt of treasury shares - - - - - (32,465) (32,465) (32,465)

At September 30, 2008 779,583 725,276 (4,352) 5,609,676 8,300,000 (356,432) 15,053,751 206,820 15,260,571

Attributed to equity holders of parent


Consolidated Statements of Changes in Stockholders' Equity

September 30, 2009 and September 30, 2008

(In Thousands, Except Per Share Amounts)

2009 2008 2009 2008

CASH FLOWS FROM OPERATING ACTIVITIES

Income from before income tax 770,745 796,849 2,041,495 2,066,284

Adjustments for :

Depreciation 593,766 477,034 1,714,494 1,238,944

Interest expense 210,044 189,053 655,436 469,358

Amortization of :

Program rights and other intangibles 260,461 307,911 850,082 752,144

Debt issue cost 8,012 6,344 22,839 17,803

Deferred charges - - - -

Provisions for :

Retirement expense 69,579 76,817 158,113 179,736

Other employee benefit 31,456 23,904 82,726 67,057

Doubtful accounts 69,410 49,414 150,386 122,446

Inventory obsolescence 300 300 900 900

Interest income (26,429) (15,517) (78,602) (78,293)

Equity in net losses of investees 88 (0) 146 (5,064)

Mark to market (gain) loss 1 1,766 1,233 (135)

Unrealized foreign exhange (gain) loss (44,714) 86,803 (15,346) 69,979

Gain on sale of property and equipment - - - -

Operating income before working capital changes 1,942,720 2,000,677 5,583,903 4,901,160

Decrease (increase) in :

Trade and other receivables (629,703) (746,359) (1,309,304) (894,805)

Program rights and other intangible assets (159,524) (185,482) (405,757) (397,204)

Other current assets 285,812 (221,842) (401,856) (1,174,474)

Increase (decrease) in :

Trade and other payables 1,064,091 (800,828) 1,667,359 (415,157)

Obligations for program rights (48,819) (90,880) (322,885) (292,544)

Payment of accrued pension obligation (143,269) (64,705) (269,894) (118,943)

Cash generated from operations 2,311,307 (109,418) 4,541,567 1,608,032

Income tax paid (936,016) 197,472 (781,965) 515,395

Net cash provided by operating activities 1,375,291 88,055 3,759,602 2,123,427

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to property and equipment (598,413) (548,987) (1,586,214) (1,266,436)

Decrease (increase) in :

Other non-current assets (296,317) 410,155 (492,928) 47,790

Long-term receivables from a related party (88) 0 (146) 11,473

Interest received 17,165 15,455 65,102 78,301

Proceeds from sale of property and equipment - (8,616) - -

Net cash used in investing activities (877,653) (131,994) (2,014,186) (1,128,872)

CASH FLOWS FROM FINANCING ACTIVITIES

Payments of :

Long-term debt (147,298) (688,766) (163,298) (692,141)

Interest and other financial charges (210,169) (162,607) (623,733) (424,807)

Bank loans (306,135) (261,900) (328,010) (261,900)

Capital lease (30,607) (47,328) (134,835) (176,424)

Cash dividends - - (687,427) (643,156)

Proceeds from :

Bank loans - - - 591,250

Long-term debt - 1,000,000 900,000 1,000,000

Cash received from settlement of derivatives - - 0 -

Net cash used in financing activities (694,209) (160,600) (1,037,304) (607,179)

EFFECTS OF EXCHANGE RATE & TRANSLATION ADJUSTMENTS ON CASH 60,097 (18,344) 79,041 254,465

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (136,474) (222,883) 787,152 641,841

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,447,880 3,010,502 2,524,254 2,145,778

CASH AND CASH EQUIVALENTS AT END OF YEAR 3,311,406 2,787,619 3,311,406 2,787,619


CONSOLIDATED CASH FLOW STATEMENTS


(Unaudited)

(In Thousands)




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands Unless Otherwise Specified)

1. Summary of Significant Accounting Policies

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

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

Statement of Compliance

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

Changes in Accounting Policies

The Company has adopted the following new and amended standards and Philippine Interpretations which became effective January 1, 2009:

� PFRS 1, First-time Adoption of Philippine Financial Reporting Standards - Cost of an

Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective January 1, 2009)

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

� Amendments to PFRS 2, Share-based Payments - Vesting Condition and Cancellations

(effective January 1, 2009)

This standard restricts the definition of “vesting condition” to a condition that includes an explicit or implicit requirement to provide services. Any other conditions are non-vesting conditions, which have to be taken into account to determine the fair value of the equity instruments granted. In the case that an award does not vest as the result of a failure to meet a non-vesting condition that is within the control of either the entity or the

counterparty, this must be accounted for as cancellation. The Company has not entered into share-based payment schemes with non-vesting conditions attached and, therefore, the amendments did not have significant impact on the consolidated financial statements.

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

This standard requires disclosure of information about the Company’s operating segments and replaces the requirement to determine the primary (business) and secondary (geographical) reporting segments of the Company. Adoption of this standard did not have any effect on the financial position or performance of the Company. The Company determined that the operating segments were the same as the business segments previously identified under PAS 14, Segment Reporting.

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

The standard requires capitalization of borrowing costs when such costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. In accordance with the transitional requirements in the standard, the Company will adopt this as a prospective change. Adoption of this amendment did not have significant impact on the consolidated financial statements.

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

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

� Amendments to PAS 27, Consolidated and Separate Financial Statements - Cost of an

Investment in a Subsidiary, Jointly Controlled Entity or Associate (effective January 1, 2009)

The changes are in respect of the holding companies separate financial statements including (a) the deletion of ‘cost method’, making the distinction between pre- and post-acquisition profits no longer required; and (b) in cases of reorganizations where a new parent is inserted above an existing parent of the group (subject to meeting specific requirements), the cost of the subsidiary is the previous carrying amount of its share of equity items in the subsidiary rather than its fair value. All dividends will be recognized in profit or loss. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. The amendments did not have an impact to the consolidated financial statements.

� Amendments to PAS 32, Financial Instruments: Presentation, and PAS 1, Presentation of

Financial Statements - Puttable Financial Instruments and Obligations Arising on

Liquidation (effective January 1, 2009)

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

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

This interpretation requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and realized in income over the period that the award credits are redeemed or expire. Adoption of this interpretation had no material impact to the consolidated financial statements.

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

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

Improvements to PFRS. In May 2008, the International Accounting Standards Board issued its first omnibus of amendments to certain standards, primarily with a view to removing inconsistencies and clarifying wording. The adoption of the following amendments resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Company.

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

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

� PAS 1, Presentation of Financial Statements

Assets and liabilities classified as held for trading in accordance with PAS 39, Financial

Instruments: Recognition and Measurement, are not automatically classified as current in the balance sheet.

� PAS 16, Property, Plant and Equipment

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

Operations, and PAS 36, Impairment of Assets.

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

� PAS 19, Employee Benefits

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

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

� PAS 23, Borrowing Costs

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

� PAS 28, Investments in Associates

If an associate is accounted for at fair value in accordance with PAS 39, only the requirement of PAS 28 to disclose the nature and extent of any significant restrictions on the ability of the associate to transfer funds to the entity in the form of cash or repayment

of loans applies. An investment in an associate is a single asset for the purpose of conducting the impairment test. Therefore, any impairment test is not separately allocated to the goodwill included in the investment balance.

� PAS 31, Interests in Joint Ventures

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

� PAS 36, Impairment of Assets

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

� PAS 38, Intangible Assets

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

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

� PAS 39, Financial Instruments: Recognition and Measurement

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

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

� PAS 40, Investment Property

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

Basis of Consolidation

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

Following is a list of the subsidiaries or companies, which ABS-CBN controls as of September 30, 2009, December 31, 2008 and 2007:

Place of Functional Ownership Interest

Company Incorporation Principal Activities Currency 2009 2008 2007

ABS-CBN Global Ltd.

(ABS-CBN Global) (a) (l)

Cayman Islands Holding company United States Dollar

(USD) 100.0 100.0 100.0

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

programming services

USD 98.0 98.0 98.0

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

Victoria, Australia Cable and satellite programming services

Australian Dollar (AUD)

100.0 100.0 100.0

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

California, USA Telecommunications USD 100.0 100.0 100.0

The Filipino Channel Canada,

ULC (ABS-CBN Canada)(b) (c) (l)

Canada Cable and satellite


Canadian Dollar

(CAD) 100.0 100.0 100.0

ABS-CBN Europe Ltd.

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

United Kingdom Cable and satellite


Great Britain Pound

(GBP) 100.0 100.0 100.0

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

Japan Cable and satellite programming services

Japanese Yen (JPY) 100.0 100.0 100.0

ABS-CBN Middle East FZ-LLC

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

Dubai, UAE Cable and satellite


USD 100.0 100.0 100.0

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

Dubai, UAE Trading USD 100.0 100.0 100.0

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

Philippine Peso 100.0 100.0 100.0

ABS-CBN Center for

Communication Arts, Inc. (f)

Philippines Educational/training Philippine Peso 100.0 100.0 100.0

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

Philippines Movie production Philippine Peso 100.0 100.0 100.0

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

Philippines Services – interactive media


ABS-CBN Multimedia, Inc.

(ABS-CBN Multimedia) (see Note 11) (g)

Philippines Digital electronic content

distribution


ABS-CBN Integrated and

Strategic Property Holdings, Inc.

Philippines Real estate Philippine Peso 100.0 100.0 100.0

ABS-CBN Publishing, Inc.

(ABS-CBN Publishing)

Philippines Print publishing Philippine Peso 100.0 100.0 100.0

Culinary Publications, Inc. (h) Philippines Print publishing Philippine Peso 70.0 70.0 70.0

Creative Programs, Inc. (CPI) Philippines Content development and programming services


Professional Services for

Television & Radio, Inc.

Philippines Services - production Philippine Peso 100.0 100.0 100.0

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


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

Philippine Peso – – 100.0

Star Recording, Inc. Philippines Audio and video

production and distribution


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

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


TV Food Chefs, Inc. Philippines Services - restaurant and

food


Roadrunner Network, Inc. (Roadrunner)

Philippines Services - post production Philippine Peso 98.9 98.9 98.9

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

Philippines Cable television services Philippine Peso 65.3 65.3 –

Place of Functional Ownership Interest

Company Incorporation Principal Activities Currency 2009 2008 2007

Bright Moon Cable

Networks, Inc. (j)


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

Management Corporation (j)


HM Cable Networks, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 – HM CATV, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 –

Hotel Interactive Systems, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 – Isla Cable TV, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 – Satellite Cable TV, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 –

Sunvision Cable, Inc. (j) Philippines Cable television services Philippine Peso 65.3 65.3 – Sun Cable Holdings,

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

Tarlac Cable Television Network, Inc. (j)


JMY Advantage Corporation (j) Philippines Cable television services Philippine Peso 62.0 62.0 –

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

Pilipino Cable Corporation (PCC) (j) (k)


Bisaya Cable Television

Network, Inc. (j)


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

Telemondial Holdings, Inc. (THI) (j) (k)


First Ilocandia CATV, Inc. (j) Philippines Cable television services Philippine Peso 59.4 59.4 –

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

Davao Cableworld Network, Inc. (j)


(a) With a branch in the Philippines

(b)Through ABS-CBN Global

(c) Incorporated and started commercial operations in 2007

(d) With a branch in Italy

(e) Incorporated in 2006 and started commercial operations in 2007

(f) Nonstock ownership interest

(g ) Through ABS-CBN Interactive

(h) Through ABS-CBN Publishing

(i) Merged with ABS-CBN Films in 2007

(j) Through Sky Cable

(k) Subsidiary of SCHI

(l) Considered as foreign subsidiaries

(m) Subsidiary of ABS-CBN Europe

The financial statements of the subsidiaries are prepared for the same reporting quarter as the Parent Company, using consistent accounting policies. All significant intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognized in assets and liabilities, are eliminated in full on consolidation. Unrealized gains and losses are eliminated unless costs cannot be recovered. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. Control is achieved when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

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

As a result of the conversion of the convertible note in Sky Cable in 2008, the related accounts of Sky Cable and subsidiaries have been included in the 2008 consolidated financial statements effective March 15, 2008 (see Note 2).

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

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

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

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

Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business combination over the Company’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash-generating units or group of cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Company are assigned to those units or groups of units. Each unit or group of units to which goodwill is allocated represents the lowest level within the Company at which goodwill is monitored for internal management purposes. Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation in determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

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

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

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

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

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

Financial Instruments

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

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

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

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

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

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

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

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

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

� The assets and liabilities are part of a group of financial assets, liabilities or both which

are managed and their performance are evaluated on a fair value basis in accordance with a documented risk management strategy; or

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

Financial assets or liabilities at FVPL are recorded in the consolidated balance sheet at fair value. Subsequent changes in fair value are recognized directly in the consolidated statement of income. Interest earned or incurred is recorded as interest income or expense, respectively,

while dividend income is recorded as other income according to the terms of the contract, or when the right of payment has been established.

The Company’s embedded derivative instruments are classified under this category.

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

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

This category includes the Company’s cash and cash equivalents, trade and other receivables, and long-term receivables from related parties.

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

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

The Company has no HTM investments as of September 30, 2009 and December 31, 2008.

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

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

The Company’s AFS financial assets include investments in ordinary common shares.

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

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

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

Classified under other financial liabilities are trade and other payables, interest-bearing loans and borrowings, obligations for program rights and customers’ deposits.

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

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

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

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

hedge are recognized directly in equity, while any hedge ineffectiveness is recognized immediately in the consolidated statement of income.

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

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

The Company’s interest rates and cross currency swaps designated as cash flow hedges were terminated in 2007 as a result of the prepayment of the underlying obligation. There are no outstanding cash flow hedges as of September 30, 2009.

The Company has no derivatives that are designated or accounted for as fair value hedges as of September 30, 2009 and December 31, 2008.

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

The Company assesses whether embedded derivatives are required to be separated from host contracts when the Company first becomes party to the contract. Re-assessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. Impairment of Financial Assets The Company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.

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

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

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

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

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

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

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

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

In case of equity investments classified as AFS, impairment indications would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss, measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset

previously recognized in the consolidated statement of income, is removed from equity and recognized in the consolidated statement of income. Impairment losses on equity investments are not reversed through the consolidated statement of income. Increases in fair value after impairment are recognized directly in equity.

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

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

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

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

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

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

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the consolidated statement of income. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount reported in the consolidated balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the consolidated balance sheet.

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

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

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

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

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

Depreciation and amortization are computed on a straight-line method over the useful lives of property and equipment. The property and equipment’s residual values, useful lives and method of depreciation and amortization are reviewed, and adjusted if appropriate, at each financial year-end.

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

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

Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of

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

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

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

Intangible Asset Useful Lives

Amortization

Method Used

Impairment

Testing/

Recoverable

Amount Testing

Current and

Noncurrent

Portion

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

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

If the remaining expected benefit period is shorter than the Company’s initial estimates, the Company accelerates amortization of the purchase price or license fee.

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

Story, Music and Publication Rights

Finite (useful economic benefit)

Amortized on the basis of the useful economic life.

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

Based on the estimated year of usage.

Intangible Asset Useful Lives

Amortization

Method Used

Impairment

Testing/

Recoverable

Amount Testing

Current and

Noncurrent

Portion

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

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

Based on the estimated year of usage.

Video Rights and Record Master

Finite (six months or 10,000 copies sold of video discs and tapes, whichever comes first)

Amortized on the basis of number of copies sold.


Current.

Cable Channels - CPI

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

Noncurrent.

Production and Distribution Business - Middle East

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


Noncurrent.

Customer relationships acquired in a business combination (see Note 2) is amortized on a straight-line basis over the estimated customer service life ranging from three to fifteen years.

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

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

when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale.

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

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

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

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

Under the equity method, investment in associates is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Company’s share in net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized. The consolidated statement of income reflects the share on the results of operations of an associate. When ABS-CBN’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, ABS-CBN’s does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share in any changes and discloses this, when applicable, in the consolidated statement of changes in equity. The reporting dates of the associates and the Company are identical and the associates’ accounting policies conform to those used by the Company for like transactions and events in similar circumstances. Unrealized intercompany profits arising from the transactions with the associate are eliminated.

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

Impairment of Nonfinancial Assets The Company assesses at each reporting date whether there is an indication that property and equipment, noncurrent program rights and other intangible assets with finite lives, and tax credits may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset’s recoverable amount. An

asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognized in the consolidated statement of income in those expense categories consistent with the function of the impaired asset.

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

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

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

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

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

Airtime revenue is recognized as income on the dates the advertisements are aired. The fair

values of barter transactions are included in airtime revenue and the related accounts. These transactions represent advertising time exchanged for program materials, merchandise or service.

Sale of services include:

a. Subscription fees which are recognized as follows:

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

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

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

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

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

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

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

lease term.

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

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

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

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

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

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

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

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

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

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

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

Dividends are recognized when the shareholders’ right to receive payment is established. Channel License Fees Channel license fees included under “Cost of sales and services” account in the consolidated statement of income are charged to operations in the year these fees are incurred.

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

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

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

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

d. there is a substantial change to the asset.

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

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

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

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

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

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

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

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

Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset until such time that the assets are substantially ready for their intended use or sale, which necessarily take a substantial period of time. Capitalization of borrowing costs commences

when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred and ceases when the assets are ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized in the consolidated statement of income.

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

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

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

Income Taxes

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

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

Deferred income tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred income tax assets are recognized for all deductible temporary differences and carry-forward benefits of unused tax credits from excess minimum corporate

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

Deferred income tax liabilities are not provided on nontaxable temporary differences associated with investments in domestic subsidiaries and associates. With respect to investments in other subsidiaries and associates, deferred income tax liabilities are recognized except where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are measured at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred income tax to be recovered.

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

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

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

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

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

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

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

Contingencies Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable. Events after Balance Sheet Date Any event after balance sheet date that provides additional information about the Company’s financial position at balance sheet date (adjusting events) are reflected in the consolidated financial statements. Events after balance sheet date that are not adjusting events are disclosed in the notes to consolidated financial statements when material.

Segment Reporting For management purposes, the Company’s operating businesses are organized and managed separately into three business activities. Such business segments are the bases upon which the Company reports its primary segment information. The Company operates in three geographical area where it derives its revenue. Financial information on segment reporting is presented in Note 9, Segment Information.

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

Effective 2010

� PFRS 3 (Revised), Business Combinations, and PAS 27 (Revised), Consolidated and

Separate Financial Statements (effective July 1, 2009)

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

� Amendment to PAS 39, Financial Instruments: Recognition and Measurement -Eligible

Hedged Items (effective July 1, 2009)

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

Effective 2012

� Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate

(effective January 1, 2012)

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

2. Business Combination and Acquisitions

a. Conversion of Note and Advances

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

million. As December 31, 2007, the Note, including advances and interest, amounted to P=2,499 million (see Note 16).

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

The Note does not specifically state that interest shall accrue after June 30, 2006 in the event that the Note is not converted for any reason. Thus, no interest was charged after June 30, 2006. Interest income amounted to P=115 million in 2006. As of December 31, 2007, the conversion price of the Note had not yet been determined. Based on the provisions of the Note, the conversion of the Note cannot be completed without the determination of the conversion price, which in turn depends on the valuation of Sky Cable by an independent third party. Thus, the Parent Company did not convert the Note at that time without such valuation. The conversion date was effectively extended.

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

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

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

Company. Any cash dividends or other cash distributions in respect of the underlying Sky Cable shares shall be distributed to the Parent Company.

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

As of September 30, 2009, the PDRs of Sky Vision have not yet been issued to the Parent Company pending approval by the SEC of the increase in the authorized capital stock of Sky Cable. The conversion of Note is considered as a business combination and accounted for using purchase method. Accordingly, the consideration of P=2,499 million was allocated to the identifiable assets and liabilities based on the fair values at conversion date. The fair values of the identifiable assets and liabilities of Sky Cable at the date of conversion and the corresponding carrying amounts immediately before the acquisition were:

Fair Value Recognized on

Acquisition Carrying Value

Cash and cash equivalents P=836,657 P=836,657 Trade and other receivables 393,921 393,921 Prepaid expenses and other current assets 603,186 603,186 Property and equipment 4,959,816 3,547,717 Customer relationships 607,166 – Other noncurrent assets 1,378,030 1,469,630 Trade and other current liabilities (2,562,550) (2,562,550) Long-term debt (2,919,270) (2,919,270) Due to related parties (674,582) (674,582) Deferred tax liability (614,965) – Other noncurrent liabilities (213,451) (213,451)

Net assets 1,793,958 P=481,258

Acquired ownership interest 65.3%

Net assets acquired 1,171,275 Goodwill arising on acquisition 1,327,696

Consideration P=2,498,971

There is no cash outflow on the acquisition.

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

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

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

b. Acquisition of PCC

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

3. Seasonality or Cyclicality of Interim Operations

The Company’s operations are not generally affected by any seasonality or cyclicality.

4. Nature and Amount of Changes of Estimates

The effect of changes in estimates or amounts reported in prior interim periods do not have a material effect in the current interim period.

5. Repayments of Debt

Repayments of long-term debt are scheduled as follows:

2009 257,562

2010 109,461

2011 440,109

2012 3,925,998

2013 to 2028 4,229,581

Total 8,462,711

6. Dividends Paid

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

7. Earnings Per Share Computation

Basic EPS amounts are calculated by dividing the net income attributable to equity holders of the Parent Company for the year over the weighted average number of common shares outstanding during the period. Weighted average shares outstanding are 767,390,563.

8. Material Events

A. Any known trends, demands, commitments, events or uncertainties that will have a

material impact on the issuer's liquidity.

In June 2004, the Company successfully signed a syndicated loan for US$120 million to refinance the Company’s existing debts and to fund further investments in cable television operations. The new loan is secured by the Company’s real property and certain equipment and other assets and will be guaranteed by certain of the Company’s subsidiaries. On January 11, 2007, the Parent Company signed a commitment letter with ABN Amro Bank N.V., BPI Capital Corporation and ING Bank N.V. (together, the Mandated Lead Arrangers) to arrange and underwrite on a firm commitment basis the refinancing/ restructuring of the existing long-term loan. Consequently, the execution copies of the agreement amending the SCA facility was signed on March 27, 2007. The major amendments to the existing agreement that were agreed upon with the mandated lead arrangers are as follows:

a. There will be an additional amount that will be available for drawdown amounting to US$5 million. Once effected, total outstanding loan will be around P=4.44 billion, P=270 million more than the P=4.17 billion that is currently outstanding;

b. The Tranche B and C will have bullet repayment schemes maturing in March 2012 while maintaining the original structure of the Tranche A facility with a final due date of until June 2009. Interest payments will continue to be paid on a quarterly basis;

c. The applicable margins added to the benchmark interest rates will be reduced from 3.50% to an average of about 2.20%;

d. Except for the Quezon City Broadcast Complex and certain broadcast machinery and equipment contained therein, all other assets will be removed from the Mortgage Trust Indenture and will no longer form part of the security package;

e. Certain mandatory prepayment provisions will be removed;

f. The Parent Company financial ratio requirement will be removed, while maintaining a financial ratio requirement on a consolidated basis but at more relaxed thresholds;

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

h. The Company will be allowed to convert into equity outstanding advances amounting to US$30 million including interest and P=437 million, respectively made to Sky Vision by the Parent Company and CPI.

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

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

b. Increase the amount of support that the Company can extend to Sky Vision and/or Sky Cable; and

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

On December 19, 2007, the relevant parties to the SCA facility executed the Second Amendment Agreement. The amendments centered mainly on the removal of the pro-rata requirement in cases of prepayment. On December 18, 2007, the Company prepaid all outstanding Tranche A of the SCA facility amounting to US$27 million (P=1,132 million) from the proceeds of the P=1,350 million term loan from Banco de Oro Universal Bank (BDO).

On September 18, 2007, the Company successfully signed a syndicated loan for P854 million with the previous lenders of the Sky Cable, namely, United Coconut Planters Bank, Bank of the Philippine Islands, Mega International Commercial Bank Co., Ltd., Olga Vendivel and Wise Capital Investment & Trust Company, Inc. with Banco De Oro – EPCI, Inc. acting as the facility agent. The loan is unsecured and unsubordinated with a fixed coupon of 2% with a final maturity of September 18, 2014.

On September 20, 2007, the Company successfully signed a syndicated loan for P800 million with ING Bank N.V. and Mizuho Corporate Bank, Ltd., Manila Branch with Mizuho Corporate Bank, Ltd., Manila Branch acting as the facility agent. The money will be used to fund the purchase of Sky Cable debt. On the same day, the Company withdrew the amount of P662 million to fully settle a total of P945 million Sky Cable

loan. The loan is unsecured and unsubordinated with interest rate of 3mPHIBOR plus 2.75% per annum with a final maturity of September 20, 2012.

On September 20, 2007, Sky Cable issued two Promissory Notes to ABS-CBN Broadcasting Corporation in the aggregate amount of P=1,798 million. As a consequence, ABS-CBN Broadcasting Corporation becomes the eventual lender on record of Sky Cable due the loans that were absorbed by it. This loan currently pays monthly interest at 3mPDST-F plus 1% with a final maturity of June 30, 2011. Sky Cable has a pending proposal to restructure certain terms and conditions and extend maturity until 2016.

On February 21, 2008, ABS-CBN and the remaining third party creditors of Sky Cable approved the amendment of the Sky Cable Debt under a Facility Agreement. The amendment mainly focused on the extension of the repayment period from December 2011 to September 2016 and pertained to certain terms and conditions related to the term loan agreement.

As of September 30, 2008, total loan to fund the purchase of Sky Cable debt amounted to P=1,516 million and total notes receivable from Sky Cable amounted to P=1,798 million. On August 15, 2008, the Company successfully signed a P1,000 million loan facility with Security Bank Corporation jointly arranged by BPI Capital Corp and SB Capital Investment Corp. The funds will be used for capital expenditure and general corporate purposes. This was fully drawn on August 27, 2008. The new loan is unsecured and unsubordinated and guaranteed by certain of the Company’s subsidiaries. The loan interest rate is 3mPDSTF plus 2.15% per annum with a final maturity of August 27, 2013 On September 30, 2008, the Company successfully signed a P2,000 million loan facility with BPI Bank of the Philippine Islands Asset Management and Trust Group as Investment Manager for ALFM Peso Bond Fund, Inc., Bank of the Philippine Islands Asset Management and Trust Group as Trustee for various Trust Accounts, The Philippine American Life and General Insurance Company and The Insular Life Assurance Company, Ltd., as Fixed Loan Lenders and Allied Banking Corporation and Allied Savings Bank as Variable Loan Lenders. This was jointly arranged by BPI Capital Corp and SB Capital Investment Corp. The funds will be used for capital expenditure and general corporate purposes. The loan facility is unsecured and unsubordinated and guaranteed by certain of the Company’s subsidiaries. On October 30, 2008, the Company availed P1,000 million from the Fixed Loan Lenders with fixed loan interest rate of 7yrPDSTF plus 1.5% per annum. This loan will have a final maturity of October 30, 2015. On September 30, 2008, the Company signed the Combined Facility Agreement with Security Bank Corporation, lender of the facility agreement executed on August 15, 2008, BPI Bank of the Philippine Islands Asset Management and Trust Group as Investment Manager for ALFM Peso Bond Fund, Inc., Bank of the Philippine Islands Asset Management and Trust Group as Trustee for various Trust Accounts, The Philippine American Life and General Insurance Company and The Insular Life

Assurance Company, Ltd., as Fixed Loan Lenders and Allied Banking Corporation and Allied Savings Bank as Variable Loan Lenders, all lenders of the facility agreement executed on September 30, 2008, together with BPI Capital Corp and SB Capital Investment Corp acting as joint arrangers of both facilities. The agreement shall combine both loan facilities in all material respects to be administered by BPI Asset Management and Trust Group acting as facility agent.

B. Any material commitments for capital expenditures, the general purpose of such commitments and the expected sources of funds for such expenditures.

For 2009, ABS-CBN Broadcasting Corp. expects to invest approximately P=2.4 billion for capital expenditure and acquisition of film and program rights. This funding requirement will be financed through internally generated funds.

C. Any known trends, events or uncertainties that have had or that are reasonably

expected to have a material favorable or unfavorable impact on net sales/revenues/income from continuing operations.

ABS-CBN Broadcasting Corp.’s results of operations depend largely on the ability to sell airtime for advertising. The company’s business may be affected by the general condition of the economy of the Philippines.

D. Any event that will trigger direct or contingent financial obligation that is material to

the company, including any default or acceleration of an obligation.

The Senior Credit Agreement dated 18 June 2004, amended and restated on March 27, 2007, September 14, 2007 and December 19, 2007, between the Company and several creditor banks contains customary events of default which may trigger material financial obligations on the part of the Company, such as, non-payment of financial obligations, breach of material provisions and covenants, cancellation of the Company’s key licenses, insolvency, cessation of business, expropriation, issuance of final judgment against the Company involving a significant amount, material adverse change in the operations and structure of the Company.

The Company has contingent liabilities with respect to claims filed by third parties. The events that transpired last February 4, 2006, which resulted in the death of 71 people and injury to about 1,000 others led the Company to shoulder the burial expenses of the dead and medical expenses of the injured, which did not result in any direct or contingent financial obligation that is material to the Company. The Company has settled all of the funeral and medical expenses of the victims of the tragedy. Given the income flows and net asset base of the Company, said expenses do not constitute a material financial obligation of the Company, as the Company remains in sound financial position to meet its obligations.

As of September 30, 2009, the claims in connection with the events of February 4, 2006 are still pending and remain contingent liabilities. While the funeral and medical expenses have all been shouldered by the Company, there still exist claims for compensation for the deaths and injuries upon evaluation of these claims, the amount of which have not been declared and cannot be determined with certainty at this time. Management is nevertheless of the opinion that should there be any adverse

judgment based on these claims, this will not materially affect the Company’s financial position and results of operations.

On May 23, 2008, ABS-CBN guaranteed a long term loan of Sky Vision Corporation from Banco de Oro in the principal amount of P600 million. ABS-CBN also advanced the amount of P300 million to Sky Vision Corporation.

On September 10, 2008, the guarantee provided by ABS-CBN on the P600 m loan of Sky Vision Corporation from Banco de Oro was fully extinguished when the loan was prepaid. The money used to prepay the loan came from additional advances by ABS-CBN. This makes total cash outlay made to Sky Vision from May 23, 2008 to September 10, 2008 amount to P900 million.

E. Any significant elements of income or loss that did not arise from the issuer’s

continuing operations.

As of September 30, 2009, there are no significant elements of income that did not arise from the Company’s continuing operations.

F. Any seasonal aspects that had a material effect on the financial condition or results of

operations.

There were no seasonal aspects that had a material effect on the financial condition or results of operations for the interim period.

G. Any material events that were unusual because of their nature, size or incidents affecting assets, liabilities, equity, net income, or cash flows

In May 2008, the Benpres Group and the PLDT Group acknowledged the fairness and reasonableness of the valuation for Sky Cable. Based on this final valuation, the convertible note amounting to P=2,499.0 million, including the advances from Unilink of P=386.2 million, was converted into deposits for future stock subscriptions to 311,314,045 shares effective March 15, 2008.

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

As of September 30, 2009, the conversion has not materialized and actual conversion has not taken place pending the confirmation by the SEC of the valuation for the issuance of additional shares. Setting this aside, all related documents to effect the conversion have been executed between the parties concerned.

H. Any material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period.

There are no known material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period.

9. Segment Information Segment information is prepared on the following bases:

Business segments

For management purposes, the Company is organized into three business activities - broadcasting, cable and satellite, and other businesses. This segmentation is the basis upon which the Company reports its primary segment information. The broadcasting segment is principally the television and radio broadcasting activities which generates revenue from sale of national and regional advertising time. Cable and satellite business primarily develops and produces programs for cable television, including delivery of television programming outside the Philippines through its DTH satellite service, cable television channels and blocked time on television stations. In 2008, as a result of the conversion of the Note in Sky Cable (see Note 2), the cable and satellite business includes cable television services of Sky Cable and its subsidiaries in Metro Manila and in certain provincial areas in the Philippines. Other businesses include movie production, consumer products and services.

Geographical segments Although the Company is organized into three business activities, they operate in three major geographical areas. In the Philippines, its home country, the Company is involved in broadcasting, cable operations and other businesses. In the United States and other locations (which includes Middle East, Europe, Australia, Japan and Canada), the Company operates its cable and satellite operations to bring television programming outside the Philippines. Inter-segment transactions Segment revenue, segment expenses and segment results include transfers among business segments and among geographical segments. Such transfers are accounted for at competitive market prices charged to unaffiliated customers for similar services. Those transfers are eliminated in consolidation.

Financial information on business segments and geographical segments is presented in Exhibit 2.

10. Changes in Composition of Issuer

There are no changes in the composition of the Issuer since the last balance sheet date.

11. Changes in Contingent Liabilities or Assets

There are no changes in contingent liabilities or contingent assets since the last balance sheet date.

12. Material Contingencies

There are no contingent liabilities, events or transactions that will materially affect the company’s financial position and results of operations.

13. Property, Plant and Equipment

(See Exhibit 3)

14. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Transactions with Related Parties In addition to the related party transactions discussed in Notes 2, significant transactions of the Company with its associates and related parties follow:


Associates

Interest on noncurrent receivable from Sky Vision P=0 P=29,683 License fees charged by CPI to Sky Cable(a), PCC

and Home Cable 0 27,150

Blocktime fees paid by ABS-CBN to Amcara 20,790 23,703

Management and other service fees by ABS-CBN to Amcara 549 618

Affiliates

Expenses paid by Parent Company & subsidiaries to Manila Electric Company (Meralco), Bayan Telecommunications Holding, Inc. (Bayantel)& other related parties 275,235 305,146

Termination cost charges of Bayantel, a subsidiary of Lopez, to ABS-CBN Global 146,298 194,349

Airtime revenue from Manila North Tollways Corp. (MNTC) (b), Bayantel and Meralco, an associate of Lopez 42,061 33,720

Expenses and charges paid for by the Parent Company which are reimbursed by the concerned related parties 18,816 11,625

Management and other service fees by ABS-CBN to 17,700 0

Bayantel

(a) Effective March 15, 2008, Sky Cable became a subsidiary of ABS-CBN (see Note 5).

(b) Disposed of in November 2008.

The related receivables from and payables to related parties, presented under “Trade and other receivables” and “Trade and other payables” accounts, respectively, in the consolidated balance sheet, are as follows:

September 2009 December 2008 Due from associates P= 2,070 P= 1,326 Due from affiliates 57,819 122,577

Total P=59,889 P=123,903

Due to associates P=157,881 P=328,981 Due to affiliates 338,081 468,994

Total P=495,962 P=797,975

a. License Fees Charged by CPI to Sky Cable

CPI has an existing cable lease agreement (Agreement) with Sky Cable for the airing of the cable channels to the franchise areas of Sky Cable and its cable affiliates. The initial Agreement with Sky Cable is for a period of five years effective January 1, 2001, renewable on a yearly basis upon mutual consent of both parties. Said Agreement was renewed for one year in 2006, 2007, 2008 and 2009. Under the terms of the Agreement, CPI receives license fees from Sky Cable and its cable affiliates computed based on agreed percentage of subscription revenue of Sky Cable and its cable affiliates. As the owner of the said cable channels, CPI develops and produces its own shows and acquires program rights from various foreign and local suppliers.

b. Management Fees Charged to Amcara

The Parent Company renders management services to Amcara through designated employees.

c. Blocktime Fees Paid by the Parent Company to Amcara

The Parent Company owns the program rights being aired in UHF Channel 23 of Amcara.. The Parent Company has an existing blocktime agreement with Amcara for its provincial operations.

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

Terms and Conditions of Transactions with Related Parties The sales to and purchases from related parties are made at normal market prices. Outstanding balances as of quarter-end are unsecured, interest-free and settlement occurs in cash, except for the long-term receivables from Sky Cable. For the period ended September 30, 2009 and December 31, 2008, the Company has not made any provision for doubtful accounts relating to amounts owed by related parties. This assessment is undertaken each

financial year by examining the financial position of the related party and the market in which the related party operates.

Certain obligations of the Parent Company are jointly and severally guaranteed by its principal subsidiaries.

Compensation of Key Management Personnel of the Company


Compensation P=478,058 P=443,880 Pension benefit 30,527 18,217 Vacation leaves and sick leaves 48,055 46,930 Termination benefits 2,228 590

P=558,869 P=509,617

15. Investments in Associates

The Company’s investments in associates, included as part of “Other noncurrent assets” account in the consolidated balance sheet, are accounted for under the equity method of accounting. An associate is an entity in which the Company has significant influence and which is neither a subsidiary nor a joint venture.

Under the equity method, investment in associates is carried in the consolidated balance sheet at cost plus post-acquisition changes in the Company’s share in net assets of the associate. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortized. The consolidated statement of income reflects the share on the results of operations of an associate. Where there has been a change recognized directly in the equity of the associate, the Company recognizes its share in any changes and discloses this, when applicable, in the consolidated statement of changes in equity. The reporting dates of the associates and the Company are identical and the associates’ accounting policies conform to those used by the Company for like transactions and events in similar circumstances. The detailed carrying values of investments which are carried under the equity method follow:

September 2009 December 2008

Amcara P= 43,155 P= 43,301

16. Long-term Receivables from Related Parties

In 2007, this account consists of the following:

Convertible note (see Note 4) P=2,498,971 Long-term receivables 1,434,314

3,933,285 Less accumulated equity in net losses of Sky Vision 40,049

P=3,893,236

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

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

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

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

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

17. Equity

a. Capital Stock

Details of authorized and issued capital stock follow:


Number of

Shares Amount

Number of Shares Amount

(In Thousands) (In Thousands)

Authorized - Common shares - P=1 par

value 1,500,000,000 P=1,500,000 1,500,000,000 P=1,500,000

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

b. Unappropriated retained earnings available for dividend distribution is adjusted to exclude the Parent Company’s accumulated equity in net losses of subsidiaries and associates amounting to P=1,124 million and P=1,244 million as of March 31, 2009 and December 31, 2008, respectively

On March 25, 2009, the BOD approved the declaration of cash dividend of P=0.90 per share or an aggregate amount of P=701 million to all stockholders of record as of May 5, 2009 payable on May 29, 2009.

On March 26, 2008, the BOD approved the declaration of cash dividend of P=0.825 per share or an aggregate amount of P=643 million to all stockholders of record as of April 30, 2008 payable on May 27, 2008.

On March 28, 2007, the BOD approved the declaration of cash dividend of P=0.45 per share or an aggregate amount of P=351 million to all stockholders of record as of April 20, 2007 payable on May 15, 2007.

c. Philippine Depository Receipts (PDRs) convertible to common shares


Number of

Shares Amount

Number of Shares Amount

(In Thousands) (In Thousands)

Balance at beginning of year 15,776,742 P=376,324 12,778,120 P=323,867

Acquisition during the year 4,613,200 134,860 2,998,622 52,357

Issuance during the year (52,600) (1,123,) 0 0

Balance at end of period/year 20,337,342 P=510,060 15,776,742 P=376,324

This account represents ABS-CBN PDRs held by the Parent Company which are convertible into ABS-CBN shares. These PDRs were listed in the Philippine Stock Exchange on October 7, 1999. Each PDR grants the holders, upon payment of the exercise price and subject to certain other conditions, the delivery of one ABS-CBN share or the sale of and delivery of the proceeds of such sale of one ABS-CBN share. The ABS-CBN shares are still

subject to ownership restrictions on shares of corporations engaged in mass media and ABS-CBN may reject the transfer of shares to persons other than Philippine nationals. The PDRs may be exercised at any time from October 7, 1999 until the expiry date as defined in the terms of the offering. Any cash dividends or other cash distributions in respect of the underlying ABS-CBN shares shall be applied by ABS-CBN Holdings Corporation, issuer of PDRs, towards payment of operating expenses and any amounts remaining shall be distributed pro-rata among outstanding PDR holders.

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

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

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


Agency commission P=1,474,093 P= 1,422,573 Incentives and co-producers’ share 423,845 501,321

P=1,897,938 1,923,893

19. Production Costs


Personnel expenses and talent fees P=2,077,781 P=1,954,996 Facilities related expenses 839,977 826,934 Amortization of program rights 429,891 461,190 Depreciation 631,926 512,434 Other program expenses 671,196 720,591

P=4,650,770 P=4,476,146

20. Cost of Sales and Services


Facilities related expenses P= 725,420 P=599,415 Termination costs 129,751 178,392 Inventory cost 131,023 203,961 Personnel expenses 310,437 249,538 Amortization of program rights 363,570 279,884 Depreciation 22,111 15,648 Other expenses 2,091,697 1,671,977

P=3,774,008 P=3,198,815

21. General and Administrative Expenses


Personnel expenses P=2,454,801 P=2,088,062 Depreciation 1,060,458 710,863 Advertising and promotions 145,661 107,939 Facilities related expenses 464,715 442,497 Contracted services 627,958 515,407 Provision for doubtful accounts 150,386 122,446 Taxes and licenses 175,099 166,137 Entertainment, amusement and recreation 109,971 98,879 Amortization of goodwill/deferred charges 50,594 4,265 Other expenses 356,620 474,099

P=5,596,263 P=4,730,595

22. Other Income and Expenses

Other Income


Space rental P=85,765 P= 75,240 Management fees 17,700 6,586 Royalty income 22,572 26,711 Other 151,937 226,131 Mark to market (loss) gain – net (1,233) 135

P=276,742 P=334,803

Finance Revenue


Interest income P= 78,602 P= 78,293

Finance Cost


Interest expense P=655,436 P= 469,358 Amortization of debt issue costs 22,839 17,803 Bank service charges 21,731 16,612

P=700,007 P=503,774

23. Financial Assets and Liabilities

The following table sets forth the carrying values and estimated fair values of consolidated financial assets and liabilities recognized as of September 30, 2009. There are no material unrecognized financial assets and liabilities as of September 30, 2009.

Carrying Amount Fair Value

Financial Assets

Cash and cash equivalents P=3,311,406 P=3,311,406

Trade and other receivables – net 6,212,557 6,212,557 Available-for-sale investments 108,916 108,916

Total financial assets P=9,632,879 P=9,632,879

Carrying Amount Fair Value

Financial Liabilities Trade and other payables P=7,500,605 P=7,500,605

Interest-bearing loans and borrowings 9,040,712 9,786,081

Total financial liabilities P=16,541,317 P=17,286,686

Fair Value of Financial Instruments

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

Cash and Cash Equivalents, Trade and Other Receivables and Trade and OtherPayables: Due to the short-term nature of transactions, the fair values of these instruments approximate the carrying amount as of balance sheet date.

Derivative Assets. The fair values were determined using forward exchange market rates as of balance sheet date.

Available-for-Sale Investments. The fair values of publicly-traded instruments were determined by reference to market bid quotes as of balance sheet date. Investments in unquoted equity securities for which no reliable basis for fair value measurement is available are carried at cost, net of impairment.

Long-term Receivables from Related Parties. The receivable from Sky Cable, which is subjected to monthly repricing, is not discounted since it approximates fair value.

Interest-bearing loans and borrowings: Fair value was computed based on the following:

Debt Type Fair Value Assumptions

Term loan Estimated fair value is based on the discounted value of future cash flows using the applicable risk free rates for similar types of loans adjusted for credit risk. The interest rates used to discount the future cash flows have ranged from 4.3% to 5.4% for those that are dollar-denominated and from 4.4% to 12.5% for those that are peso-denominated.

Other variable rate loans The face value approximates fair value because of recent and frequent repricing (i.e., 3 months) based on market conditions.

Obligations for Program Rights. Estimated fair value is based on the discounted value of future cash flows using the applicable risk-free rates for similar types of loans adjusted for credit risk.

Customers’ Deposits. The fair values were calculated by discounting the expected future cashflows at prevailing credit adjusted MART1 interest ranging from 5.6% to 11.5% as of balance sheet date.

Derivative Instruments Cross Currency Swaps. In 2004, the Parent Company entered into long-term cross currency swaps that hedge 100% of the Tranche A Principal against foreign exchange risk. Under these agreements, the Parent Company effectively swaps the principal amount of certain US dollar-denominated loans under the SCA into Philippine peso-denominated loans with payments up to September 2009. The Company is also obligated to pay swap costs based on a fixed rate of 8.0% on a notional amount of P=353 million, 5.125% on a notional amount of P=55 million, 3-month PHIREF minus 2.9% on a notional amount of P=2 billion and 3-month PHIREF minus 3.1% on a notional amount of P=264 million.

On December 18, 2007, the Company prepaid all its outstanding loan obligations under Tranche A of the SCA facility amounting to US$27 million (P=1,132 million). This made it necessary for the Company to unwind the existing cross currency swaps. On December 20, 2007, the Company paid P=393 million to unwind the hedges. Cumulative Translation Adjustment (CTA) amounting to P=232 million previously recorded in equity were recognized in the 2007 consolidated statement of income.

Interest Rate Swaps. To manage the interest rate exposure from the floating rate loans, the Company also entered into USD interest rate swaps and PHP interest rate swaps which effectively swap certain floating rate loans into fixed-rate loans. In 2007, the USD interest rate swaps have been terminated as a result of the prepayment of the outstanding loan obligations under Tranche A of the SCA facility. The Company received a total of US$12,000 (P=0.5 million) as net settlement for the unwinding of the interest rate swaps. CTA amounting to P=44 million previously recorded in equity were recognized in the 2007 consolidated statement of income.

Hedge Accounting Implications of Swaps. The Parent Company’s principal-only currency swaps and USD interest rate swap are designated as cash flow hedges on October 1, 2005 to manage the Parent Company’s exposure to variability in cash flows attributable to foreign exchange and interest rate risks of the underlying debt obligations. Since the critical terms of the swaps and the outstanding debt obligations coincide, the hedges are expected to exactly offset changes in expected cash flows due to fluctuations in foreign exchange and the prime rate over the term of the debt obligations.

From October 1, 2005 up to December 31, 2005, the effective net mark-to-market losses that have been deferred in equity for these cash flow hedges amounted to P=53 million (P=34 million, net of tax). Prior to designation as cash flow hedges, the principal-only currency swaps accounted for mark-to-market losses in the consolidated statement of income of about P=32 million (net of P=316 million gain on the swap differentials), while the USD interest rate swap accounted for mark-to-market gains in the consolidated statement of income of P=48 million.

The effective net mark-to-market losses that have been deferred in equity for these cash flow hedges amounted to P=249 million (P=162 million, net of tax) in 2006.

As previously discussed, in December 2007, the Company terminated all outstanding cross currency swap and interest rate swap contracts as a result of the prepayment of all the outstanding Tranche A loan of the SCA facility. The net mark-to-market losses amounting to P=277 million previously recorded in equity were recognized in the 2007 consolidated statement of income. As part of the transition adjustments as of January 1, 2005, the Company initially recognized an aggregate amount of P=117 million (P=76 million net of tax), representing the fair value for the principal-only currency swaps (net of the impact of the foreign exchange restatement) and the USD and PHP interest rate swaps. This amount is initially recorded as a credit adjustment in CTA (‘initial CTA’) and will be amortized using the effective interest method over the remaining term of the underlying related loans. Amortization of the initial CTA amounted to P=54 million in 2007 and P=31 million in 2006. This is recorded as a reduction in interest expense.

In 2006, the Company made a reassessment of its outstanding cross currency swap and interest rate swap. The valuation of each swap transaction was remeasured to conform with the values derived by each of the counterparties to the hedges. This recalibration resulted in the increase of the derivative liability and decrease of the derivative asset by P=105 million and P=26 million, respectively, in 2006. The aggregate total of P=131 million was then recorded in equity and was transferred to the 2007 consolidated statement of income when the Company terminated the hedge contracts as a result of the prepayment of all outstanding Tranche A loan of the SCA facility in 2007.

In 2007, movements in the CTA related to derivative instruments are as follows:

Balance at beginning of year (P=160,986)

Amounts taken to equity 24,874 Reversal of tax effect (86,685)

Amounts transferred to profit and loss:

Due to the termination of hedged item and related cross currency swap 232,335

Due to the termination of hedged item and related interest rate swap 44,359

Amortization of initial CTA (53,897)

Balance at end of year P=–

Embedded Derivatives. As of December 31, 2008 and 2007, the Parent Company has outstanding embedded foreign currency derivatives which were bifurcated from various non-financial contracts. The impact of these embedded derivatives is not significant.

Sky Cable bifurcated embedded derivatives from its various nonfinancial contracts. These are denominated in USD which is not the functional currency of Sky Cable or its counterparty. The total notional amount as of December 31, 2008 amounted to $0.7 million. The fair value of the embedded derivative assets as of December 31, 2008 amounted to P=16 million. The net movements in fair value changes of the Company’s derivative instruments as of December 31, 2008 and 2007 are as follows:

2008 2007 Balance at beginning of year P=– (P=345,482)

Effect of business combination 33,043 –

Net changes in fair value of derivatives:

Not designated as accounting hedges (216) –

Designated as accounting hedges – (47,124) 32,827 (392,606)

Less fair value of settled instruments (16,604) (392,606)

Balance at end of year P=16,223 P=–

The Company is not exposed to material financial risks that would materially impact its financial condition and results of operations.

24. Causes for Material Changes in the Financial Statements

Balance Sheet (September 30, 2009 vs December 31, 2008)

• Cash and cash equivalents increased by 31% to P=3,311 million due to aggressive cash collection.

• Trade and other receivables increased by 23% to P=6,213 million due to increase in revenue of Airtime and Sales of Services.

• Combined program rights-current and non-current program rights and other intangible assets decreased by 7% to P=3,347million due to slowdown in program rights acquisition.

• Goodwill arose from the acquisition of Sky Cable.

• Other current assets increased by 27% to P=1,402 million from end 2008 levels due to production expenses of yet to be aired episodes of the Company’s programs, prepaid taxes and expenses.

• Deferred tax assets declined to P=549 million from P=603 million due to decrease in temporary tax differences.

• Total interest-bearing loans and borrowings increased by 4% to P=9,041million from P=8,714 million due to additional short-term borrowings to fund CAPEX.

• The change in income tax payable is the result of the ordinary course of business of the Company and the rate decrease for corporate income tax (from 35% to 30%).

25. Other Notes to 9-month 2009 Operations and Financials

The key performance indicators that we monitor are the following:

YTD September 2009 YTD September 2008 Gross Revenues P=18,344 million P=16,560 million

Gross Airtime Revenues 10,678 million 10,131 million Sale of Services 7,333 million 5,998 million Sale of Goods 333 million 431 million

Operating Income 2,425 million 2,231 million Net Income 1,349 million 1,201 million

EBITDA 5,158 million 4,433 million EPS 1.760 1.563

As of September 30, 2009 As of December 31, 2008 Current Ratio 1.23x 1.22x Net debt-to-Equity 0.36x 0.41x Consolidated Trade DSO 86 days 75 days

26. Note to Statements of Cash Flow

2009 2008

Noncash investing and financing activities:

Acquisition of property and equipment under capital lease P= 6,322 P= 90,218

Acquisition of program rights on account 180,145 236,408

27. Reclassifications

The following accounts in the September 30, 2009 consolidated financial statements have been reclassified to conform to the 2008 consolidation and annual presentation:

Nature Amount

Statement of Income:

Reclassification of Global’s Commission and Incentive expense from COS to Revenue Deduction

P=79,082

Reclassification of amount eliminated in Star Record’s cost of inventory to Sale of Goods to conform with year-end consolidation

19,932

Reclassification of distribution cost of Star Record’s from GAEX to Cost of Sales to conform with year-end consolidation

19,582

Reclassification of ABS-CBN’s Line Production Cost from Production Cost-Others to Production Cost-Personnel

36,859

Reclassification of cost of magazine business of ABS-CBN Publishing from GAEX to Cost of Sales

25,088

Reclassification of recruitment expenses of ABS-CBN Publishing from GAEX – Other Expenses to GAEX – Personnel Cost

7.684

Reclassification of personnel related expenses of ABS-CBN Publishing from COS – Other Expenses to COS – Personnel Cost

5,314

Reclassification of Global’s Marketing Personnel Expenses from COS to GAEX

125,198

EXHIBIT 1

ABS - CBN BROADCASTING CORPORATION

AGING OF ACCOUNTS RECEIVABLE

AS OF SEPTEMBER 30, 2009

Less than 30 Days 30 Days and Over

Trade Receivables

Airtime 1,639,750 251,735 968,205 440,348 (259,782) 3,040,255

Subscription 511,526 281,352 556,794 106,533 (104,336) 1,351,869

Others 305,730 65,570 512,656 49,456 (66,440) 866,972

Nontrade Receivables 52,104 31,341 393,445 36,079 (44,491) 468,478

Due from related parties - - 59,889 - - 59,889

Total 2,509,109 629,998 2,490,989 632,415 (475,049) 5,787,461

Impaired Allowance Total

Neither Past Due nor

Impaired

PAST DUE ACCOUNTS

EXHIBIT 2

ABS-CBN Broadcasting Corporation

Business Segment Data

In Thousands

2009 2008 2009 2008 2009 2008 2009 2008 2009 2008

Revenues

External Sales 9,854,847 9,571,557 7,227,515 5,709,009 1,261,162 1,279,405 18,343,524 16,559,970

Inter-segment sales 57,099 35,657 178,728 145,494 110,008 81,446 (345,835) (262,596) - -

Total Revenues 9,911,946 9,607,213 7,406,242 5,854,503 1,371,170 1,360,850 (345,835) (262,596) 18,343,524 16,559,970

Results

Segment Result 1,147,361 1,327,617 555,497 355,737 185,871 176,426 535,814 370,741 2,424,544 2,230,521

Equity in net earnings (losses) - - (146) 5,064 - - - - (146) 5,064

Other Income 545,295 519,401 109,767 70,187 90,990 71,628 (469,309) (326,549) 276,742 334,668

Finance Revenue 102,395 130,419 33,697 32,982 1,301 1,967 (58,790) (87,074) 78,602 78,293

Finance Cost (565,526) (422,384) (160,208) (166,812) (183) (1,517) 25,910 87,074 (700,007) (503,639)

Foreign exchange gain (loss) (30,637) (72,282) (2,372) (15,100) (5,231) 8,758 - - (38,240) (78,623)

Income Tax (359,875) (537,906) (181,032) (191,171) (82,854) (110,587) (26,699) - (650,460) (839,665)

Net Income (Loss) 839,013 944,865 355,203 90,887 189,894 146,674 6,925 44,193 1,391,035 1,226,619

Assets and Liabilities

Segment Assets 22,076,177 19,919,737 14,953,415 10,807,280 2,469,067 2,848,750 (4,897,732) (2,332,213) 34,600,926 31,243,554

Investment in equity method associates 6,960,292 6,768,145 - - - - (6,907,190) (6,724,844) 53,101 43,301

Segment Liabilities 5,624,526 5,076,526 6,671,943 6,069,364 1,202,331 1,548,216 (3,786,117) (2,496,714) 9,712,682 10,197,392

Other Segment Information

Capital Expenditures :

Property and Equipment 792,161 839,081 1,539,508 344,981 61,527 42,945 2,393,196 1,227,007

Intangible Assets 657,004 290,443 (15,270) 360,331 (55,959) (17,162) 585,775 633,612

Depreciation and amortization of program rights & other intangibles 1,514,121 1,255,429 1,001,615 689,628 48,653 46,044 187 (13) 2,564,576 1,991,088

Noncash expenses other than

depreciation and amortization of program rights 43,983 39,388 123,029 97,488 7,113 3,361 - - 174,126 140,238

CONSOLIDATED

For the period ended Sept 30 For the period ended Sept 30 For the period ended Sept 30 For the period ended Sept 30 For the period ended Sept 30

BROADCASTING CABLE AND SATELLITE OTHER BUSINESSES ELIMINATIONS

EXHIBIT 3

ABS-CBN Broadcasting Corporation and Subsidiaries

Schedule of Property, Plant & Equipment Roll-Forward

As of September 30, 2009

Land and Building Television, Other Construction Equipment As of Sept 30 December 31

Land and Radio, Movie Equipment In Progress in Transit 2009 2008

Improvements Improvements and Auxiliary

Equipment

Cost: -

Balance at beginning of year 494,141 10,106,215 11,458,215 4,937,305 167,674 67,146 27,230,697 20,306,551

Additions - 6,934 1,064,244 995,047 326,970 - 2,393,196 2,225,896

Effect of business combination - - - - - - - 4,959,817

Disposals/retirements - (8) (479,812) (835,989) - - (1,315,809) (273,283)

Reclassifications 321 17,977 166,212 (104,835) (79,676) - 0 -

Translation adjustments 240 951 199,798 (183,306) 4,368 5,288 27,339 11,716

Balance as of September 30, 2009 494,703 10,132,069 12,408,656 4,808,223 419,336 72,434 28,335,422 27,230,697

Accumulated depreciation:

Balance at beginning of year 4,447 3,103,787 5,999,220 3,387,688 - - 12,495,143 10,839,436

Depreciation (300) 359,734 974,393 380,668 - - 1,714,494 1,841,737

Disposals/retirements - (26) (121,228) (207,834) - - (329,088) (200,984)

Reclassifications - (655) (8,545) 9,200 - - - -

Translation adjustments - 1,199 (4,592) (153,159) - - (156,553) 14,953

Balance as of September 30, 2009 4,147 3,464,038 6,839,247 3,416,564 - - 13,723,996 12,495,143

Net book value 490,556 6,668,031 5,569,409 1,391,659 419,336 72,434 14,611,426 14,735,554

cover sheet - abs-cbnluzon, because of flood damage to homes and power outages. but even with the...

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