SEC Number

File Number

ABS-CBN BROADCASTING CORPORATION

(Company’s Full Name)

Mother Ignacia Street corner Bohol Avenue

Quezon City
(Company’s Address)

924-4101
(Telephone Number)

December 31, 1996

(Fiscal Year Ending)
(month & day)

Annual Audited Financial Statements

(PARENT COMPANY ONLY)
Form Type

Amendment Designation (If applicable)

Period Ended Date

(Secondary License Type and File Number)

ABS-CBN BROADCASTING CORPORATION

FINANCIAL STATEMENTS
(PARENT COMPANY ONLY)
DECEMBER 31, 1996 AND 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Stockholders and the Board of Directors

ABS-CBN Broadcasting Corporation
Mother Ignacia Street corner Bohol Avenue
Quezon City

We have audited the accompanying balance sheets (parent company only) of ABS-CBN Broadcasting
Corporation as of December 31, 1996 and 1995, and the related statements of income and
unappropriated retained earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of ABS-CBN Broadcasting Corporation as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.

R. F. S. REYES
Partner
CPA Certificate No. 26815
PTR No. 8886539
January 9, 1997
Makati City

March 17, 1997

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

The Stockholders and the Board of Directors

ABS-CBN Broadcasting Corporation

We have audited the accompanying balance sheets (parent company only) of ABS-CBN Broadcasting
Corporation as of December 31, 1996 and 1995, and the related statements of income and
unappropriated retained earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of ABS-CBN Broadcasting Corporation as of December 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended, in conformity with generally
accepted accounting principles.

PTR No. 8886539

January 9, 1997
Makati City

March 17, 1997

ABS-CBN BROADCASTING CORPORATION
BALANCE SHEETS
(Parent Company Only)

December 31
1996 1995
ASSETS
Current Assets
Cash and cash equivalents P
=999,586,700 =640,787,935
P
Marketable equity securities (aggregate market value
approximates cost) 49,720,674 247,259,906
Accounts receivable:
Trade - net of allowance for doubtful accounts of about
=10.1 million in 1996 and P
P =4.9 million in 1995 1,282,960,240 1,278,177,014
Others 267,923,240 218,202,545
Materials and supplies inventory 74,959,262 71,557,290
Program rights 567,253,341 443,244,854
Other current assets (Note 8) 36,750,579 33,817,654
Total Current Assets 3,279,154,036 2,933,047,198
Due from Affiliated Companies (Note 5) 449,449,031 462,930,528
Investments and Advances (Note 2) 844,093,466 285,579,940
Property and Equipment - net (Notes 3, 6 and 9) 2,953,729,981 2,039,274,803
Other Assets 54,256,527 87,760,405
P
=7,580,683,041 =5,808,592,874
P

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Bank loans (Note 4) P
=486,165,229 =24,554,200
P
Accounts payable and accrued expenses 642,121,474 596,169,789
Income tax payable 199,749,934 266,479,026
Obligations for program rights 68,642,762 52,599,610
Current portion of long-term debt (Note 6) 32,000,000 32,000,000
Total Current Liabilities 1,428,679,399 971,802,625
Due to Affiliated Companies (Note 5) 8,223,123 54,573,206
Long-term Debt - net of current portion (Note 6) 1,012,000,000 1,044,000,000
Deferred Income Tax (Note 8) 120,235,633 100,763,461
Stockholders' Equity
Capital stock - P
=1 par value (Notes 6 and 7)
Authorized - 1,500,000,000 shares
Issued - 779,583,312 shares in 1996
and 519,722,208 shares in 1995 779,583,312 519,722,208
Capital paid in excess of par value 166,618,862 166,618,862
Revaluation increment in property (Note 3) 347,682,476 362,635,136
Retained earnings (Note 7):
Appropriated for expansion projects 2,500,000,000 1,000,000,000
Unappropriated (Note 2) 1,217,660,236 1,588,477,376
5,011,544,886 3,637,453,582
P
=7,580,683,041 =5,808,592,874
P

See accompanying Notes to Financial Statements.

ABS-CBN BROADCASTING CORPORATION
STATEMENTS OF INCOME AND UNAPPROPRIATED
RETAINED EARNINGS
(Parent Company Only)

Years Ended December 31

1996 1995

AIRTIME REVENUES - Television and radio (Note 5) P

=4,464,394,641 =3,837,524,094
P
Less: Agency commission 633,255,573 554,229,835
Marketing expenses 53,671,237 48,032,934
Co-producers' share 28,085,032 20,015,349
715,011,842 622,278,118
Net 3,749,382,799 3,215,245,976

OPERATING EXPENSES (Notes 3 and 10) 1,970,014,521 1,649,806,490

INCOME FROM OPERATIONS 1,779,368,278 1,565,439,486

OTHER INCOME - Net (Notes 2 and 10) 243,153,259 161,732,018

INCOME BEFORE INCOME TAX 2,022,521,537 1,727,171,504

PROVISION FOR INCOME TAX (Note 8)

Current 476,158,953 461,806,318
Deferred 16,255,064 14,838,197
492,414,017 476,644,515

NET INCOME 1,530,107,520 1,250,526,989

UNAPPROPRIATED RETAINED EARNINGS

AT BEGINNING OF YEAR 1,588,477,376 712,739,127
Appropriated for expansion projects (Note 7) (1,500,000,000) –
Stock dividends - 50% in 1996 and 100% in 1995 (259,861,104) (259,861,104)
Cash dividends - P
=0.30 a share in 1996
and P
=0.50 a share in 1995 (156,016,216) (129,880,296)
Transfer of revaluation increment deducted from operations
through additional depreciation charges (Note 3) 14,952,660 14,952,660
(312,447,284) 337,950,387

UNAPPROPRIATED RETAINED EARNINGS

AT END OF YEAR P
=1,217,660,236 =1,588,477,376
P

Earnings Per Share* P

=1.96 =1.60
P

* Adjusted to retroactively effect the stock dividends issued in 1996 and 1995.

See accompanying Notes to Financial Statements.

ABS-CBN BROADCASTING CORPORATION
STATEMENTS OF CASH FLOWS
(Parent Company Only)
Years Ended December 31
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net income P
=1,530,107,520 =1,250,526,989
P
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 315,057,658 243,878,401
Amortization of program rights 148,766,764 118,157,478
Provisions for:
Deferred income tax 16,255,064 14,838,197
Doubtful accounts 5,229,578 –
Equity in net losses (earnings) of investees 2,840,885 (9,823,038)
Gain on sale of marketable equity securities (126,643,763) (16,876,064)
Dividends received – 836,246
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable (59,733,499) (389,090,222)
Materials and supplies inventory (3,401,972) (20,572,209)
Program rights (272,775,251) (253,433,563)
Other current assets 284,183 (6,171,405)
Increase (decrease) in:
Accounts payable and accrued expenses 45,951,685 92,934,842
Income tax payable (66,729,092) 75,997,495
Obligations for program rights 16,043,152 14,989,459
Net cash provided by operating activities 1,551,252,912 1,116,192,606
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to:
Property and equipment (1,229,512,836) (891,721,208)
Investments and advances (561,354,411) (227,137,893)
Marketable equity securities – (160,242,835)
Decrease (increase) in:
Due from affiliated companies 13,481,497 (245,247,072)
Other assets 33,503,878 (54,793,687)
Increase (decrease) in due to affiliated companies (46,350,083) 16,314,757
Proceeds from sale of marketable equity securities 324,182,995 55,076,320
Net cash used in investing activities (1,466,048,960) (1,507,751,618)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Bank loans 665,711,029 425,079,785
Long-term debt – 1,000,000,000
Payments of:
Cash dividends (156,016,216) (129,880,296)
Bank loans (204,100,000) (477,240,820)
Long-term debt (32,000,000) (224,000,000)
Net cash provided by financing activities 273,594,813 593,958,669
NET INCREASE IN CASH AND CASH EQUIVALENTS 358,798,765 202,399,657
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 640,787,935 438,388,278
CASH AND CASH EQUIVALENTS AT END OF YEAR P
=999,586,700 P640,787,935
=

See accompanying Notes to Financial Statements.

ABS-CBN BROADCASTING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Parent Company Only)

1. Summary of Significant Accounting Policies

Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a maturity of three
months or less from the date of acquisition to be cash equivalents.

Marketable Equity Securities

Marketable equity securities are carried at the lower of aggregate cost or market value determined
at balance sheet date. The amount by which aggregate cost exceeds market value is accounted for
as a valuation allowance.

Materials and Supplies Inventory

Materials and supplies inventory is carried at the lower of cost (first-in, first-out method) or
market.

Program Rights
Rights to programs available for broadcast are initially capitalized at the amounts of total license
fees payable under the covering license agreements and are charged to income on the basis of
program usage.

Investments
The Company carries its investments in subsidiaries and affiliates wherein ownership is 20% or
more under the equity method. Under the equity method, the cost of investments is increased or
decreased by the Company’s equity in net earnings or losses of the investees since date of
acquisition and reduced by dividends received. Equity in net earnings or losses (shown as part of
“Other income - net” account in the statements of income and unappropriated retained earnings) is
being adjusted over a 10-year period, for the difference between the cost of investments and the
Company’s proportionate share in the underlying net assets of the investees at date of acquisition.
Unrealized intercompany profits are eliminated to the extent of the Company’s proportionate
share thereof.

Property and Equipment

Property and equipment are carried at cost (including capitalized interest), less accumulated
depreciation, except for land, buildings and improvements located in Bohol Avenue and in the
provinces, and certain television, radio, movie and auxiliary equipment which are substantially
carried at appraised values as determined by an independent firm of appraisers as of
December 31, 1990. Subsequent acquisitions are carried at cost. The net appraisal increment
resulting from the revaluation is credited to "Revaluation increment in property" account shown
under the Stockholders' Equity section of the balance sheets. The revaluation increment absorbed
through additional depreciation charged to operations is transferred to the “Unappropriated
retained earnings” account.
 -2-

Depreciation is computed based on the carrying values of the properties using the straight-line
method over the estimated useful lives of the properties ranging from 3 to 10 years.

Minor repairs and maintenance costs are expensed when incurred; significant renewals and
improvements are capitalized. When assets are retired or otherwise disposed of, both the cost and
appraisal increase and their related accumulated depreciation are removed from the accounts; any
resulting gain or loss is credited or charged to current operations.

Income tax
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial reporting bases of assets and liabilities and their related tax
bases. Deferred tax assets and liabilities are measured using the tax rate expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or
settled.

Airtime Revenues
Airtime revenues are recognized as income on the dates the programs are broadcast, net of agency
commission, marketing expenses and co-producers’ share.

The fair values of barter and trade-out transactions are included in airtime revenues and the
related accounts. These transactions represent advertising time exchanged for program materials,
merchandise or service.

Tax Credits
The tax credits on aggregate airtime credits from Government sales availed of under Presidential
Decree No. 1362 are recognized in the books upon actual airing of government commercials and
advertisements.

Retirement Plan
The Company funds the actuarially computed accrued pension cost on its tax-qualified
noncontributory retirement plan covering substantially all regular employees.

Foreign Exchange Transactions

Gains or losses arising from foreign exchange transactions are credited or charged to current
operations.

Interest Capitalization
Interest on long-term loans used to finance the construction of building projects is capitalized as
part of cost of the building during the construction period.

Earnings Per Share

Earnings per share are computed based on the weighted average number of shares issued and
subscribed after giving retroactive effect to stock dividends declared during the current year.
 -3-

2. Investments and Advances

The details and movements of investments in subsidiaries and affiliates which are accounted for
under the equity method follow:

Percentage of Ownership
Investee Companies 1996 1995
Professional Services for Television & Radio, Inc. 100.0 100.0
Star Magic, Inc. 100.0 100.0
Star Recording, Inc. 100.0 100.0
Video Post Manila, Inc. 96.0 75.0
Star Film Laboratories, Inc. 95.0 100.0
Audio Post-Production Corporation 89.0 22.5
Creative Creatures, Inc. 85.0 –
Pre-Post, Inc. 84.2* –
At preoperating stage:
ABS-CBN Holdings, Inc. 100.0 –
Cinemagica, Inc. 100.0 –
Roadrunner Network, Inc. 100.0 –
Star Songs, Inc. 100.0 –
Amcara Broadcasting Network, Inc. 49.0 –
* 38% is owned through Video Post Manila, Inc.

1996 1995
Acquisition cost P
=160,615,261 =60,135,440
P
Accumulated equity in net earnings:
Balance at beginning of year 9,854,446 867,654
Equity in net earnings (losses) for the year
(net of goodwill amortization
of P
=5,608,423 in 1996 and P=1,400,492
in 1995) (2,840,885) 9,823,038
Dividends received – (836,246)
Balance at end of year 7,013,561 9,854,446
167,628,822 69,989,886
Advances 676,464,644 215,590,054
P
=844,093,466 =285,579,940
P

Accumulated undistributed earnings of subsidiaries and affiliates are not currently available for
dividend distribution.
 -4-

3. Property and Equipment

1996 1995
At cost:
Land and improvements P
=188,489,442 P138,341,408
=
Buildings and improvements 52,296,853 47,331,165
Television, radio, movie and auxiliary
equipment 1,519,867,993 1,150,800,186
Other equipment 429,323,247 239,064,543
2,189,977,535 1,575,537,302
Less accumulated depreciation 1,076,508,179 776,403,181
1,113,469,356 799,134,121
Construction in progress 1,258,360,968 491,230,652
Equipment in transit 234,217,181 386,274,894
2,606,047,505 1,676,639,667
Appraisal increase:
Land 333,389,586 333,389,586
Buildings and improvements 180,919,485 180,919,485
Television, radio, movie and auxiliary
equipment 117,252,374 117,252,374
631,561,445 631,561,445
Less accumulated depreciation 283,878,969 268,926,309
347,682,476 362,635,136
P
=2,953,729,981 =2,039,274,803
P

Depreciation on appraisal increase charged to operations amounted to P

=14,952,660 for each of the
years ended December 31, 1996 and 1995. Capitalized interest costs amounted to P=87,904,385 in
1996 and P
=774,086 in 1995.

4. Bank Loans

Bank loans consist of unsecured borrowings obtained from local banks with annual interest rates
ranging from 12% to 13% in 1996 and 10.5% to 10.9% in 1995.

5. Related Party Transactions

In the ordinary course of business, the Company had transactions with affiliated companies which
consist mainly of noninterest-bearing cash advances and billings for various services availed
from/by the Company.
 -5-

6. Long-term Debt

1996 1995
Long-term commercial papers (LTCPs) P
=1,000,000,000 =1,000,000,000
P
Payable to an insurance company in 12 equal
quarterly installments up to 1998 with interest
at prevailing market rates 44,000,000 76,000,000
1,044,000,000 1,076,000,000
Less current portion 32,000,000 32,000,000
P
=1,012,000,000 =1,044,000,000
P

On October 6, 1995, the Securities and Exchange Commission approved the Company’s issuance
of P
=1 billion worth of LTCPs to finance the construction of its multi-storey building. The LTCPs
shall be payable in one lump sum after five years with interest at one-half percent (½%) above the
91-day treasury bill rate, payable quarterly in arrears.

The LTCP provides for certain restrictions and requirements with respect to, among others,
guaranty for indebtedness, merger or consolidation, sale or pledge of a substantial portion of its
present and future assets, entering into management contracts, redemption of capital stock, change
in present majority ownership, additional long-term debt, significant capital expenditures and
maintenance of certain financial ratios.

7. Stockholders’ Equity

Capital Stock

The changes in the issued shares are as follows:

1996 1995
Number Number
of Shares Amount of Shares Amount
Balance at beginning of year 519,722,208 P
=519,722,208 259,861,104 P259,861,104
=
Stock dividends 259,861,104 259,861,104 259,861,104 259,861,104
Balance at end of year 779,583,312 P
=779,583,312 519,722,208 =519,722,208
P

Employee Stock Option Plan (Plan)

The Plan covered 1,403,500 shares at 95% of offer price during the Company’s initial public
offering. Collections were made in 48 semi-monthly installments without interest through payroll
deductions. As of December 31, 1995, shares offered under the Plan have been fully paid and
issued.

Retained Earnings

The Board of Directors approved on March 17, 1997 the increase of the appropriated retained
earnings from P =1 billion to P
=2.5 billion. Such increase was effected in the December 31, 1996
financial statements.
 -6-

8. Income Tax

Significant components of the Company’s deferred tax assets and liabilities as of December 31,
1996 and 1995 are as follows:

1996 1995
Deferred income tax - current
Deferred tax assets:
Allowance for doubtful accounts P
=3,543,117 =1,712,766
P
Unrealized foreign exchange loss – 767,042
3,543,117 2,479,808
Deferred tax liability -
Unrealized foreign exchange gain – 2,153,799
Net (included in “Other current assets” account) 3,543,117 326,009
Deferred income tax - noncurrent liabilities
Capitalized interest, duties and taxes deducted
in advance - net of accumulated
depreciation 120,235,633 100,763,461
P
=116,692,516 P100,437,452
=

A reconciliation between the Company’s effective tax rate and statutory income tax rate on
income before income tax is as follows:

1996 1995
Statutory income tax rate 35% 35%
Final tax on interest income at a lower rate (11) (8)
Effective tax rate 24% 27%

9. Commitments and Contingencies

a. In connection with the construction of its multi-storey building, the Company entered into the
following major contracts:

i. Construction Management Contract amounting to P

=375 million for construction
management services for the Company.

ii. Architectural and Engineering Design Services Agreement for P

=40 million.

iii. Letter-Contract for engineering services amounting to US$1.6 million specifically

covering broadcasting equipment and systems integration.

b. The Company has contingent liabilities with respect to claims and lawsuits. Management,
after consultations with outside legal counsels, is of the opinion that an adverse judgment in
any one case will not materially affect its financial position and results of operations.
 -7-

10. Other Matters

a. In 1972, the Company discontinued its operations when the Government took possession of
its property and equipment. In the succeeding years, the properties were used without
compensation to the Company by Radio Philippines Network, Inc. (RPN) from 1972 to 1979
and Maharlika Broadcasting System (MBS) from 1980 to 1986. A substantial portion of
these properties was also used from 1986 to 1992 without compensation to the Company by
People's Television 4, another government entity. In 1986, the Company resumed commercial
operations and was granted temporary permits by the Government to operate several
television and radio stations.

The Company, together with Chronicle Broadcasting System, filed a civil case on January 14,
1988 against Ferdinand Marcos and his family, RPN, MBS, et. al., before the Sandiganbayan
to press collection of the unpaid rentals for the use of its facilities from September 1972 to
February 1986 totaling about P =305.4 million plus legal interest compounded quarterly and
exemplary damages of about P =100 million.

The Board of Directors resolved on June 21, 1991 to declare as scrip dividends, in favor of all
stockholders of record as of that date, whatever amount that may be recovered from the
foregoing pending claims and the rentals subsequently settled in 1995.

On April 28, 1995, the Company and the Government entered into a compromise settlement
of rentals from 1986 to 1992. The compromise agreement includes payment to the Company
of about P=29.9 million (net of the Government’s counterclaim against the Company of P =67.6
million) by way of tax credits or other forms of noncash settlement as full and final settlement
of the rentals from 1986 to 1992. As of December 31, 1996, the tax credit certificate has not
yet been issued.

b. The Company has a funded noncontributory and actuarially computed retirement plan
providing for death, disability and retirement benefits to its regular employees. Pension cost
charged to operations amounted to about P =8.5 million in 1996 and P =8.1 million in 1995.

c. Supplemental disclosures of cash flow information

1996 1995
Cash paid during the year for:
Interest - net of amount capitalized P
=120,283,318 =233,344,446
P
Income tax 542,888,045 385,808,823
 -8-

11. Subsequent Events

On March 10, 1997, the Company entered into a Credit Agreement (Agreement) with Banco
Santander Philippines, Inc. (the Lender) whereby the Lender will issue a United States Dollar
Floating Rate Note due 2004 (Loan), equivalent to P
=1 billion.

The Loan shall be repaid in two equal installments, without need of notice or demand, on
March 12, 2002 and on March 12, 2004. Interest payments shall commence on June 12, 1997 and
shall be payable every three months thereafter.

Under the terms of the Loan, the Company shall, among others, maintain certain financial ratios;
not allow any of its assets to be subject to any lien, except to the extent allowed in the Agreement;
and, contract another loan with a maturity of more than one year, if such obligation will result in a
violation of the prescribed financial ratios.